FUL - Earnings call transcript Q3 2019

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Operator

Good morning, and welcome to the H.B. Fuller Q3 2019 Quarterly Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

to of conference Investor like Doyle, to now President Vice Relations would turn over the Barbara I for H. B. Fuller. ahead. go Please

Barbara Doyle

Good Fuller's H.B. call. welcome third and earnings fiscal quarter morning, XXXX to

John H.B. Our today and Officer; President our Officer. are Chief Owens, prepared will Corkrean, speakers questions. Fuller remarks, Vice Executive we Jim Chief President Executive Financial After and and take your

to few Please before I over cover call a items Jim. me let the turn

other measures. These First, earnings references financial a nearest forms release. useful is included of performance reminder to the comparability We to measures earnings of companies. our GAAP today these our release XX-K. that in believe non-GAAP our our our are include operating with will the measures GAAP Reconciliation that comments to measures in measure XX-Q investors the in of to is addition the assist in and and discussion in understanding results to non-GAAP of results and

statements. comments during filed our investors.hbfuller.com. factors statements results or this during our factors Form could not undertake available in be from that risks in do Actual making uncertainties. Also, We update expectations on expectations due and these are XX-K subject call. release, call assumptions forward-looking are Web to earnings with this forward-looking our differ any and made SEC at the we risk and current on discussed based site to will statements duty to These materially any

X Owens. turn call Jim the Now, in investor will I over please the turn to deck Slide and to

Jim Owens

you, Barbara. Thank

for industrial operating performance third the call. production. and solid everyone and weakening delivered to flow welcome And the we In on strong global cash environment quarter,

XX last cash XXX XX% down and us basis million commitment pay points performance year. to to increase debt our EBITDA margin allowed improved pay full our debt XX down Adjusted year Strong of to double million. flow versus

the manufacturing of gains in one of impact the around adhesives share activity Our engineering world. slower Asia in

units company our about and past. units will into combination more in global of of the reorganization I and will in talk two this the announced we growth of savings provide instead the later clarity significant business cost will call. enable business the three also and We which global had regional efficiencies. strategic three better This and

In we strategic including to share gains drive the third engineering markets quarter, continued in adhesives.

organically and Our when double quarter segment excluding engineering single related adhesives this grew businesses. to mid digits by year-to-date, digit auto high

gains. car this growth negative Strong electronics markets And and while globally in drove share auto builds new year-to-date. and outperformed business, energy the our quarter

by costs acquisition margins expenses. material of synergies in about levels. Raw delivering quarter X% and the were controlling leveraging raw We lower costs, inline with down improved our second expectations. was and material our were This favorable quarter

on synergies proactively are to efficiencies. and incremental drive to XX other And the of deliver We additional the exit to million in cost acquisition an Royal third synergies implement the this combination plant of improvements the of In track captured business H.B. business continue continue to this company benefits terms Fuller. versus rate accrue across year. from quarter we million cost X our XXXX

us performance. the quarter debt from cash actions the margins divestiture in higher free of year. of third in combined In more flow last net debt business flow down total, to the our enable these improved with of are than of cash XXX% non-core driving a quarter and funds approximately million pay conversion repay income adjusted XX Strong double

million This our our underlying is debt operating XXXX. to down $XXX margin, well improvements original for We capital are above in target our million pay year increasing XXX our our down above year-to-date driven working progress debt target target by and pay for on total this measures.

identified each of and for quarter, engineering at XXXX. flow or imperatives Although, are we improvement, gains above These the to continued three performance in manufacturing in our adhesives. margin share the sector target performance be key cash slowed and the

Slide strategic overall, numerous quarter goods I by in third the were From X. weakness share performance am in markets gains segment operating manufacturing will offset well sectors. perspective review across Now on controlled costs while were

continued experiencing. in down trend and in U.S. in which despite drop drove is to to volumes and dropped through manufacturers the August. PMI mid-XXs margin the in index weakness in low August. U.S. XX impacting sector We industrial the below solid XXs through many June April are March performance XX.X was to

highly cost is time more H.B. continue while reductions overall quarter, our our the at adhesives, capabilities to Fuller to build we in the to investments which fundamental portfolio adjustments drove efficiencies same strategy. specified make in and in growth

revenues organic improved of of have been constant benefits about half on versus the the the Americas, basis. last the flat trends first actions and now pricing year year's currency a annualized. In were Volume

EBITDA second favorable volumes material and of on was Adjusted XX% margin sequentially raw versus up the organic higher quarter costs.

third We PMI revenue economic quarter performance third core compared a a X% expect the reflecting in to the with trend currency with in margins down quarter continued XXXX. quarter were sales trends. general the constant and quarter basis organic reflecting remain in Eurozone third and XX Europe. XX EIMEA continued of line lower in approximately on slowdown to in market fourth averaged

sequentially costs, both We strong expense material improved in favorable pricing EBITDA year-over-year margins and of good the as and raw result discipline control. segment a

seasonal EBITDA and up We reflecting in will patterns sequentially revenue the typical quarter expect fourth Europe. the be

led Australia, performance the growth Asia Pacific slower sales in in offsetting and by results organic Zealand in and of packaging stable markets China hygiene Korea. increased developed New and X% year-over-year

