H. B. Fuller Company

Good day and thank you for standing by. Welcome to the HB Fuller Second Quarter 2021 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 keypad. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I'll now turn the call over to Barbara Doyle, Vice President, Investor Relations, to begin.

Thank you, Operator. Welcome to H.B. Fuller's second quarter 2021 earnings call for the fiscal quarter ended May 29, 2021. Our speakers are Jim Owens, H.B. 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 organic revenue, which excludes the impact of foreign currency translation on our revenues and the impact of acquisitions or divestitures. We will also refer to adjusted non-GAAP financial measures during this call. These measures are in addition to the U.S. GAAP results that are reported in our earnings release and in our Forms 10Q and 10K. We believe that discussion of these measures is useful to investors to assist their understanding of our operating performance and how our results compare with other companies. Reconciliation of non-GAAP measures to the nearest U.S. GAAP measure is included in our earnings release. Unless otherwise specified, discussion of sales and revenue refers to organic revenue, and discussion of EPS, margins, or EBDA refers to adjusted non-GAAP measures. We will also 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 COVID-19 and the resulting impact on the global business and economic environment. 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 I will turn the call over to Jim Owens.

Thanks, Barbara, and welcome to everyone on the call. Last evening we reported another quarter of strong revenue and earnings growth, Organic revenues in the second quarter were up 19% year-over-year, adjusted EBITDA was up 21%, and adjusted EPS of 94 cents increased 38% versus last year. We overcame significant supply chain disruptions and moved quickly to raise prices in the quarter. We achieved an all-time record quarter in revenue as we met increasing customer demand and gained market share. Throughout the quarter, HB Fuller experienced raw material and container shortages, but because of strong support and global collaboration with key suppliers and the ingenuity of our technical and supply chain teams, we made certain to keep our customers supplied. HB Fuller's ability to assure supply of critical adhesives and provide innovative solutions that customers need remains a competitive differentiator for our company, which is evident in our top-line growth. H.P. Fuller's revenue growth was broad-based across segments and geographies. Organic revenues increased in each segment versus the second quarter of 2020, including strong double-digit growth in both engineering and construction adhesive segments and very solid growth in hygiene, health, and consumable adhesives against a very strong second quarter of 2020. Revenues also grew in each geography, including organic growth of 19% in the Americas and 27% in the IMEA, and 9% in the Asia-Pacific region. Importantly, our revenues are also up from pre-COVID levels. Total organic revenues increased by 9.5% versus the second quarter of 2019, which had no COVID-19-related impacts, with double-digit growth in HHC and engineering adhesives and mid-single-digit growth in construction adhesives. Strong volume leverage in the quarter coupled with pricing benefits and operational efficiencies were driving in the business, offset significantly higher raw material costs, and drove a 21% increase in EBDA dollars year over year. Raw material input costs increased in the second quarter by about 10% from the end of 2020, with some raw materials increasing more rapidly than we forecasted. We have implemented $150 million of annualized price adjustments to date and will implement an additional $75 million in the third quarter. We're prepared to do more as necessary. These price adjustments will offset the impact of raw material increases in this fiscal year. Suppliers have made good progress in restoring capacity for the commodity and specialty chemicals we purchase. However, the rate of recovery going forward will likely be uneven until inventory levels are rebuilt to fully meet demand. Our planning assumptions anticipate that the current supply volatility will lessen and pricing will begin to stabilize in the fourth quarter. We now expect year-on-year raw material inflation to be over 10% and expect that our pricing will fully offset raw material increases by the end of the third quarter. We expect gross margin headwinds in the third quarter, which is seasonally slower for volumes, and we will see additional pricing and margin benefit in the fourth quarter, which is typically our strongest volume quarter. Our global sourcing expertise, our innovative chemistries, and our operational agility were more critical than ever this quarter and continue to provide competitive differentiation. And the actions we have taken on price and to drive efficiencies across our business are enabled us to seamlessly serve our customers and achieve our profit targets in the quarter while at the same time increasing our debt pay down over last year's level in line with our target for 200 million dollars of debt reduction in 2021. now let me move on to discuss performance in each of our segments in the second quarter on slide four hygiene health and consumable adhesive second quarter organic sales increased 3.3 percent year over year which is an outstanding result considering the comparison to a very strong quarter last year when the business grew 7% organically. Sales increased versus last year across the majority of our HHC markets with strong growth across our packaging applications, beverage labeling, multi-wall bags, and tape and label. HHC segment EBITDA increased by 11%, significantly more than the top-line growth An EBITDA margin was strong at 14.7%, up 70 basis points versus last year. Margin improved driven by strong volume leverage, restructuring benefits, and good expense management. Construction adhesives organic revenue was up 23% versus last year, with strong growth in both flooring and commercial roofing as share gains and improving demand drove significantly improved top-line performance versus 2020. Even compared to a strong non-COVID impact in the second quarter of 2019, organic revenue was up 4%. Contributions from the pricing adjustments we have implemented in this segment were underrepresented in the second quarter as we fulfilled prior construction adhesive orders and backlog following the temporary disruption from the effects of storm Uri. We have already begun to see increased pricing roll through in the first few weeks of the third quarter and expect additional pricing realization in the P&L over the rest of the year. Construction adhesives EBITDA increased 4% versus last year as strong volumes were offset by higher raw material costs, unfavorable mix, and some temporary manufacturing costs that were required to return to normal surface levels after the extreme weather event in the first quarter. Engineering adhesives results were extremely strong, with organic revenue up nearly 40% versus last year, reflecting share gains and improving end market demand. Sales increased versus last year in all 14 of our engineering adhesive end markets with exceptional growth in adhesives for automotive, recreational vehicles, woodworking, electronics, and insulating glass. And looking back to the non-COVID-impacted second quarter of 2019, organic revenues were up 11%. We expect continued strength and double-digit full-year growth in this segment. Engineering adhesives second quarter EBITDA grew 42% year on year, driven by exceptional volume performance. We expect EBITDA margins to improve in the coming quarters as pricing actions are fully implemented and offset the impact of raw material cost increases. Looking ahead at our full year results, our planning assumptions are that economies will continue to open up as vaccines are rolled out around the world. Raw materials will be tight through most of the year, and pricing will remain elevated as supply chains begin to normalize and demand continues to be strong. We anticipate continued strong demand and share gains in each of our business units to drive strong volume growth in 2021 versus 2020. Revenue in most of our end markets will exceed 2019 levels. Overall, when considering our strategic pricing actions, coupled with the solid volume growth in HHC, continued improving performance in construction adhesives, and strong demand in engineering adhesives, we now expect full-year double-digit revenue growth versus 2020. Now let me turn the call over to John Corcoran to review our second quarter results and our updated outlook for the full year based on these planning assumptions.