Fuller(FUL) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Organic sales decreased by 0.9%, with positive pricing of 1% offset by a volume decline of 1.9% [4][10] - Adjusted EBITDA for the quarter was $171 million, up 3% year-on-year, with an EBITDA margin of 19.1%, an increase of 110 basis points year-on-year [4][12] - Adjusted gross profit margin was 32.3%, up 190 basis points versus last year [10] - Adjusted earnings per share (EPS) of $1.26 was up 12% compared to the third quarter of 2024 [12] - Operating cash flow increased by 13% year-on-year [12] Business Line Data and Key Metrics Changes - HHC: Organic revenue decreased by 3.1%, with EBITDA up 2% year-on-year and EBITDA margin at 16.9% [5][6] - Engineering Adhesives (EA): Organic revenue increased by 2.2%, with EBITDA up 14% and EBITDA margin expanded to 23.3% [6][7] - Building Adhesive Solutions (BAS): Organic sales decreased by 1%, with EBITDA increasing by 3% to $41 million and EBITDA margin at 17.7% [7][8] Market Data and Key Metrics Changes - Americas: Organic revenue was up 1% year-on-year, driven by EA's high single-digit increase [8] - EIMEA: Organic revenue declined by 2% year-on-year, with EA flat and HHC and BAS down modestly [8] - Asia-Pacific: Organic revenue decreased by 4% year-on-year, primarily due to significant volume decline in solar [8] Company Strategy and Development Direction - The company is focused on enhancing its portfolio, driving efficiencies, and repositioning for growth and margin expansion [4][15] - The strategy includes proactive measures in pricing and raw material management, as well as cost controls [15][16] - The company aims to achieve a greater than 20% EBITDA margin target in the long term [17] Management's Comments on Operating Environment and Future Outlook - Management expressed caution due to a globally subdued economic backdrop, expecting volume growth to remain elusive [4][9] - The manufacturing sector is weak, with customer demand appearing uneven and less predictable [9] - The company anticipates a slow growth environment with continued economic volatility and high interest rates [9] Other Important Information - The company updated its financial guidance for fiscal 2025, expecting net revenue to be down 2%-3% year-on-year and organic revenue to be flat to up 1% [13][14] - Full-year adjusted diluted EPS is expected to be in the range of $4.10-$4.25, equating to year-on-year growth of 7%-11% [14] Q&A Session Summary Question: Could you provide some more detail behind the reduction in cash flow guidance? - The reduction is primarily due to higher inventory levels in preparation for footprint consolidation actions, which is expected to be temporary [19][20] Question: Did anything accelerate in the quarter for EA? - EA experienced a return to double-digit organic growth in electronics, with strong performance in the U.S. driven by new customer wins and share take [24][25][26] Question: How would you explain the HHC decline in volumes versus EA? - HHC volumes reflect a tougher consumer environment, with mid-single-digit declines across major regions, while EA is outperforming the market [32] Question: What are the expectations for solar in fiscal year 2026? - The company will continue to face headwinds in revenue from the silicon sealant product line, but expects to shore up EBITDA and margins by exiting lower-margin spaces [35] Question: What is the status of pricing versus raw material cost tailwinds? - The company has generated about $15 million of the anticipated $55 million in price and cost actions, with expectations for additional benefits in Q4 and into next year [40][41] Question: How do you see growth opportunities in the next year or two? - The company is experiencing accelerated growth in EA and medical adhesives, with strong performance in new geographies and product ranges [44][45] Question: What kind of lag effects do you expect from lower interest rates? - Lower interest rates typically impact the business 15-18 months later, but immediate benefits are expected in various segments, particularly in woodworking [50][51] Question: How large is the data center business and its impact? - The data center business is growing quickly, with a strategic focus on roofing systems, contributing to overall segment growth [52][53]