EBITDA increased the organic modest And product Pacific up lower costs. we very improvement. and points was Asia material raw quarter year-over-year expect margin strong reflecting and growth continued improved fourth with margin revenue EBITDA mix performance XXX basis volumes, year-over-year

largely driven the organic from customers. by away down of repositioning products adhesives year-over-year, sales portfolio Construction were the planned and underperforming

were in X% in Additionally, trends were spending U.S., flooring utility constructing and year. softer than from which reflecting down sales expected, and private infrastructure the declining approximately last

compared QX. declined margin by EBITDA with points XX basis

SG&A our than more These has for margin X% XXXX. of business portfolio our and repositioning the improved costs our performance, manufacturing by margin contribution year-over-year. strengthening EBITDA impacted this actions volumes lower in underlying While are growth and reduced

business U.S. the improve actions of however, for to from we strong construction portfolio the as not start impact and took from repositioning last realize are sequentially will quarter; pickup quarter performance in We Fuller positive the the margin H.B. we third forecasting the fourth a year. revenue

a performance revenues in reflects new slowing Lastly, excluding the continued year. high our in year-to-date segments organically organic offset mid increased segment. to and of growth digits results quarter. continued and last in auto showed of and engineering the in This by compared automotive, business on quarter this X% a continuing electronics The adhesive other gains by with engineering in adhesives double slow Strong digits automotive in share basis business growth strong down which in third was the production. key single energy

lower by parts EBITDA the to business, of in our an and higher discipline. growth material increased dollars good EBITDA deliver margin XX% strong pricing margin XX% costs the of by raw driven

Our in is be energy outlook by strong to EBITDA and top-line in muted continued about expected new with performance strong. the automotive. for the fourth the quarter to margin sluggishness electronics looks quarter fourth continue in same performance

many on like realignment, and we X, in over Now, strong of our investment our before leverage the structure costs in business begins December this order to other call are that across adhesive our realignment XXXX. year, a implement steps which in in I taking to areas plan to John, while markets With parts I'd in review XXXX we fiscal in business. increase our reducing complexity to proactive growth deep expertise of adhesive turn

exceeding billion in our years position We and growth and markets margin annual that in and several have spent nearly building improved rates X growth operating of global yesterday, the achieving units. and revenues segments driving the the to business provide greater three past profitability, In we business margins EBITDA of earnings five our effort, XX%. release that next from our of realignment announced phase

and and H.B. engineering strategic world GBUs and adhesives operating adhesives, alignment end new adhesive model in efficient our Our Fuller develop This and solutions hygiene a faster and more across manner. around markets deliver health construction adhesives. to the consumable positions, better and enhances

what glass This to have now Engineering but through a we as which with a adhesives scope. includes realize referred high business, for traditionally the filtration will durable markets such similarly remain and assembly. GBU, product assembly engineering synergies end durable insulating technology respective will the solutions. factories and end markets broader will specified also and standalone significant assembly business shared as include critical with company's Combining

business double-digit adhesives and and design new model engineering of growth. organic opportunities The consistent and the generated identifying stage as development

We expect the similar future. results in

focus or opportunities health hygiene, Hygiene, put potential great margin better new at modest we health resource on favorable GBU we managing and target today, and is also targeted operating It and sustainable global markets where us care and efficiently to beauty globally, to will the and created and strategically have hygiene. the trends we on a medical improvement. focus a packaging more while adhesives consumable presence more consumables allow and have that HHC growth for will By growth business lower cost. but a

also announce the DuPont He's that packaging, during and have semiconductors, join industry selling and lead I'm marketing Dow. as to integration joined Fuller and H.B. prior Andy senior business has Dow experience leader Tometich at Andy His the HHC. to to served and pleased Corning broad into team. and throughout deep has to end expert beauty, in markets into I'm construction, a Andy like relationships diverse field, very healthcare. the our pleased specialty materials the true

will and greater segment continue a less construction XXXX. and standalone focus already at a to on adhesives builders, is construction cost margins enabling lower Construction with reported realignment adhesives customer and we will time and to complete of durability. in in Construction After workers expect to period GBU. growth return adhesives higher product XXXX, a architects, remain projects in to as with

Chief to Adhesives, three to named who Ted Royal The in Operating report reporting was of former Officer GBUs me. the in H.B. Clark, CEO Fuller's would August

will across and next This natural step global a evolution. drive our of our important growth Ted COO, execution realignment initiatives strategy the company's and is in As company.

to world. strategies our market segments eliminating the to of units around require growth faster the strategies opportunities global have the structure. while cost our address coordination Organizing us will global and and regional into ourselves enable global of business execute complexity All

effectively seen work which delivered XX%. separate organic now for engineering annualized including adjusted model EBITDA margin has over a XX% adhesives, results this growth We global business exceptional as have and

key businesses, positioned other the they adhesives to engineering We to from our are learnings success. so applying replicate this are

accelerating about is structure new The growth.

adhesives, for speeding market and are streamlining demand the driving decision-making more trends, identifying allocation innovation. up quickly resource pace and of We

by is and important drive same to our continue Through manage increasing customers. direct aggressively time, our to of among and cost increase sales, the of our environment. teams. and processes challenging At effectiveness And teams. in need we structure sharing functional globally, macroeconomic to and the efficiency manufacturing management tools we the we'll our be recognize will cost realignment, down this technical serve this results simplify our Another business to to for objective the accountability

simplify the year-on-year a approximately be we approximately our global in realized leverage As our XXXX in XXXX to are and $XX will range of XX% teams, initially challenging to $XX we savings million million EBITDA targeting the support long-term target support with business and savings growth. these of environment macro by half

of a new plans the savings finalizing and impact cost call not for view detailed on in process fourth change reporting. XXXX are to in the This of them will more and achieve earnings We January, required XXXX. will provide structure our quarter the

results XXXX reporting We prior and three recasted the QX new report quarter segments into to XXXX our in historical provide results. XXXX our the our we XXXX financials to will and fiscal first segments under will begin new fiscal with for

and to customer investors. our H.B. for three business this of the moving excited business and our investors. organization of about will you, will with do really change for the for what I'm for new financial Fuller, this Along reporting global simplify benefits customers our also our units,

me outlook let the John to review and third for turn our the of results the over Now, our call rest Corkrean to quarter year.

