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Edited Transcript of FUL earnings conference call or presentation 27-Jun-19 2:30pm GMT

Q2 2019 HB Fuller Co Earnings Call

ST. PAUL Jun 28, 2019 (Thomson StreetEvents) -- Edited Transcript of HB Fuller Co earnings conference call or presentation Thursday, June 27, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Barbara J. Doyle

H.B. Fuller Company - VP of IR

* James J. Owens

H.B. Fuller Company - President, CEO & Director

* John J. Corkrean

H.B. Fuller Company - Executive VP & CFO

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Conference Call Participants

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* Dmitry Silversteyn

The Buckingham Research Group Incorporated - Director

* Eric B Petrie

Citigroup Inc, Research Division - Senior Associate

* Matthew T. Krueger

Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst

* Michael Joseph Harrison

Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst

* Rosemarie Jeanne Pitras-Morbelli

G. Research, LLC - Research Analyst

* Vincent Alwardt Anderson

Stifel, Nicolaus & Company, Incorporated, Research Division - Associate

* Yifei Huang

Deutsche Bank AG, Research Division - Research Associate

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Presentation

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Operator [1]

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Good day, and welcome to the H.B. Fuller Fiscal 2019 Second Quarter Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Barbara Doyle, Vice President of Investor Relations. Please go ahead.

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Barbara J. Doyle, H.B. Fuller Company - VP of IR [2]

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Good morning, and welcome to H.B. Fuller's Fiscal 2019 Second Quarter Earnings Call. Our speakers today are Jim Owens, H.B. Fuller President and Chief Executive Officer; and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will take your questions.

Please let me cover a few items before I turn the call over to Jim. First, a reminder that our comments today will include references to non-GAAP financial measures. These measures are in addition to the GAAP results in our earnings release and in our Forms 10-Q and 10-K. We believe that discussion of these measures is useful to investors to assist the understanding of our operating performance and the comparability of results. Reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release.

Also, we will 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 discussed in our earnings release, comments made during this call or risk factors in our Form 10-K filed with the SEC and available on our website at investors.hbfuller.com. We do not undertake any duty to update any forward-looking statements.

Now please turn to Slide 3 in the investor deck, and I will turn the call over to Jim Owens.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [3]

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Thank you, Barbara, and welcome to everyone on the call. I'll begin with an overview of our second quarter business performance before handing the call over to John to review our financials and updated 2019 guidance.

We had another solid quarter in Q2 as we delivered increased EBITDA margins, exceeded our cash flow targets and delivered double-digit organic growth in our Engineering Adhesives segment, all in line with our strategic plan. We expect to see this momentum in our business performance continue to improve in the second half of the year despite our expectation that macro conditions will remain muted for the remainder of the year.

We leveraged acquisition synergies, strategic pricing gains, lower raw material costs and expense controls to deliver adjusted EBITDA of $121 million, which was in line with our guidance of $120 million to $125 million. EBITDA margin increased again 16%, up 50 basis points year-over-year. Cash flow from operations of $77 million for the quarter increased by 40% year-over-year. We delivered our margin and cash flow performance on organic revenue growth of 1% in the quarter. These results demonstrate the benefit of the diversity in our customers and end markets. Strong growth in electronics and new energy solutions in the Engineering Adhesives segment combined with positive growth in packaging, hygiene, India and Southeast Asia, offset weakness in Europe, global automotive and construction-related segments in the United States.

At the beginning of the year, we identified 3 strategic imperatives, and our year-to-date performance is at or above target in each of these 3 key areas. Our first imperative is to deliver constant currency EBITDA growth and EBITDA margin improvement, which we've delivered again in Q2. Gross margin was up 90 basis points versus second quarter last year and improved 190 basis points sequentially versus Q1 as a result of strong pricing carryover, Royal integration synergy capture and moderating raw material costs.

Second quarter adjusted EBITDA margin improved by 50 basis points versus last year and was also up sequentially from Q1. We expect strong EBITDA performance to continue in the second half of the year driven by new business wins in our strategic markets, additional synergy capture, continued expense management and tempered raw material costs that are expected to continue into the fourth quarter. Currency headwinds will decrease in Q3 and in Q4, which will help our year-over-year comparisons versus the first half of the year.

