H.B. Fuller Reports Third Quarter 2023 Results

Net income of $38 million; Adjusted EBITDA of $156 million, up 13% year-on-year

Adjusted gross profit margin expanded 350 basis points year-on-year to 30.0%

Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%

Cash flow from operations increased $50 million year-on-year to $108 million

ST. PAUL, Minn.--(BUSINESS WIRE)--H.B. Fuller Company (NYSE: FUL) today reported financial results for its third quarter that ended September 2, 2023.

Third Quarter 2023 Noteworthy Items:

• Net revenue of $901 million, down 4.3% year-on-year; organic revenue decreased 7.4% year-on-year, driven by lower volume;
• Gross margin was 29.3%; adjusted gross margin of 30.0% increased 350 basis points year-on-year, driven by pricing and raw material cost actions and restructuring benefits;
• Net income was $38 million; adjusted EBITDA was $156 million, up 13% year-on-year, adjusted EBITDA margin expanded 270 basis points year-on-year to 17.3%;
• Reported EPS (diluted) was $0.67; adjusted EPS (diluted) was $1.06, flat versus the prior year, as strong operating income growth was offset by higher interest expense and unfavorable foreign currency exchange;
• Cash flow from operations in the third quarter improved $50 million year-on-year, or 87%, to $108 million.

Summary of Third Quarter 2023 Results:

The Company’s net revenue for the third quarter of fiscal 2023 was $901 million, down 4.3% versus the third quarter of fiscal 2022. Organic revenue declined 7.4% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 8.0%, driven by customer destocking actions, principally in Hygiene, Health, and Consumable Adhesives, and generally slower industrial demand across all three global business units. Volume development in the third quarter improved significantly versus the second quarter, when volume declined 14.2% year-on-year. Pricing actions favorably impacted organic growth by 0.6 percentage points. Foreign currency translation reduced net revenue growth by 1.7 percentage points and acquisitions increased net revenue growth by 4.8 percentage points.

Gross profit in the third quarter of fiscal 2023 was $263 million. Adjusted gross profit was $270 million. Adjusted gross profit margin of 30.0% increased 350 basis points year-on-year. Pricing and raw material cost actions, restructuring benefits and general cost reductions drove the increase in adjusted gross margin year-on-year and more than offset the impact of lower volume.

Selling, general and administrative (SG&A) expense was $172 million in the third quarter of fiscal 2023 and adjusted SG&A was $159 million, up slightly year-on-year. Continued cost management and additional restructuring benefits offset inflation in wages and services and the incremental SG&A costs associated with acquisitions completed over the previous year.

Net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $38 million, or $0.67 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2023 was $59 million. Adjusted EPS was $1.06 per diluted share, essentially flat year-on-year as strong operating income growth was offset by higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.17 and $0.05, respectively, year-on-year in the third quarter.

Adjusted EBITDA in the third quarter of fiscal 2023 was $156 million, up 13.1% year-on-year. Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s third quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation.

“In the third quarter we successfully drove a double-digit increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin meaningfully, demonstrating the strength of our business model and ability to increase profitability regardless of market conditions. We achieved profit growth despite weaker than expected volumes, driven by a more adverse customer destocking impact in Hygiene, Health, and Consumable Adhesives and lower market demand in construction related markets,” said Celeste Mastin, H.B. Fuller president and chief executive officer.

“The restructuring actions we announced in the first quarter in anticipation of a challenging volume environment were timely and prudent. During the third quarter, we increased the scope of these actions to deliver additional cost savings and enhance our overall operating efficiency. These actions, plus ongoing execution on price and raw material management, enabled us to drive adjusted EBITDA higher despite temporary volume weakness that exceeds true underlying demand.

“Looking ahead, we are encouraged that the unusual global customer destocking phenomenon that has taken place across nearly all end markets is abating. Customer destocking largely ran its course in Engineering Adhesives and Construction Adhesives and peaked for Hygiene, Health, and Consumable Adhesives during the third quarter. As demand conditions normalize, we expect the continued strength of our innovation pipeline, coupled with the operating leverage created through our restructuring actions, to drive significant value for our business in 2024 and beyond.”

Balance Sheet and Cash Flow Items:

Net debt at the end of the third quarter of fiscal 2023 was $1,790 million, up $11 million sequentially versus the second quarter and down $67 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the third quarter, offset by improved cash flow from operations.

Cash flow from operations in the third quarter was $108 million, up $50 million year-on-year, reflecting improving margins and lower net working capital requirements.

