Q1 2021 HB Fuller Co Earnings Call
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Good day and thank you for standing by welcome to the HB Fuller Q1, 'twenty 'twenty One earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask the question during the session you will.
I'll need to press par one on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over truth Seeker today, Barbara Doyle Vice President of Investor Relations. Please go ahead.
Thank you operator, and welcome to H B Fuller as first quarter 2021 earnings call for the fiscal quarter ended February 27th 2021.
Our speakers are Jim Owens, H, B, Fuller, President and Chief Executive Officer, and John Core credit Executive Vice President and Chief Financial Officer.
After our prepared remarks, we will take questions.
Please let me cover a few items before I turn the call over to Jim.
First a reminder, that our comments today will include references to organic revenue, which excludes the impact of foreign currency translation on our revenues.
We will also refer to adjusted non-GAAP financial measures. During this call. These measures are in addition to the GAAP results reported in our earnings release and on our forms 10-Q and 10-K.
We believe that discussion of these measures is useful to investors to assist their understanding of our operating performance and how our results compare with other companies.
The reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release.
Less otherwise specified discussion of sales and revenue the first organic revenues and discussion of EPS margins or EBITDA refers to adjusted non-GAAP measures.
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We will also be making forward looking statements during this call.
These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Many of these risks and uncertainties are and will be exacerbated by COVID-19, and resulting deterioration of the global business and economic environment actual results could differ materially from these expectations due to factors discussed on our earn.
<unk> release comments made during this call or risk factors in our forms 10-K, and 10-Q filed with the SEC and available on our website at investors thought H B Fuller Dot Com now I will turn the call over to Jim Owens.
Thanks, Barbara and welcome to everyone on the call.
Last evening, we reported first quarter results, which built upon the momentum we saw in Q4 of last year.
Organic revenues this quarter were up 10, 5%.
Adjusted EBITDA was up 30% and.
And adjusted EPS of <unk> 66 cents was nearly double last year's first quarter.
The HB Fuller team gained share and reduced operating expense in each of our businesses in 2020, which created the momentum that is delivering exceptional financial performance to begin fiscal 2021.
Marketing innovation and exceptional service led to the share gains as the HB Fuller solves customer problems faster than competition.
On growth accelerated as demand continued to strengthen from the first quarter.
As we reported last March COVID-19 impacted our fiscal Q1 of 2020, only in China and by about $15 million in revenue for $5 million of EBITDA and six cents of EPS.
Excluding this impact our revenues were up 8% organically EBITDA was up 23% on EPS was up 65% exceptional results.
H B Fuller worked with our customers to solve their toughest disease of problems.
On today's remote work environment. This means collaborating in new ways of delivering market driven innovation faster than ever.
For example, we proactively developed and qualified new engineering adhesives for mobile devices automotive electronics electronic vehicle batteries and solar panels to name just a few of these.
These innovations helped drive one of our strongest quarters for engineering adhesive sales growth.
We created technology and branding opportunities with the new line of Gorilla Pro MRO adhesives, and there will be more HB Fuller marketing innovation and the year ahead.
We work with hygiene health and consumable customers to develop innovative applications and to assure supply to meet high demand for their products.
As a result, we substantially grew our sales across the majority of our HCM markets in the first quarter.
H B Fuller as revenue growth was also broad based geographically in the quarter with organic growth in all three of our geographic regions.
Importantly, our growth came with positive incremental margins driven by product mix reduced expenses and structural efficiencies, resulting from our business realignment last year.
The EBITDA margin increased 190 basis points year on year.
Raw material cost increase from where we exited 2020, but we're still relatively neutral on a year over year basis in the first quarter and in line with our expectations.
Raw material costs going forward will increase at a faster rate than originally anticipated due to increased demand reduced inventories and supply constraint.
When the storm you already on the Gulf Coast in February has created additional tightening in the United States and its impact on global supply.
Suppliers becomes tight for commodity materials, which make up a smaller portion of our portfolio as the year progresses. This will also have an impact on the supply and pricing of the specialty materials, which make up the majority of our purchases.
Most suppliers of made good progress in recovering from jewelry. However, the rate of recovery going forward will mostly depends on the output rates of the impacted assets and the time it takes for supply chains and inventory levels to fully recover.