Our second imperative is to deliver planned synergies from the integration of the Royal acquisition. We captured $4 million of synergies in the second quarter versus our 2018 exit rate and are on track to deliver the planned $15 million of incremental cost synergies this year. The operational and commercial synergies from this acquisition reinforce the shareholder value we outlined when we announced the deal.

Our third imperative is to deliver our debt repayment commitments, which was $200 million for 2019. We are exceeding those targets and increasing our commitment for 2019.

We paid down $42 million of debt in the second quarter, and our year-to-date debt paydown of $54 million is $7 million higher than last year's pace. We have paid down $258 million in debt since the beginning of 2018, ahead of our original target. We are now increasing our total debt reduction forecast for 2019 from $200 million to $250 million, utilizing the net proceeds from the divestiture of the surfactants, thickeners and dispersants business announced on June 11. This will accelerate the achievement of our $600 million debt paydown originally targeted by the end of 2020.

Our first 2 quarters of the year proved that our business plan will deliver improving bottom line results in a slower macro environment. Our second our projections are based on a continued weak macro environment, with our team continuing to win share and improve our organic growth in key global strategic market segments.

Now I'll provide some perspective on the second quarter segment performance as outlined on Slide 4. In the Americas, revenue grew 1% on a constant currency basis driven by pricing gains from 2018 and strong hygiene and packaging sales. These gains offset demand in durable assembly products, primarily doors and windows, relating to a slower construction environment this spring.

We continue to drive improved profitability in this segment. Adjusted EBITDA margin of 15.4% improved 20 basis points year-over-year and increased more than [300 basis points] (corrected by company after the call) sequentially versus the first quarter this year. We expect organic revenue trends to continue to improve over the remainder of the year based on new customer wins and volume improvement. We also forecast second half margins to improve compared with the first 6 months and to be up year-on-year based on volume leverage, moderating material costs and increasing cost synergies.

The surfactants and thickener business being sold as a noncore, nonadhesive business, which was acquired as part of the Royal acquisition and was part of our Americas segment. While profitable, this business has a lower growth profile and is not part of our strategic vision. We are very pleased that the employees will join a strong established team that is committed to these markets. Divesting the business allows us to focus on our core adhesives solutions and accelerate our deleverage time line. We expect this transaction will close in the next couple of weeks.

EIMEA sales were down less than 1% on a constant currency basis. Positive pricing contributions, solid growth in emerging markets and strong volumes from insulated glass were offset by a general market slowdown in core Europe, notably in construction-related durable assembly. Consistent with the first quarter, the weaker euro, British pound and Turkish lira compared with 2018 substantially impacted EIMEA reported revenue. Currency continued to negatively impact EBITDA as the weaker currencies combined with some dollar-based operating costs offset underlying margin improvement.

Asia Pacific organic sales were up year-over-year and improved sequentially from Q1. Strong growth in Southeast Asia and stable performance in China were offset by slower results in developed markets in the region. Asia Pacific EBITDA performance was strong with EBITDA margin up nearly 170 basis points year-over-year, reflecting improved product mix, strong pricing and lower raw material costs.

Construction Adhesives organic sales improved compared with the first quarter and were down year-over-year as expected, reflecting the planned repositioning of the portfolio away from underperforming products and customers in order to maximize profit. The sequential increase in both sales and contribution margin in Construction Adhesives was primarily driven by improving roofing results. EBITDA margin rebounded strongly by 7 percentage points to 17% in Q2. We expect EBITDA margin to continue to improve in the second half of the year, especially as the impact from the portfolio realignment lessens in the fourth quarter.

Lastly, performance in Engineering Adhesives was very strong. We drove double-digit organic revenue growth in the quarter as outstanding performance in electronics and new energy more than offset softness in automotive in China. Year-over-year EBITDA dollars increased by 30%, and EBITDA margin improved 400 basis points to deliver an EBITDA margin of 22%, reflecting strong growth in the higher margin parts of our business. We expect strong top and bottom line performance in Engineering Adhesives to carry through the rest of the year as we continue to win new applications with customers across many end markets.

Now let me turn the call over to John to discuss our financials and our guidance in more detail.

