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H.B. Fuller Reports Fourth Quarter and Fiscal Year 2021 Results

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Revenue increased 15% year over year in Q4 and 17.5% for full year
Net income in Q4 of $65 million and diluted EPS of $1.18; adjusted EPS of $1.09
Adjusted EBITDA of $134 million increased 9% leveraging volume growth and accelerated pricing

ST. PAUL, Minn., January 19, 2022--(BUSINESS WIRE)--H.B. Fuller Company (NYSE: FUL) today reported financial results for its fourth quarter and fiscal year ended Nov. 27, 2021.

Items of Note for the Fourth Quarter

  • Net and organic revenue increased 15% versus the fourth quarter of 2020.

  • Volume growth and more than $100 million of pricing realized in the quarter drove 340 basis points of sequential gross margin improvement versus the third quarter of 2021.

  • Net income increased year over year to $65 million; adjusted EBITDA increased 9% to $134 million as volume leverage and accelerated pricing offset raw material cost inflation.

  • Earnings per diluted share (EPS) was $1.18 and adjusted EPS was $1.09.

  • Strong debt paydown and EBITDA growth reduced net debt leverage to 3.3x adjusted EBITDA, compared with 4.1x at year-end 2020.

Items of Note for Fiscal 2022 Guidance

  • Double-digit organic revenue growth of 10% to 15% including strong contribution from pricing.

  • Adjusted diluted EPS of $4.00 to $4.25; up between 15% and 22% year over year.

  • Adjusted EBITDA of $515 to $535 million; up between 10% and 15% year over year.

  • Note that fiscal year 2022 has 53 weeks of activity versus the normal 52 week fiscal period.

Summary of Fourth Quarter 2021 Results

Net revenue of $897 million increased 15.4% compared with the fourth quarter of 2020. Foreign currency exchange rates favorably impacted revenue by 0.5%. Organic revenue, which excludes impacts from foreign currency translation, increased 14.9% versus last year, with double-digit organic growth in all three Global Business Units (GBUs). Organic revenue also significantly increased by more than 20% when compared with the non-COVID impacted fourth quarter of 2019.

Gross profit was $241 million. Adjusted gross profit of $244 million increased 14% versus the same period last year. Adjusted gross profit margin of 27.1% declined 40 basis points year over year reflecting elevated raw material and freight costs and improved 340 basis points sequentially versus the third quarter of 2021 driven by strong volumes and pricing benefits realized in the quarter. Selling, General and Administrative (SG&A) expense was $166 million. Adjusted SG&A expense of $155 million reflects higher travel and other investments to support growth as well as higher variable compensation related to the company’s strong fiscal 2021 performance. Adjusted SG&A as a percent of revenue remained stable at 17% in both comparable periods.

As a result of these factors, net income attributable to H.B. Fuller in the quarter was $65 million, or $1.18 per diluted share. Adjusted net income attributable to H.B. Fuller was $60 million and adjusted EPS was $1.09, compared with $56 million and $1.06 in the same period last year. A higher adjusted tax rate unfavorably impacted adjusted EPS by $0.10 in the fourth quarter of 2021 relative to the fourth quarter of 2020. Adjusted EBITDA of $134 million increased 9% compared with $123 million in the prior year.

Jim Owens, H.B. Fuller’s president and chief executive officer, said, "Our business momentum continued in the fourth quarter with 15% organic revenue growth and improved margin performance. We successfully executed on our 2021 priorities of volume growth, pricing to value and greater productivity. We drove double-digit organic revenue growth relative to both 2019 and 2020, and we further improved our net debt to EBITDA ratio."

"H.B. Fuller’s full year results exceeded the goals we set at the beginning of the year despite extraordinary business challenges, demonstrating the resiliency of our global team. Throughout the year, we took decisive actions to deliver strong results against complex supply chain constraints and unprecedented inflationary pressures. We implemented $450M of annualized price adjustments, gained share through innovation, drove operating efficiencies, and maintained unwavering focus on supporting our customers’ success. In 2022, we are focused on enhancing our portfolio of specialized adhesives, capitalizing on the tremendous growth opportunities for advanced and sustainable solutions, and continuing to demonstrate strong cash generation and earnings power to deliver double digit organic revenue and adjusted EBITDA growth and 20% adjusted EPS growth for shareholders."