We have done a very good job of serving customers of thus far by working closely to manage inventories and available materials.
Our contracted positions with our suppliers backward integration of key polymers and global breadth of her.
Helped us manage the supply crisis, thus far.
The breadth of our adhesive chemistry, and the diversity of our raw materials has meant that no single material has had a large impact on us and has enabled us to help customers find alternatives when short supply exists.
The near term disruptions, we are navigating in the U S are considerable but they are temporary and supply is expected to normalize to a more balanced level in the coming months.
Our planning assumptions anticipate that the risk of supply disruption will lessen as we exit the second quarter and we do not anticipate that it will have a material impact on our ability to meet demand.
However, we now expect year on year raw material inflation to be in the range of 5% to 8%.
H B Fuller, who has done a remarkable job of supporting customers through supply shortages and we also have implemented over $100 million in annualized price adjustments that are effective in Q2 and will enable us to continue to seamlessly serve our customers.
Some of these were effective on February 15th with most effective March 15th on April one.
We are preparing for further price adjustments if needed in Q3.
These price adjustments will fully offset the impact of raw material increases.
Now, let me move on to discuss performance in each of our segments in the first quarter on slide four.
Hygiene health and consumables adhesives first quarter organic sales increased seven 6% year over year, continuing the strong performance trend in this business unit in 2020.
Sales increased versus last year across the majority of our HVAC markets with strong growth in packaging tissue and towel and tape and label and good growth in hygiene in particular.
<unk> segment EBITDA margin was strong at 13, 3% up 180 basis points.
Margin improved versus last year, reflecting volume leverage restructuring benefits and good expense management.
Construction adhesives organic revenue was down 10% versus last year as winter storm jewelry extreme weather and material supply issues across much of the United States impacted construction activity as we started the year.
Construction of a piece of the EBITDA margin decline versus last year, reflecting these issues underlying.
The operational improvements from the GPU restructuring were offset by lower volume and the impact of severe weather.
Europe temporarily disrupted operations at our construction adhesives facilities in Texas in February both plants have now been fully up and running since early March.
Aside from these near term impacts demand for construction adhesives.
<unk> to be strong for residential bills Henry modeling.
Demand has also begun to improve on the commercial roofing side.
We are planning for both top line performance and margins to improve significantly over the rest of the year.
Engineering adhesives results were extremely strong with organic revenue up 21% versus last year, reflecting share gains and improving end market demand.
Sales increased versus last year across the majority of our EBITDA markets with the strongest growth in electronics and new energy.
We expect continued strength and double digit full year growth in this segment.
Engineering adhesives, EBITDA margins were strong at 15, 4% of 300 basis points compared with Q1 last year.
Reflecting strong volume leverage and good expense management.
Looking ahead of our full year results, our planning assumptions are the COVID-19 related shutdown impacts will remain.
But continue to decrease as vaccines are rolled out around the world.
We anticipate that many raw materials will be tight for the summer supply chains normalize on demand continues to be strong.
We anticipate continued improvement in underlying demand in each of our business units driving volume growth in 2021 versus 2020.
Growth in some end markets such as commercial construction and aerospace will improve at a slower pace and may not return to 2019 levels of activity this year.
While engineering adhesives demand is expected to moderate from first quarter levels, which reflect some pent up demand. We expect end market demand will likely be strong for the entire year.
Overall, when considering our strategic pricing actions, coupled with the solid volume growth on Hh see improved performance in construction adhesives and strong demand in engineering adhesives, we now expect full year revenue growth of high single digits, the low double digits versus 2020.
Now, let me turn the call over to John Portland to review, our first quarter results and our updated outlook for the full year based on these planning assumptions.
Thanks, Jim I'll begin on slide five with some additional financial details on the first quarter.
Net revenue was up 12, 3% versus the same period last year currency out of positive impact of one 8%.
Adjusting for currency organic revenue was up 10, 5% with volume accounting for all of the growth.
Pricing on a neutral impact year on year on the quarter.
Year on year adjusted gross profit margin was 26, 7%.
Of 20 basis points versus last year, driven by the higher volume.
Adjusted selling general and administrative expense was up two 9% versus last year.
SG&A was down 170 basis points as a percentage of revenue.
The savings associated with our business reorganization lower travel expense.
General cost controls offset by higher variable comp from last year.
