H.B. Fuller Reports Fourth Quarter and Fiscal Year 2020 Results

Rhea-AI Summary

H.B. Fuller Company (NYSE: FUL) reported its fourth quarter and fiscal year results for 2020, showcasing a 5.2% increase in revenue to $778 million and an adjusted EPS of $1.06, up 21% year-over-year. The company achieved net income of $41 million, driven by strong operational execution and restructuring efficiencies. Full year net revenue was $2.79 billion, down 3.7% compared to 2019, primarily due to COVID-19 impacts. For 2021, H.B. Fuller forecasts low to mid-single digit organic revenue growth and aims to pay down an additional $200 million in debt.

Positive

• Fourth quarter revenue increased 5.2% to $778 million.
• Adjusted EPS grew 21% year-over-year to $1.06.
• Net income of $41 million in Q4, driven by operational efficiency.
• Full year debt paydown of $205 million exceeded target.
• Cash flow from operations increased 27% in Q4 compared to 2019.

Negative

• Full year 2020 net revenue decreased 3.7% compared to 2019.
• Full year organic revenue declined by 1.6% due to COVID-19 impacts.

H.B. Fuller Company (NYSE: FUL) today reported financial results for the fourth quarter and fiscal year ended Nov. 28, 2020.

Items of Note for Fourth Quarter 2020

• Fourth quarter revenue and earnings growth exceeded the company’s guidance, driven by strong operational execution, higher sales, and benefits from restructuring efficiencies.
• Total organic revenue increased 5% compared with last year, with positive year-over-year growth in all three global business units (GBUs), including double-digit growth in Electronics, Recreational Vehicles, Woodworking, Panels, Flexible Packaging, and Tape and Labels.
• Increased sales and restructuring efficiencies resulted in net income of $41 million. Adjusted EBITDA of $123 million and adjusted EPS of $1.06 increased 9% and 21%, respectively, versus last year.
• Q4 cash flow from operations increased 27% versus the same period in 2019, driven by sales growth, restructuring efficiencies and working capital improvements.
• Full year debt paydown of $205 million exceeded the company’s $200 million debt paydown target set at the beginning of the year.
• Achieved restructuring savings of $10 million in the quarter, which resulted in cumulative savings of $30 million for fiscal year 2020, related to our realignment to three GBUs.

2021 Planning Assumptions

H.B. Fuller is planning for on-going business recovery in 2021 in an environment that continues to be impacted by COVID-19-related restrictions and corresponding recessionary impacts. The company is providing the following planning assumptions for fiscal year 2021 which are based on current economic views and assumptions for global commercial activity:

• Base case outlook for low to mid-single digit organic revenue growth and approximately 10% adjusted EBITDA growth for fiscal 2021, supported by share gains, on-going recovery in global industrial production, and benefits from the company’s internal operational improvement projects.
• Raw material costs are expected to rise as the year progresses driven by increasing industrial demand. New product formulations and pricing are expected to offset raw material increases.
• Improved margins and reduced working capital requirements will enable the company to continue to drive strong cash flow and pay down an additional $200 million of debt in 2021, after dividends and approximately $95 million of capital investments.
• The company’s core tax rate, excluding the impact of discrete items, is anticipated to be between 26% and 29%, and full year interest expense is estimated to be approximately $70 million.

Summary of Fourth Quarter 2020 Results

Net revenue of $778 million increased 5.2% compared with the fourth quarter of 2019. Foreign currency exchange rates favorably impacted revenue by 0.5%. Organic revenue, which excludes impacts from foreign currency, mergers, acquisitions and divestitures, increased 4.7% versus last year, with growth in all three GBUs, including double-digit growth in Electronics, Recreational Vehicles, Woodworking, Panels, Flexible Packaging, and Tape and Labels.

Gross profit margin was 27.5%. Adjusted gross profit margin, also 27.5%, was down 10 basis points versus last year as higher volume was offset by higher variable compensation. Selling, General and Administrative (SG&A) expense was $140 million. Adjusted SG&A expense of $133 million was down 100 basis points as a percent of revenue versus last year, reflecting savings related to the business reorganization to our three GBUs and lower travel expense which was partially offset by higher variable compensation associated with strong fourth quarter results.

