H. B. Fuller Company

Thank you for standing by and welcome to the HB Fuller third quarter 2024 earnings conference call. All participants are in a listen only mode. After the speaker's remarks, we'll have 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. To withdraw any questions, please press star one again. As a reminder, this conference call is being recorded. I would now like to turn the call over to Steven Brizone, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Welcome to H.P. Fuller's third quarter 2024 investor conference call. Presenting today are Celeste Mastin, 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. Reconciliations 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 Celeste Mastin. Celeste?

Thank you, Stephen, and welcome, everyone. In the third quarter, we continued to incrementally expand EBITDA margin year on year and realized positive organic growth. Several factors, including volume leverage, restructuring actions, and benefits from acquisitions, drove the improvement in EBITDA margin and resulted in an EBITDA performance within the range we expected for the third quarter. With that said, our volume growth came in at the low end of our expectations. Slowing market demand in certain durable goods-related market segments in EA constrained consolidated volume during the quarter. While volume growth was relatively stable sequentially, we were anticipating incremental strengthening throughout the year. Several market segments in the EA, which had exhibited relatively strong market demand even during the rising interest rate environment over the past years, began slowing during the third quarter. This was offset by continued strong volume growth in construction adhesives and improving volume trends across most of the HHC portfolio. While EA volume was below our expectations, we expect these volume dynamics to moderate and reverse over time as interest rates decline. We fully expect EA volume growth to accelerate and be more in line with our long-term expectations as macro conditions normalize. Additionally, we remain confident that our long-term strategy to disproportionately invest in higher growth, higher margin businesses while improving our operating efficiency and cost structure will drive strong EBITDA growth and result in an EBITDA margin of greater than 20%. Looking at our consolidated results in the third quarter, our organic sales trend continued to improve against a weak economic backdrop, and we achieved positive organic sales growth of 0.4%. Volume increased 3% year-on-year, and pricing declined 2.6%. Index-based pricing adjustments moderated sequentially, as expected, and we anticipate further moderation in the fourth quarter. From a profitability perspective, we executed well and delivered strong results. We grew adjusted EBITDA 6% year-on-year to $165 million and expanded adjusted EBITDA margin by 70 basis points year-on-year to 18%. Volume leverage, restructuring savings, and benefits from recent acquisitions principally drove the increase in margin relative to the prior year. Now let me move on to review the performance in each of our segments in the third quarter. In HHC, organic revenue development continued to improve significantly. Improving volume performance across most of the portfolio and moderating index-based pricing adjustments led to the improved organic sales performance for HHC. Strength in bottle labeling, packaging, and medical drove the improvement in organic sales performance. We would expect this trend to continue to improve as evidenced by the fact that nearly every market segment in HHC achieved positive volume growth during the quarter. Adjusted EBITDA was down 7% year-on-year for HHC in the third quarter, and adjusted EBITDA margin decreased 70 basis points year-on-year to 16.5%. Positive volume leverage and restructuring savings were offset by the unfavorable carryover impact of 2023 index-based pricing adjustments. In engineering adhesives, organic revenue decreased 2% in the third quarter, driven by both slightly lower pricing and volumes, as mentioned earlier. Automotive and electronics had slower but solid organic growth, while clean energy generated significantly lower organic sales as a result of market dynamics, particularly in China, and actions we've taken to reposition the portfolio. Overall, most of the market segments in EA saw positive volume growth during the third quarter. Adjusted EBITDA increased 5% in EA and adjusted EBITDA margin expanded 40 basis points year-on-year to 19.7%. Net price and raw material cost management and acquisition benefits offset partially by the impact of lower volume drove the increase in adjusted EBITDA margin year-on-year. In construction adhesives, organic sales increased 10% year-on-year on continued strength in roofing, which grew nearly 25% year-on-year. Demand in construction remained strong, and we expect a declining interest rate environment will benefit CA moving forward. Adjusted EBITDA for CA increased 36% versus the third quarter of last year to $25 million, and adjusted EBITDA margin expanded 240 basis points to 16.4%. Net price and raw material cost management, volume leverage, and restructuring savings drove the improvement in adjusted EBITDA margin year on year. Geographically, America's organic revenue was up 3% year-on-year in the third quarter. CA drove the increase for the region, achieving a double-digit increase in organic sales. HHC organic revenue was flat versus the prior year, representing a significant improvement from the first quarter when organic sales in the Americas region for HHC declined nearly 10% during destocking. EA organic revenue was down modestly. In EIMEA, organic revenue declined 2% year-on-year, continuing its market improvement in organic revenue performance since the beginning of the year. The organic sales development for all three GBUs improved sequentially in the region. HHC was flat year-on-year, while EA and CA were both down modestly. In Asia Pacific, organic revenue decreased 2% year-on-year, driven by the significant volume decline in clean energy. Excluding clean energy, organic sales for Asia Pacific increased approximately 6% year-on-year. HHC achieved a double-digit increase in organic sales in the region due to strong organic revenue growth in packaging-related end markets. EA experienced a mid-single-digit decline in organic revenue. Excluding clean energy, organic revenue for EA in the region was up 3.5% year-on-year, driven by relatively strong results in insulated glass, automotive, and electronics. On the M&A front, we completed the acquisition of HS Butyl Limited in the third quarter. HS Butyl is the United Kingdom's largest manufacturer and distributor of high-quality butyl tapes servicing the building infrastructure and construction markets. This highly strategic acquisition further strengthens our butyl tape product portfolio and establishes an important beachhead in Europe, where the waterproofing tape market is twice as large as that of the United States. The addition of HS Butyl represents a continuation of our efforts to globalize our construction adhesive business and greatly complements our 2022 acquisition of North American-based GSSI sealants. The acquisition will initially be included in construction adhesives. However, we expect growth opportunities to extend into engineering adhesives in markets such as automotive and other transportation. HS Butyl's 2024 annualized sales are expected to be approximately $23 million. Now let me turn the call over to John Corcoran to review our third quarter results in more detail and our updated outlook for 2024. Thank you, Celeste.