Net other income increased by $3 million versus last year, driven primarily by increased income on pension assets that.
Interest expense declined by $2 million, reflecting the lower debt balances the.
The adjusted effective income tax rate in the quarter was 27, 5% of.
180 basis points versus the adjusted tax rate in the first quarter last year, driven primarily by mix of income and tax related the global cash strategies.
Adjusted EBITDA for the quarter of $101 million was 30% higher than the same period last year driven by strong top line growth, particularly in the engineering adhesives for.
Restructuring savings and good cost management, partially offset by higher variable compensation.
Adjusted earnings per share were <unk> 66 up 94% versus the first quarter of last year, reflecting strong operating income growth and low interest expense associated with our debt reduction.
Cash flow from operations in the quarter of $36 million was up from last year, reflecting strong income growth, partly offset by higher working capital requirements to support the strong top line performance, we continue to reduce debt paying down $16 million in the quarter compared to $6 million during the same period last year.
Regarding our outlook based on what we know today and the planning assumptions of Jim laid out earlier, we anticipate revenue to be up high single digits for low double digits versus 2020, and the EBITDA to be between 455 and $475 million as continued strong volume growth and pricing.
Actions offset higher raw material costs.
We expect cash flow to be strong for the rest of the year, allowing us to maintain our target to pay down approximately $200 million.
On debt during 2021.
With that I will turn the call back to Jim Owens for some closing comments.
Thank you John.
We were very pleased with our strong start in the first quarter, which follows a strong fourth quarter.
Both of which greatly outperform predominantly non COVID-19 quarters from the prior year.
We are growing through our strategy of delivering sustainable innovation and high value solutions and we are on a great position to continue to grow our business as global economies continue to open up in 2021.
This year, we will focus on three critical priorities to profitably grow our business in a dynamic environment.
Our top priority is to drive continued volume growth as we support our customer success and the current high demand and supply constrained environment.
This means continued growth from innovation leverage of the remote servicing tools as the new standard and finding creative ways to address any raw material shortages, we see in the coming months.
Our second imperative is to strategically manage pricing aligned to the value we deliver in this inflationary environment.
Our company has built pricing tools and in depth training in anticipation of the day when material inflation returned and.
And we are already executing with speed and precision to maintain and grow our business while price into value.
Our third priority to help fuel our growth will be to release productive capacity through our operational excellence programs.
Our 2020 operations investment was centered on creating the operational discipline and metrics that enable more productivity per employee work hour.
In a low capital intensive business like ours, this helps to reduce costs and increase capacity.
We will also deliver an additional $200 million of debt reduction in 2021, moving the company closer to our net debt target of two to three times EBITDA.
On our conference call a year ago in March of 2020, I told you that because of our extraordinary collaboration with customers a robust global operations and supply chain and our unmatched expertise and its ease of innovation I was confident that HB Fuller, which strengthened its position in this industry setting ourselves apart from competition.
<unk> and enabling us to grow as global economies recover.
I was confident that we would emerge as of even stronger company the prior to the pandemic.
Our stronger performance throughout 2020 and of our exceptional results in the first quarter of proof that my confidence is well founded.
This company is built on an agile business model, where people collaborate remotely with each other with customers and with suppliers around the globe.
In a changing world. These attributes of agility collaboration and flexibility have enabled HB Fuller to excel.
As working conditions changed supply and demand fluctuated and of supply constraints emerged the HB Fuller team has been first and fastest among adhesive companies at addressing challenges.
Growing the business this year in a period of economic recovery presents exciting opportunities and unique challenges and.
In 2021, our business priorities are squarely focused on capturing share and managing inflation risks as we continued to build on a rising leadership position in the global adhesive industry.
Our culture of collaboration and innovation and our improving operational execution gives me confidence that we are strongly positioned to continue to deliver sustained value for our shareholders in 2021 and in the years ahead.
This concludes our prepared remarks today operator, please open up the call. So we can take some questions.
Ladies and gentlemen, if you have any questions at this time. Please press star and then the number one on your Touchtone telephone.
If your question has been answered or you make the term move yourself from the queue press the pound key.
For just a moment.
Your first question comes from the line of Mark Harris, Mike Harrison from Seaport Global Securities. Your line is now open.
Hi, Good morning, good morning, Mike.