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John J. Corkrean, H.B. Fuller Company - Executive VP & CFO [4]

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Thanks, Jim. I'll begin on Slide 5 with some additional financial details for the quarter.

Net revenue was down 3.8% versus the same period last year driven by a significantly stronger dollar, which negatively impacted revenues by 4.7% in the quarter. Adjusting for currency, organic revenue was up 1% as solid pricing carryover and double-digit volume growth in Engineering Adhesives was partially offset by lower volume in Construction Adhesives, primarily due to repositioning away from underperforming products and customers in that segment. Adjusted gross profit margin increased 90 basis points, reflecting strong pricing actions taken last year, lower raw material costs and acquisition synergies.

Adjusted selling, general and administrative expense declined by 2% versus last year, reflecting the impact of foreign currency exchange and thoughtful control discretionary expenses, offsetting continued investments in the faster-growing parts of our business.

Adjusted EBITDA for the quarter of $121 million was in line with our guidance, and EBITDA margin of 16% increased 50 basis points versus the same period in 2018.

Adjusted earnings per share were $0.88 compared to $0.89 as improved margins, good expense control and lower interest expense associated with our debt reduction offset significant currency headwinds versus last year.

With that, let me now turn to our guidance for the 2019 fiscal year. We now expect full year organic revenue growth of 1% to 2%. We are assuming our forecast for full year organic growth, reflecting a tougher operating environment than anticipated earlier in the year as evidenced by lower global industrial production projections, weaker year forecast and continued impact of trade and tariff issues.

Our annual guidance implies solid organic sales growth of 2% to 4% in the second half of the year driven by continued customer wins, particularly in Engineering Adhesives, new product introductions in several key markets and easier comparisons in the back half of the year.

Foreign currency translation is expected to have a full year negative impact of 3% to 4%, and the divestiture of the surfactants business is expected to impact sales by about 0.5%.

In total, reported revenue for the full year is expected to be down approximately 3% compared with fiscal 2018.

Adjusted EBITDA is forecasted in the range of $455 million to $465 million for the full year 2019, reflecting lower organic revenue growth offset by the favorable impact of raw materials and decreased expenses. This guidance also reflects a loss of approximately $5 million of EBITDA in the second half of the year related to the divestiture of the surfactants business. Adjusted EPS is now expected to be between $3.10 and $3.30. Adjusting for approximately $0.05 of EPS impact from the divestiture, this range represents growth of approximately 8% versus the 2018 fiscal year at the midpoint of the range.

Earnings will continue to improve over the remaining 2 quarters based on improving volumes, moderating raw material costs and lower interest expense. Based on the historical seasonality patterns in our business, approximately 55% of our second half EPS will be generated in the fiscal fourth quarter.

Capital expenditures are now expected to be approximately $90 million in fiscal 2019, down from the $100 million we indicated at the beginning of the year driven by a later start of some projects and some efficiency gains.

As Jim discussed, we're utilizing net proceeds from the surfactants divestiture to increase our 2019 debt paydown target from $200 million to $250 million. This will put our 2-year debt paydown in 2018 and 2019 at over $450 million, surpassing the target that we set for this period at the end of 2017 by over $80 million. It also reduces our forecasted interest expense to approximately $90 million in fiscal 2019.

We said on our Q1 call that we expected better organic revenue growth, strong cash flow and improved EBITDA in the second quarter, and we delivered on those expectations. Looking ahead into the second half of the year, further improvements in organic revenue growth, moderating raw material costs, integration synergies and lower interest expense will drive continued strong margin performance and further improvement in earnings and cash flow.

With that, I will now turn the call back to Jim Owens for some closing comments.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [5]

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Thank you, John.

Our results in both the first and second quarters of this year demonstrate the margin and cash flow resilience in our business as we delivered improving margins and cash flow performance despite weak growth in certain end markets and geographies. We have confidence the performance will continue to improve in the second half of this year.

We delivered first half results through integration synergies from Royal, new business wins in strategic markets, effective expense controls, strong pricing management with moderating raw material costs and focused working capital management. These actions and these results will continue in the second half of the year as our costs and commercial synergies grow, organic growth continues to improve, raw material costs and margins are well managed and cash and working capital are optimized.

We will also have a more favorable currency in the second half of the year relative to the first half.