Fiscal 2023 Outlook:

• Net revenue for fiscal 2023 is now expected to be in the range of $3.50 billion to $3.55 billion with organic revenue down 4.5% to 5.5% versus fiscal 2022, reflecting lower volume expectations due to customer destocking actions and slower than anticipated underlying demand conditions;
• Adjusted EBITDA for fiscal 2023 is now expected to be in the range of $580 million to $590 million, reflecting lower volume expectations more than offset by higher margins, contributions from acquisitions, and restructuring benefits, equating to growth of approximately 9% to 11% versus fiscal year 2022;
• Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $3.90, equating to a range of down 2.5% to 5.0% year-on-year;
• We now expect actions from the previously announced, and subsequently expanded, strategic restructuring to generate between $40 and $45 million in annual pre-tax run-rate cost savings, up from our original estimate of $30 to $35 million in annual pre-tax run-rate savings. This is in addition to approximately $20 million of pre-tax run-rate savings associated with the Beardow Adams integration, which was announced during the third quarter.

Conference Call:

The Company will hold a conference call on September 28, 2023, at 9:30 a.m. CT (10:30 a.m. ET) to discuss its results. Interested parties may listen to the conference call on a live webcast. The webcast, along with a supplemental presentation, may be accessed from the Company’s website at https://investors.hbfuller.com. Participants must register prior to accessing the webcast using this link and should do so at least 10 minutes prior to the start of the call to install and test any necessary software and audio connections. A telephone replay of the conference call will be available from 12:30 p.m. CT on September 28, 2023, to 10:59 p.m. CT on October 5, 2023. To access the telephone replay dial 1-800-770-2030 (toll free) or 1-647-362-9199, and enter Conference ID: 6370505.

Regulation G

The information presented in this earnings release regarding consolidated and segment organic revenue growth, operating income, adjusted gross profit, adjusted gross profit margin, adjusted selling, general and administrative expense, adjusted income before income taxes and income from equity investments, adjusted income taxes, adjusted effective tax rate, adjusted net income, adjusted diluted earnings per share and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) does not conform to U.S. generally accepted accounting principles (U.S. GAAP) and should not be construed as an alternative to the reported results determined in accordance with U.S. GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results to the results of other companies. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported U.S. GAAP results in the “Regulation G Reconciliation” tables in this press release with the exception of our forward-looking non-GAAP measures contained above in our Fiscal 2023 Outlook, which the Company cannot reconcile to forward-looking GAAP results without unreasonable effort.

About H.B. Fuller

Since 1887, H.B. Fuller has been a leading global adhesives provider focusing on perfecting adhesives and sealants to improve products and lives. With fiscal 2022 net revenue of $3.75 billion, H.B. Fuller’s commitment to innovation and sustainable adhesive solutions brings together people, products and processes that answer and solve some of the world's biggest challenges. Our reliable, responsive service creates lasting, rewarding connections with customers in electronics, disposable hygiene, medical, transportation, aerospace, clean energy, packaging, construction, woodworking, general industries and other consumer businesses. Our promise to our people connects them with opportunities to innovate and thrive. For more information, visit us at https://www.hbfuller.com.

Safe Harbor for Forward-Looking Statements

Certain statements in this press release may be considered forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements often address expected future business and financial performance, financial condition, and other matters, and often contain words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “opportunity,” “outlook,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “will be,” “will continue,” “will likely result,” “would” and similar expressions, and variations or negatives of these words or phrases. These statements are subject to various risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including but not limited to the following: the consequences of the COVID-19 outbreak and other pandemics on our operations and financial results; the impact on the supply chain, raw material costs and pricing of our products due to the Russia-Ukraine war; the impact on our margins and product demand due to inflationary pressures; the substantial amount of debt we have incurred to finance our acquisition of Royal, our ability to repay or refinance our debt or to incur additional debt in the future, our need for a significant amount of cash to service and repay the debt and to pay dividends on our common stock, the effect of debt covenants that limit the discretion of management in operating the business or in paying dividends; our ability to pay dividends and to pursue growth opportunities if we continue to pay dividends according to the current dividend policy; our ability to achieve expected synergies, cost savings and operating efficiencies from our restructuring initiatives and operational improvement projects within the expected time frames or at all; our ability to effectively implement Project ONE; uncertain political and economic conditions; fluctuations in product demand; competing products and pricing; our geographic and product mix; availability and price of raw materials; disruptions to our relationships with our major customers and suppliers; failures in our information technology systems; regulatory compliance across our global footprint; trade policies and economic sanctions impacting our markets; changes in tax laws and tariffs; devaluations and other foreign exchange rate fluctuations; the impact of litigation and investigations, including for product liability and environmental matters; impairment charges on our goodwill or long-lived assets; the effect of new accounting pronouncements and accounting charges and credits; and similar matters.