As a result of these factors, net income attributable to H.B. Fuller in the quarter was $41 million, or $0.77 per diluted share. Adjusted net income attributable to H.B. Fuller was $56 million, or $1.06 of adjusted EPS, up more than 20% compared with $46 million, or $0.88 of adjusted EPS in the prior year. Adjusted EBITDA of $123 million increased 9% compared with $112 million in the same period last year, and adjusted EBITDA margin of 15.8% improved 60 basis points versus prior year.

“H.B. Fuller delivered strong results in the quarter with revenue and earnings growth that exceeded our outlook, and cash flow that enabled us to exceed our debt paydown target,” said Jim Owens, H.B. Fuller president and chief executive officer. “Our team remained focused on superior operational execution to support the dynamic needs of our customers in a world transformed by the COVID-19 pandemic. We leveraged our competitive advantages and realized the benefits of actions taken to realign our organization and enhance operational agility. As a result, we successfully capitalized on share gains and strengthening business activity in our end markets, including strong demand for our adhesives for consumable goods, electronics, automotive, recreational vehicles, and other durable goods.”

Full Year 2020 Summary

Net revenue for fiscal 2020 of $2,790 million decreased 3.7% compared with fiscal 2019. Foreign currency exchange rates unfavorably impacted full year revenues by 1.6%, and the divestiture of the surfactants, thickeners and dispersants business negatively impacted revenues by 0.5%. Full year organic revenue decreased by 1.6% year-over-year, due to the impact from the COVID-19 pandemic on Construction Adhesives and Engineering Adhesives global demand offsetting sales growth in Hygiene, Health and Consumables Adhesives.

Full year gross profit margin was 27.1%. Adjusted gross profit margin of 27.3% decreased 80 basis points versus last year on lower sales and unfavorable business mix related to impacts from COVID-19, partially offset by favorable raw material costs. Net income attributable to H.B. Fuller for fiscal 2020 was $124 million, or $2.36 per diluted share. Adjusted net income attributable to H.B. Fuller was $149 million, or $2.84 per diluted share, compared with $154 million, or $2.96 per diluted share, in fiscal 2019. Adjusted EBITDA for full year 2020 was $407 million compared with $432 million in 2019.

Key Balance Sheet and Cash Flow Items

At the end of the fourth quarter of 2020, the company had cash on hand of $101 million and total debt equal to $1,774 million. This compares to cash and debt levels equal to $112 million and $1,979 million, respectively, at the end of the fourth quarter of 2019. Cash flow from operations for the full year increased 23% to $332 million from $269 million in fiscal 2019, driven by improved working capital management. Capital expenditures were $87 million in 2020 compared with $62 million in fiscal 2019, reflecting timing of capital projects and expenditures related to growth initiatives. Capital expenditures were in line with the company’s planned capital investment.

“In 2020, we demonstrated the resilience of our business strategy and cash flow generation,” said Owens. “The breadth of our global resources and our team’s commitment to being first and fastest allowed us to meet our customers’ needs with extraordinary collaboration and unwavering focus, while ensuring the health and safety of our employees during this challenging period. We exited this unprecedented year as a much stronger company. In 2021, we will build on this momentum, capture new revenue opportunities, and realize additional benefits from our ongoing operational improvement plans. Throughout the COVID-19 pandemic, adhesives have proven their enduring importance in the supply chain for essential goods around the world. As the leader in adhesive innovation for hygiene, health, consumer products and advanced adhesive applications, H.B. Fuller is well-positioned to continue to create value for shareholders in 2021 and beyond.”

Conference Call

The Company will host an investor conference call to discuss fourth quarter results on Tuesday, January 26, 2021, at 10:30 a.m. EDT. The conference call audio and accompanying presentation slides will be available to interested parties via a simultaneous webcast, and may be accessed from the company's website at https://investors.hbfuller.com/calendar. Participants should access the webcast prior to the start of the call to register for the event and install and test any necessary software. The webcast and presentation will be archived on the Company’s website. A telephone replay of the conference call will be available approximately 2 hours after the conclusion of the call, through Feb. 2, 2021. To access the telephone replay dial (800) 585-8367 or (416) 621-4642 and enter Conference ID 8756909.