In addition, we monetized the noncore business, further accelerating deleveraging commitments and benefiting our stockholders. Our strategic plan is well designed, and we are executing very well operationally by gaining share and strengthening the more highly specified, higher margin parts of our business and delivering innovation that solves our customers' most complex adhesion problems. It is this ability to understand our markets and solve our customers' toughest adhesive challenges that is enabling us to grow our EBITDA margins, increase cash flows and reduce our debt, which increases value for our shareholders.

That concludes our prepared comments for today. So operator, let's open up the call for some questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question today comes from Mike Harrison with Seaport Global Securities.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [2]

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Is that you, Mike?

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [3]

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Yes. It's me. I'm a little under the weather, but it's still me.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [4]

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Okay.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [5]

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I was wondering if you can comment on the -- just a few questions on the volume. First of all, wondering if you can help us quantify the amounts of volume weakness that was related -- or the amount of revenue that was associated with the repositioning in the Construction Products business. And specifically wondering if there's any of that kind of pruning of less profitable business going on in any other segments besides Construction Products.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [6]

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Okay. Yes. I would say you can look broadly that without the repositioning of our products and the things that we decided to exit, Construction Products would be slightly up, roughly flat from a revenue standpoint. And I think that project is going extremely well. We're very optimistic in terms of what's going to happen to our margins as we go forward, particularly into Q4. We expect to see net growth start to come around Q4 and after the repositioning of this business. And we were hit with a little weaker construction market in the first half of the year, but that's sort of an overview of Construction. But it's predominantly 100% related to that.

And no, we don't have a repositioning project going on anywhere else. This is a result of our Royal acquisition. We assessed both businesses, and our goal is really to be a high-performing, highly specified business. And there were some customers and products that weren't fitting that model and really taking away from our ability to grow. So I think that was the drive there.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [7]

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Okay. And in terms of some of the end markets that you called out as being weak. I heard you mentioned durable assembly and particularly doors and windows as well as some automotive weakness. Are you seeing some stabilization in these markets right now? If there's been an inventory destocking, do you feel like that's run its course? Just maybe talk about kind of the trends and maybe the visibility in those 2 markets.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [8]

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Yes. As I said in the comments, we're planning for them to stay where they are. So our plans and our numbers are built on that. And I would say that when you talk to our customers in the construction space, there's definitely some weather-related problems in North America during the first half of the year. But their bigger problem, a lot of times, is getting labor, right? So you've talked to a lot of people who were busy, who could take on more business but don't have the labor.

But I would say generally, if I were to look at the last 3 or 4 weeks and the feedback, Mike, in fact, we had customers in here at our headquarters today from the Construction business. They're generally more positive about Q3 than they were about Q2.

Auto, you can look -- there's a lot of external data on auto builds. Auto, we're again anticipating that to be relatively weak in the second half of the year. We're outperforming the auto build numbers because we've got some share gains on -- based on some of the technology we did, and some of the offensive synergy that we have on the Royal deal. But I would say that auto is positive.

And I think another thing to point out, Mike, is auto is in the middle of our EA business. So while we have that auto thing we're dealing within EA, our EA business was up 10.5%, right? So without auto, it would have been that much better.

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Michael Joseph Harrison, Seaport Global Securities LLC, Research Division - MD & Senior Chemicals Analyst [9]

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All right. And then last question for me is regarding the sale of the surfactants and thickeners business. Just wondering if this was part of a broader portfolio review. Are there maybe other businesses that you've identified that could be noncore and could be sold or should we view this as more of a one-off action?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [10]

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Yes. I think the short answer is a one-off action. This is -- when we bought Royal, it was the only part of the Royal portfolio that wasn't adhesives. It actually come with another deal they had done. And right from day 1, we knew it was likely to be exited. We just want to get the timing right in terms of that business, and we're very happy with the price. And it's really good for the business that it went. But our goal, as you know, Mike, is be the best adhesive company in the world, everything in our portfolios, adhesives and sealants, and that's what we're driving for. So yes, we don't have any other divestitures planned.

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Operator [11]

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And our next question comes from Dmitry Silversteyn with Buckingham Research.