Additional information about these various risks and uncertainties can be found in the “Risk Factors” section of our Form 10-K filings, and any updates to the risk factors in our Form 10-Q and 8-K filings with the SEC, but there may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. You should not place undue reliance on forward-looking statements, which speak only as of the date they are made. We do not undertake to update or revise any forward-looking statements, except as required by law.

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

	Three Months Ended						Three Months Ended
	September 2, 2023			Percent of Net Revenue			August 27, 2022			Percent of Net Revenue
Net revenue	$	900,634			100.0	%	$	941,230			100.0	%
Cost of sales		(637,162	)		(70.7	)%		(692,066	)		(73.5	)%
Gross profit		263,472			29.3	%		249,164			26.5	%
Selling, general and administrative expenses		(172,153	)		(19.1	)%		(161,210	)		(17.1	)%
Other income, net		1,555			0.2	%		6,559			0.7	%
Interest expense		(35,105	)		(3.9	)%		(23,450	)		(2.5	)%
Interest income		1,128			0.1	%		2,139			0.2	%
Income before income taxes and income from equity method investments		58,897			6.5	%		73,202			7.8	%
Income taxes		(22,231	)		(2.5	)%		(28,259	)		(3.0	)%
Income from equity method investments		984			0.1	%		1,587			0.2	%
Net income including non-controlling interest		37,650			4.2	%		46,530			4.9	%
Net income attributable to non-controlling interest		(23	)		(0.0	)%		(33	)		(0.0	)%
Net income attributable to H.B. Fuller	$	37,627			4.2	%	$	46,497			4.9	%
Basic income per common share attributable to H.B. Fuller	$	0.69					$	0.87
Diluted income per common share attributable to H.B. Fuller	$	0.67					$	0.84
Weighted-average common shares outstanding:
Basic		54,394						53,644
Diluted		56,033						55,130
Dividends declared per common share	$	0.205					$	0.190

H.B. FULLER COMPANY AND SUBSIDIARIES

CONSOLIDATED FINANCIAL INFORMATION

In thousands, except per share amounts (unaudited)

	Nine Months Ended						Nine Months Ended
	September 2, 2023			Percent of Net Revenue			August 27, 2022			Percent of Net Revenue
Net revenue	$	2,608,055			100.0	%	$	2,790,969			100.0	%
Cost of sales		(1,873,000	)		(71.8	)%		(2,075,392	)		(74.4	)%
Gross profit		735,055			28.2	%		715,577			25.6	%
Selling, general and administrative expenses		(493,320	)		(18.9	)%		(483,109	)		(17.3	)%
Other income, net		4,764			0.2	%		12,701			0.5	%
Interest expense		(101,305	)		(3.9	)%		(61,475	)		(2.2	)%
Interest income		2,726			0.1	%		6,170			0.2	%
Income before income taxes and income from equity method investments		147,920			5.7	%		189,864			6.8	%
Income taxes		(51,255	)		(2.0	)%		(62,023	)		(2.2	)%
Income from equity method investments		3,322			0.1	%		4,236			0.2	%
Net income including non-controlling interest		99,987			3.8	%		132,077			4.7	%
Net income attributable to non-controlling interest		(71	)		(0.0	)%		(70	)		(0.0	)%
Net income attributable to H.B. Fuller	$	99,916			3.8	%	$	132,007			4.7	%
Basic income per common share attributable to H.B. Fuller	$	1.84					$	2.47
Diluted income per common share attributable to H.B. Fuller	$	1.79					$	2.39
Weighted-average common shares outstanding:
Basic		54,279						53,498
Diluted		55,890						55,201
Dividends declared per common share	$	0.600					$	0.548

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)

	Three Months Ended						Nine Months Ended
	September 2,			August 27,			September 2,			August 27,
	2023			2022			2023			2022
Net income attributable to H.B. Fuller	$	37,627		$	46,497		$	99,916		$	132,007
Adjustments:
Acquisition project costs^1		6,480			1,138			11,634			9,008
Organizational realignment^2		10,421			595			19,055			4,915
Royal restructuring and integration^3		-			196			-			1,007
Project One		2,734			2,502			7,587			7,559
Other^4		503			711			4,098			8,267
Discrete tax items^5		6,243			6,449			9,131			7,697
Income tax effect on adjustments^6		(4,875	)		251			(9,447	)		(6,786	)
Adjusted net income attributable to H.B. Fuller^7		59,133			58,339			141,974			163,674
Add:
Interest expense		35,105			23,450			98,615			61,501
Interest income		(1,128	)		(2,139	)		(2,726	)		(6,181	)
Adjusted Income taxes		20,862			21,559			51,569			61,112
Depreciation and Amortization expense^8		41,826			36,491			118,803			108,925
Adjusted EBITDA^7		155,798			137,700			408,235			389,031
Diluted Shares		56,033			55,130			55,890			55,201
Adjusted diluted income per common share attributable to H.B. Fuller^7	$	1.06		$	1.06		$	2.54		$	2.97
Revenue	$	900,634		$	941,230		$	2,608,055		$	2,790,969
Adjusted EBITDA margin^7		17.3	%		14.6	%		15.7	%		13.9	%

