H. B. Fuller Company

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the HB Fuller third quarter 2022 earnings conference 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 star one. Thank you. Steven Brazon, Vice President, Investor Relations. You may begin your conference.

Thank you, Operator. Welcome to HP Fuller's third quarter 2022 investor conference call. Presenting today are Jim Owens, President and Chief Executive Officer, and John Corcoran, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question and answer session. Before we begin, let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP. We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure are included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue and comments about EPS, EBITDA, and profit margins refer 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. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call, and the risk factors detailed in our filings with the Securities and Exchange Commission, all of which are available on our website at investors.hbfuller.com. I will now turn the call over to Jim Owens. Jim?

Thank you, Stephen, and welcome, everyone. In the third quarter, we delivered 18% organic growth, 24% EBITDA growth, and 34% EPS growth, despite a challenging external environment. We are extremely pleased with our strong third quarter financial performance and the results achieved by our teams around the world. We continued to execute our strategy to drive organic growth and expand EBITDA margin. We nimbly adjusted to short-term challenges from continued raw material inflation, slowing global economic demand conditions, and currency headwinds. Our strategic mix shift to a more highly specified product portfolio through innovation, market share gains, and customer collaboration, together with our responsible pricing actions, are delivering impressive results this year and position us very well for margin expansion in the year ahead and continued long-term profitable growth. In the third quarter, organic revenues increased 18% year on year with all three of our global business units generating exceptional growth. As we expected, growth in volume is slowing as we progress throughout the year. The declining trend in volume growth is largely being driven by slowing demand in Europe and in construction markets. Our market share gains continue, and we continue to outperform the competition in volume and organic growth. We expect these gains to not only endure, but to continue to advance as we execute our strategy. Now let me move on to review the performance in each of our segments in the third quarter. In hygiene, health, and consumable adhesives, organic revenue is up 23% with strong organic growth across all end markets and particular strength in the packaging, hygiene, tissue and towel, and health and beauty markets. Adjusted EBITDA for hygiene, health, and consumable adhesives increased $17.3 million or 39% year on year. Adjusted EBITDA margin increased 250 basis points year-on-year to 14.5%. Hygiene, health, and consumable adhesives led the group in margin expansion in the third quarter, a result of exceptional pricing execution and operational efficiencies. In engineering adhesives, the strong organic growth trend continued with organic revenue growth of 17.5% and nearly every end market contributing to the impressive results. Automotive new energy and aerospace were particularly strong. Automobile production is increasing with improved microchip availability. This, coupled with the continued share gains in the electric vehicle market, are greatly benefiting engineering adhesives. Adjusted EBITDA increased 8% in engineering adhesives, and adjusted EBITDA margin increased 10 basis points from the prior quarter to 14.8%. despite significantly higher raw material costs. In construction adhesives, the effects of the slowing global economic environment were the most pronounced, particularly in the roofing and flooring end markets. Despite this, organic revenue grew 7% year-on-year on strong pricing actions and strengthened the utilities and infrastructure market. Adjusted EBITDA for construction adhesives was up 38% year on year, and adjusted EBITDA margin increased 180 basis points year on year to 14.2%. Pricing actions and the strategic acquisitions of Apollo and Forney at the beginning of the year drove the improvements. Geographically, America's organic growth remained very strong, up 22% year on year. Customer demand remained strong and stable throughout the quarter. In the IMEA, the continuing uncertainty about both the war in Ukraine and natural gas supply resulted in a slowdown in demand. With that said, organic revenue still grew double digit, up 16% versus the third quarter of last year. In Asia Pacific, we began to see a rebound in demand during the third quarter. Easing lockdown restrictions in China and pent-up local demand led to organic revenue growth of 11.5%. From a profitability perspective, The strength of our strategy and strong execution drove significant improvement in the third quarter. On a consolidated basis, adjusted EBITDA increased 24.4% year-on-year to $137.7 million. Adjusted EBITDA margin increased 120 basis points year-on-year and 60 basis points sequentially to 14.6%. Responsible pricing actions, which have more than offset raw material cost inflation, are increasing our margin and will result in further margin expansion in the quarter and the year ahead. Combined with our strategic shift to a more highly specified product portfolio, we are on track to further expand margins and achieve our long-term profitability targets. Management of the pricing raw material dynamic is a core competency of the company and a competitive advantage in the adhesive market. During the third quarter, raw material cost inflation continued, but at a decelerating rate. Our price increases in the third quarter exceeded the $175 million level which we committed to, and we are expecting an additional $40 to $50 million of annualized price increase in the fourth quarter. We are beginning to see signs that raw material cost inflation may be leveling off in the fourth quarter. From a planning perspective, we are expecting stabilization of supply and pricing of raw materials However, we are prepared to adjust pricing in the event raw material increases continue. It is important to note the unique capabilities we can leverage in a stabilizing raw material cost environment and a more competitive pricing landscape. In addition to our inherent price discipline, we also have breadth of technology and the capability to substitute adhesive technologies for customers to provide them with lower cost options while maintaining or improving our margins. With improved supply chain conditions, the opportunity to use these substitution capabilities greatly improves. This will be very beneficial for us and our customers. Now let me turn the call over to John Corcoran to review our third quarter results in more detail and our updated outlook for the year.