Transcript: H.B. Fuller Q3 2026 Earnings Conference Call

B. Fuller (NYSE: FUL ) reported third-quarter financial results on Thursday. The transcript from the company's third-quarter earnings call has been provided below. This content is powered APIs.

B. 4% increase in pricing, despite lower volumes. 9%, supported by pricing actions and restructuring efforts. The company is progressing on its Quantum Leap program, aiming to optimize its manufacturing footprint and achieve $75 million in annualized cost savings by 2030.

B. Fuller remains on track to close the acquisition of Advanced Medical Solutions by year-end, with plans to deleverage post-acquisition. Management sees challenges in the petrochemical supply chain and anticipates stable but elevated raw material prices, with plans to adjust pricing to protect margins. The company recognizes its Customer Innovation Awards, highlighting collaboration with customers in developing sustainable solutions.

85. Full Transcript OPERATOR We will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.

I will now hand the conference over to Scott Jensen, Investor Relations. Scott, please go ahead. Scott Jensen, Investor Relations Thank you, operator. B.

Fuller's third quarter 2026 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. com. I will now turn the call over to Celeste Mastin.

Celeste Mastin, CEO and President Thank you, Scott, and welcome to today's call. Through disciplined execution, we delivered strong revenue, EBITDA, and EPS growth in the quarter and continued to improve profitability and advance toward our EBITDA margin target of greater than 20%. Pricing actions are offsetting higher raw material costs, and our restructuring efforts continue to enhance operating leverage. With the anticipated closing of the AMS acquisition before year end, we remain focused on strengthening our portfolio, executing our Quantum Leap program, and creating long-term value for shareholders.

2% year on year, adjusting for foreign exchange and acquisitions. 4%, partially offset by lower volume year on year. 9%, with EPS up 21% versus the same period last year. The continued execution of our pricing actions drove EBITDA growth and margin expansion across all three GBUs, enabling us to successfully offset elevated raw material inflation.

Now let me move on to review the performance in each of our segments in the third quarter. HHC delivered 6% organic revenue growth year over year in the quarter, with strength in hygiene, beverage labeling, and tape and label more than offsetting softness in packaging. 6%, up 70 basis points versus last year, reflecting double-digit pricing performance. EA delivered organic revenue growth of approximately 5% year over year excluding solar, with continued strength in aerospace and general industries.

Electronics softened in the quarter as chip shortages weighed on mobile phone production in Asia Pacific, a reversal from the strong growth we saw in the first half of the year. Including solar, organic revenue increased 1% in the quarter. B. Fuller organic growth going forward.

8%, up 50 basis points versus last year, driven by favorable pricing and restructuring savings. BAS delivered another strong quarter with organic revenue up 5% year over year. Growth was driven by strength in roofing and insulating glass, partially offset by softness in wood despite a muted construction environment. BAS delivered another quarter of consistent growth and solid execution, demonstrating the importance of the innovation the group has brought to market.

EBITDA for BAS increased 8% and EBITDA margins expanded 50 basis points year on year, driven primarily by the impact of positive price. Geographically, Americas organic revenue was up 4% year on year with positive organic growth in all three GBUs, led by BAS up 9%. Positive organic growth was driven by strong performance in roofing, insulating glass, and aerospace market segments. In EIMEA, organic revenue increased 9% year on year with positive price in all three GBUs and strong volume growth in EA markets, including automotive and aerospace.

Asia Pacific organic revenue was up 4% year on year excluding solar, driven by strength in HHC, particularly in packaging. Total organic revenue was approximately flat year on year, including solar. Now let me provide an update on the petrochemical supply chain disruption and what we're seeing as we enter the fourth quarter and look toward 2027. The dislocation continues to be a defining feature of our operating environment.

Supply chains remain disjointed, and we do not expect a normalization until well after the conflict subsides. We acted quickly and decisively in response to this situation and have been successful in maintaining supply continuity for our customers and will continue to do so. On raw materials, prices have stabilized at elevated levels, and we expect them to remain at or near current levels for at least the remainder of the year. As conditions warrant, we will judiciously raise price to offset raw material costs and protect our margins.

We remain confident in our ability to continue mitigating inflationary pressure. Now, let me take a moment to provide an update on Project Quantum Leap, our multi-year initiative to optimize our manufacturing and distribution network, improve factory utilization and service levels, and increase the efficiency of our global supply chain. We continue to make good progress, and implementation is tracking as expected. The team remains focused on disciplined execution and delivering the long-term benefits we've outlined.

As a reminder, we began this project with 82 manufacturing facilities at the end of 2024. We expect to exit 2026 with approximately 62 facilities and, excluding AMS, further reduce the footprint to below 60 by the end of 2027 while progressing to our goal of 55. These actions are improving network efficiency while positioning us to better serve our customers with a more streamlined operating model. From a financial perspective, Quantum Leap remains a significant value-creation opportunity.

We continue to target approximately $75 million of annualized conversion cost savings by the end of 2030. Through the end of 2026, we expect to have realized approximately $25 million of those benefits. Looking ahead, we expect the program to deliver an additional $20 to $25 million of incremental savings in 2027. In support of this initiative, we expect to invest $150 million of capital over the life of the program.

We plan to invest roughly $50 million of capital in 2026 and anticipate capital spending of less than $25 million in 2027 as key projects are completed, with a further reduction in spending expected after 2027. We anticipate approximately $50 million of total one-time cash costs associated with the program, with about a third of those already realized. Importantly, total one-time costs are projected to be more than offset by proceeds from real estate sales. Beyond direct cost savings, Quantum Leap is expected to generate substantial cash flow benefits through improved working capital efficiency, inventory reduction, and lower maintenance capital requirements.

