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    FULLER H B (FUL)

    FUL Q1 2025: HHC margins to rebound to 16-17% EBITDA

    Reported on Mar 27, 2025 (After Market Close)
    Pre-Earnings Price$57.61Last close (Mar 27, 2025)
    Post-Earnings Price$57.23Open (Mar 28, 2025)
    Price Change
    $-0.38(-0.66%)

    What went well

    • Improving HHC margins: Management is increasingly focused on driving price increases in the HHC segment, with an expectation to restore margins to a normalized range of 16% to 17% EBITDA margin, up from Q1’s 12.7%, signaling potential for margin expansion throughout the year.
    • Robust market share gains and innovation: The company is gaining share across multiple segments, notably capturing share with major global hygiene customers and leveraging innovative products—such as new adhesive solutions in data centers and exterior automotive trim—indicating strong competitive positioning.
    • Effective cost management and capital allocation: The firm is actively countering raw material cost pressures with planned $55 million in price and raw material cost benefits for the rest of the year, alongside opportunistic share buybacks, which may enhance earnings and shareholder returns despite challenging market conditions.

    What went wrong

    • Persistent margin pressure due to elevated raw material costs, particularly in the HHC segment, which squeezed EBITDA margins in Q1 and could continue to pressure profitability.
    • Weak U.S. consumer demand, with key segments like HHC and EA underperforming in the U.S. market, suggesting potential revenue headwinds in a critical area of operations.
    • Underperforming solar business, where revenue is expected to remain weak (down about 20% year-on-year) and drag down EBITDA by approximately $20 million, revealing ongoing struggles despite repositioning efforts.

    Q&A Summary

    1. Margin Outlook
      Q: Outlook for HHC margins?
      A: Management expects HHC margins to normalize to a 16%-17% EBITDA range through pricing improvements and cost realignment, noting that Q1 pressures are easing.

    2. Cash Flow & Working Capital
      Q: How to achieve OCF guidance?
      A: They acknowledged Q1 working capital drag from revenue growth and raw material pressures, anticipating normalized trends in Q2–Q4 to deliver full-year OCF of $300–325 million.

    3. Debt vs Buybacks
      Q: Plans on debt reduction vs. buybacks?
      A: With leverage rising to 3.5x, management is delaying M&A and focusing on opportunistic share repurchases to manage balance sheet risks.

    4. Raw Material Costs
      Q: Which raw materials are rising?
      A: About 20% of their raw material portfolio is experiencing price hikes—primarily impacting the HHC segment—though prices have been flat from Q4 to Q1.

    5. Solar Impact
      Q: What’s the status of the solar business?
      A: The solar segment, undergoing repositioning away from low-efficiency panels, is expected to remain weak with a revenue decline of about 20% and an EBITDA drag of roughly $20 million.

    6. Nonrecurring Charges
      Q: Expected nonrecurring charges?
      A: After a Q1 pretax charge of $23 million—mainly from acquisition-related costs—nonrecurring items for the year should total roughly $40–50 million pretax.

    7. Economic Conditions
      Q: Are U.S. and Europe markets volatile?
      A: The U.S. market is showing signs of slowdown, while Europe presents a mixed picture with share gains in HHC amid uneven sector performance.

    8. China Trends
      Q: How did China perform this quarter?
      A: In China, both HHC and EA posted strong performance, with mid-to-high single-digit growth generally and EA (excluding solar) up in the high teens.

    9. Tariff Exposure
      Q: What revenue is tariff sensitive?
      A: Management noted that while durable goods and automotive are more vulnerable to tariffs, they did not quantify the indirect impact on overall revenue.

    10. Europe Volumes
      Q: How were Europe volumes?
      A: Europe saw broad share gains in HHC, with strong performances in hygiene, beverage labeling, and aerospace fueling an overall volume uptick.

    11. Volume Risk End Markets
      Q: Is there risk in end markets volume?
      A: Although U.S. consumer segments face risks, construction-related BAS is resilient in niche markets like data centers and healthcare, mitigating overall volume concerns.

    12. Prebuying Trends
      Q: Was there prebuying ahead of tariffs?
      A: Management reported no significant prebuying activity globally, even in typically durable goods segments.

    13. PFAS Market
      Q: Opportunity in PFAS-free products?
      A: They are actively introducing PFAS-free alternatives and capturing market share, though the overall market size remains uncertain.

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