H.B. Fuller Reports Third Quarter 2014 Results

ST. PAUL, Minn., Sept. 24, 2014 /PRNewswire/ -- H.B. Fuller Company (NYSE: FUL) today reported financial results for the third quarter that ended August 30, 2014.

Items of Note for the Third Quarter of 2014:

• Volume increased 2 percent compared to the prior year; organic growth outside the EIMEA region up 5 percent;
• Completed closure of Wels, Austria production site;
• Revised project management approach to accelerate the completion of the European business integration project and the enhancement of the SAP environment in North America;
• After the end of the quarter, completed acquisition of ProSpec, a construction products business with strong customer relationships in key US markets.

Third Quarter 2014 Results:

Net income for the third quarter of 2014 was $4.0 million, or $0.08 per diluted share, versus net income from continuing operations of $27.2 million, or $0.53 per diluted share, in last year's third quarter. Adjusted diluted earnings per share in the third quarter of 2014 were $0.42¹, down versus the prior year's adjusted result of $0.74¹. 

Net revenue for the third quarter of 2014 was $526.8 million, up 2.4 percent versus the third quarter of 2013. Higher volume and foreign currency translation positively impacted net revenue growth by 2.0 and 1.1 percentage points, respectively. Lower average selling prices negatively impacted net revenue growth by 0.7 percentage points. Organic revenue grew by 1.3 percent year-over-year.

Gross profit margin was down versus the prior year's result due to a variety of factors including excess costs associated with the business integration project in Europe and Project ONE in North America and margin pressure in several operating segments related to raw material cost fluctuations. SG&A expense was well controlled, up only 2 percent versus the prior year's third quarter, excluding certain non-recurring costs^1.

"The delayed and costly execution of our SAP project in North America and European business integration project led to disappointing and unacceptable results this quarter," said Jim Owens, H.B. Fuller president and chief executive officer. "We entered this fiscal year with plans that by the third quarter we would complete a major project in Europe, initiate a major systems upgrade project in North America, improve our organic growth rate and, at the same time, improve our margins and take another significant step forward toward our 2015 strategic goals. Our commitment and confidence in achieving our long term goals is clear and confirmed; however, the achievement of these goals will be delayed. We invested heavily this quarter to minimize disruptions to our customers and preserve our strong relationships and we took decisive actions to accelerate the completion of our major projects and move to normal operating conditions. More work is to be done in the fourth quarter but we expect our intensified focus on completing these projects will lead to improved operating performance in the fourth quarter and pave the way for a strong 2015, putting us back on track to achieve our long term goals of 15 percent EBITDA margin and solid organic growth."

Balance Sheet and Cash Flow:

At the end of the third quarter of 2014, we had cash totaling $76 million and total debt of $563 million. This compares to second quarter 2014 cash and debt levels of $95 million and $566 million, respectively. Sequentially, net debt was up by $16 million. Cash flow from operations was positive $21 million in the third quarter. Capital expenditures were $34 million in the third quarter, with the bulk of this spending related to our ongoing business integration activities and to support Project ONE.

Year-To-Date Results:

Net income for the first nine months of 2014 was $39.1 million, or $0.76 per diluted share, versus net income from continuing operations of $74.0 million, or $1.44 per diluted share, in the first nine months of 2013. Adjusted total diluted earnings per share in the first nine months of 2014 were $1.69¹, down from the prior year's result of $1.90¹.

Net revenue for the first nine months of 2014 was $1,556.8 million, up 2.9 percent versus the first nine months of 2013. Higher volume and foreign currency translation positively impacted net revenue growth by 3.2 and 0.3 percentage points, respectively. Lower average selling prices negatively impacted net revenue growth by 0.6 percentage points. Organic revenue grew by 2.6 percent year-over-year.

Gross profit margin for the first nine months was down relative to last year due primarily to excess costs related to ongoing project work related to the European business integration and Project ONE.  SG&A expense was down 1 percent versus the prior year reflecting tight control of discretionary expenses, excluding certain non-recurring costs¹.

Project ONE and Business Integration:

Project ONE is a multi-year project to install SAP application software as our global information technology platform in four phases over several years. The initial "go live" occurred in the North America region of our Americas operating segment in April of this year. The effort required to adopt the new system and return to normal productivity levels has been longer and more costly than we had anticipated. Currently the SAP system in North America is stable and fully supporting our business, though productivity is still below expectations. To address this situation we have taken several significant steps to restructure and refocus our efforts to accelerate the productivity improvement in the North America region. In addition, we have modified our phased implementation schedule, delaying the "go live" in Latin America to mid-2015 and postponing the implementation in Europe to sometime after 2015. These changes should accelerate the productivity improvements in North America and reduce the risk of business interruption in future go-live events.

In Europe the business integration project is nearing completion. We have experienced considerable delays in the final stages of this project and the costs associated with finalizing facility closures and bringing new assets up to full capacity continue to hinder the profitability of the EIMEA segment. To address these issues we have restructured and refocused our project management teams in Europe to accelerate the completion of all project work and rapidly move to continuous improvement mode.  Completion of this project, expected by the first quarter of the 2015 fiscal year, will enable significant margin improvement and enhance our ability to drive organic growth.

Fiscal 2014 Outlook:

We are establishing fourth quarter 2014 adjusted diluted EPS guidance at a range of between $0.60 and $0.70. Our forward projection of our core tax rate remains at 29 percent; however, due to the shift in geographic mix of our profitability, we expect our core tax rate in fourth quarter of this year to be about 32 percent. Lastly, we have revised our full year capital expenditure forecast to $135 million.

Conference Call:

The Company will host an investor conference call to discuss third quarter 2014 results on Thursday, September 25, 2014, 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 diluted earnings per share and 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. 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.

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 2013 net revenue of $2.05 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 30, 2013. 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

Photo - http://photos.prnewswire.com/prnh/20110215/CG49203LOGO

SOURCE H.B. Fuller Company