John Corkrean

Jim. Thanks,

on was impacted in on the dollar X.X% quarter. the period which of driven net additional revenue X.X% the and same combined by down by X Slide some begin versus with details the stronger revenues negatively divestiture a financial last year, Net I'll the business, quarter. surfactants

engineering Americas was in the the and EIMEA. offset revenue products adhesives primarily for was and by about down and in volume customers construction from due lower underperforming revenue and Adjusting and an adhesives currency Asia basis. as organic away divestiture, volume flat X% growth were adhesives Pacific repositioning on that organic to segment

reflecting Adjusted reflecting material versus basis administrative margin the expense points favorable profit costs, year declined lower control XX discretionary exchange gross mix. good acquisition and about of raw foreign of and Adjusted year-on-year and synergies selling, general X% expenses. impact last increased

business. share and Adjusted the points year-over-year period million increased EBITDA EBITDA quarter year. improved was headwinds and Adjusted from for and the expense margin and reduction up versus in lower control currency lower XX $XXX offset $X.XX, versus the was business last EPS EBITDA good earnings X% lost with the the XXXX. per last impacts interest the same from excluding debt as our expense of volume last of has down divested basis currency for EBITDA was adjusting margins, year. were versus domestic same up XX% associated currency year.

year-to-date basis, year-to-date of was nine period sale up to period debt the the for more year. pay XXX repayment million in to quarter, flow us compared third $XX surfactants operating The of operations in the a debt the the of strong cash than as On business allowed month proceeds flow well the the as amount from cash same double million down last from XXXX. XX% of

We expect our turn the approximately reduction reflecting X% in year guidance now environment continued full XXXX than slowing down year. now a operating be mid to fiscal me anticipated year. let global that, With tougher industrial for revenue organic to

is to impact to and negative Foreign of the by have about expected X% sales full is a currency X.X%. surfactants impact translation year to business of expected the X% divestiture

$X.XX. total to decreased Adjusted down organic offset $XXX of expected with be year XXXX $XXX is The in the the range growth EBITDA is fiscal is by expenses. full forecasted lower $X.XX of to the now collecting compared Adjusted year X% to impact be full and XXXX. EPS favorable for expected revenue million between for raw materials million revenue reported and approximately

This of down over million our are million. out year over we full debt outlook in our XXXX year million Capital to by surpassing $XXX approximately approximately pay previous expenditures target approximately our $XXX we end will XXXX this $XX the XXXX, two from to be fiscal put pay million for $XXX XXXX set debt and estimate period updating the for at $XX are down of in now expected at million.

with synergies deliver we to continue expect efficiencies, margins strong expense by the improved an to by well as increasingly in driven We results solid acquisition quarter. operating capital focused as challenging driven flow management environment fourth both cash and in continue working

back With Jim that, call I'll for the closing some Owens to turn comments.

Jim Owens

John. you, Thank

third environment. only difficult Unfortunately, June. execute have despite economic the economic continued to we a since macro these quarter, intensified In challenges

Additional been weakness. now the tariffs have has signs of certain end uncertainty affected markets in in Asia and from are the Europe Brexit U.S. Increased tariffs introduced. showing of and parts

of while our auto our not world. sales year sector full in revised that economic there guidance. It construction could improve these U.S. could are macro and Our be XXXX that true around signs guidance we manufacturing all in factors be better reflects improving, the are if results into factoring the is trends this

flow of can executing challenging in share, our focused are segments. improving to increasing gaining trends and customers, share environment, our and margins for performance, market team delivering Well, entire strong proud responding serving strategic efficiently. I'm our cash this we our market we what quickly in EBITDA on remaining control,

a more business units efficiently. three into structure operating cost to continue operate puts our better customers global win our to with of and realignment position The employees in

call understand We're needs as our and that our our realities. well improving are this positioned concludes meet and deal let's the new open for adhesive anticipate business simplifying with and result more cost up for That structure the today. to our quickly questions. managing under We're markets economic aggressively we new growth. a for higher ability comments structure Operator, we operating organization, nimble confident prepared in our customers will some

Operator

question-and-answer first now Stifel. Anderson will will from question We with [Operator Instructions] the begin session. come Vincent The

Vincent Anderson

your question. shift much your my would so trends to add Good far how head, held kind on XXXX. full you've margin a year early basis? in of discuss this improvement mix morning. Thanks you that year seen you for current know I if say it's taking But

Jim Owens

Yes.

point I about improvements think you're a of But, little number XXXX. our talk across right. I It's a our you do to early as is mix think positive out businesses.

construction significant on reported work next the year be engineering We we're things is in some We the around this adhesive consumables the our and mix. improve hygiene, doing did mix. our of health to of adhesives improving some our is will realignment business mix our driven around continue to also and improve

positive So Go ready point. put say at a would to I'm it a head, comment? number. not this to John, you I on want number

John Corkrean

that that's that say in last range we be would XX the next improvement margin points the basis growing engineering of related would just general, we'd year would faster of probably in margin. mix I to mix. years XX, at anticipate targeting I in couple business adhesives driven annually from And be on higher really

Vincent Anderson

be ERP the contingent that that's on then, you alignment That's helpful. perspective? are way your case, you. remind and just and any of success the And the spending And implementation pace on an real in quickly us the will if you Thank can business, just from investment. both where completing

Jim Owens

Yes.

you know that to investment roll years. on one ERP as Our the out some number probably call of is, is over we've of a decided

taking And business that we're small our of to forward. that we've least anticipate lasting So, ability another and I years. divorced these at moving four it chunks the savings. from drive

get overall we but of business systems intelligence benefits our we yes, our ERP, have So that business some together. tie out

on no So, reliance ERP.

cost, can terms And of the terms John in comment… of maybe

John Corkrean

million it targeted last generally always to annual for Sure. well. and about That basis will year both of an I factored the say, capital XX several That's expenditures for on probably the I'd And on years. costs, expense million stay capital would into anticipate, that then that XX pace. as

Jim Owens

half its expense [category] of and half of About [ph]. Right. its

John Corkrean

Exactly.