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Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [12]

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I actually have a couple of them. First of all, the Asia Pacific business, you mentioned that both price and volume were up, but the overall organic growth was about 1%. So I'm assuming both of these were up fractionally.

I guess, I'm just trying to understand more on the pricing front why we saw kind of that the decline in year-over-year price realization to what looks like below 1%.

And then secondly, you mentioned that some of the obstacles to growth there was developed portions of APAC. Besides Japan, what did you mean by that, and why has the growth slowed down so drastically in the developed parts of Asia?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [13]

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Yes. So yes, let me give you a little more color on our Asia business. So it's -- Southeast Asia was very strong. We think that has something to do with some of the investments we've done in Indonesia and Vietnam, but also factor in related to the trade dispute between the U.S. and China.

China was flattish, and Australia and New Zealand is the biggest part of our developed markets. For us, Dmitry, the Japan business is actually in the -- in our JV. So what we've seen, and we've seen it in some external reports is it's an ANZ weakness. And in our businesses, we think that's a little bit related to supply related to China. So that's the background on what's happening there.

And in terms of price versus volume, maybe, John, you could comment a little bit on that.

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John J. Corkrean, H.B. Fuller Company - Executive VP & CFO [14]

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Yes. I would say, Dmitry, pricing is still positive in all the segments year-on-year, less positive than it was in Q1 because most of the actions we took on pricing were last year. And that'll be the trend as we go through the year. We'll see pricing become a smaller benefit year-on-year as we go through the year, but volumes -- which will be offset by better volume.

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Dmitry Silversteyn, The Buckingham Research Group Incorporated - Director [15]

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Okay. Okay. That's helpful. And then if I could follow up on the Construction commentary -- Construction business commentary. Besides the repositioning, it looks like that business has come back a little bit. You talked that about being flat to slightly up in the spring quarter. As we get into the summer quarter, and you've had a couple of weeks of data hopefully, are you seeing sort of a seasonal or better-than-seasonal recovery in the construction market? And how should we think about maybe volume ramp-up into third, fourth quarter, labor constraints aside?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [16]

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Yes, yes. Well, it's tough to put labor constraints aside because I think that's a definite factor here. But I think the way to think about our business over the next 2 quarters is it'll sequentially be better from an organic revenue standpoint in Q3 and then close to flattish Q4. That's what we're factoring in, in our business, maybe slightly positive, maybe slightly negative. That's what we have in our models.

But in terms of the underlying market though, Dmitry, which I think is your question, we're hearing positives in terms of Q3. It's too early for us to really say we see that in all of our numbers. But yes, there's some backlog and demand in our roofing business that we're trying to fill right now. So I would say more positive than negative is the vibes we get from the market in the Construction space and in what's our Q3, which started 3 weeks ago.

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Operator [17]

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And our next question comes from David Begleiter with Deutsche Bank.

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Yifei Huang, Deutsche Bank AG, Research Division - Research Associate [18]

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This is David Huang here for David. I guess first on Engineering segment. You guys saw some good organic growth recovery this quarter. Can you maybe just elaborate a little bit more what drove the expansion and probably your expectation for the second half?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [19]

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Yes. I would say, David, this has been an ongoing story with our Engineering Adhesive business. We've got a great team there that I think is identifying trends, and then we're winning new opportunities in each one of our spaces. So fundamentally, whether it's a new design on a new cell phone, lightweight sealants for aerospace applications or attacking some of the opportunities that exist in North America as the assembly and signage markets, some other things are going forward. So across the world, we are seeing opportunities, and then I think solving the customer problems faster, which is our model. So this is a share gain.

This business also has the biggest piece of the offensive synergies related to Royal. And our ability to leverage Royal technology and people and lessons and learning is really helping to generate that growth. So it's a great new story. If you take out auto, it would be even a greater new story. So it's really positive. And yes, we expect it to continue in the second half of the year.

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Yifei Huang, Deutsche Bank AG, Research Division - Research Associate [20]

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And just on the guidance reduction. I guess just excluding the divestiture, and I guess you mentioned you saw China stabilized this quarter and then all those business is being offset by some new growth in Engineering. So was the guidance reduction mainly a result of slower Europe?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [21]

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Yes. I would say the things we see in terms of -- it's mostly revenue as we pointed out. I think Europe is slower than we anticipated going into the year. I think the North American construction-related piece, we expected it to be stronger recovery throughout the rest of the year. So those would be the 2 biggest pieces of it. And China is not getting any better, so it's not negative, but it's not positive.

