H. B. Fuller Company

Ladies and gentlemen, thank you for standing by and welcome to the HB Fuller Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Barbara Doyle, Vice President of Investor Relations. Thank you. Please go ahead.

Good morning and welcome to HB Fuller's fourth quarter fiscal 2020 earnings call for the fiscal quarter ended November 28th, 2020. Our speakers are Jim Owens, HB Fuller President and Chief Executive Officer, and John Corcoran, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will take questions. Please let me cover a few items before I turn the call over to Jim. First, a reminder that our comments today will include references to non-GAAP financial measures and references to organic revenue, which excludes the impact of foreign currency fluctuation and the impact of acquisitions and divestitures. On this call, unless otherwise specified, discussion of sales and revenue referred to organic revenues and discussion of EPS, margins, or EBITDA, referred to adjusted non-GAAP measures. These measures are in addition to the GAAP results in our earnings release and in our forms 10-Q and 10-K. We believe that discussion of these measures is useful to investors to assist the understanding of our operating performance and the comparability of results with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release. Also, we will be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Many of these risks and uncertainties are and will be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. Actual results could differ materially from these expectations due to factors discussed in our earnings release, comments made during this call, or risk factors in our forms 10-K and 10-Q filed with the SEC and available on our website at investors.hbfuller.com. Now, let me turn the call over to Jim Owens.

Jim Owens Thank you, Barbara, and welcome to everyone on the call. Last evening, we reported strong fourth quarter results with organic revenue up 5 percent, EBITDA up 9 percent, and EPS up 21 percent. These results exceeded our expectations and each of our segments delivered positive organic growth and strong margin performance in the quarter. This performance is especially strong given its comparison against a pre-COVID environment and as a result of the work we've done to gain market share and reduce our cost structure. During today's call and in the months ahead, we will explain and demonstrate why you should continue to expect differentiated performance from HB Fuller. Throughout the year, our portfolio of innovative adhesive solutions in hygiene, health, and packaging has enabled HB Fuller to continuously meet high levels of demand for essential consumer products. We outperform the market in meeting these needs. During this time, we also work with customers in other markets to accelerate our product qualification processes for electronics and durable goods, And as demand around the world strengthened and global industrial production improved, we capitalized on share gains across our diverse markets to deliver fourth quarter results ahead of our expectations. We also realized significant operational benefits from the business realignment completed earlier in the year, which generated $30 million of annualized SG&A savings in 2020, including $10 million realized in the fourth quarter. resulting in strong profit growth and operating leverage. Our work in 2019 in advance of the pandemic to reorganize into three GBUs instead of five has enabled us to grow faster while reducing costs. Our strong cash flow performance continued in the fourth quarter. Cash flow from operations increased 27% year over year. and enabled us to pay down a total of $205 million of debt for the year above our original $200 million target. Our results in the fourth quarter and throughout the year reinforced the resiliency of HB Fuller's strategy. Our culture of collaboration, our broad adhesive technology portfolio, our applications expertise, and our global operational agility proved to be differentiators in this current environment. HB Fuller seamlessly supported the dynamic needs of our customers in a world transformed by the COVID-19 pandemic. Throughout the pandemic, several priorities have remained constant for us, ensuring the health and safety of our employees, leveraging our technology investments to find new ways of working, and utilizing our vast global capabilities to ensure business continuity for our customers. All companies have had to learn how to work differently in 2020, But I can say that HB Fuller team has truly excelled in this environment. I can't emphasize strongly enough how proud I am of our employees around the globe for their unwavering focus on delivering our priorities throughout 2020. Our teams effectively collaborated with each other and with our customers to develop new products and solve supply issues. And they did it faster than ever. We leveraged our digital technology in new ways to remotely qualify new applications and troubleshoot complex issues. The result was an increase in the speed of our decision making, shortened sales cycles, and improved customer support. Our new organizational structure enabled greater collaboration across our global teams, faster decision making, and better flexibility. HB Fuller's dedicated focus on adhesive technologies and our global capabilities have positioned us to move first and fastest with a clear vision and mission. No distractions from other divisions, other priorities, or regional issues. These have proven to be critical competitive advantages, resulting in increased share with existing customers and business wins with new customers. With that as perspective, I'll move on to our segment results in the fourth quarter on slide three. Strong performance continued in our hygiene, health, and consumables segment, where organic revenues increased by 5 percent, including solid organic growth in most geographic regions. We continued to meet high levels of demand for essential goods in the quarter, and our portfolio of adhesive solutions that enable more sustainable consumer products drove strong growth in packaging, tissue and towel, and tapes and labels. HHC segment EBITDA margins were strong at 15.3 percent, up 270 basis points year-over-year, reflecting volume leverage, favorable mix, savings from our business restructuring, and good overall cost control. Construction adhesives organic revenue increased 1 percent versus the prior year, with improvements in year-on-year performance for all markets when compared with the second and third quarters of the year. Both the commercial flooring and roofing end markets improved in the quarter, albeit at a slower pace than residential construction markets. Construction adhesives EBITDA margin was solid at 12.4%, down 80 basis points versus last year, reflecting unfavorable mix and an increase in variable compensation accruals as a result of the stronger top line results in the fourth quarter. For the full year, EBITDA margin was roughly flat to 2019. New product introductions and improved product mix related to last year's portfolio repositioning, as well as operational improvements from the GBU restructuring, offset the impact of lower volume. These operational improvements position this business for strong margins as construction activity increases in 2021. Engineering adhesives continue to show strong improvement, with organic revenue up 5.6% year-on-year the quarter led by double digit growth in electronics recreational vehicles woodworking and panels and solid results in insulating glass and automotive engineering adhesives ebitda margin remained strong at nearly 17 percent down 80 basis points versus last year reflecting an increase in variable compensation as a result of the stronger top line results in the fourth quarter looking ahead to 2021 we will pursue growth opportunities and share gains in a business environment that is expected to continue to improve but remain below normal levels. Our planning assumptions at this time are that COVID-related shutdown impacts will continue to lessen as vaccines are rolled out around the world, although recessionary forces will continue to weigh on global economies throughout the year. We anticipate continued improvement in underlying demand especially for electronic storable goods and consumer goods, driving volume growth in 2021 versus 2020. Growth in some end markets, such as commercial construction and aerospace, will improve at a slower pace and may not yet return to 2019 levels of activity. Elevated demand for hygiene and health products, packaging, paper tissues, and towels will likely continue into 2021 as consumers continue to spend more time in their homes. The spikes in demand that we saw in the second quarter, however, are unlikely to repeat. We anticipate construction adhesives and markets to continue to show steady improvement throughout 2021, with commercial activity improving throughout the year and residential activity remaining solid. Engineering adhesive end market demand will likely remain at elevated levels in early 2021, reflecting increased production activity to meet some pent-up demand, returning to more typical activity levels in the second half of the year. In total, our base planning assumptions are for low- to mid-single-digit organic revenue growth in 2021, with stronger growth from engineering and construction adhesives versus 2020. We expect volume leverage and savings from our restructuring and our operational improvement programs to drive solid year-on-year EVTA margin improvement in 2021. Sales growth, improving margins, and continued working capital efficiency will enable us to continue to drive strong cash flow and deliver another year of strong debt pay down, with a target of paying down another $200 million of debt in 2021. Against a challenging economic backdrop, our performance in 2020 demonstrates that our business is diverse and resilient. Our operations are nimble, and we are executing our strategy well. and we expect to continue to outperform our markets again in 2021. Now, let me turn the call over to John Corcoran to review our financial results and our expectations for 2021 in more detail based on these planning assumptions.