H.B. Fuller Reports Fourth Quarter 2016 Results

Fourth Quarter Diluted EPS $0.76, Fourth Quarter Adjusted Diluted EPS $0.74¹;
Fiscal Year 2016 Diluted EPS $2.42, Fiscal Year Adjusted Diluted EPS $2.48¹;
Fiscal Year 2017 Adjusted Diluted EPS Guidance set at $2.57 to $2.77

ST. PAUL, Minn., Jan. 18, 2017 (GLOBE NEWSWIRE) — H.B. Fuller Company (NYSE:FUL) today reported financial results for the fourth quarter that ended December 3, 2016.

Note that the 2016 fiscal year had 53 weeks of activity while fiscal years 2015 and 2017 are each the normal 52 weeks in length.²

Items of Note for the Fourth Quarter of 2016:

• Net revenue grew 5 percent in the fourth quarter of 2016 versus the fourth quarter of 2015. The Engineering Adhesives and Asia Pacific segments delivered double digit revenue and volume growth, and the Americas and EIMEA segments showed expected solid revenue and volume growth;
• Gross profit margin was 29.2 percent; adjusted gross profit margin³ of 29.3 percent improved 60 basis points versus the prior year’s fourth quarter, reflecting effective management of pricing and raw material costs;
• Net income was $39.1 million; adjusted net income was $37.9 million, or $0.74¹ per diluted share, an increase of 7 percent versus the prior year;
• Adjusted EBITDA margin⁴ was 13.9 percent; EIMEA adjusted EBITDA margin⁴ was 14 percent in the quarter, up 330 basis points from the prior year; Engineering Adhesives adjusted EBITDA margin exceeded 14 percent and Asia Pacific adjusted EBITDA margins were nearly 12 percent, all up solidly from prior year;
• Cash flow from operating activities was $50 million in the fourth quarter, driven by solid net income; fiscal year 2016 cash flow from operations was $195 million.

Items of Note for 2017 Guidance:
Based on a comparable 52 week basis:

• 4 percent constant currency revenue growth offset by 3 percent negative foreign currency translation resulting in net 1 percent growth;
• Adjusted diluted EPS in the range of $2.57 to $2.77, an increase of 10 percent at the mid-point;
• Adjusted EBITDA margin of approximately 14 percent, an increase of 60 basis points;
• Core tax rate of approximately 30 percent;
• Capital expenditures planned at approximately $60 million.

Fiscal 2017 Guidance:
We are introducing an adjusted EPS guidance range of $2.57 to $2.77 for the 2017 year. The mid-point of the adjusted EPS range represents 10 percent earnings growth versus a comparable 52 week year in 2016 as communicated in December. Constant currency growth, on a comparable 52 week basis, is expected to be around 4 percent for 2017 versus the 2016 fiscal year, which will be offset by 3 percentage points of negative foreign currency translation. We expect to deliver adjusted EBITDA margin of approximately 14 percent, reflecting approximately $290 million of adjusted EBITDA in 2017. Our core tax rate, excluding the impact of discrete items, is expected to be about 30 percent. We expect to invest approximately $60 million in capital items in 2017.

This guidance excludes approximately $18 million of previously announced pre-tax restructuring charges as well as other unusual items that cannot be quantified at this time.

Fourth Quarter 2016 Results:
Net income for the fourth quarter of 2016 was $39.1 million, or $0.76 per diluted share, versus net income of $25.0 million, or $0.49 per diluted share, in last year’s fourth quarter. Adjusted diluted earnings per share in the fourth quarter of 2016 were $0.74¹, up 7 percent versus the prior year’s adjusted result of $0.69¹. Adjusted EBITDA⁴ was $79.8 million in the fourth quarter, or 13.9 percent of net revenue.

Net revenue for the fourth quarter of 2016 was $574.9 million, up 4.9 percent versus the fourth quarter of 2015. Higher volume/mix and an extra week positively impacted net revenue growth by 7.8 percentage points. Lower average selling prices and negative foreign currency translation negatively impacted net revenue growth by 2.4 and 0.5 percentage points, respectively. Constant currency revenue⁵ grew by 5.4 percent year-over-year.

During the quarter, margins improved through effective management of pricing and raw material costs and discretionary expenses. Gross profit margin was 29.2 percent. Adjusted gross profit margin³ was 29.3 percent, an increase of 60 basis points sequentially and versus the prior year. Selling, General and Administrative (SG&A) expense was $106.5 million. Adjusted SG&A expense⁶ was $109.0 million, up by approximately 4 percent versus last year on a comparable 13 week basis, primarily driven by acquisitions and strategic investments for growth, offset by discretionary expense control.

”We delivered on our strategic and financial commitments in the 2016 fiscal year and are positioned for further success in 2017,” said Jim Owens, H.B. Fuller president and chief executive officer. “We delivered double digit sales growth in Engineering Adhesives, we dramatically improved the EIMEA margin profile and we returned to volume growth in Americas Adhesives. The net result was an improvement of consolidated EBITDA margin by 60 basis points, 14 percent growth in adjusted earnings per share and strong operating cash flow – all in-line with our initial guidance for the year. Our plan for 2017 reflects double digit earnings improvement as a result of constant currency revenue growth and continued margin expansion. The 2017 fiscal year will be another year of strong progress toward our 2020 strategic targets of 17 percent EBITDA margin, sizable operating cash flow and solid organic growth.” 