So those would be the 3 predominant things we see in revenue, offset by the fact that we're doing a lot of work to manage our costs in a slower growth environment, we're working the raw materials, which we think has some upside. So that's what we're working to do to offset what we see as a slower world now than we would have said it was 3 months ago.

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Operator [22]

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And our next question comes from Rosemarie Morbelli with G. Research.

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Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [23]

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Jim, I was wondering if you could give us a little more on Europe. I mean demand or at least your top line deteriorated in the second quarter more than in the first quarter, the decline was larger. What did -- can you talk about the trends during the quarter? And then if you -- based on what you are seeing, do you expect it to be flat in the next 6 months or do you expect it to actually deteriorate further or improve?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [24]

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Yes. So as you pointed out, Rosemarie, the -- all 4 of other segments had better organic growth in Q2 than Q1. So we had -- we saw overall as a company, better organic growth in Q2, and all 4 of our segments except Europe.

For us, Europe includes India, Middle East and Africa. India is very positive. Middle East and Africa, still positive. So it's fundamentally core Europe. We would say all of our segments, whether it's packaging, hygiene, consumable goods, we saw a little bit of weakness. But the bigger issue was durable assembly. So any of the markets that are feeding that durable goods space was where we saw the biggest weakness in Europe. So -- and we had some good growth in our insulating glass business, but that was really about market share gains for us more than an underlying IG business. Anyway, that's about it on Europe.

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John J. Corkrean, H.B. Fuller Company - Executive VP & CFO [25]

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I'll just address Rosemarie's question around the kind of projections for growth. I mean we do expect it would be flattish from an organic standpoint in Q3 and then modest growth in Q4.

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Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [26]

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Is that based on what you hear from your customers?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [27]

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Yes. Yes. I mean we see -- we hear and especially in core Europe, in the -- we sell some manufacturers of all kinds of goods in Europe. People feel a relatively slower environment in the second half of this year.

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Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [28]

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Okay. And then if I may follow up with a couple of quick questions. Do you still expect your EBITDA margin to be above 17% by 2020? I am guessing that, that particular target has changed. Was that 1 year, 2 years?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [29]

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So we're not giving you 2020 guidance for that, Rosemarie. But I would say a couple of things you could think about for next year for us. Certainly, you should expect to see EBITDA margin improvement. We have good momentum this year and it'll improve relative to where we're at today. And I think we said at the beginning of this year, we had expectations of at constant currency 10% to 12% EBITDA growth. And I think we still see that as the right kind of thinking in terms of what to expect out of our business going forward.

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Rosemarie Jeanne Pitras-Morbelli, G. Research, LLC - Research Analyst [30]

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And then lastly, going back to 2019, what needs to happen for you to reach the high-end of your new EPS target?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [31]

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Yes. I think we've put a range in here that, as we mentioned, assumes a relatively muted external environment. So I think if the external environment picked up, that would certainly help us. We see potential upside with raw materials, where we certainly think that that's an opportunity for us if we can get some momentum there. Although that doesn't always come as quick as we'd like, but we think there is a good favorable raw material environment. And we have a lot of wins in the pipeline. So how fast they come on is sometimes a variable that can help us.

But those would be the 3 factors, I think, that will help us get to the high end of the range. And as we said for the last 3 or 4 quarters, if China gets resolved, that will be a really good thing for us as well.

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Operator [32]

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And our next question comes from Ghansham Panjabi with Baird.

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Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [33]

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This is actually Matt Krueger sitting in for Ghansham. I guess I just wanted to kick off on some inter-quarter trends. I was hoping, could you provide some added details on how the demand environment progressed on a monthly basis during the quarter, along with kind of what the exit growth rates have looked like here on the month of June? I don't know if this is easier on a regional basis or overall. I'll let you decide.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [34]

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Yes, Matt. We don't necessarily go through all kinds of details on our inter-quarter. Clearly, we're pretty positive about what's happening in our business in the second half of the year. So by that, you can imply that the quarter got stronger. And I think given that our organic growth was higher than the second quarter than the first, you can imply that. But we don't get into details on that. But I would say generally, we saw a good momentum in the quarter.