Full Year 2021 Summary

Net revenue for fiscal 2021 of $3.3 billion increased 17.5% compared with fiscal 2020 and increased 13.1% compared with pre-COVID results in fiscal 2019. Foreign currency exchange rates favorably impacted full year revenue by 2.3% compared with fiscal 2020. Full year organic revenue increased by 15.2% year-over-year. Full year gross profit margin was 25.8%. Adjusted gross profit margin of 26.0% decreased 130 basis points driven by the impact of historic levels of raw material cost inflation and freight costs, partially offset by more than $150 million of customer price increases realized during the fiscal year. Adjusted SG&A decreased from 18.5% of revenue to 17.2% of revenue. Net income attributable to H.B. Fuller for fiscal 2021 was $175 million, or $3.23 per diluted share. Adjusted net income attributable to H.B. Fuller was $189 million, or $3.47 per diluted share, compared with $149 million, or $2.84 per diluted share, in fiscal 2020. Adjusted EBITDA for the full year of $467 million increased 15% compared with $407 million in 2020.

Other Financial Metrics

At the end of fiscal 2021, the company had cash and equivalents of $62 million and total debt equal to $1,616 million. This compares to cash and debt levels equal to $101 million and $1,774 million, respectively, at the end of fiscal 2020. Capital expenditures for fiscal year 2021 were $96 million compared with $87 million in fiscal 2020. Net working capital in 2021 increased 8% from year-end 2020 primarily as a result of increased inventory to support higher sales and higher raw material costs. Net working capital as a percent of revenue decreased from 18.7% at year-end 2020 to 17.2% at year-end 2021.

Fiscal 2022 Outlook

The company is providing financial guidance for fiscal 2022 based on current economic views and assumptions for global commercial activity. Full year organic sales are expected to increase between 10% and 15% year over year. Foreign currency exchange rates are anticipated to have an unfavorable impact of 2% to 3% on full year net revenue growth versus fiscal 2021. Management anticipates annual adjusted EPS in the range of $4.00 to $4.25, and annual adjusted EBITDA in the range of $515 to $535 million. The company’s core tax rate, excluding the impact of discrete items, is anticipated to be between 27% and 29%, full year interest expense is estimated to be between $65 million and $70 million, with average diluted share count of approximately 55 million shares. Capital investments are planned to be in the range of $100 to $110 million. The company notes that fiscal 2022 has an extra week in the fourth quarter for 53 weeks of activity versus the normal 52 week fiscal year, which is included in its financial guidance.

Conference Call

The company will hold a conference call on Jan. 20, 2022, at 9:30 a.m. CST (10:30 a.m. EST) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the company’s website at https://investors.hbfuller.com. Participants should access the webcast 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CST on Jan. 20, 2022 through 10:59 p.m. CST on Jan. 27, 2022. To access the telephone replay dial (800) 585-8367 or (416) 621-4642, and enter Conference ID: 7892099.

Regulation G

The information presented in this earnings release regarding consolidated and segment organic revenue growth, operating income, adjusted gross profit, adjusted gross profit margin, adjusted selling, general and administrative expense, adjusted income before income taxes and income from equity investments, adjusted income taxes, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) does not conform to U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the company and its operating segments as well as the comparability of results to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported U.S. GAAP results in the "Regulation G Reconciliation" tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our Fiscal 2022 Guidance, which the company cannot reconcile to forward-looking GAAP results without unreasonable effort.

