H. B. Fuller Company

Good morning. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to HB Fuller's second quarter fiscal 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star 1. For those of you following on the webcast today, please plan on manually advancing the slides during the presentation. Barbara Doyle, Head of Investor Relations, you may begin your conference.

Thank you, Operator. Welcome to HB Fuller's second quarter 2022 earnings call for the fiscal period ended May 28, 2022. 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. Before we begin, let me remind you that our comments today will include references to organic revenue, which excludes revenue from acquisitions and the impact of foreign currency translation on our revenues. We will also refer to adjusted non-GAAP financial measures during this call. These measures are in addition to the GAAP results reported in our earnings release. We believe these measures are useful in understanding our operating performance and how our results compare with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue, and comments about EPS, margins, or EBITDA 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 uncertainty. Many of these risks and uncertainties are and will be exacerbated by COVID-19 and the Russia Ukraine war and resulting deterioration of the global business and economic environment. Actual results could differ materially from these expectations due to factors covered 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.

Thank you, Barbara, and welcome to everyone on the call. We continued our track record of strong performance in the second quarter, delivering double-digit revenue and earnings growth. Organic revenues in the second quarter were up 22% year over year, Adjusted EPS of $1.11 increased 18% year-over-year, and adjusted EBITDA of $139 million was up 14% year-over-year. We also set a new quarterly revenue record, achieving nearly a billion dollars of sales in Q2. HB Fuller's revenue growth was strong in all segments, with each of the three global business units delivering mid-teens or higher organic revenue growth compared with the prior year. Sales also grew in each geography. Net revenue grew 25% in the Americas and 19% in Europe, India, and Middle East. Revenues were up 7% in the Asia-Pacific region, reflecting the impact of innovation-driven market share gains offset by the impact of the COVID-related lockdown in Shanghai. EBITDA dollars increased by 14% on a year-over-year basis, and EBITDA margin improved by 80 basis points sequentially versus the first quarter. We maintained our strategic pricing rigor, which supported our margins by offsetting continued inflation in every element of our costs. Raw material and delivery costs were up in the first half of the year by about 15% from the fourth quarter of 2021. We expect raw material costs will continue to rise in the third quarter and full year raw material costs will be about 20% higher than the fourth quarter 2021 exit rate. We implemented approximately $130 million of pricing in the first quarter, over $200 million in the second quarter, and we are delivering additional pricing actions of over $175 million in the third quarter. When combined with about $450 million of annualized pricing executed in fiscal 2021, our total pricing actions are forecasted to more than offset raw material and delivery cost increases. We are closely monitoring supply costs and other inflation, and we're prepared to implement further increases as necessary. Our second quarter performance again demonstrated our ability to consistently deliver outstanding operating results. During the quarter, we overcame the ongoing challenges of persistent inflation and supply shortages, which were made worse by the impacts of the war in Ukraine and the lockdown in China. We did this by focusing on innovating for customers, by pricing to value, and by leveraging our agile operations and our strong relationships with our suppliers. We are well positioned to deliver continued strong results in the third and fourth quarter of this year as new challenges arise. Now, I'll review the strong performance in each of our segments in the second quarter. Hygiene, health, and consumable adhesive second quarter organic sales increased 25% year over year, with strong growth in every end market and very strong results in health and beauty and across our packaging and labeling markets. HHC segment EBTA was up 8% year on year, driven by volume growth and strong pricing gains, offset by higher raw material costs and unfavorable foreign exchange rates. We expect HHC organic revenue growth to continue at a strong pace for the rest of this year with pricing gains driving sequential EBITDA margin improvement throughout the year. Engineering Adhesives top line results continued to be extremely strong in Q2 with organic revenue up 22% versus last year, reflecting share gains, solid volume growth, and outstanding pricing execution. EA had double digit organic revenue growth in most markets in the portfolio and exceptional growth in transportation-related markets, new energy, woodworking, and insulating glass. Engineering adhesive segment EBITDA was up 19% year-on-year, driven by solid volume growth and strong price and gains offset by higher raw material costs. EBITDA margin of 14.7% was up 60 basis points sequentially from Q1 and increased 30 basis points versus the second quarter of last year. Like HHC, we expect engineering adhesive strong organic revenue growth to continue for the rest of the year with pricing gains driving sequential margin improvement throughout the year. Construction adhesives revenue was up 28% year-on-year and organic revenue was up 14% versus last year. This strong year-over-year performance was driven by robust organic volume growth in roofing and outstanding pricing execution in all markets. Construction adhesives EBITDA was up 40% year-on-year. EBITDA margin of 16.1% was driven by strong roofing volume leverage, pricing gains, and accretive results from the two acquisitions that we completed in the first quarter. EBITDA margin increased by 140 basis points versus the second quarter of 2021, and EBITDA margin increased by 200 basis points sequentially versus Q1. We expect continued strong results for the remainder of this year. We saw continued strength throughout the quarter in demand across the world with the exception of Shanghai lockdown impacts. Looking ahead, our planning assumptions and guidance are built on an expectation that demand will weaken, although we have yet to see signs of any meaningful slowdown in our underlying demand from customers. Raw materials remain tight and we expect continued raw material inflation in the third quarter. We are implementing pricing to more than offset raw material and delivery expense inflation. Now let me turn the call over to John Corcoran to review our second quarter results and our updated outlook in more detail based on these planning assumptions.