Fuller(US:FUL)2021-09-23 17:48Financial Data and Key Metrics Changes - H.B. Fuller reported a 20% year-over-year revenue growth for Q3 2021, with organic revenue up 16% compared to 2020 and up 13% versus Q3 2019 [10][31] - Adjusted EBITDA for the quarter was $111 million, reflecting a 5% increase year-over-year, while adjusted EPS was $0.79, up 4% from the previous year [11][35] - The company experienced a reduction in margins due to higher raw material costs, but expects significant margin recovery in Q4 and 2022 as price increases outpace raw material costs [12][16] Business Line Data and Key Metrics Changes - Hygiene, Health, and Consumable Adhesives segment saw a 13% year-over-year organic sales increase, driven by strong growth in packaging applications [23][24] - Construction adhesives organic revenue increased by 20% year-over-year, with pricing contributing 8% to organic growth in Q3 [25] - Engineering adhesives reported over 19% organic revenue growth compared to last year, with strong performance in woodworking and new energy applications [26][27] Market Data and Key Metrics Changes - All three global business units (GBUs) achieved double-digit organic growth compared to 2020, with Engineering and Construction Adhesives growing over 19% year-on-year [31][32] - Organic revenues were up more than 15% compared to the non-COVID impacted Q3 2019, indicating strong market performance [32] Company Strategy and Development Direction - The company is focused on innovation and expanding its market share through new adhesive solutions that support sustainability and energy efficiency [20][21] - A strategic partnership with Covestro aims to deliver adhesives with reduced climate impact, enhancing the company's sustainability efforts [21][22] - H.B. Fuller plans to continue investing in capacity expansion and innovation to meet growing customer demand in emerging markets [22] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing supply chain challenges and inflationary pressures but expressed confidence in the company's ability to manage these issues effectively [9][17] - The company anticipates strong demand across its business units, with expectations for continued organic growth and margin improvement in 2022 [30][41] - Management emphasized the importance of pricing actions to offset raw material cost increases and maintain margins [12][16] Other Important Information - Cash flow from operations was strong at $81 million for the quarter, with a continued focus on debt reduction, targeting a $200 million paydown for 2021 [36] - The company has implemented $225 million in price adjustments to counteract rising raw material costs, with expectations for over $400 million in annualized pricing revenue [15][40] Q&A Session Summary Question: Raw material scarcity and inventory buffers - Management highlighted the importance of raw material management and the complexity of the global supply chain, noting that their diverse sourcing strategy has helped mitigate some challenges [51][53] Question: Timeline for margin recovery - Management expects a significant uptick in margins in Q4 and into 2022, targeting a long-term margin improvement towards the high teens [60][62] Question: Pricing dynamics and customer response - Management acknowledged customer frustration with price increases but noted that most customers understand the market dynamics and have not significantly impacted volume [105][107] Question: New product pipeline impact from shortages - Management indicated that while there are challenges, customer demand for innovation remains strong, particularly in sustainability-focused products [75][76] Question: Capital allocation and acquisitions - Management plans to allocate more resources towards acquisitions in 2022, focusing on opportunities that align with their strategic goals [65][66] Question: Segment performance and pricing benefits - Management expects broad-based benefits from price increases across all segments, with similar pricing actions taken in Q4 [118]