Congrats on a nice start to the year I was wondering if you can first maybe give a little bit more color on the strength in the engineering adhesives business.
Maybe talk in some more detail about what markets or applications are driving that strength and trying to get a sense of how sustainable that strength could be.
In particular as we see a lot of your customers probably doing some some inventory restocking.
Let's knock on the last forever, So maybe comment on what Youre seeing in terms of customer inventory levels as well.
Yes.
As you know Mike.
Our engineering adhesives business had been delivering double digit organic growth over the last few years.
We see of returns of that kind of level here.
Certainly the 21% is exceptional but double digit organic growth is something we're seeing underlying theres. Some significant share gains we've made some strategic investments to grow in the new energy segment, specifically solar panels, that's really helped us around the world on electronics business continues to <unk>.
Grow significantly and now off of the bigger base. So so we're winning we won a number of new and different applications. During 2020 on but I can't emphasize enough how much of the work. We did in 2020 to really get at opportunities and continue to do that remotely differentiate us on a number.
Of applications and in the.
The opportunities and then another area that debt, we've focused on strategically as automotive electronics and Theres a lot of new wins in that space.
Just the electric vehicles, but all of the electronics that are going into an automobile and those new wins are kicking in and on the other thing I think if you dig into the details Mike. Some of this is offensive synergy related to the Royal deal on the tops on cyber bond combination so the space like this.
Combining these businesses.
It takes a couple of years to get all of the specifications on the wins in the pipeline. So.
On a lot of this is the globalization of opportunities that were happening in China and needed to happen around the world are in Germany taken it around the world. So.
So sort of the short answer is a lot of wins a lot of fundamental organic growth just by expected on new applications. We think there was a little bit of pent up demand.
I don't see any.
Really supply chain building right now on when people were just trying to get the materials they need to do their job. So I don't see a lot of inventory build on these numbers.
But some of our customers are picking up some demand so.
That might be a lot of 21%.
Versus the comparable quarter might be a little high but certainly on the double digit range.
Alright, great I appreciate that and then my second question is about.
Your new.
Raw material assumptions and really trying to get a sense of what the cadence of earnings could look like or how we should think about.
Margin headwinds you.
You talked about the pricing efforts some of those coming in.
Mid February, but maybe more of them coming in kind of of the March April timeframe. So should we expect to see maybe.
Maybe some margin headwind in the second quarter.
Some catch up in the third and fourth quarters of that price are you fully kicks in.
Yes, I'll, let John trying to get specific on some of the timing here, but but overall Mike.
A smaller part of our purchases on a commodity materials, which have spiked up quickly.
And we're feeling those right away in terms of the raw material input costs. Some of the specialty materials take a little longer but there are definitely things that we're factoring into the hour.
Our planning, but I think very importantly was the speed in which our teams got out there with price increases.
And the excellent job by the team to get those in place here March 15th on April one so.
The net net is.
While there's a little risk that we won't get 100% of what we needed this quarter I feel pretty good based on the numbers that we're seeing in the timing that will fully offset Q2.
Raw material increases with the price increases we've put forth, but John maybe you can give some deeper color on that.
Yes. Thanks.
Agree with that assessment of Jim I think I don't think we're going to see significant pressure on.
Margins in the second quarter I think.
There is a delay in terms of how these raw materials work their way of true cost of sales. So I think we'll see a little bit more of an impact on the third quarter actually so.
I think I.
I think the supply of disruption maybe of the sort of the bigger issue to work through on the second quarter in terms of the top line potential profit line it back.
Alright, thanks very much.
Thank you Mike.
Thank you. Your next question comes from the line of Jeff Zekauskas from Jpmorgan. Your line is now open.
Thanks very much.
Why is it so easy to pass through price what is it about the market okay.
<unk> that kind of EPS.
Yes, yes, it's a great question, Jeff I think we started the year knowing that we were going to put forth price increases and I think what's happened here across lots of materials not just the chemical space as customers are seeing shortages and.
Whether thats the plastic film they buy or the the materials for other construction. So when we have that kind of momentum around adhesives. It enables us to raise.
Prices in Asia.
And the easier fashion right I mean, the people on the frontline may not say, it's easy, but I would say.
Given given the nature of everything Thats health also thats happening out there.
The importance of adhesives right.