About H.B. Fuller

Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives, sealants and other specialty chemical products to improve products and lives. With fiscal 2021 net revenue of $3.3 billion, H.B. Fuller’s commitment to innovation brings together people, products and processes that answer and solve some of the world's biggest challenges. Our reliable, responsive service creates lasting, rewarding connections with customers in electronics, disposable hygiene, medical, transportation, aerospace, clean energy, packaging, construction, woodworking, general industries and other consumer businesses. And, our promise to our people connects them with opportunities to innovate and thrive. For more information, visit us at https://www.hbfuller.com/.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as "anticipate," "believe," "estimate," "expect," "intend," "may," "opportunity," "outlook," "plan," "project," "seek," "should," "strategy," "target," "will," "will be," "will continue," "will likely result," "would" and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to incur additional debt in the future, our need for a significant amount of cash to service and repay the debt and to pay dividends on our common stock, the effect of debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; availability and price of raw materials; disruptions to our relationships with our major customers and suppliers; failures in our information technology systems; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Many of the foregoing risks and uncertainties are, and will be, exacerbated by COVID-19 and resulting deterioration of the global business and economic environment.

Additional information about these various risks and uncertainties can be found in the "Risk Factors" section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law.

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

Three Months Ended

Three Months Ended

November 27, 2021

Percent of

Net Revenue

November 28, 2020

Percent of

Net Revenue

Net revenue

$

897,424

100.0

%

$

777,640

100.0

%

Cost of sales

(655,965

)

(73.1

)%

(563,998

)

(72.5

)%

Gross profit

241,459

26.9

%

213,642

27.5

%

Selling, general and administrative expenses

(165,789

)

(18.5

)%

(139,712

)

(18.0

)%

Other income, net

6,954

0.8

%

3,658

0.5

%

Interest expense

(18,392

)

(2.0

)%

(22,179

)

(2.9

)%

Interest income

1,767

0.2

%

2,656

0.3

%

Income before income taxes and income from equity method investments

65,999

7.4

%

58,065

7.5

%

Income taxes

(2,814

)

(0.3

)%

(19,727

)

(2.5

)%

Income from equity method investments

1,587

0.2

%

2,285

0.3

%

Net income including non-controlling interest

64,772

7.2

%

40,623

5.2

%

Net income attributable to non-controlling interest

(31

)

(0.0

)%

(19

)

(0.0

)%

Net income attributable to H.B. Fuller

$

64,741

7.2

%

$

40,604

5.2

%

Basic income per common share attributable to H.B. Fuller

$

1.22

$

0.78

Diluted income per common share attributable to H.B. Fuller

$

1.18

$

0.77

Weighted-average common shares outstanding:

Basic

53,168

52,276

Diluted

54,980

52,879

Dividends declared per common share

$

0.168

$

0.163

Selected Balance Sheet Information (subject to change prior to filing of the Company's Annual Report on Form 10-K)

November 27, 2021

November 28, 2020

November 30, 2019

Cash & cash equivalents

$

61,786

$

100,534

$

112,191

Trade accounts receivable, net

614,645

514,916

493,181

Inventories

448,404

323,213

337,267

Trade payables

500,321

316,460

298,869

Total assets

4,274,530

4,036,704

3,985,734

Total debt

1,616,462

1,773,910

1,979,116

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

Year Ended

Year Ended

November 27, 2021

Percent of
Net Revenue

November 28, 2020

Percent of
Net Revenue

Net revenue

$

3,278,031

100.0

%

$

2,790,269

100.0

%

Cost of sales

(2,432,709

)

(74.2

)%

(2,033,620

)

(72.9

)%

Gross profit

845,322

25.8

%

756,649

27.1

%

Selling, general and administrative expenses

(592,710

)

(18.1

)%

(538,332

)

(19.3

)%

Other income, net

32,855

1.0

%

15,398

0.6

%

Interest expense

(78,092

)

(2.4

)%

(86,776

)

(3.1

)%

Interest income

9,476

0.3

%

11,417

0.4

%

Income before income taxes and income from equity method investments

216,851

6.6

%

158,356

5.7

%

Income taxes

(49,176

)

(1.5

)%

(41,921

)

(1.5

)%

Income from equity method investments

7,657

0.2

%

7,353

0.3

%

Net income including non-controlling interest

175,332

5.3

%

123,788

4.4

%

Net income attributable to non-controlling interest

(82

)