Regulation G

The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted gross profit margin, adjusted selling, general and administrative expense, adjusted income before income taxes and income from equity investments, adjusted income taxes, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) does not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the company and its operating segments as well as the comparability of results to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our fiscal 2021 Planning Assumptions, which the company cannot reconcile to forward-looking GAAP results without unreasonable effort.

About H.B. Fuller

Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives, sealants and other specialty chemical products to improve products and lives. With fiscal 2020 net revenue of $2.8 billion, H.B. Fuller’s commitment to innovation brings together people, products and processes that answer and solve some of the world's biggest challenges. Our reliable, responsive service creates lasting, rewarding connections with customers in electronics, disposable hygiene, medical, transportation, aerospace, clean energy, packaging, construction, woodworking, general industries and other consumer businesses. And, our promise to our people connects them with opportunities to innovate and thrive. For more information, visit us at https://www.hbfuller.com/.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance it or incur additional debt in the future, our need for a significant amount of cash to service and repay the debt and to pay dividends on our common stock, and the effect of restrictions contained in our debt agreements that limit the discretion of management in operating the business or ability to pay dividends; various risks to stockholders of not receiving dividends and risks to our ability to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; we may be unable to achieve expected synergies, cost savings and operating efficiencies from the business realignment and the company’s other restructuring initiatives within the expected time frames or at all; the ability to effectively implement Project ONE; political and economic conditions; product demand; competitive products and pricing; geographic and product mix; availability and price of raw materials; the company’s relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Many of the foregoing risks and uncertainties are, and will be, exacerbated by COVID-19 and any worsening of the global business and economic environment as a result.

Further information about the various risks and uncertainties can be found in the company’s SEC 10-K filings. All forward-looking information represents management’s best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally, the variety of products sold by the company and the regions where the company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold, currency impact, changes in product mix, and selling prices. However, managements’ best estimate of these changes as well as changes in other factors have been included.

H.B. FULLER COMPANY AND SUBSIDIARIES
CONSOLIDATED FINANCIAL INFORMATION
In thousands, except per share amounts (unaudited)
	13 Weeks Ended			Percent of		13 Weeks Ended			Percent of
	November 28, 2020			Net Revenue		November 30, 2019			Net Revenue
Net revenue	$	777,640		100.0%		$	739,106		100.0%
Cost of sales		(563,998)		(72.5%)			(537,889)		(72.8%)
Gross profit		213,642		27.5%			201,217		27.2%
Selling, general and administrative expenses		(139,712)		(18.0%)			(148,521)		(20.1%)
Other income, net		3,658		0.5%			8,830		1.2%
Interest expense		(22,179)		(2.9%)			(23,933)		(3.2%)
Interest income		2,656		0.3%			2,987		0.4%
Income before income taxes and income from equity method investments		58,065		7.5%			40,580		5.5%
Income taxes		(19,727)		(2.5%)			(10,506)		(1.4%)
Income from equity method investments		2,285		0.3%			2,151		0.3%
Net income including non-controlling interest		40,623

FAQ

What were H.B. Fuller's fourth quarter 2020 revenue and earnings results?

H.B. Fuller reported fourth quarter revenue of $778 million, a 5.2% increase, and an adjusted EPS of $1.06, up 21% year-over-year.

What is H.B. Fuller's financial outlook for 2021?

For fiscal 2021, H.B. Fuller anticipates low to mid-single digit organic revenue growth and approximately 10% adjusted EBITDA growth.

How did H.B. Fuller's net income change in the fourth quarter of 2020?

The company achieved a net income of $41 million in the fourth quarter, reflecting strong operational performance.

What was the impact of COVID-19 on H.B. Fuller's fiscal 2020 results?

COVID-19 negatively affected H.B. Fuller's full year organic revenue, which declined by 1.6% due to reduced demand in certain sectors.

How much debt did H.B. Fuller pay down in 2020?

H.B. Fuller paid down $205 million in debt in 2020, exceeding its target of $200 million.