Vincent Anderson

sneak I if could in. And one more Thanks. Okay.

those businesses? unit of the had profitability business do current realignment get variable unit. gross level profit based it Is the mechanisms a staff discuss for the their mentioned dollars of on other some more sales or metric? or you think on compensation And you they can revenue compensated I compensation thinking, more with along me the accountability sales realignment at

Jim Owens

Yes. compensate business segments of part complexity synergies the going bit associated businesses It components with simplifying and standardize it's contribution And is and and piece them. we're contribution call with margin revenue varies what gross a predominant a Broadly to five of some a -- contribution taking speaking happens together approaches than or variable is do of sales lot more some businesses, some our There on out what those our margin, revenue related their, the bringing of but little margin five related. things though, we either unit. some certainly having we'll part. the by a on these in by some and it group is, here is the is different create we but

Vincent Anderson

great. That's Thank you.

Jim Owens

Thank Vince. you, Okay.

Operator

next question The Securities. will from Harrison come with Mike Global Seaport

Mike Harrison

Hi, good morning.

Jim Owens

morning, Good Mike.

Mike Harrison

a what little can about and we you you how And the color the bit stronger got saw bit bit a of some bit saw little or weakening August. progressed? market maybe segment? July Jim, a was into month volume in can little of a may It you talk the provide terms be June varied trends sounds of as by you and specific little maybe quarter on those trends like region as by

Jim Owens

point me let this Mike. make Well,

early for X% think guidance, really and the about quarter that saw X% in X% and of our EBITDA year-to-date, is growth And results to adjust his we're showed showing EPS EPS I growth. about EBITDA I X% that growth script points our the some X%. in to the middle in brought currency, divestiture when of we and and you in X% I QX growth important that trends up is of John think one the think positive

And, pull less slowing make So, now of controls. levers we have slowing and the went material I've what get what is, bit we talked And lots the revenue, little of I've a there's can into we are also that resilient terms when when to point was here, tried there investors quarter costs a to little was in can in have. times than we a raw we model. of and we business expense saw

the that, was good. ability a our and capabilities to I much revenue less growth. had speaks think of model right? those the this our performance We quarter, I to in saw But definitely think expected. have our environment the through a in And think positive quarter that team, example a drive great I deliver of growth numbers of been to was better And we we if than bottom-line quarter resiliency this would kinds revenue of environment

by little I early would I So, the big it like helpful? say in that some on, eight. the period quarter. decline probably as it but quarter worse in seven was varied Is we segment. say saw a went wouldn't or It broadly got It

Mike Harrison

does. raw that where I see Yes, price pricing I quarters it after just passed And And intensified is negative was declined see really as that a year-over-year and we're to year-over-year signal pricing pricing that's that wondering, been are your we getting customers continue through think come also Got several very higher. into or lower a to to that consistently may or it. was what else? it starting expect then be surprised should just, be that signal or competitions we Is and decline thoughts just that QX something is a XXXX there? into materials to get

Jim Owens

Yes.

biggest think big now fact the last that the we lapping the component saw increases we're year. I is

down QX, QX, raw this some So, as come in some increases you're but year, significant right, have ones of sizable big we And market. in the give that some we QX. as as made not other Mike, then, in back

with but it raws some saw less is customers, we we it year. than Generally raws through it back of some get competitive what and customers we have as that's of down, agreements of come triggered and is just to dynamics. in we Some some this give

year. So, as our at especially businesses concerned, that some of certain future's of in some the products specialty segments annualized the have as happen price our end the increases far and

come we get as backs momentum some then, raws be back. the there'll positive year. towards course, on And some the price of of will more be end that'll So give

quarters positives two be a go the we dramatic related but or forward, of don't couple expect negatives of in next to it'll as we So, combination the price.

Mike Harrison

Thanks very much. right. All

Jim Owens

Okay. you. Thank

Operator

from come bank. The Begleiter of Deutsche next will question David

Katherine Griffin

Katherine on for Griffin David. is This morning. Good

the start the And has how business adhesives, better? see portfolio. repositioning in in the So, comparison the to complete expect of get could repositioning first been perhaps when your to construction minus you due and be much could Jim decline when we directionally,

Jim Owens

Right. Yes.

So, construction was some mentioned did decline. made spending of see the we to repositioning. the the that as most of down slow up during rest the And decline related I call, in the

what for be QX. would would I say that So

Going work forward, in in QX. repositioning went forward this middle earnest the of

So, negative you'll definitely see rate than you we quarter, better a saw organic next see QX still growth quarter. better but should positive to growth in much organic expect this what And year. of next

next we'll mean see margins margins result this quarter full of also have. positive see to work. effect year-over-year, You'll improve certainly starting because should the QX thing have in then margins of year-over-year the and as And a repositioning year-over-year we I definitely QX

Katherine Griffin

Thank mentioned you. the have decline August you through if construction-related how seasonally been maybe that or wondering of some markets of in if ticks has And June or was get improved, you September. up activity seen in in to August far out any Okay. due business Europe you Have I'm as thus over demand, better coming weather.

where in we far So, QX? thus are

Jim Owens

Yes.

