H. B. Fuller Company

Thank you, Operator. Welcome to HB Fuller's third quarter 2025 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 SEC, 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, Scott, and welcome, everyone. We delivered a strong quarter evidenced by continued margin expansion and double-digit EPS growth despite the challenging operating environment. Our continued operational discipline, strong execution, and ongoing portfolio shift keep us on track to achieve our greater than 20% EBITDA margin target. Despite our strong performance, we remain cautious and have tightened our guidance range for the year to reflect a globally subdued economic backdrop. Looking forward, we expect volume growth to remain elusive and end market conditions to be challenging. However, we continue to actively focus on enhancing the composition of our portfolio, driving continued efficiencies, and structurally repositioning the company for growth and continued margin expansion consistent with our long-term strategy. Looking at our results in the third quarter, our organic sales were slightly negative, consistent with our expectations given economic headwinds. Organic sales decreased 0.9% with positive pricing of 1% offset by a volume decline of 1.9%. From a profitability perspective, we executed well and delivered strong results. We grew EBITDA 3% year-on-year to $171 million and expanded EBITDA margin to 19.1%, up 110 basis points year-on-year, including positive EBITDA growth and margin expansion in all three GBUs. The net impact of pricing and raw material cost actions, the contribution of acquisitions and divestitures, and targeted cost reduction efforts 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 softened sequentially as we saw the effects of continued economic uncertainty impact consumption trends. Organic revenue decreased 3.1 percent as positive pricing actions were offset by weaker volume. Strength in medical and tissue and towel was offset by broad-based end market softness, particularly in some of our packaging-related market segments. EBITDA was up 2% year-on-year for HHC in the third quarter, and EBITDA margin increased 50 basis points year-on-year to 16.9%. Positive pricing and the impact from acquisitions were partially offset by negative volume leverage. In engineering adhesives, organic revenue increased 2.2% in the third quarter, driven by both positive pricing and volumes. EA continues to lead the portfolio as positive organic growth was driven by ongoing strength in automotive and a bounce back in electronics. Solar continues to be a headwind as a result of regulatory changes, tariff-driven ambiguity, and the oversupplied global panel market. Excluding solar, EA organic growth was positive mid-single digits. We continue to see the benefits of our strategic growth focus in EA against a still difficult backdrop. Overall, more than half of the market segments in EA saw positive volume growth during the third quarter. EBITDA increased 14% in EA, and EBITDA margin expanded 190 basis points year on year to 23.3%. Positive volume leverage, the impact of net price and raw material cost management, and efficiency gains drove the increase in EBITDA margin year on year. In building adhesive solutions, organic sales decreased 1% year on year, as positive pricing actions were offset by modest volume declines. BAS performed as expected as the construction market-related slowdown we identified last quarter was partially mitigated by the team's strong execution. Although construction demand remains weak, we expect a declining interest rate environment will drive an improvement in building conditions and ultimately benefit BAS moving forward. EBITDA for BAS increased 3% versus the third quarter of last year to $41 million, and EBITDA margin expanded 10 basis points to 17.7%. Net price and raw material cost management drove the improvement in EBITDA margin year on year. Geographically, America's organic revenue was up 1% year on year in the third quarter, EA drove the increase for the region, achieving a high single-digit increase with positive organic growth across most market segments. BAS organic revenue was slightly positive versus the prior year, and HHC organic revenue was down modestly. In EIMEA, organic revenue declined 2% year-on-year, similar to the second quarter, as continued weakness in Europe weighed down the region. EA was flat year-on-year, while HHC and BAS were both down modestly. In Asia Pacific, organic revenue decreased 4% year-on-year, driven by the significant volume decline in solar. Excluding solar, organic sales for Asia Pacific were approximately flat year-on-year, and organic revenue for EA in the region was up 7% year-on-year, driven by strong results in automotive and electronics. From our vantage point, which reflects a broad-based geographic and end market view, we have observed a widespread slowing economic environment. The manufacturing sector continues to be weak and has shown some signs of softening. Customer demand is appearing more uneven and less predictable, driven by global trade tensions and export driven uncertainty. In general, customers are hesitant to make product changes and incremental investments given economic volatility and high interest rates. Therefore, looking forward, we expect a slow growth environment with a continuation of these themes. Now let me turn the call over to John Corcoran to review our third quarter results in more detail and our updated outlook for 2025.

Thank you, Celeste. I'll begin with some additional financial details on the third quarter. For the quarter, revenue was down 2.8% versus the same period last year. Currency had a positive impact of 1%, and the net impact of acquisitions and divestitures decreased revenue by 2.9%. Adjusting for those items, organic revenue was down 0.9%, with pricing up 1%, and volume down 1.9% year-on-year in the quarter. Adjusted gross profit margin was 32.3%, up 190 basis points versus last year. The net impact of pricing and raw material cost actions, the benefit of acquisitions and divestitures, and targeted cost reduction efforts drove the year-on-year increase in adjusted gross profit margin. Adjusted selling, general, and administrative expense was up 3% year-on-year. Adjusting for M&A, FX, and variable comp, SG&A was flat year-on-year, reflecting diligent cost control. Adjusted EBITDA for the quarter of $171 million was up 3% year-on-year, reflecting the positive net impact of pricing and raw material cost actions, which more than offset higher wage inflation and lower volume. The net impact of acquisitions and divestitures was neutral to EBITDA year-on-year. Adjusted earnings per share of $1.26 was up 12% versus the third quarter of 2024, driven by higher adjusted net income and lower shares outstanding. Third quarter operating cash flow was up 13% year-on-year, primarily driven by improved profitability. Net debt to adjusted EBITDA decreased from 3.4 times at the end of the second quarter to 3.3 times at the end of the third quarter of fiscal 2025. Solid cash flow from operations, growth in adjusted EBITDA, and our intentional slowdown in M&A activity drove the sequential decrease in our leverage ratio. With that, let me now turn to our guidance for the 2025 fiscal year. As a result of our year-to-date performance and the current macroeconomic conditions summarized by Celeste, we are updating our previously communicated financial guidance for fiscal 2025 as follows. Net revenue is still expected to be down 2 to 3 percent year-on-year. We now expect organic revenue to be flat to up 1 percent year-on-year and expect foreign exchange to adversely impact revenue by approximately 1 percent year-on-year. We are tightening our adjusted EBITDA range for the year to $615 to $625 million, equating to growth of 4 to 5 percent year-on-year. This compares favorably to our initial 2025 full-year guidance of $600 to $625 million. We now expect our 2025 core tax rate to be between 26 and 26.5 percent and expect full-year interest expense to be between $125 and $130 million. Combined, these assumptions now result in full-year adjusted diluted EPS in the range of $4.10 to $4.25, equating to year-on-year growth of between 7% and 11%. We now expect full-year operating cash flow to be between $275 and $300 million, reflecting slightly higher inventory levels in preparation for our manufacturing footprint optimization. Finally, We've reduced our full year capital spending target to approximately $140 million for the year. Now, let me turn the call back over to Celeste to wrap us up.