H.B. Fuller (FUL) Q2 2025 Earnings Call Transcript
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H.B. Fuller (FUL) Q2 2025 Earnings Call Transcript

June 26, 2025
11:33 AM
12 min read
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Image source: The Motley Fool. DATEThursday, June 26, 2025 at 10:30 a. ETCALL PARTICIPANTSPresident and Chief Executive Officer — Celeste MastinExecutive Vice President and Chief Financial Officer — John CorkreanVice...

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June 26, 2025

11:33 AM

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DATEThursday, June 26, 2025 at 10:30 a

ETCALL PARTICIPANTSPresident and Chief Executive Officer — Celeste MastinExecutive Vice President and Chief Financial Officer — John CorkreanVice President, Investor Relations — Steven BrazonesNeed a quote from one of our analysts. [ tected] TAKEAWAYSOrganic Revenue Growth: Organic revenue increased 0. 4% in Q2 FY2025, adjusted for currency and portfolio changes, pricing rose 0. 7% year on year while volume declined 0. 3% year on year

Reported Revenue: Revenue decreased 2. 1% year on year; Adjusting for the flooring divestiture, net revenue rose 2. 8% year on year

Adjusted Gross fit Margin: Adjusted gross fit margin imved by 110 basis points year on year to 32. 2%, primarily due to cost savings, targeted pricing, and portfolio actions

Adjusted EBITDA: Adjusted EBITDA reached $166 million in the second quarter, up 5% year on year, and the adjusted EBITDA margin expanded 130 basis points year on year to 18

Adjusted EPS: Adjusted EPS increased 5% to $1. 18 in the second quarter versus the prior year, attributed to higher net income and reduced count

Operating Cash Flow: Operating cash flow rose $29 million, or 36% year on year, to $111 million in Q2 FY2025, supported by imved working capital management

Net Debt to Adjusted EBITDA: Net debt to adjusted EBITDA decreased sequentially from 3. 4x at the end of the second quarter, reflecting EBITDA growth and lower net debt

Repurchases: 300,000 s were repurchased in Q2 FY2025, bringing the year-to-date total to apximately 1 million s. 2025 Revenue Outlook: Net revenue is expected to decline 2%-3% year on year in FY2025; organic revenue is forecasted to be flat to up 2% in FY2025; foreign exchange is expected to adversely impact revenue by 1%-1. 5% in FY2025. 2025 Adjusted EBITDA Guidance: Adjusted EBITDA guidance was raised to $615 million-$630 million, representing 4%-6% growth year on year in FY2025. 2025 Adjusted EPS Guidance: Full-year adjusted non-GAAP EPS for FY2025 is now jected at $4. 30, a 7%-12% increase year on year

Hygiene, Health and Consumable Adhesives (HHC): Organic revenue increased 1. 8% year on year in the second quarter; EBITDA margin (non-GAAP) was 15. 6% in Q2 FY2025, up nearly 300 basis points sequentially but down year on year due to higher raw material costs (adjusted non-GAAP)

Engineering Adhesives (EA): Engineering Adhesives revenue decreased 0. 4% in Q2 FY2025

Excluding solar, organic growth was positive

EBITDA (non-GAAP) increased 24% year on year in the Engineering Adhesives segment, with margin up 310 basis points year on year to 22. 9% in the second quarter

Building Adhesive Solutions (BAS): Sales declined 0. 9% year on year in the second quarter; Adjusted EBITDA (non-GAAP) grew 5% year on year with adjusted EBITDA margin increasing 60 basis points year on year to 16. 7% in the second quarter

Geographic Performance: Americas organic revenue increased 2% in Q2 FY2025; EIMEA organic revenue declined 2% year on year in Q2 FY2025; Asia Pacific slightly up, with notable weakness in China electronics exports late in the quarter

Third-Quarter 2025 EBITDA Guidance: Adjusted EBITDA for Q3 FY2025 is expected to be in the $165 million-$175 million range

Full-Year Operating Cash Flow Guidance: Full-year operating cash flow guidance remains $300 million-$325 million for FY2025

Capital Expenditures: Expected $150 million for 2025; gress slower than planned year to date, with large jects weighted to the back half

Portfolio Transformation: Margin expansion attributed to strategic higher-margin acquisitions and the divestiture of the lower-margin flooring

Tariff Exposure: 90%-97% of ducts are sourced and sold in the same region, limiting direct tariff impact

