H.B. Fuller (NYSE:FUL) announced its third-quarter earnings for 2023, revealing a double-digit increase in adjusted EBITDA and improved EBITDA margin, despite facing challenges due to weaker-than-expected volumes. The company forecasts improved volume in the fourth quarter and has implemented cost-cutting measures and a pricing strategy to ensure sustainable growth. H.B. Fuller also revealed plans for acquisitions and restructuring initiatives, expected to contribute to future growth and cost savings.
Key takeaways from the earnings call:
- H.B. Fuller reported a 7.4% year-on-year decline in organic revenue in Q3, with all business units experiencing lower volumes.
- Despite challenges, the company achieved growth in adjusted EBITDA and increased cash flow from operations, driven by strong profit growth and improved working capital performance.
- H.B. Fuller expects volume to improve in Q4 and provided guidance for fiscal year 2023, anticipating lower organic revenue but higher adjusted EBITDA compared to the previous year.
- The company announced acquisitions and restructuring initiatives that are expected to contribute to future growth and cost savings.
In the earnings call, H.B. Fuller reported improved operating cash flow in Q3, despite lower volume and higher interest expense. Cash flow from operations increased by $50 million YoY in Q3 and $168 million YoY year-to-date. The company provided guidance for fiscal year 2023, expecting net revenue to be in the range of $3.5 billion to $3.55 billion, with organic revenue down 4.5% to 5.5% compared to fiscal 2022. Adjusted EBITDA is expected to be $580 million to $590 million, representing a 9% to 11% YoY increase.
H.B. Fuller also discussed their pricing strategy for the next quarter and upcoming year. They expect pricing comparisons to be down due to annualized carryover from previous years and customers tied to indexes. However, the company is implementing a margin preservation strategy by reformulating products to save money on raw materials and sharing those savings with customers.
In terms of restructuring, they project a larger impact in 2024 compared to 2023, with estimated savings of $40-45 million. The company is confident in their ability to integrate acquisitions and manage their capacity for further growth. They are conducting an operational review to optimize their footprint and plan to announce steps to optimize their network by the end of the year.
The company expects pricing to be flat to incrementally lower in 2024 due to reformulated products and the weak volume demand. Cash flow guidance for the year remains intact. The company has spent $195 million on acquisitions and expects $100 million in revenue and $12 million in EBITDA for this year.
During an earnings call, the company discussed the synergy they are experiencing from recent acquisitions, estimating it to be around 18-20% with an additional 4-6% from synergies. They expect non-recurring charges to be around $55-60 million for the full year, with no repeat of a large discrete tax item in Q4. In the Engineering segment, EBITDA increased by $10 million sequentially due to raw material benefits and favorable business mix. The company is constantly working on building their pipeline for potential acquisitions, with a strong focus on growth opportunities. The call concluded with gratitude for participation.
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