So weeks I in our into trend we're that our three the based on guidance said was of we we would see. script what say, QX. continuation every is

picking are housing have negative, a they're of pieces they're data few been, auto out auto are starts there, than even or builds sales find can that when You up. better

[ph]. we in [PXXs] but we into data as a lot there's few So predicting go things I big that there happen upturn, negative don't here of are we're wouldn't positive. see pieces say a out some that of

direction. that that's certainly So projecting of flat we see we're off negative I that, get us and necessarily a things not in don't think

Katherine Griffin

Great. Thank you.

Jim Owens

Thank you.

Operator

will next Ghansham The question come Panjabi from Baird. of

Ghansham Panjabi

Thank you. Hey morning. guys. Good

Jim Owens

Ghansham. Hi,

Ghansham Panjabi

us global and it's and off profitability Barbara, I out first segment, terms XQ, a a engineering Jim, a specific for thoroughly the of growth you called and of quarters. autos autos have production been at weak workout to over in past for while particularly adhesive basis. been but guess the several the as schedules Jim terms on weak on being least John in on

actually to weakness? are maybe regional more where are some exactly, a you us parts, and as you auto So just the weakness you give seeing can context standpoint where from seeing

Jim Owens

Yes.

yes, re-read mentioned last up So, bring I I you a good quarter, script. I point. briefly this think the

Our was last XX%. quarter And was plus organic in EA growth on a big with revenue auto. drag that

So, x-auto. a we lot were better than XX% underlying

think think similar so XX.X% I saw And number. we're some other in what China's in I something seeing that reported in minus are on I is worsening latest the or versus auto reported areas. trends QX last QX But, numbers

a But, year-over-year big some out the are share a the point And our better year, of and decline see we negative numbers that there's auto. So, auto felt in because that's in number. we what builds numbers, down total throughout than big you as little gains. pull your

tied where tying got electronics some into wins. terms applications, business our business of think of headlamp our tie some as is our electronic auto things ins. of In of We're the interior we've applications, like -- business, where our vehicles our things some trim business to growth is, more related to

terms one is So, interior share tier but usually but the business, in suppliers. growing of piece and trim, think the it of electronics headlamps about then

Ghansham Panjabi

have on macro the related the we're you in and just Got on project seen trends deviation terms level, the to uncertainty continued it. more That's helpful. from broadly? based what obviously just And EA then customer the activity, new any of the just seeing, segment,

Jim Owens

Yes.

Royal While the into in bigger last pipeline of year early QX a the the to and that mean, wins are quick wins Royal integration of and the integration team the go are fantastic. strength this of to There's I this XXXX. some year. strength with wins we've got couple from early -- the continues some

a lot that momentum yes, team. of So, with

was you growth the a getting think some Europe acquisitions new that that centric. job in we've business, that good of it now I made business we're there's applications business, and which we nicely. it we're had, Korea. growing India, think if winning. expansion an about in business in is U.S., globally, doing core And There's the We're bringing China, in

yes, line good yes, So of bottom pipeline wins a is underlying it.

over a the the and finally was it for our I past then, thought EBITDA comment American just quarters. five margins And two-part question, And you segment, on also trend year-over-year below where just forecast the margin did the you cost Thanks to how referenced. on savings some lastly, to get savings? just that buckets you high expect XX segment realignment much. million those you million the in the give as to Can us so XX in level

Jim Owens

Okay.

So, yes.

I we was with expected. So, margin Americas in line broadly think the what

sequentially think QX. I was up it versus

think office, people's you I QX, comparing sequentially. they some that's estimates but look I why it to you at think if business to were year-on-year maybe want a were

to the quarter. did up. expected tick margins We They in

to long-term stay are business. range Our XX% XX% to in that goals that in

XX% but up it XX%, not see tick to some consumables tick. in nice business. wins as up driven our script, that volumes quarter-over-quarter want I it we the And, So, was the mentioned to by in a in up to a XX% in XX%, the positive

then, And the question? second

Ghansham Panjabi

cost the Was XX plan, XX XXXX, that savings, the buckets the associated realignment that? for with to

Jim Owens

Yes.

So doing on it's we're -- that. work the right now maybe, again,

I about some want I to you the think of detail where too of of growth three it's it's have that resources but opportunities. and fact we strategic get Part we the coming So, creates real itself is don't where segments focus our make positioning in can much into to from. see eliminates coming, The redundancies. instead fundamentally certain five on

of a that some resources there's to going we where way on focused that those trim have find resources. growth, So we're aren't areas to

a corporate combination the that, level had on of other we and corporate managing global level, businesses. thing complexity in our of regions a then, And a of is all functions

we're as able costs a some corporate level, to trim on So well.

and of this, well. realignment. it's this you we're that things through And spend whenever everything come that as a re-examine there's to chance going do to think a naturally money on you like go process I out So,

next of numbers picture but details forward reporting we'll So by there's give quarter and I sizable are and clear look -- buckets, think we very a out there's the we you piece piece. the there that those to think

Ghansham Panjabi

Thanks so much, Jim.

Jim Owens

you. Thank

Operator

come question Buckingham next Dmitry from of will The Silversteyn Research.