^1 Acquisition project costs include costs related to integrating and accounting for acquisitions.

^2 Organizational realignment includes costs incurred as a direct result of the organizational realignment program, including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities.

^3 Royal restructuring and integration program includes costs incurred as a direct result of the Royal restructuring and integration program including compensation for employees supporting the program, consulting expense and operational inefficiencies related to the closure of production facilities and consolidation of business activities.

^4 Other expenses for the nine months ended August 27, 2022, include a $3.3 million non-cash charge related to the wind down and settlement of the Company’s Canadian defined benefit pension plan, $1.3 million of hedging costs related to the Russian ruble devaluation driven by the war in Ukraine, $1.2 million of transactional tax expense associated with an audit settlement, other expenses for COVID-19 testing, vaccinations and exceptional medical claims, and non-cash gains and losses related to legal entity consolidations.

^5 Discrete tax items for the current year are related to various foreign tax matters offset by an excess tax benefit related to U.S. stock compensation. Discrete tax items for the prior year are related to the revaluation of cross-currency swap agreements due to depreciation of the Euro versus the U.S. Dollar, as well as various foreign tax matters offset by the tax effect of legal entity mergers.

^6 Represents the difference between income taxes on net income before income taxes and income from equity method investments reported in accordance with U.S. GAAP and adjusted net income before income taxes and income from equity method investments.

^7 Adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin are non-GAAP financial measures. Adjusted net income attributable to H.B. Fuller is defined as net income before the specific adjustments shown above. Adjusted diluted income per common share is defined as adjusted net income attributable to H.B. Fuller divided by the number of diluted common shares. Adjusted EBITDA is defined as net income before interest, income taxes, depreciation, amortization and the specific adjustments shown above. Adjusted EBITDA margin is defined as adjusted EBITDA divided by net revenue. The table above provides a reconciliation of adjusted net income attributable to H.B. Fuller, adjusted diluted income per common share attributable to H.B. Fuller, adjusted EBITDA and adjusted EBITDA margin to net income attributable to H.B. Fuller, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

^8 Depreciation and amortization expense added back for EBITDA is adjusted for amounts already included in adjusted net income attributable to H.B. Fuller totaling ($348) for both the three and nine months ended September 2, 2023, respectively and ($148) and ($459) for the three and nine months ended August 27, 2022, respectively.

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

In thousands (unaudited)

	Three Months Ended						Nine Months Ended
	September 2,			August 27,			September 2,			August 27,
	2023			2022			2023			2022
Net Revenue:
Hygiene, Health and Consumable Adhesives	$	402,388		$	424,978		$	1,190,402		$	1,252,405
Engineering Adhesives		365,862			378,264			1,063,009			1,137,587
Construction Adhesives		132,384			137,988			354,644			400,977
Corporate unallocated		-			-			-			-
Total H.B. Fuller	$	900,634		$	941,230		$	2,608,055		$	2,790,969
Segment Operating Income (Loss):
Hygiene, Health and Consumable Adhesives	$	52,737		$	47,470		$	149,474		$	122,950
Engineering Adhesives		52,931			39,776			129,806			115,266
Construction Adhesives		5,853			6,391			2,189			22,032
Corporate unallocated		(20,202	)		(5,683	)		(39,734	)		(27,780	)
Total H.B. Fuller	$	91,319		$	87,954		$	241,735		$	232,468
Adjusted EBITDA^7
Hygiene, Health and Consumable Adhesives	$	69,172		$	61,834		$	194,125		$	166,304
Engineering Adhesives		70,723			56,061			181,758			165,461
Construction Adhesives		18,519			19,619			39,584			59,616
Corporate unallocated		(2,616	)		186			(7,232	)		(2,350	)
Total H.B. Fuller	$	155,798		$	137,700		$	408,235		$	389,031
Adjusted EBITDA Margin^7
Hygiene, Health and Consumable Adhesives		17.2	%		14.5	%		16.3	%		13.3	%
Engineering Adhesives		19.3	%		14.8	%		17.1	%		14.5	%
Construction Adhesives		14.0	%		14.2	%		11.2	%		14.9	%
Corporate unallocated	NMP			NMP			NMP			NMP
Total H.B. Fuller		17.3	%		14.6	%		15.7	%		13.9	%
NMP = non-meaningful percentage