Emphasize this point a lot of these things are critically important to our customers.
So, yes, it's gone exceptionally well I would say the.
This year.
Okay and the.
The auto related revenue.
For a couple of quarters.
Does that mean that the engineering business overall.
We'll have lower revenues in the second and third quarter.
On the auto side.
Yes, I wouldn't say that our auto business is of higher margin business jet that's similar to other businesses and in terms of our engineering adhesive business.
It's probably less than 10% of that business right.
So it's not the big driver, but certainly the autos are all of those robust right now so.
Okay.
Hi.
You spent $35 million in Capex from the first quarter, which is high for us for our first quarter number.
What happened there and how much do you.
The spend on Capex for the year.
Yes. It is.
Actually Jeff is the second year in a row, we've had a high number in first quarter, but youre right. Traditionally we do we have a lower number in Q1, we put some really good planning processes in place and of.
And those of enabled us to get a better cadence of spending so there's a combination of some things. We we freed up at the end of last year. If you remember when Covid hit we really pulled back on more on cap, but we still see the $95 million for the full year of being a deliverable number John anything you want to add on that.
So I think the point.
Larry one of the glass to the spent $32 million in the first quarter on ADSL of them for the full year. So it's.
Probably a similar pace of last year.
Okay and then on.
Lastly on.
Your payables went up a lot.
Are you going to run with a higher payables level and.
Does that mean net working capital penalty this year.
It might be a little less than you originally thought I see that you're forecasting of.
Growth in operating cash flow, even though youre going to half of our working capital build.
Yes.
Hi, Jonathan.
I think yes, I think the.
And payables is.
Consistent with the work that we've done over the last couple of years of strategically increase our terms with our suppliers.
If you look at the last three years, we've taken let's say 2018 through 2020, we've taken working capital as a percentage of revenue down.
Little over 300 basis points, and it's really been all of the areas of the are impacted.
On.
I think that working capital will probably be a modest use of cash this year, even off of a strong revenue from our strong revenue year.
Based on our ability to continue to.
The focus on this as an area of improvement we've targeted on another 100 basis points of.
The improvement in working capital as a percentage of revenue on I think you'll see some of that in payables. I think you might see more of that actually inventory, where our operational efficiency project has a portion of that focused on managing inventory inventory more effectively.
Okay, great. Thank you so much.
Thank you Jeff.
Your next question comes from the line of Ghansham Panjabi coming from Baird. Your line is now open.
Yes. Thank you ma'am good morning, everybody.
I guess, Jim going back to your prepared comments I mean in 2020 during the peak of Covid.
You were able to gain market share given some of the production disruptions across the industry.
Do you sort of flex your footprint.
Just effectively executed better do you see the same sort of backdrop at this point post winter storm, Yuri I mean, I'm asking because of their media reports of that ease of shortages in the U S impacting the paper industry.
Just give us of real time view of what you see on the capacity side specific to the U S.
Yes so.
On the short answer is yes, I've talked about our team that the Covid gave us an opportunity because we are more flexible and agile and have this global presence that we leverage last year and I think the supply shortage also puts us in that same.
Same position.
There are adhesives shortages, particularly on the water based adhesives, so thats the really the big issue, which were driven by.
By them and the.
Time, it took for Celanese, Dow and Lyondellbasell to get the van production of.
We had inventory one of the things that sets us apart ghansham as we are backward integrated in some of those polymers. We had some inventory we had some products. So our team has done an exceptional job of keeping our customers supplied now we've had to have allocations and manage everybody supply worked closely with customers on their inventory.
Levels. So so there are definitely issues out there that we're managing.
But I would say broadly speaking.
This is the feedback I get directly from customers and I'm talking to a lot of them on these days that they were doing better and better job of most of the managing through those and then I think importantly, we're on the back end of those problems now so as things have gotten put back together down in Texas.
<unk> has done a good job of getting their assets up and running so it's just a matter of it on getting that material through the supply chain over the coming weeks.
Got it and then on the raw material guidance, I mean, 5% to 8% for the year. I think previously you were sort of implying kind of low single digits first quarter was flat.
How are you expecting the evolution of the curve to kind of progress of the year unfolds, you're expecting some level of moderation of the year unfolds and the reason I'm asking is because every chemical producers seems to be pushing price aggressively and you see all of the shortages with container ships and logistics more broadly et cetera. So.