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Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [35]

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Okay. That's helpful. And then thank you for the details on organic growth overall. But I was hoping that we could kind of zero in on how organic volumes specifically performed on a segment-by-segment basis during the quarter. Any detail there in terms of volume versus price contribution would be really helpful.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [36]

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Okay. Well, I'll -- again, there's reasons why we're not going to too much specifics on volume, but maybe John can give you some color. But I think that could be helpful for you.

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John J. Corkrean, H.B. Fuller Company - Executive VP & CFO [37]

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Sure. So I think just kind of by segment, Americas pricing remained a strong driver of organic growth in Q2. Volume was down modestly, but less than Q1. EIMEA pricing was up low single digits, and volume was down low single digits in Q2 both pretty similar to what look like in Q1. And then in Asia Pacific, as we mentioned, both pricing and volume were up modestly. Construction, the decline was driven really by volume with the low single-digit pricing increase. And then Engineering Adhesives is really a volume story. We really grew that business by driving volume.

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Matthew T. Krueger, Robert W. Baird & Co. Incorporated, Research Division - Junior Analyst [38]

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Okay. That's definitely helpful. And then just switching over to kind of the margin outlook for the remainder of the year. Given some of the potential for negative operating leverage with the challenging demand backdrop in certain cases, can you provide some added color on your margin expectations by segment? Add just anything, any major puts and takes...

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James J. Owens, H.B. Fuller Company - President, CEO & Director [39]

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Yes. I would say overall, I think we said in the script, we see margin improvement in the second half of the year. We have organic growth in the 2% to 4% range, which we have. Currency, while it'll still be a negative, it's much less of a negative. I think that's a big factor in our business is what's happening with currency. And the worst of that is really behind us. And you'll see that very positively on our numbers. The underlying currency adjusted performance in our business is very positive, and getting behind the currency curve would be important. So we see good margin performance continuing here in Q3 and Q4. John, do you want to add more to that?

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John J. Corkrean, H.B. Fuller Company - Executive VP & CFO [40]

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I think it's a similar picture to Q2 with the continued strong performance in Engineering in Asia Pacific, I think we expect to see better performance in EIMEA in Construction Adhesives as we go into Q3 versus Q2.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [41]

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And underlying that...

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Operator [42]

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And our next question is -- comes from Eric Petrie with Citi.

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Eric B Petrie, Citigroup Inc, Research Division - Senior Associate [43]

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So I wanted to focus in on Engineering Adhesives. Looks like incremental margins improved roughly 40% in the quarter. What drove that? And how do you see margins in second half compared to the 20% done in 2Q?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [44]

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Yes. I think if you think back to our Investor Day, which was over a year ago, it was -- we were clear we were going to get to 22% margin in 2020. And I think some people questioned whether we could get there, right? And part of it was this is a high margin business, so the growth flows through the bottom line. So getting this kind of growth has great leverage on our bottom line. So fundamentally, it's growth. This quarter happened to be growth in some attractive segments. So that helped us. I wouldn't say that we're here and going higher. It's going to be a little lumpy depending on mix across our businesses.

So -- but I think these kinds of margins are what we're targeting for the long term in this business, and this is what you should expect long-term from our Engineering Adhesive business as we grow and especially as we grow on the right applications. So -- but this quarter had both growth and a little bit of favorable mix in it to make it up 400 basis points as you pointed out versus last year. But it was up a couple hundred -- I forgot what exactly in Q1, but...

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John J. Corkrean, H.B. Fuller Company - Executive VP & CFO [45]

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Almost 300.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [46]

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In Q1. So really positive.

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Eric B Petrie, Citigroup Inc, Research Division - Senior Associate [47]

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Okay. The largest competitor in the space indicated weaker electronic sales. So how long do you think your share gains can continue before you start seeing more competitive industry pressure?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [48]

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Yes. We're -- well, first off, everything we're competing on is new applications. So I would say they have -- they've been in the space a long time, and they have a lot of legacy business that has more of a cyclical approach that they're dealing with. What we're dealing with is new applications on new opportunities. So I see this continuing at its current rate for many years before we got to that size of a business, right? So -- and then once we got there, we'll probably have a different set of challenges. But right now, this is a very dynamic growth story by getting specked in on new applications, on the new products, and very different than what our competitors are dealing with and -- but yes, a really good positive story for us in electronics.