Dmitry Silversteyn

Yes. my The for morning guys. couple Good if Thanks taking question. of questions, may.

of -- completed a a of May. all, the First acquisition in company of third think Carolina-based you towards -- end small the I quarter

quarter? fourth? in at revenue for did positive basically of have do of negative, construction, the So, contribution something it like less the third end or in quarter the more second or the terms for margin, you expect And or any

Jim Owens

Yes.

impressive. That in we America, Yes. a that Very And actually Dmitry. glass in the integrated distributor within North the So, that was insulating you read every relationship company. business. Royal detail had

EBITDA minimal impact was of the the and in the the -- both quarter So, revenue terms performance. in

Dmitry Silversteyn

Okay. it. Got

So, own? you was selling basically that a it were to now customer you

Jim Owens

brought capabilities, Yes. we resources, the When cetera. exactly. Right, et all

Dmitry Silversteyn

you. I Got of one got, mean, reading in here this trend for beginning a I I that, a much you something you of mean, be is is you've term should should leaf longer buying how or -- I this be of distributor? a a could doing off? be terms

Jim Owens

the No. To talk about specifics there.

we a long-term not insulating business ours that answer them, had is short we through U.S. and in We no, he distributor Europe, when trend. so direct in a this U.S., the glass bought business So direct our conflict in resolve. the had the sold Royal to but it's in Royal sold between

So, in it was about resolving the conflict market. that

Dmitry Silversteyn

Got you, you Thank Jim. for that.

is the pricing competitive that or pricing, any one one raw concentrated environment, coming keep just any were you to broad why, in was What the based? -- pretty earlier little question or either a Secondly, down was an little want the room have to price bit region division you or bit the a on to the I material were unit, business declines so keep. obviously, follow-up more on businesses they and understand down, reasons it

Jim Owens

Yes.

every decline either I think slight versus they increase were a quarter. last -- price price showed less business or

concentrated it wasn't any business. single in yes, So,

Dmitry Silversteyn

we down EBITDA then, that this saw signify? I the does are guess that time in on I trying, American was Okay. year-over-year, understand your business. adhesives EBITDA, margin that And year over What question for but first I'm a

Jim Owens

Yes, signify? an last QX. strong price really and And with we increase then, our customers. our you think What a year we because jump that QX position volume put was were to saw rebalancing does in exceptional QX forth I what

So, I as tick think it. up it's year reasonable. way I third special a It's look year-over-year, that at we but last sequentially, quarter the had

Dmitry Silversteyn

on it now, I in almost actually Yes. quarter you looking EBITDA XX% margin get at the that line.

So up very a against comp. yes, we going tough weren't

way, touched maybe maybe you bit realignment, Okay. doing by you but can provide in detail, And question, guys this, it. are which, more you great little a on final Jim, the that then, this

this the cost simplifying, next order. of million $XX think managerial in $XX gains key getting of generate see, structure the some million under you're and to do to control short-term SG&A structure of is settings I operating Besides in your this obviously over are going managing and sort to what the and forward? years, businesses direct sustainable of performing, of more how going more couple you management of in these sort new realignment long-term benefits mid to format perhaps

Jim Owens

Dmitry. so company how that understand a It's think had really really, our thanks complexities long the move feedback Well, and time, for followed we us to we for you've you you're had and forward. the right. I good Yes. Yes,

the I think biggest the are point to tried to this this I around growth. benefit in commentary, make

is, in way. identify we've done businesses, resources structure aggressively the We engineering able what our and see adhesives in allocate but those got sometimes toward trends both then other our regional And the been we've in markets opportunities. in to

new the in can So, opportunity, initiative world I them. new on things say that as were put hygiene future. that's that right? a see that be down to road behind Those the I so the that's resources all that's the an a terms able resources both space, or sustainability aggressively we aren't we happening We'll coming adhesive in mentioned, of in putting or thing today, medical we would

can't ability business, of our and the change some think based current our they biggest our managed, pick also world's because adhesive I resources we to So, that businesses have we as our in geographies and and go -- ship it's there regionally and moving structure to they geographic the where is the after we're want well. on engineering

to initiatives. businesses. are to the us come going So, I think come they benefits But tackle from we're very growth cost is, intuitive. growth big is sustainable from the and They third our workout say I'd opportunity simplify piece And allowing exercises, Dmitry the around ability real drive while on they go they efficiencies people we just and that serving which and mission, processes focusing businesses have after, of that three are is have go markets to so to standardization some can market cost are how which and unique the simplicity also they customers.

your So, this opposite benefits hopefully lot question, of on a but, answers the that to there's side.

Dmitry Silversteyn

for that a Jim. lot. Okay, response. Thanks Thanks

Jim Owens

Yes.

Operator

The question Citi. Petrie will of come next Eric from

Eric Petrie

morning, Hey, good Jim.

Jim Owens

Good morning, Eric.

Eric Petrie

adhesives. improvement are similar Why ask, regions? margin engineering across different did of points margins basis they nice showed You relatively in or XXX

Jim Owens

would at look those by we say the segments. I Yes. end

engineering the -- think shift not that more engineer higher right, asking regions is shift -- we're about within adhesives. And a in talking I market So the I regional you're toward think, end about segments. a shift. It's

say, we're Regionally, in, it segment, which given we're segment depends I any but would similar. strong in on

are similar are the similar margins segment So, the regions. regions. across Automotive margins across electronics

question. your answers that hopefully So,

Eric Petrie

being Okay. you kind in end we lead ramp think of And medical Should on profitability or growth you to to similar be market opportunity. commented of times expect? and revenues should we that recognize, have where to segment the engineering specked what in

Jim Owens

Yes.

think was It when that of think started all did terms size sizable of saw growth. we were it we behind grow can a maybe we started adhesives, we we it able but -- about put you engineering, in I electronics. current business. and medical about in the think then, business engineering adhesives. what business our the with to actually within not of lots what of investment We of electronics and And

see sizable I us impact looking now, going you'll talking having three but XXXX or it'll and think impact. our to beauty days in early at. the hear think you're business ahead, from overall and some we're for very about two be committing. I But years that's big medical to corporate still John. So, numbers, Go don't from a me something what be

John Corkrean

the it margin would think I the of business our more it is as more some like so it question is one to other and that's similar getting higher say on and your I sticky, in, reason the it is ramp businesses. we of and electronics But, reasons to that's specked of one well.