I guess the question is of that 5% to 8%.
You're just marking to market, what you see now and you're assuming it stays static or I.
Assuming the incremental more inflation or deflation ashwin, yeah. So so we have a pretty on that process, where we take all of our roughly 2000 key raw materials and we project out each quarter, what we see the price happening going forward. So there is a forward projection and all of the commodity materials of insurance plywood I'll quickly some of the specialty.
Materials were anticipating.
There is a roll on effect to affect us in Q2.
And we're very clear internally that that it's likely that we're going to have a Q3 increase and right. Now we're just trying to just size up the scope of that.
So I think ongoing raw material pricing pressure something we're anticipating.
And some of that's built in but if it's more of than we anticipate we're certainly prepared to respond.
Quickly as we entered Q3.
Okay perfect. Thanks, so much okay. Thanks Ghansham.
The next question comes from the line of Vincent Anderson from Stifel. Your line is now open.
Yes. Thanks.
Wanted to follow up on on Mike's question, because you got into it a little bit Jim but.
When we think about the strategy of the you apply for integrating loyal and how thats been going for engineering adhesives could you give us any update.
On how the legacy durable assembly business has been contributing.
Any metrics in terms of increased cross border sales if I recall those are traditionally more regional businesses.
Yes, I don't know of specific data I can tell you that everyone of all but one of the 14 segments within.
Our engineering adhesives business, which includes those former durable assemblies show positive organic growth in the quarter and some of them very sizable and as you pointed out some of those are synergy points. The good example of one that's going extremely well is our insulating glass business. So it was of durable assembly business it had synergies.
Because of some technology that has been developed in Germany. The.
The global team, we have setup is driving that around the world and creating significant growth everywhere.
So its patented technology provides real value for customers and driving a lot of growth in.
So so definitely.
A big piece of this as we talked about when we set up the realignment was taken durable assembly and run them.
Through the engineering adhesives model, which was more about getting specified.
For paying off so.
So in terms of the durable assembly vs versus the old legacy engineering adhesives, a little more growth in engineering adhesives, but an important part of the successful on the knows what's happening in durable Assembly.
Great.
How is it.
With Covid, it's obviously, maybe tough to answer but how are those legacy business units trending in for in terms of getting that margin profile, maybe not quite to the legacy engineering adhesives, but trending in that direction.
Yes, I think the the cost structure savings benefited a lot as you know we had five segments.
Driving to a really nice increments.
The amount of margin. So so that's the biggest impact.
I think we're getting some value pricing pieces, but the biggest impact is just driving the operational effectiveness of five segments down to three.
Great.
Maybe the dangerous territory here, but with the balance sheet as it continues to Delever now that we're getting some help here on the denominator side.
Have you started to rebuild your bolt on pipeline.
Still too early to think about that.
But just in terms of getting of spun up for when do you feel comfortable with approaching that again.
Yes, yes strategically all throughout the last few years, Ted and I and the leadership team have spent time.
Talking about what it would be like when we got back active so I think that is a 2022 issue.
I think if the if the current.
And the current guidance will be around three one at the end of this year is sort of one to three two so so clearly in 2022 will be below three of which has been our our target and commitment. So so I think we are of good strategic vision Royal did did a great job of acquiring businesses. We have done a really good job of acquiring them.
<unk> is being combined into a strategic view that the.
We're we're talking about and then we'll be able to execute as we go into 2022.
Alright.
Thanks, a lot.
Okay. Thank you.
Your next question comes from the line of David Begleiter from Deutsche Bank. Your line is now open.
Okay.
Kathryn congrats on on.
Good day event.
And sorry can you.
Can you provide any additional color on the breakdown.
Of volume versus price for organic growth in the quarter and learning from.
On the.
The full year guidance and then on also on that gross.
Target for you.
Thank you what you expect for growth in each segment, either above or below that total company target.
Yes, Katherine why don't I, let.
John give you some of the specifics there and I can add color.
Good John.
Sure, so kind of and I would say for the first quarter.
If you look at organic growth of 10, 5% of it was really on volume on a N a.
A price level basis pricing was neutral on a positive pricing in HFC.
EBITDA was neutral and CA was slightly negative as far as pricing, but none of those gpus at the pricing impact of more than a percentage. So it was really a volume driven quarter.