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Eric B Petrie, Citigroup Inc, Research Division - Senior Associate [49]

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And then lastly, if I could. What was core Europe growth in the quarter? And what is your outlook for the full year?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [50]

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We don't share the specific core growth Europe number, but it was lower than the overall organic, right? So overall, organic was down less than 1%. So you can imagine -- now core Europe's, I think it's estimated 75% to 80% of our business. So it's the biggest part of it, but that was down and the rest of the business was up.

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Operator [51]

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And our next question comes from Vincent Anderson with Stifel.

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Vincent Alwardt Anderson, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [52]

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You mentioned some new product launches giving you added confidence in the back half of the year. I was just wondering if there's anything you wanted to highlight. And then also if you could comment in general, how the time frame works between launching a product and actually getting spec'ed in with an OEM and then seeing that show up in your revenues.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [53]

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Yes. One of our challenges at our business, Vincent, is it's so diversified that any one of our launches isn't that huge, right? We sell lots of adhesives, to just about every manufacturer in the world. But a couple of things that are happening out there. We have a couple of new launches in electronics, for some microelectronic products that look very positive for us. We've got an extension of our solar business that is a very strong business for us that's going extremely well, and we see some of those new extensions going forward.

In our packaging business, we launched a new performance product for sort of a revamp of our industry-leading Advantra. And then in roofing and in our flooring business, we have 2 products that we're really excited in flooring. That's why these customers were here. We have a new launch of a mortar product for specialty tiles. And in our roofing business, we see a lot of good growth on some of our roofing tapes for some synthetic flat roofing applications.

So there's a lot of them, but our NPI continues to grow as a percentage of our revenue. And these are the kinds of things we do. There -- 1 million, 2 million, 5 million at a time, so there's not one big one. So -- but hopefully, that gives you some color, Vincent, to your question.

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Vincent Alwardt Anderson, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [54]

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No. That's perfect. Appreciate it. And you mentioned solar. I think I ask this every quarter. But all the other suppliers I speak with that are selling materials in the solar right now have really nothing positive to say, though they're expecting the second half to improve. Would you characterize your strength there more being in line with end market demand growth? Or is it really all on new product wins or new customer wins? And if so, if we see an uptick in sell production in the second half, is there more upside in your expectations there?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [55]

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Yes. So I would say, we -- well, I think there is some positive going on in the solar business, right? I think the Chinese government is committed to help to grow that as a part of the business. So we definitely seen some of that, and that's coming through here in the second half, and people are building the modules around that. But a big part of our growth is share growth as we move to new applications. So broadening our position is what's fundamentally driving our position in solar.

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Vincent Alwardt Anderson, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [56]

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Great. And you mentioned packaging, so if I could ask one more. Generally, packaging has been a bit volatile the last 12 months or so. You have Chinese recycled paper, import quotas, you've -- virgin pulp production has been all over the place. And then you have the plastic bottle legislation in Europe to deal with. Can you just frame your portfolio in packaging adhesives against some of those issues?

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James J. Owens, H.B. Fuller Company - President, CEO & Director [57]

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Yes. So the biggest piece of our packaging business is end-of-line packaging. So you can think of that as ceiling cartons and cases that are normally paper. So that's the biggest piece of our business. We also do beverage labeling. We have some specialty reinforcement products. So I'd say we're benefiting from the e-commerce trend a bit, and we're also benefiting from some consolidation at some major manufacturers. So I would say there's underlying positive growth in that market, but we're winning on the right applications within the packaging space. And I hope I had implied some huge growth in packaging, just that it's positive growth for us in packaging, and that's helping to pull up our organic growth.

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Operator [58]

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This will conclude our question-and-answer session. I would just like to turn the conference back over to Mr. Jim Owens for any closing remarks.

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James J. Owens, H.B. Fuller Company - President, CEO & Director [59]

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Okay. Thanks, everyone, for your ongoing support. We remain positive as we enter the second half of the year. Thank you.

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Operator [60]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time, and have a great day.