Fiscal Year 2016 Results:
Net income for the 2016 fiscal year was $124.1 million, or $2.42 per diluted share, versus income from continuing operations of $88.4 million, or $1.71 per diluted share, in the 2015 fiscal year. Adjusted diluted earnings per share in the 2016 fiscal year were $2.48¹, up 14 percent versus the prior year’s result of $2.17¹.

Net revenue for the 2016 fiscal year was $2,094.6 million, up 0.5 percent versus the 2015 fiscal year. Higher volume/mix and an extra week positively impacted net revenue growth by 3.9 percentage points. Lower average selling prices and negative foreign currency translation negatively impacted net revenue growth by 1.6 and 1.8 percentage points, respectively. Constant currency revenue⁴ grew by 2.3 percent year-over-year.

Balance Sheet and Cash Flow:
At the end of the fourth quarter of 2016, we had cash totaling $142 million and total debt of $706 million. This compares to third quarter 2016 cash and debt levels of $133 million and $712 million, respectively. Sequentially, net debt was down approximately $15 million. Cash flow from operations was positive $50 million in the fourth quarter. Capital expenditures were $14 million in the fourth quarter.

Conference Call:
The Company will host an investor conference call to discuss fourth quarter and full-year 2016 results on Thursday, January 19, 2017, at 9:30 a.m. Central U.S. time (10:30 a.m. Eastern U.S. time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast at www.hbfuller.com under the Investor Relations section. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company’s website.

Regulation G:
The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted selling, general and administrative expense, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA) and constant currency revenue 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. 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 tables below with the exception of our forward looking non-GAAP measures contained in our fiscal 2016 outlook, which are unknown and have not yet occurred.

About H.B. Fuller Company:
For over 125 years, 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 2016 net revenue of $2.1 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 packaging, hygiene, general assembly, electronic and assembly materials, paper converting, woodworking, construction, automotive and consumer businesses. And our promise to our people connects them with opportunities to innovate and thrive.  For more information, visit us at www.hbfuller.com and subscribe to our blog.

Safe Harbor for Forward-Looking Statements:
Certain statements in this document 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 Company’s ability to effectively integrate and operate acquired businesses; the ability to effectively implement Project ONE; political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; 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. Further information about the various risks and uncertainties can be found in the Company’s SEC 10-K filing for the fiscal year ended November 28, 2015. 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, management’s best estimates of these changes as well as changes in other factors have been included.

¹    Adjusted diluted earnings per share (EPS) is a non-GAAP financial measure and excludes the following non-recurring costs listed on the adjusted earnings per share reconciliation table above: special charges related to the “business integration”; restructuring in EIMEA related to operational efficiency improvement projects; and the start-up of a new electronics facility in Yantai China. We have not included a reconciliation of adjusted EPS to EPS as part of our guidance because all potential adjustments are not known at this time.
²    The fourth quarter of 2016 had 14 weeks while the fourth quarter of 2015 was the normal 13 weeks in length. Year-over-year comparisons below are provided on an as reported basis. We estimate that the extra week in fiscal year 2016 increased the full-year results by approximately 2 percent.
³    Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit excludes non-recurring costs associated with: integrating and accounting for past and present acquisitions; the closing of a facility in the Philippines; combining Construction Products facilities in Illinois; ramping up new business with Lowes; the start-up of a new electronics facility in Yantai China; and inventory adjustments and plant inefficiencies in EIMEA related to the business integration. Adjusted gross profit margin is defined as adjusted gross profit divided by adjusted net revenue.
⁴    EBITDA is a non-GAAP financial measure defined on a consolidated basis as gross profit, less SG&A expense, plus depreciation expense, plus amortization expense. Adjusted EBITDA excludes items listed on the adjusted earnings per share reconciliation table above. On a segment basis it is defined as operating income, plus depreciation expense, plus amortization expense. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. We have not included a reconciliation of adjusted EBITDA to EBITDA or net income as part of our guidance because all of the potential adjustments are not known at this time.
⁵    Constant currency revenue is a non-GAAP financial measure defined as changes in revenue due to price, volume and mix and excludes revenue changes driven by foreign currency translation. The schedule above reconciles each component of net revenue growth.
⁶    Adjusted SG&A expense is a non-GAAP financial measure which excludes non-recurring costs associated with: integrating and accounting for past and present acquisitions; ramping up new business with Lowes; restructuring charges in EIMEA related to operational efficiency improvement projects and the prior year’s implementation of SAP in North America.
⁷    Segment operating income is defined as gross profit less SG&A expense. Segment operating margin is defined as segment operating income divided by net revenue.

Maximillian Marcy Investor Relations Contact 651-236-5062