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)

	Three Months Ended				Nine Months Ended
	September 2,		August 27,		September 2,		August 27,
	2023		2022		2023		2022
Income before income taxes and income from equity method investments	$	58,897	$	73,202	$	147,920	$	189,864
Adjustments:
Acquisition project costs^1		6,480		1,138		11,634		9,008
Organizational realignment^2		10,421		595		19,055		4,915
Royal restructuring and integration^3		-		196		-		1,007
Project One		2,734		2,502		7,587		7,559
Other^4		503		711		4,098		8,267
Adjusted income before income taxes and income from equity method investments^9	$	79,035	$	78,344	$	190,294	$	220,620

^9 Adjusted income before income taxes and income from equity investments is a non-GAAP financial measure. Adjusted income before income taxes and income from equity investments is defined as income before income taxes and income from equity investments before the specific adjustments shown above. The table above provides a reconciliation of adjusted income before income taxes and income from equity investments to income before income taxes and income from equity investments, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands, except per share amounts (unaudited)

	Three Months Ended						Nine Months Ended
	September 2,			August 27,			September 2,			August 27,
	2023			2022			2023			2022
Income Taxes	$	(22,231	)	$	(28,259	)	$	(51,255	)	$	(62,023	)
Adjustments:
Acquisition project costs^1		(1,569	)		55			(2,620	)		(2,154	)
Organizational realignment^2		(2,523	)		29			(4,247	)		(1,140	)
Royal restructuring and integration^3		-			10			-			(213	)
Project One		(662	)		122			(1,655	)		(1,284	)
Discrete tax items^5 and Other^4		6,123			6,484			8,208			5,702
Adjusted income taxes^10	$	(20,862	)	$	(21,559	)	$	(51,569	)	$	(61,112	)
Adjusted income before income taxes and income from equity method investments	$	79,035		$	78,344		$	190,294		$	220,620
Adjusted effective income tax rate^10		26.4	%		27.5	%		27.1	%		27.7	%

^10 Adjusted income taxes and adjusted effective income tax rate are non-GAAP financial measures. Adjusted income taxes is defined as income taxes before the specific adjustments shown above. Adjusted effective income tax rate is defined as income taxes divided by adjusted income before income taxes and income from equity method investments. The table above provides a reconciliation of adjusted income taxes and adjusted effective income tax rate to income taxes, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

	Three Months Ended						Nine Months Ended
	September 2,			August 27,			September 2,			August 27,
	2023			2022			2023			2022
Net revenue	$	900,634		$	941,230		$	2,608,055		$	2,790,969
Gross profit	$	263,472		$	249,164		$	735,055		$	715,577
Gross profit margin		29.3	%		26.5	%		28.2	%		25.6	%
Adjustments:
Acquisition project costs^1		1,516			(104	)		2,617			320
Organizational realignment^2		4,961			214			9,972			1,997
Royal restructuring and integration^3		-			5			-			377
Project ONE		-			-			-			6
Other^4		318			533			479			1,358
Adjusted gross profit^11	$	270,267		$	249,812		$	748,123		$	719,635
Adjusted gross profit margin^11		30.0	%		26.5	%		28.7	%		25.8	%

^11 Adjusted gross profit and adjusted gross profit margin are non-GAAP financial measures. Adjusted gross profit and adjusted gross profit margin is defined as gross profit and gross profit margin excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted gross profit and gross profit margin to gross profit and gross profit margin, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

	Three Months Ended						Nine Months Ended
	September 2,			August 27,			September 2,			August 27,
	2023			2022			2023			2022
Selling, general and administrative expenses	$	(172,153	)	$	(161,210	)	$	(493,320	)	$	(483,109	)
Adjustments:
Acquisition project costs^1		5,066			1,241			9,119			8,688
Organizational realignment^2		5,460			630			9,083			4,134
Royal restructuring and integration^3		-			191			-			656
Project ONE		2,734			2,502			7,587			7,553
Other^4		149			471			880			2,691
Adjusted selling, general and administrative expenses^12	$	(158,744	)	$	(156,175	)	$	(466,651	)	$	(459,387	)