Fuller Company (FUL -1. 24%) reported adjusted non-GAAP EBITDA and margin expansion in Q2 FY2025, supported by pricing, cost controls, and portfolio upgrades, despite modest volume contraction and subdued global demand

Management raised full-year adjusted (non-GAAP) EBITDA and EPS guidance for FY2025, underscoring confidence in sustained margin imvement, while net revenue guidance reflects top-line headwinds primarily from adverse currency and divestitures

Leadership confirmed raw material costs are sequentially declining and expects greater cost benefits and margin uplift in the second half of FY2025

CapEx for FY2025 is expected to be $150 million, with large investments concentrated in later quarters and a notable step down in SAP ject spending jected for 2026 and beyond

The company maintained a disciplined capital allocation apach, reducing net leverage and returning capital through repurchases

Celeste Mastin stated, "We continue to make sustained gress toward our 20% plus EBITDA margin target and are confident we will meaningfully expand margins year on year again in 2025. "Management emphasized resilient demand in automotive, medical, and flexible packaging, while construction and solar remained soft and may constrain volumes in the second half

Instead, cash returns were executed through repurchases totaling apximately 1 million s year to date

Leadership highlighted flexibility to mitigate tariff risks, “we make and source there. ” minimizing global trade disruptions' direct financial effect

CapEx discipline and foot consolidation are expected to reduce maintenance capital requirements as the company moves from 80 to 55 manufacturing facilities by 2026

INDUSTRY GLOSSARYEBITDA Margin: Ratio of EBITDA to revenue, expressing core fitability before interest, taxes, depreciation, and amortization as a percentage of sales

HHC: Hygiene, Health and Consumable Adhesives segment, ducing specialty industrial adhesives for consumer, hygiene, and packaging

EA: Engineering Adhesives segment, supplying high-performance adhesives for industrial, transportation, electronics, and medical applications

BAS: Building Adhesive Solutions segment, focused on adhesives and sealants for construction and commercial

SAP ject: Enterprise resource planning (ERP) software system implementation; a multi-year nology investment to optimize operational cesses

Full Conference Call TranscriptKrista: Ladies and gentlemen, thank you for standing by

My name is Krista, and I will be your conference operator today

At this time, I would to welcome everyone to the H

Fuller Second Quarter 2025 Investor Conference Call

All lines have been placed on mute to prevent any background noise

After the speakers' remarks, there will be a question and answer session

And I would now to turn the conference over to Steven Brazones, Vice President of Investor Relations

Steven Brazones: Thank you, operator

Fuller's Second Quarter 2025 Investor Conference Call

Presenting today are Celeste Mastin, President and Chief Executive Officer, and John Corkrean, Executive Vice President and Chief Financial Officer

After our prepared remarks, we will have a question and answer session

Before we begin, let me remind everyone that our s today will include references to certain non-GAAP financial measures

These measures are supplemental to the results determined in accordance with GAAP

We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies

Reconciliation of non-GAAP measures to the nearest GAAP measure are included in our earnings release

Unless otherwise noted, s revenue refer to organic revenue and s EPS, EBITDA, and fit margins refer to adjusted non-GAAP

We will also be making forward-looking statements during this call

These statements are based on current expectations and assumptions that are subject to risk and uncertainties

Actual results could differ materially from these expectations due to factors covered in our earnings release, s made during this call, and the risk factors detailed in our filings with the Securities and Exchange Commission, all of which are available on our website at investors

I would now to turn the call over to Celeste Mastin

Celeste Mastin: Thank you, Steven

And welcome, everyone

Our strong financial performance in the quarter is a testament to our team's disciplined execution in a highly dynamic environment, and we are performing better than the underlying

We remain nimble and focused on dering positive organic revenue growth while managing costs in a deliberate manner and leveraging our global sourcing infrastructure to adeptly respond to geopolitical and market uncertainties

Our EBITDA margin expansion highlights the success of the actions we are taking, which include an increased focus on pricing, cost savings efforts, and our active portfolio shift towards higher growth, higher margin

Global economic activity remains subdued, but we continue to perform well and are raising our full-year outlook to reflect our strong execution

Looking at our consolidated results in the second quarter, our organic sales trend remained positive, driven by organic pricing growth of 0. 7% during the quarter, partially offset by slightly negative volume

From a fitability perspective, we executed well and dered strong results driven in part by cost savings and targeted price actions

Our portfolio transformation, including the strategic addition of higher margin es and divestiture of the lower margin flooring, drove most of the year-on-year margin increase in the quarter

