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H.B. Fuller Reports Third Quarter 2010 Results

Published on 2010-09-15. Author : SpecialChem

ST. PAUL, Minn. -- H.B. Fuller Company reported financial results for the third quarter that ended August 28, 2010.

Third Quarter 2010 Notable Items:

  • Net revenue totaled $338.6 million, up 7 percent year-over-year;
  • Organic revenue increased 9 percent year-over-year driven by double-digit organic revenue growth in EIMEA and Latin America Adhesives;
  • Gross margin contracted in the third quarter versus the prior quarter; however, year-to-date adjusted gross margin1 remained at a historically high level;
  • Selling, general, and administrative expense declined versus the second quarter;
  • Acquisition of Revertex Finewaters in Malaysia was completed.

Third Quarter 2010 Results:

Net income for the third quarter of 2010 was $19.0 million, or $0.38 per diluted share, versus $35.4 million, or $0.72 per diluted share, in last year's third quarter. Net Income for the third quarter of 2009 included a significant one-time gain related to the settlement of a lawsuit. Excluding this settlement, net income in last year's third quarter was $0.482 per diluted share.

Net revenue for the third quarter of 2010 was $338.6 million, up 7.4 percent versus the third quarter of 2009. Higher volume, higher average selling prices, and acquisitions positively impacted net revenue growth by 6.4, 2.5, and 1.6 percentage points, respectively. Unfavorable foreign currency translation reduced net revenue growth by 3.1 percentage points. Organic sales grew by 8.9 percent year-over-year.

"We faced many challenges in the third quarter -- most notably rising raw material costs and raw material shortages -- and achieved mixed results. While we were successful in sourcing sufficient material to satisfy customer orders, our material costs escalated more than our prices and profit margins did not meet our expectations. Additionally, in the North America region, end-market demand contracted significantly at the beginning of the quarter, and consequently, we did not achieve our volume expectations in the region. Amidst these challenges, we successfully maintained the overall growth momentum that is a key component of our strategic transformation," said Michele Volpi, H.B. Fuller president and chief executive officer. "While we are disappointed in our bottom line performance this quarter we believe that we have put in place the actions necessary to improve financial performance in the fourth quarter and beyond."

Segment Perspective:

In North America, net revenue grew by 5.2 percent year-over-year with Adhesives up 6.2 percent and Construction Products up 1.9 percent. Nearly all of the growth for the segment was organic. After recording stronger volume growth in the previous quarter, sales momentum slowed significantly, especially in Construction Products, at the start of the third quarter, but improved somewhat at the end of the quarter.

In EIMEA (Europe, India, Middle East, Africa), net revenue was up 3.4 percent year-over-year, and 15.6 percent on an organic basis. The region posted strong growth across all geographies and market segments, benefiting from improved end-market conditions and significant new business wins with key customers.

In Latin America, net revenue grew by 8.2 percent year-over-year with Adhesives up 13.1 percent and Paints up 2.2 percent. Adhesives continued to gain business with new and existing customers, while Paints returned to positive organic growth for the first time since the end of 2008.

In Asia Pacific, economic activity remains strong. Net revenue grew by 27.2 percent versus last year's third quarter and organic growth was 7.6 percent. Sales from the region benefited from our recent acquisition in Malaysia by 15.7 percent, and positive currency translation of 3.9 percent.

Balance Sheet and Cash Flow:

At the end of the third quarter of 2010 the Company had cash totaling $141 million and total debt of $299 million. This compares to second quarter levels of $161 million and $292 million, respectively. Sequentially, net debt increased by approximately $27 million, primarily driven by cash used for the acquisition of Revertex Finewaters which was completed at the start of the third quarter. Cash flow from operations was $11 million in the third quarter. This year's cash flow was approximately $50 million lower than last year's third quarter driven primarily by higher working capital requirements to support continued growth.

Year-To-Date 2010 Results:

Net Income for the first nine months of 2010 was $48.9 million, or $0.99 per diluted share, versus $59.1 million, or $1.21 per diluted share, in the last year's first nine months. Net income for the first nine months of 2010 includes one-time charges associated with exiting a product line in Europe. After adjusting for these charges, net income for the first nine months of 2010 was $57.4 million, or $1.162 per diluted share. Additionally, last year's first nine months net income included two non-recurring items that, taken together, boosted net income. Excluding these items, net income for the first nine months of last year was $0.982 per diluted share. On an adjusted basis, net income per diluted share for the first nine months of 2010 was up 18 percent year-over-year.

Net revenue for the first nine months of 2010 was $995.9 million, up 11.5 percent versus the first nine months of 2009. Higher volume, favorable foreign currency translation, and acquisitions positively impacted net revenue growth by 9.8, 0.8, and 1.0 percentage points, respectively. Organic sales increased by 9.7 percent year-over-year in the first nine months of 2010.

Fiscal 2010 Outlook:

"As we move into the fourth quarter, we are able to provide more specific guidance for the remainder of the fiscal year. We now expect net revenue for the full year to be up approximately 10 percent from last year, with fourth quarter net revenue between $360 million and $365 million. We expect financial performance to improve in the fourth quarter relative to the third quarter and we will continue to press forward to achieve our long term objectives for profitable growth," said Michele Volpi, H.B. Fuller president and chief executive officer.

Expectations for fiscal year 2010 include:

  • Net revenue between $1.356 billion and $1.361 billion, up about 10 percent from last year (revised guidance);
  • Raw material costs up about 8 percent from last year (no change from previous guidance);
  • Capital expenditures of approximately $30 million (revised guidance);
  • Effective tax rate, excluding discrete items, of approximately 34 percent for the fourth quarter (no change from previous guidance).

About H.B. Fuller Company:

H.B. Fuller Company is a leading worldwide manufacturer and marketer of adhesives, sealants, paints and other specialty chemical products, with fiscal 2009 net revenue of $1.235 billion.

Forward-Looking Statements

Certain statements in this document may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to various risks and uncertainties, including but not limited to the following: the Company's ability to effectively integrate and operate acquired businesses; political and economic conditions; product demand; competitive products and pricing; costs of and savings from restructuring initiatives; geographic and product mix; availability and price of raw materials; the Company's relationships with its major customers and suppliers; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and environmental matters; the effect of new accounting pronouncements and accounting charges and credits; and similar matters. Further information about the various risks and uncertainties can be found in the Company's SEC 10-Q filings of March 21, 2010 and June 30, 2010, and 10-K filing, as amended, for the fiscal year ended November 28, 2009. All forward-looking information represents management's best judgment as of this date based on information currently available that in the future may prove to have been inaccurate. Additionally, the variety of products sold by the Company and the regions where the Company does business make it difficult to determine with certainty the increases or decreases in net revenue resulting from changes in the volume of products sold, currency impact, changes in product mix, and selling prices. However, management's best estimates of these changes as well as changes in other factors have been included.

Source: H.B. Fuller Company

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