^12 Adjusted selling, general and administrative expenses is a non-GAAP financial measure. Adjusted selling, general and administrative expenses is defined as selling, general and administrative expenses excluding the specific adjustments shown above. The table above provides a reconciliation of adjusted selling, general and administrative expenses to selling, general and administrative expenses, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

	Hygiene, Health
Three Months Ended:	and Consumable			Engineering			Construction						Corporate			H.B. Fuller
September 2, 2023	Adhesives			Adhesives			Adhesives			Total			Unallocated			Consolidated
Net income attributable to H.B. Fuller	$	54,568		$	54,256		$	7,764		$	116,588		$	(78,961	)	$	37,627
Adjustments:
Acquisition project costs^1		-			-			-			-			6,480			6,480
Organizational realignment^2		-			-			-			-			10,421			10,421
Royal Restructuring and integration^3		-			-			-			-			-			-
Project One		-			-			-			-			2,734			2,734
Other^4		-			-			-			-			503			503
Discrete tax items^5		-			-			-			-			6,243			6,243
Income tax effect on adjustments^6		-			-			-			-			(4,875	)		(4,875	)
Adjusted net income attributable to H.B. Fuller^7		54,568			54,256			7,764			116,588			(57,455	)		59,133
Add:
Interest expense		-			-			-			-			35,105			35,105
Interest income		-			-			-			-			(1,128	)		(1,128	)
Adjusted Income taxes		-			-			-			-			20,862			20,862
Depreciation and amortization expense^8		14,604			16,467			10,755			41,826			-			41,826
Adjusted EBITDA^7	$	69,172		$	70,723		$	18,519		$	158,414		$	(2,616	)	$	155,798
Revenue	$	402,388		$	365,862		$	132,384		$	900,634			-		$	900,634
Adjusted EBITDA Margin^7		17.2	%		19.3	%		14.0	%		17.6	%	NMP				17.3	%

	Hygiene, Health
Nine Months Ended:	and Consumable			Engineering			Construction						Corporate			H.B. Fuller
September 2, 2023	Adhesives			Adhesives			Adhesives			Total			Unallocated			Consolidated
Net income attributable to H.B. Fuller	$	154,966		$	133,778		$	7,920		$	296,664		$	(196,748	)	$	99,916
Adjustments:
Acquisition project costs^1		-			-			-			-			11,634			11,634
Organizational realignment^2		-			-			-			-			19,055			19,055
Project One		-			-			-			-			7,587			7,587
Other^4		-			-			-			-			4,098			4,098
Discrete tax items^5		-			-			-			-			9,131			9,131
Income tax effect on adjustments^6		-			-			-			-			(9,447	)		(9,447	)
Adjusted net income attributable to H.B. Fuller^7		154,966			133,778			7,920			296,664			(154,690	)		141,974
Add:
Interest expense		-			-			-			-			98,615			98,615
Interest income		-			-			-			-			(2,726	)		(2,726	)
Adjusted Income taxes		-			-			-			-			51,569			51,569
Depreciation and amortization expense^8		39,159			47,980			31,664			118,803			-			118,803
Adjusted EBITDA^7	$	194,125		$	181,758		$	39,584		$	415,467		$	(7,232	)	$	408,235
Revenue	$	1,190,402		$	1.063,009		$	354,644		$	2,608,055			-		$	2,608,055
Adjusted EBITDA Margin^7		16.3	%		17.1	%		11.2	%		15.9	%	NMP				15.7	%

Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

NMP = Non-meaningful percentage

H.B. FULLER COMPANY AND SUBSIDIARIES

REGULATION G RECONCILIATION

In thousands (unaudited)

	Hygiene, Health
Three Months Ended:	and Consumable			Engineering			Construction						Corporate			H.B. Fuller
August 27, 2022	Adhesives			Adhesives			Adhesives			Total			Unallocated			Consolidated
Net income attributable to H.B. Fuller	$	50,378		$	41,927		$	8,718		$	101,023		$	(54,526	)	$	46,497
Adjustments:
Acquisition project costs^1		-			-			-			-			1,138			1,138
Organizational realignment^2		-			-			-			-			595			595
Royal Restructuring and integration^3		-			-			-			-			196			196
Project One		-			-			-			-			2,502			2,502
Other^4		-			-			-			-			711			711
Discrete tax items^5		-			-			-			-			6,449			6,449
Income tax effect on adjustments^6		-			-			-			-			251			251
Adjusted net income attributable to H.B. Fuller^7		50,378			41,927			8,718			101,023			(42,684	)		58,339
Add:
Interest expense		-			-			-			-			23,450			23,450
Interest income		-			-			-			-			(2,139	)		(2,139	)
Adjusted Income taxes		-			-			-			-			21,559			21,559
Depreciation and amortization expense^8		11,456			14,134			10,901			36,491			-			36,491
Adjusted EBITDA^7	$	61,834		$	56,061		$	19,619		$	137,514		$	186		$	137,700
Revenue	$	424,978		$	378,264		$	137,988		$	941,230			-		$	941,230
Adjusted EBITDA Margin^7		14.5	%		14.8	%		14.2	%		14.6	%	NMP				14.6	%