For the full year, if you look at kind of our guidance on the top line.
Sort of high single digit low double digits.
Pricing of logics.
Pay a bigger piece in terms of that.
Going forward based on the.
The pricing of our executing so we're estimating that price.
<unk> is probably going to be in the two 5% to 3% impact for the full year sort of ramping up as we go through the year.
And then FX will continue to be around one 5% to 2% on the rest of would be volume from the GPU standpoint.
HFC, we would say is continue if we can of.
The strong start for the year has tougher comparisons.
In Q2, and Q3, but it'll probably be on kind of that.
Mid single digit do we talked about growing double.
Digits.
Gross.
So that would hopefully that helps.
Yes.
Catherine.
<unk> had a particularly strong Q2 last year or so.
Low lower single digits second quarter quarter in mid the mid ish higher single digits, the rest of the year.
Right. Okay, great. Thank you and then part.
Part of an extension of the questions that have already been asked about raw materials. I mean, I'm. Just curious what gives you confidence that you can continue to raise prices and keeping the calculations given the severity of commentary on sort of isn't perhaps longer lasting effects.
On the global supply chain on what Youre seeing on currently I'm, just curious like what the negotiations look like on what gives the confidence you can continue to generate price day.
Yeah, I think Q3 could be a little more challenging than Q2, but I would say Q2 was exceptional in terms of the environment, but.
I think at the end of the day Catherine Adhesives are a critical component for our customers I think people are feeling that.
The really hard work to make certain we kept everybody supplied and.
I think when people feel pressure on other materials, the adhesive price increase makes sense and it's not material of driving materially driving their P&L. So.
So, yes, I think in an inflationary world.
We see that we definitely will in and need to get the increases.
Okay. Thank you.
Thanks.
Okay.
Next question comes from the line of Terry Tosh Sara.
From bearing Burke your line is now open.
Thank you.
Just going back to the mix within the engineering adhesives business, given that you're sort of black and many different end markets. As you look ahead, you think the mix within that segment is going to remain relatively stable or it could be.
It could be a change though.
Impact your margins as we look ahead.
It's not only at the higher margin pieces para tasha are growing faster than the lower margin pieces. So we do have a nice mix phenomenon there.
So.
New energy and then auto electronics are on three of the areas, where we see more fundamental growth.
That is both organically gaining share as well as underlying market. So Jim is a positive mixed dynamic long term.
Got it and how much of that business is currently China.
I don't know, we publicize that specifically, but I would say.
The good strong position in China, we've we've built that hero at Fuller over the last 10 to 12 years, but were.
We've got a strong position in China parallel of less than a third maybe 25% to 30%.
Got it that's very useful and then the last one if you could just remind me.
Where we are on the cost cutting and restructuring.
Much of it has been accomplished and how much market doing in terms of of asset flow through to your P&L.
Yes, so so I would say the the.
The SG&A piece of this is fully through so.
I think this quarter, we had an incremental benefit versus Q1 of last year, but all of those cost savings around what we introduced in early 2019 are through the system. The manufacturing piece, we have quite a bit to go so it's about $20 million to $30 million of which we expect the it more than half of that this year and that would come in.
In the upcoming quarters.
John you want to give any more color on that or the coverage I think that was a good I think we last year we.
We realized about $30 million of savings.
From our restructuring actions, we expect the annualized number to be 35, So we had about $3 million incremental in Q1. So we're really just sort of annualize the against all of the actions that have already been executed.
Thank you and I appreciate all the detail that's all I had thank you okay. Thank you for Paradise.
Your next question comes from the line.
Of Eric Petrie from Citi. Your line is now open.
Hi, good afternoon, Jim and Jim.
Eric and Eric.
So it looks like over the next three years hybrid electric and battery electric autos are going to be growing 40% to 50% CAGR.
How does the HB fuller positioned in.
The capacity runway as well as the technology to capture that full opportunities for that.
Then the.
The glue content and those applications are higher than the <unk> or dollar value if you could quantify.
Yes, generally it's higher.
One of the things that happens with particularly electric but electric hybrid as well as is noise dampening becomes a more important issue and there are a number of applications, whether that's an important part of what we provide so so that's one area.