Eric Petrie

your keep at any does we in terms guidance? at do night you you risks lastly, should of Okay. for or China downside the Europe risk, awake how regional, And guidance, or revised see then, look

Jim Owens

think lot I happened look than when into a QX. worse it Yes, quarter, this what we certainly at we going was expected

some to precipitous that. at this. that mentioned, if lot that as I I think than see, you look certainly don't see downturn to very a when you lot downside don't better to, that, a positive we could, could QX, But I I things are point I of see wanted a it that even, make from and

be I think answer. would the fair

Eric Petrie

Thanks helpful. Jim. Okay,

Operator

next question of The come Jeff will JPMorgan. from Zekauskas

Jeff Zekauskas

much. very Thanks

how Exports moving a You're your business, of have X more global billion -- revenues part off of large regional operational business revenues? are like export to a model much from you model. that

Jim Owens

very exports think a of part I Yes. wouldn't our are it call small global model, functional I business.

one our in I why about the really part revenue but and drive to way decisions another. yes, world is are important in think So, made is, business of think the this that

electronics packaging Equipment the sell decisions the Asia. world. equipment sold packaging in are driving if around ends new over all manufacturers revenues So, that California in you're up world business, the that made being in specify

made. revenue part strategy the part oftentimes -- in they're of of our So, world. the one and another it's of off decisions strategic the is it's the And business driving of world in where made

for that's So why our that's important business. really

Jeff Zekauskas

what and downsize is basically is functional want is, you have regional it? you strengths, is only, managers that blend those and to So, you managers the two theory you and have think need you

Jim Owens

it's would the where we building executed Jeff, run So, past, of we to of In in regionally and adhesive a today, and have strategies is in health the right? in packaging, or a right? each sort we more electronics say regions. global aerospace do strategy, and strategies hygiene, global strategy, leadership one global it, these the was think we we had the that's That's but were regional. all then what would executed, beauty. We backwards, I global way our auto Yes. engineering about global and a have

those global leadership, global executed, regionally it's within but strategies So, businesses. executed regionally

regional going not execution for going each Europe to of leader the have businesses. There's a one to businesses. So, those be regional a across I'm in

So, hopefully that helps.

Jeff Zekauskas

thought where had had rationalized which area growth. pretty newer had of of I listed then, And thought had a or you would positive lastly, construction you would and that been had plants I were And EBITDA large. detrimental and been had some have some older you -- your closed functions, products an the facilities, that terms plant really in some margins your

have what revenues is and EBITDA side talk you on large that you why positively drop relative area? the done so can the about in to cost So the

Jim Owens

question. I'll So, if I'm I not comment let further. I John mean, sure your understand

improved The is you incrementally. incremental your improved is, greater, point when you which have margin as a business. you it's problem even -- we've got you we've margin high are it's have high think -- EBITDA our businesses have impact high down, now. when a then it I the So margin on right? out, revenue, we've negative And that

you'll very positive year, see As they again grow increments. next

really like yes, So reasons business, which positive strategically. of it the one incremental a we sizably it's margin

terms of In in year-over-year that X% in cost got I business. total reduction year, we've mentioned SG&A this reduction a [indiscernible] script, the in

costs pulled product profitable. projections a a the last of plants. of we resources on that the combination weren't of year. and that's business some of lines We've were taken focused took that closed lot shift out and we We those out facility So, customers

a cost lot we So of do did we [indiscernible]. as

Jeff Zekauskas

Okay, you. great. Thank

Jim Owens

ahead, Go John.

John Corkrean

this the look of work, of box You repositioning contribution at year versus is underlying up minus sort the material to last the portfolio. related revenue

start the add healthier annualize and it much volume. underlying to at really we improvement, look have weighed So, I But, think out if all business as volume. you that is and a think margin take cost I down by getting we

Jim Owens

overall is and the high margin we is to true so a that it think need I that we growing benefits business that. the can incremental get point this see of

Jeff Zekauskas

much. you Thank so great. Okay,

Jim Owens

you. Thank

Operator

from Rosemarie Research. come will question next of Morbelli The G

Rosemarie Morbelli

morning Good you. everyone. Thank

Jim Owens

Good morning, Rosemarie.

Rosemarie Morbelli

we what Jim, and show it sounds down we though but as though be are auto read on equipment heavy built and auto also down. based hear, slow might to as and being ag truck you stabilizing, mentioned it what some beginning sounds

mostly auto? involved well or So those particular you applications it is in are as

Jim Owens

Yes.

automotives. Our our exposure than smaller -- to much very and truck heavy is is equipment

incrementally. So, yes, very but we very, it's sell small those markets, into

Rosemarie Morbelli

in you a that trend in recent area? do the particular see And change

Jim Owens

a there's is think that so through sales Rosemarie shows have there's early. seen. says area? particular there And I would that But down, are terms U.S. that read Yes, data and going builds data think as bad get market I I builds, the are that builds shows don't ag builds But, data in imply the is in In yet the are slow I builds, moving. external that that of that don't some good of data especially any area. to that overall out yes, But, some There a comment think moving on that I've the again aren't better. equipment. on your data as no that

Rosemarie Morbelli

size that then, this thanks. started a when you size today? us And medical. of mentioned started the electronics and Okay, at a same very you is you level. And situation Can for is [indiscernible] electronics small remind it what you

Jim Owens

Yes.

but we we not dollars level millions I of was it publicly started, tens when something on said typically Rosemarie, share think of the that's So sub-segment in past right? I've low So… the

Rosemarie Morbelli

And has it doubled, tripled?