(0.0

)%

(69

)

(0.0

)%

Net income attributable to H.B. Fuller

$

175,250

5.3

%

$

123,719

4.4

%

Basic income per common share attributable to H.B. Fuller

$

3.31

$

2.38

Diluted income per common share attributable to H.B. Fuller

$

3.23

$

2.36

Weighted-average common shares outstanding:

Basic

52,887

52,039

Diluted

54,315

52,520

Dividends declared per common share

$

0.665

$

0.648

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)

Three Months Ended

Year Ended

Nov 27,

Nov 28,

Nov 27,

Nov 28,

2021

2020

2021

2020

Net income attributable to H.B. Fuller

$

64,741

$

40,604

$

175,250

$

123,719

Adjustments:

Acquisition project costs

3,344

1,082

5,622

(502

)

Organizational realignment1

3,670

5,685

12,699

13,971

Royal restructuring and integration2

658

2,051

4,195

9,430

Tax reform

-

-

-

(35

)

Project One

2,958

1,260

9,426

5,402

Other3

3,554

(264

)

(146

)

1,459

Discrete tax items4

(14,654

)

6,280

(9,586

)

1,152

Income tax effect on adjustments5

(4,510

)

(676

)

(8,871

)

(5,687

)

Adjusted net income attributable to H.B. Fuller6

59,761

56,022

188,589

148,909

Add:

Interest expense

18,406

19,969

78,175

84,619

Interest income

(1,767

)

(2,656

)

(9,476

)

(11,417

)

Income taxes

21,978

14,122

67,632

46,456

Depreciation and Amortization expense7

35,407

35,249

142,003

138,242

Adjusted EBITDA6

133,785

122,706

466,923

406,809

Diluted Shares

54,980

52,879

54,315

52,520

Adjusted diluted income per common share attributable to H.B. Fuller6

$

1.09

$

1.06

$

3.47

$

2.84

Revenue

$

897,424

$

777,640

$

3,278,031

$

2,790,269

Adjusted EBITDA margin6

14.9

%

15.8

%

14.2

%

14.6

%

1 Includes costs incurred as a direct result of the organizational realignment program, including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities.

2 Costs incurred as a direct result of the Royal restructuring and integration program including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities.

3 Includes costs incurred for COVID-19 testing, vaccinations, personal protective equipment and exceptional medical claims, COVID-related payroll tax benefits received in 2020, and non-cash gains related to legal entity consolidations and a tax legal settlement in Brazil.

4 Includes adjustment of ($14,654) and ($9,586) for discrete tax benefits in the three months and fiscal year ended November 27, 2021, respectively, primarily relating to an outside basis difference in the stock of certain U.S. subsidiaries classified as held for sale, the revaluation of cross-currency swap agreements due to change in the value of the Euro versus U.S. dollar, changes in valuation allowances and various foreign tax matters. Includes adjustment of $6,280 and $1,152 for discrete tax expense in the quarter and fiscal year ended November 28, 2020, respectively, primarily relating to foreign tax matters and audit settlements, partially offset by discrete tax benefit associated with the revaluation of cross-currency swap agreements due to change in the value of the Euro versus U.S. dollar.

5 The income tax effect on adjustments represents the difference between income taxes on net income before income taxes and income from equity method investments reported in accordance with U.S. GAAP and adjusted net income before income taxes and income from equity method investments.

6 Adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

7 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller totaling ($145) and ($67) for the three months ended November 27, 2021 and November 28, 2020, respectively and ($1,171) and ($575) for the fiscal years ended November 27, 2021 and November 28, 2020, respectively.

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

Three Months Ended

Year Ended

Nov 27,

Nov 28,

Nov 27,

Nov 28,

2021

2020

2021

2020

Net Revenue:

Hygiene, Health and Consumable Adhesives

$

402,834

$

355,413

$

1,472,756

$

1,332,786

Engineering Adhesives

371,419

1,371,756

1,088,313

Construction Adhesives

123,171

94,954

433,519

369,170

Corporate unallocated

-

-

-

...