Overall, we remain on track and are even more confident today in Quantum Leap's ability to help enable meaningful earnings growth, cash flow improvement, and progress toward our long-term margin objectives. Now let me turn the call over to John Corcoran to review our third quarter results in more detail and our updated outlook for the remainder of 2026. John Corcoran, Executive Vice President and Chief Financial Officer Thank you, Celeste. I'll begin with some additional financial details on the third quarter.

2% year on year. 8%. 4% offset by lower volume. 5%, up 120 basis points versus last year, driven by pricing, execution, and restructuring savings.

Adjusted selling, general, and administrative expense was up 8% year over year and down 7% sequentially from the second quarter of 2026, reflecting the timing of certain expenses. Adjusted EBITDA for the quarter of $187 million was up 9% versus last year as pricing, execution, and restructuring savings more than offset lower volume. 52 was up 21% versus the same quarter in 2025, driven by higher operating income. 5% of annualized net revenue, up 150 basis points year over year.

The increase was primarily driven by actions taken to support Quantum Leap, as well as strategic inventory investments made to secure raw materials and ensure supply continuity for customers. Year to date, cash flow from operations was $183 million, up 17% year over year, driven by higher income. 3 times at the end of the third quarter of last year. With that, let me now turn to our guidance for the 2026 fiscal year.

Please note this outlook does not reflect the impact of our proposed acquisition of Advanced Medical Solutions. Net revenue is still expected to be up mid single digits, and organic revenue is still expected to be up low single digits versus fiscal 2025, with pricing up mid single digits and volume down low single digits. 85. Cash flow from operations, excluding AMS-related items, is still expected to be in the range of $300 to $325 million.

Now let me turn the call back over to Celeste to wrap us up. Celeste Mastin, CEO and President Thank you, John. The financial performance John outlined reflects the strength of our strategy and execution. A key contributor to that success is the way we partner with our customers to develop innovative solutions that improve performance, address complex challenges, and advance sustainability across the industries we serve.

B. Fuller Customer Innovation Awards. These awards recognize customers who have developed solutions delivering measurable advances in sustainability, safety, and performance. B.

Fuller teams. This year we honored Bin Dazmol General Trading Company and Huhtamaki for innovations that demonstrate the power of collaboration and technical expertise. Bin Dazmol was recognized for developing an innovative prefabricated HVAC insulation system that improves protection against condensation and corrosion in hot, humid environments. B.

Fuller, the company incorporated our Foster Neoclad protective vapor barrier technology into an off-site prefabrication process that reduces installation time, enhances long-term system reliability, and helps extend service life in demanding climate conditions. Huhtamaki was recognized for Pro Dairy, a recyclable paper-based dairy cup designed to reduce plastic use while maintaining the performance required for chilled food applications. B. Fuller's adhesive and coating expertise, the solution significantly reduces polyethylene content, improves recyclability, and supports our customers' circular packaging goals without compromising product performance.

The innovations recognized this year span diverse industries but share a common objective: applying science, engineering, and collaboration to solve real-world challenges and make products and systems more sustainable, efficient, and reliable. We congratulate both award winners and thank all of our customers who continue to work alongside us to bring innovative solutions to market. Their success reinforces our confidence in the long-term growth opportunities created by our technical leadership, customer intimacy, and commitment to innovation. We look forward to celebrating both award winners here in St.

Paul, Minnesota, on Adhesives and Sealants Day on September 29th. Now let me provide a brief update on our proposed acquisition of Advanced Medical Solutions. We continue to make strong progress through the required regulatory approval process and remain on track to close the transaction by year end. 5 to 3 times within two years of closing.

Supported by the strong cash generation profile of the combined company, augmented by Quantum Leap, we remain confident in the strategic and financial merits of acquiring AMS. The transaction will enhance our portfolio, strengthen our position in attractive healthcare markets, and further support our long-term growth objectives. We look forward to welcoming the AMS team and sharing additional updates on our next call. In closing, our third quarter results demonstrate the steady progress we are making across the business.

We are expanding margins, advancing our operating efficiency initiatives, and maintaining a disciplined approach to execution while also positioning the company for its next phase of growth. B. Fuller's foundation for long-term value creation. That concludes our prepared remarks for today.

Operator, please open the line for questions. OPERATOR We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again.

We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Mike Harrison with Seaport Research Partners.

Mike, your line is now open. Mike Harrison, Analyst at Seaport Research Partners Hi, good morning. Celeste Mastin, CEO and President Good morning, Mike. Mike Harrison, Analyst at Seaport Research Partners So you guys came in just above the midpoint of your guidance range for Q3, and it looks like volumes were not down as much as you had expected.

I think you had guided to a down mid-single-digit, and you were down three. Can you just kind of walk us through what came in different than you expected when you provided guidance, I guess from both a volume perspective and maybe contributed to some of the margin strength that you were seeing? John Corcoran, Executive Vice President and Chief Financial Officer Sure, yeah. So as we looked at the second half, Mike, we had anticipated that we would see more customer constraints on materials outside of adhesives.

We knew we could supply, but we were concerned that they wouldn't be able to get all of the materials they needed to produce their products. And, you know, while the market has been tight on a lot of materials, it hasn't been so much short. So that resulted in a little better volume performance than we anticipated. I would also add that the demand markets are fluctuating a lot more than they usually do.

Our order patterns are fluctuating more than they usually do. You know, we're seeing instances where customers, especially mid- and small-size customers, are en masse doubling the amount of time, or the interval, between their orders, and then sometimes they shrink rapidly, particularly when the headlines are out that the price of oil has dramatically increased. So it does make volume a little more difficult to predict in this environment.