Jim Owens

It's grown very significantly.

Rosemarie Morbelli

business, it that globally? I Are remaining All right. the if thoroughly planning business? lastly, And you on as in construction is expanding U.S. may, then

Jim Owens

opportunities do we have. short-term Well, piece Yes. has from portfolio we global get business other that of definite Australia. and that's business have world. a we Royal clear in And want U.S. to roofing it opportunities of in really, with in the parts some There The the are the running we really well bought

global yes, but So, long the short-term a we has and think technology have in run, priority. think the that we our I approach that's presence, not the

XXXX. margins short-term priority back in to is expanding the growth getting and Our

Rosemarie Morbelli

to no environment? are I you the or of segmentations, at if targets There because numbers. up current get the your all by segments, XXXX going new I And then, again, look may Okay. if we those looking targets way those based of different bunch on are to at we the if is similar

Jim Owens

Yes.

this of a said the next business few we And years. year, in mind. maybe by Rosemarie, EPS I that, XX% end we plants than building would with think our the we think EBITDA XX-ish ideas grow growth which at have our we're imply opportunity when percent, higher last what in to those targets, reestablished over the an we

the out, cost might few over to a in we're but years. looking of next world it's have at So, slower get more that's our terms what future

Rosemarie Morbelli

All right. you. Thank

Jim Owens

Thank you.

Operator

question from of next Berenberg. Misra Paretosh will come The

Paretosh Misra

you. thank Great,

much your automotive? engineering business, is in currently So adhesive how

Jim Owens

Yes.

think little overall you a said think exposure. describe company don't thing our we again, it's we is the So can but well, is, publicly, out have the of -- I I that over X%

Paretosh Misra

Got it.

portfolio engineering current the of organic then, single-digit -- you it's the So the engineering kind rate would rate that in growth what rest environment, portfolio, say, high like the right is -- for growth of adhesive achievable?

Jim Owens

Yes. Certainly better. are that

I you All are those it's think getting our of lot We're a that down as but markets wins the also slowing double-digit. QX, in business. in average a year saw is business. for lumpy

these from things of in quarter-to-quarter. Some come

I expectation So, we're overall. even x-auto, this in say that's digits our would double and environment, delivering

Paretosh Misra

lost on quantify if how much to you this And moving portfolio ballpark, because I then, and year you I'm but Got it. took? can missed of construction, revenue Fair that, just you actions enough. maybe sorry

Jim Owens

Yes.

we more little the -- not in a this quarter, said of than a think well, little half even it's half, more more. I than it's

this majority decline of because quarter in the saw versus last the quarter. spending mix what of in we it construction is So, and sizable the is shortfall we portfolio the saw rest

Paretosh Misra

a And one for assumption? what's last me, it. Got QX, material raw your

Jim Owens

raw assuming are We're materials Yes. flat.

generally I a that are think little there's more materials the are going batch, favorability there across but up. certain

So, overall flat.

Barbara Doyle

Flat to QX.

Jim Owens

to QX, prior year the To not QX.

Paretosh Misra

Thanks good Understood. everything. and guys luck with

Jim Owens

you. Thank Okay.

Operator

from question of Intelligence. will next Christopher Perrella Bloomberg come The

Christopher Perrella

Hey, Hi, good morning. question. quick

your it extend? it the out visibility In varies terms in markets, of businesses, what's couple depending your but and the of months or order does maybe on far the orders for next book, how end across the

Jim Owens

Yes.

in customers of business, a So them our order month advance in most or less.

time, weekly business. two to So, a lead three time it's

a market. by by business So and lot and it varies

Christopher Perrella

right. All And then..

Jim Owens

question. overall, business that's lot our actual of have but and timing that. And a wins the do was our on on We your visibility orders

Christopher Perrella

it's down looking down ahead in though what And or I target pay does looking next debt the free for. -- of you know And And that of for debt to going cash? ratio leverage that schedule. through the of year Did bad with you, you're accelerated I up that the then get the year. you're have pace the you pay forward, once terms guess going slow this

Jim Owens

Yes. we debt do aggressive pay got very what on a view in down. We've need to

view And in made we investors. than and our think that's We levered Royal. great a would higher I us our is for we've priority acquisition a normally do. for key

we've debt, this of aggressive So, year, XXXX. again down we but commitments pay along not in the just the down, also expected you'll drive that just for taking steps pay see in us up necessary environments, all kinds to

Christopher Perrella

you very Thank right. All much.

Jim Owens

Thank Yes. you.

Operator

And this turn session. to concludes Jim now question-and-answer back for remarks. closing would like any Owens I conference our to the over

Jim Owens

very a thanks everybody a positive of your our also We're a result today. what positive business, in tough in and environment. our very -- I for think for realignment Well, It's committed see show time our been to next step Okay. our we'll as step. deliver investors, I

So thanks for today. time everybody's

Operator

for The concluded. Thank conference now Thank you attending has today's you. presentation.

You may a now disconnect. great Have day.

H.B. Fuller (FUL) 26 Sep 192019 Q3 Earnings call transcript