H.B. Fuller Company (NYSE:FUL) Q3 2023 Earnings Call Transcript

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David Begleiter: Understood. Thank you very much.

Operator: Your next question will come from the line of Jeffrey Zekauskas with JPMorgan. Please go ahead.

Jeffrey Zekauskas: Thanks very much.

Celeste Mastin: Good morning, Jeff.

Jeffrey Zekauskas: Hi, good morning. Did you reiterate your cash flow guidance for the year of 350 or no?

John Corkrean: We didn’t reiterate it, but it remains intact.

Jeffrey Zekauskas: So you just reiterated it. Is that what you just said?

John Corkrean: I guess, I think we can say we just reiterated it.

Jeffrey Zekauskas: Okay.

John Corkrean: And we feel good about cash flow. It’s — we had another strong quarter as expected and everything is lining up to be in line with the guidance we gave in Q2.

Jeffrey Zekauskas: Okay, great. So you’ve spent $195 million on acquisitions so far. Exclusive of the costs that you might take out or the synergies that you might achieve what’s the annual EBITDA of that $195 million in spending? And what are the annual revenues, roughly?

John Corkrean: So this year we will recognize approximately $100 million of revenue for these acquisitions and roughly $12 million of EBITDA, and it’s — I would say that is roughly reflective of half a year’s worth of contribution. Because we acquired them over the course of this year. So you can kind of double those numbers and get to what we are — what we have acquired for the amount we spent. Now there’s a little bit of synergy in that, that we are getting this year. So, maybe the number is not 24, it’s 18% to 20%, and then our synergies add another 4% to 6%. So, does that answer your question, Jeff?

Jeffrey Zekauskas: Yeah, it does. Your non-recurring charges this quarter were about $0.36. I was listening to your answers to some previous questions. Did you effectively say that your non-recurring charges in the fourth quarter would be double that, or about $0.72?

John Corkrean: No, I think that — and I kind of look at it on a pre-tax basis, and as of the end of the third quarter the non-recurring charges were about $40 million. Some of those were, won’t be repeating. We had an earn-out related to an acquisition we did last year, which is a payment we made because the business is performing better than our deal model reflected, which is a good thing. And we are — but we are seeing the impact of these restructuring-related charges and the integration cost for these acquisitions. I would expect that the fourth quarter — for the full year these non-recurring charges will be around $55 million to $60 million on a pre-tax basis and the other thing we had going on in Q3 which made that number a little larger was a fairly large discrete tax item related to settling some old tax audits. So we are not anticipating that repeating in Q4.

Jeffrey Zekauskas: In the Engineering segment, your EBITDA went up about $10 million sequentially even though your revenues were flat. Is that raw material benefits or something else?

John Corkrean: So a couple of things going on there, yes. Raw material benefits are ramping in all three GBUs and that is impacting EA as well. The other thing is the mix was very favorable in Q3 relative to the first two quarters as the performance of electronics and automotive continued — automotive continues to be very strong. Electronics improved significantly in Q3. Some of that is this China effect. So I would attribute, half of it to raw material trends and the other half to the growth in the higher margin parts of the business.

Jeffrey Zekauskas: And then lastly, Celeste do you plan to buy anything in the fourth quarter of any size?

Celeste Mastin: We are constantly rebuilding our pipeline, Jeff it’s a real focus area for us. So I never want to say, I’m going to do a deal until it’s done.

Jeffrey Zekauskas: But you are working?

Celeste Mastin: We are always working. We are always working on the pipeline and there’s a lot of opportunities that we find to invest in those top 25 growth opportunities for the business. We have 30 market segment leaders that are desirous of growing their business. They’re encouraged and incentivized to grow their business and they’ve recognized that one of the ways that they can fill some of these most critical needs is through M&A. So, yes, so we have a strong pipeline and we will continue to work that, those deals to close many quarters to come.

Jeffrey Zekauskas: Okay. Thank you so much.

Operator: I think we have no further questions at this time. I’ll hand the call back to Celeste Mastin for any closing remarks.

Celeste Mastin: Thanks, everyone for joining us this morning. We appreciate your time. Have a great day.

Operator: Everyone, that will conclude today’s meeting. We thank you all for joining and you may now disconnect.

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