	Hygiene, Health
Nine Months Ended:	and Consumable			Engineering			Construction						Corporate			H.B. Fuller
August 27, 2022	Adhesives			Adhesives			Adhesives			Total			Unallocated			Consolidated
Net income attributable to H.B. Fuller	$	131,702		$	121,741		$	29,013		$	282,456		$	(150,449	)	$	132,007
Adjustments:
Acquisition project costs^1		-			-			-			-			9,008			9,008
Organizational realignment^2		-			-			-			-			4,915			4,915
Royal Restructuring and integration^3		-			-			-			-			1,007			1,007
Project One		-			-			-			-			7,559			7,559
Other^4		-			-			-			-			8,267			8,267
Discrete tax items^5		-			-			-			-			7,697			7,697
Income tax effect on adjustments^6		-			-			-			-			(6,786	)		(6,786	)
Adjusted net income attributable to H.B. Fuller^7		131,702			121,741			29,013			282,456			(118,782	)		163,674
Add:
Interest expense		-			-			-			-			61,501			61,501
Interest income		-			-			-			-			(6,181	)		(6,181	)
Adjusted Income taxes		-			-			-			-			61,112			61,112
Depreciation and amortization expense^8		34,602			43,720			30,603			108,925			-			108,925
Adjusted EBITDA^7	$	166,304		$	165,461		$	59,616		$	391,381		$	(2,350	)	$	389,031
Revenue	$	1,252,405		$	1,137,587		$	400,977		$	2,790,969			-		$	2,790,969
Adjusted EBITDA Margin^7		13.3	%		14.5	%		14.9	%		14.0	%	NMP				13.9	%

Note: Adjusted EBITDA is a non-GAAP financial measure. The table above provides a reconciliation of adjusted EBITDA for each segment to net income attributable to H.B. Fuller for each segment, the most directly comparable financial measure determined and reported in accordance with U.S. GAAP.

NMP = Non-meaningful percentage

H.B. FULLER COMPANY AND SUBSIDIARIES

SEGMENT FINANCIAL INFORMATION

NET REVENUE GROWTH (DECLINE)

(unaudited)

	Three Months Ended			Nine Months Ended
	September 2, 2023			September 2, 2023
Price		0.6	%		4.7	%
Volume		(8.0	)%		(11.1	)%
Organic Growth^13		(7.4	)%		(6.4	)%
M&A		4.8	%		3.0	%
Constant currency		(2.6	)%		(3.4	)%
F/X		(1.7	)%		(3.2	)%
Total H.B. Fuller Net Revenue Decline		(4.3	)%		(6.6	)%

Revenue growth versus 2022	Three Months Ended
	September 2, 2023
													Organic
	Net Revenue			F/X			Constant Currency			M&A			Growth ^13
Hygiene, Health and Consumable Adhesives		(5.3	)%		(2.4	)%		(2.9	)%		7.6	%		(10.5	)%
Engineering Adhesives		(3.3	)%		(1.4	)%		(1.9	)%		1.4	%		(3.3	)%
Construction Adhesives		(4.1	)%		(0.1	)%		(4.0	)%		5.4	%		(9.4	)%
Total H.B. Fuller		(4.3	)%		(1.7	)%		(2.6	)%		4.8	%		(7.4	)%

Revenue growth versus 2022	Nine Months Ended
	September 2, 2023
													Organic
	Net Revenue			F/X			Constant Currency			M&A			Growth ^13
Hygiene, Health and Consumable Adhesives		(5.0	)%		(4.4	)%		(0.6	)%		3.6	%		(4.2	)%
Engineering Adhesives		(6.6	)%		(2.8	)%		(3.8	)%		1.5	%		(5.3	)%
Construction Adhesives		(11.6	)%		(0.7	)%		(10.9	)%		5.1	%		(16.0	)%
Total H.B. Fuller		(6.6	)%		(3.2	)%		(3.4	)%		3.0	%		(6.4	)%

^13 We use the term “organic revenue” to refer to net revenue, excluding the effect of foreign currency changes and acquisitions and divestitures. Organic growth reflects adjustments for the impact of period-over-period changes in foreign currency exchange rates on revenues and the revenues associated with acquisitions and divestitures.