We grew EBITDA 5% year on year to $166 million and expanded EBITDA margin by 130 basis points year on year to 18

Now let me move on to review the performance in each of our segments in the second quarter

In HHC, organic revenue increased 1. 8% year on year, driven by both positive volume and price

Strength in medical and flexible packaging was partially offset by weakness in end-of-line packaging and beverage labeling

EBITDA margin of 15. 6% was up nearly 300 basis points versus the first quarter, reflecting seasonally higher volume and increasing pricing momentum in the segment

EBITDA margin was down year on year in the second quarter as the favorable impact of organic growth and the contribution from the higher margin medical acquisitions were offset by higher raw material costs

In Engineering Adhesives, revenue decreased 0. 4% in the second quarter

Widespread strength in transportation-related end, particularly in automotive, was offset by continued weakness in solar

Excluding solar, EA organic growth was positive in the second quarter

EBITDA increased 24% in EA, and EBITDA margin increased 310 basis points year on year to 22

Favorable net pricing and raw material actions, cost savings, and the contribution from acquisitions drove the increase in EBITDA margin

In Building Adhesive Solutions, sales decreased 0. 9% year on year as continued strength in roofing was offset by weakness in glass and wood, which are more closely tied to the residential construction market environment

EBITDA for Building Adhesive Solutions increased 5% versus the second quarter of last year, and EBITDA margin expanded 60 basis points to 16

Favorable net pricing and raw material actions and cost savings drove the imvement in EBITDA margin year on year

John Corkrean: Geographically, Americas organic revenue was up 2% year on year in the second quarter, returning to positive organic growth

Strength in roofing, flexible packaging, and medical principally drove the sales growth in the region

In EIMEA, year-over-year organic revenue was down 2%

Strong performance in our hygiene was offset by weak demand in our construction-related end

In Asia Pacific, organic revenue was up slightly year on year as strong performance in transportation-related was offset by slower results in solar and electronics

Looking ahead, we expect a continued challenging operating environment characterized by a high level of uncertainty and constrained demand

Also, while the dollar has recently weakened, we expect currencies to remain unpredictable

As previously discussed, our strategy to duce in the same region where we sell to customers not only results in optimal customer service but also reduces our exposure to tariffs

To the extent we have direct tariff exposure, we will continue to offset these impacts through sourcing mitigation and targeted pricing actions

In the event of shifts between customers, the diversification of our customer base and our geographic foot puts us in an advantaged position

While the global economic impact of the uncertainty associated with the dynamic tariff situation is yet to be fully understood, our assumption is that volumes will be constrained for the remainder of the year

As a result, our guidance reflects slightly weaker volume in the back half of the year

However, our pricing actions and raw material purchasing leverage will result in continued margin expansion, and fit growth will accelerate in the second half

Now let me turn the call over to John Corkrean to review our second quarter results in more detail and our d outlook for 2025

John Corkrean: Thank you, Celeste

I'll begin with some additional financial details on the second quarter

For the quarter, revenue was down 2. 1% versus the same period last year

Adjusting for the flooring divestiture, net revenue was up 2. 8% year on year

Currency had a negative impact of 1. 2%, and the net impact of acquisitions and divestitures decreased revenue by 1

Adjusting for those items, organic revenue was up 0. 4%, with pricing up 0. 7% and volume down 0. 3% year on year

Adjusted gross fit margin was 32. 2%, up 110 basis points versus last year, driven by cost savings, the impact of acquisitions and divestitures, and targeted pricing actions

Adjusted selling, general, and administrative expense was up 2% year on year

Adjusting for the net impact of acquisitions and divestitures, adjusted SG&A was flat year on year, reflecting strong expense management

Adjusted EBITDA for the quarter of $166 million was up 5% year on year, driven principally by targeted pricing actions, cost savings efforts, and the net benefit from acquisitions and divestitures

Adjusted earnings per of $1. 18 was up 5% versus the second quarter of 2024 due to higher net income and lower s outstanding

Second quarter operating cash flow of $111 million increased $29 million or 36% year on year

Cash flow from operations was also up versus the first quarter, reflecting higher net income and a slight imvement in working capital

Net debt to adjusted EBITDA decreased sequentially from 3. 5 times to 3. 4x at the end of the second quarter, reflecting growth in EBITDA as well as lower debt balances as a result of imved cash flow

We expect to continue to further reduce our leverage ratio in the second half

During the second quarter, we repurchased 300,000 s, bringing the year-to-date total to apximately 1 million s

With that, let me now turn to our d guidance for the 20.