CONSOLIDATED BALANCE SHEETS

H.B. Fuller Company and Subsidiaries

(In thousands, except share and per share amounts)

	September 2,			December 3,
	2023			2022
Assets
Current assets:
Cash and cash equivalents	$	94,934		$	79,910
Trade receivables (net of allowances of $12,458 and $10,939, as of September 2, 2023 and December 3, 2022, respectively)		576,060			607,365
Inventories		472,641			491,781
Other current assets		97,756			120,319
Total current assets		1,241,391			1,299,375
Property, plant and equipment		1,709,191			1,579,738
Accumulated depreciation		(907,895	)		(846,071	)
Property, plant and equipment, net		801,296			733,667
Goodwill		1,490,535			1,392,627
Other intangibles, net		746,521			702,092
Other assets		380,165			335,868
Total assets	$	4,659,908		$	4,463,629
Liabilities, non-controlling interest and total equity
Current liabilities
Notes payable	$	12,553		$	28,860
Trade payables		394,914			460,669
Accrued compensation		75,035			108,328
Income taxes payable		33,007			18,530
Other accrued expenses		102,837			89,345
Total current liabilities		618,346			705,732
Long-term debt		1,872,468			1,736,256
Accrued pension liabilities		54,661			52,561
Other liabilities		387,307			358,286
Total liabilities	$	2,932,782		$	2,852,835
Commitments and contingencies (Note 13)
Equity
H.B. Fuller stockholders' equity:
Preferred stock (no shares outstanding) shares authorized – 10,045,900		-			-
Common stock, par value $1.00 per share, shares authorized – 160,000,000, shares outstanding – 54,016,374 and 53,676,576 as of September 2, 2023 and December 3, 2022, respectively	$	54,016		$	53,677
Additional paid-in capital		294,035			266,491
Retained earnings		1,808,687			1,741,359
Accumulated other comprehensive loss		(430,295	)		(451,357	)
Total H.B. Fuller stockholders' equity		1,726,443			1,610,170
Non-controlling interest		683			624
Total equity		1,727,126			1,610,794
Total liabilities, non-controlling interest and total equity	$	4,659,908		$	4,463,629

CONSOLIDATED STATEMENTS of CASH FLOWS

H.B. Fuller Company and Subsidiaries

(In thousands)

	Nine Months Ended
	September 2, 2023			August 27, 2022
Cash flows from operating activities:
Net income including non-controlling interest	$	99,987		$	132,077
Adjustments to reconcile net income including non-controlling interest to net cash provided by operating activities:
Depreciation		60,518			54,297
Amortization		58,633			55,088
Deferred income taxes		(30,064	)		(4,968	)
Income from equity method investments, net of dividends received		260			1,420
Debt issuance costs write-off		2,689			-
Loss on fair value adjustment on contingent consideration liability		2,893			-
Gain on sale or disposal of assets		(78	)		(1,130	)
Share-based compensation		16,279			20,358
Pension and other post-retirement benefit plan activity		(8,890	)		(15,324	)
Change in assets and liabilities, net of effects of acquisitions:
Trade receivables, net		79,495			(51,629	)
Inventories		38,212			(112,390	)
Other assets		(30,901	)		(40,329	)
Trade payables		(74,443	)		17,381
Accrued compensation		(33,796	)		(17,275	)
Other accrued expenses		(6,992	)		1,614
Income taxes payable		24,461			10,201
Other liabilities		12,408			(35,940	)
Other		6,023			35,246
Net cash provided by operating activities		216,696			48,697
Cash flows from investing activities:
Purchased property, plant and equipment		(109,545	)		(98,352	)
Purchased businesses, net of cash acquired		(194,248	)		(242,870	)
Proceeds from sale of property, plant and equipment		4,257			1,281
Cash received from government grant		-			3,928
Net cash used in investing activities		(299,536	)		(336,013	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		1,333,000			335,000
Repayment of long-term debt		(1,184,900	)		(15,000	)
Payment of debt issuance costs		(10,214	)		(600	)
Net payment of notes payable		(18,000	)		6,707
Dividends paid		(32,319	)		(29,067	)
Contingent consideration payment		-			(5,000	)
Proceeds from stock options exercised		11,251			13,522
Repurchases of common stock		(2,560	)		(3,885	)
Net cash provided by financing activities		96,258			301,677
Effect of exchange rate changes on cash and cash equivalents		1,608			(15,439	)
Net change in cash and cash equivalents		15,024			(1,078	)
Cash and cash equivalents at beginning of period		79,910			61,786
Cash and cash equivalents at end of period	$	94,934		$	60,708