The second area I've talked a lot of that is electronics and the the convergence of our electronics and automotive business are really an important driver of growth and that's that's creating more value per vehicles and then the.
The really interesting opportunity is in the batteries themselves. So so we've.
We've got materials that help insulate those those batteries to to prevent any kind of combustion problems from overheating, but also dispersed.
The energy and that's a really exciting piece of that business that that could have a big impact as we as we go forward. So those of the three main pieces for us Eric and generally all of all positive I think in terms of what it does sort of our auto business.
Okay and for <unk>.
My follow up is the construction of adhesives business core or would you be willing to sell and deploy capital of the higher growth higher return of engineering organic or inorganic growth investments.
Yes, it's definitely core and its definitely a business that we see for returning to similar levels like engineering adhesives. As you know, we we shape that business around.
Some of <unk>.
Higher value products and highly specified products. So what you'll see on that business is great volume leverage and as the year progresses, you'll see margins that move very nicely into the right direction. So.
The COVID-19 hasnt been kinds of the construction business, especially commercial construction.
And right now the industry is dealing with supply shortages of materials as well as a bit of labor shortages in the U S. But.
But the underlying dynamics of that business for us are very positive in the.
And we see that being a really important poor part of our growth strategy in the future.
Thank you.
Jim.
Next question comes from the line of gross Marine more belly coming from G. Research. Your line is now open.
Good morning, everyone.
And I will add my congratulations too.
Great quarter.
Jim.
In the.
I was just following up on the construction adhesives.
Business was down 10% of so you have the year do you think that.
As the weather improves as debt.
And the supply.
We tend to have more regular level can you make sense.
Laughter all of what you'll have lost in the first quarter is kind of gone into next year.
Yes for.
The short answer is yes, I think we'll make it up and then some.
As you point out Rosemarie that the.
That that business is the only one where I have plants in Texas that were impacted by the weather. So they were closed the last couple of weeks of.
February and we lost about five or $6 million of revenue in $2 million to $3 million of EBITDA. So if you had taken that out it would have been relatively flat, which compared to the market is pretty good.
But yes, we see we see good momentum as we head into Q2, we're against very easy comps in Q2 and Q3 in particular, so so we see very strong double digit growth in that business as we look into Q2 and Q3.
Unless there's some big disruptions in the construction business.
And talking about distraction the exception.
Fact that there is the ships that can the middle of the Suez Canal.
And then another hundred kind of waiting to go through.
Is that.
Something that is going to affect the supply chain that you want the Langley.
Yes, I think that that affects of the chemical supply chain to some degree Rosemarie. It's of 150 ships right now and it's going to take a couple of more days for that so I think it's just adds to the ongoing stress on the supply chain.
Is it going to transform everything in a negative way no, but rather it's an issue that we're watching very carefully we're tracking exactly what materials that our suppliers have that might be on those ships and.
But I would say the debt because we've been in this mode of global mode. We made every day.
Go through the details of the issues across thousands of materials.
We have a task force, that's our sourcing team our supply chain team and our commercial team, that's making certain that we supply customers. So.
They're they're they're well on the mode of managing those issues and in Asia.
Ship stuck in the Suez is exactly what they are set up the do so they'll they'll manage it for just fine.
The way that is great and then I was wondering if you could touch on the size and the potential it is not the size of the solid.
Solid business and.
Also playing in the wind.
Yeah.
Yes. So on the second question. We have we are of very small wind business. It is an opportunity for us. So you don't see as that goes forward. So we are of a whole new energy team.
But the biggest piece of that new energy is around around solar and again, we don't talk specifics about each of our businesses, but Rosemary as you know we have about 30 different segments. So the average about $100 million. This one is close to the average so is it a little smaller a little bigger we don't go into.
The details, but it's a good sized business for us.
That that's growing.
And the intent of the margin.
Is it at the average level of above or below.
As there is.
Because of the.
Because of the challenges with raw materials, and the dynamics of that market, which go up and down year to year, but generally speaking it's a good business for us Rosemary aware of technology leader in that space, we help our customers with our next level of innovations and we are of a broad mix of products. So so some products are higher margin summit of lower but overall I'd say.
It's a very nice growing sizable solid middle of the road margin for EBITDA right. So maybe above our averages but middle of the road for you.
Okay. Thank you.
Thank you.
Thank you again, ladies and gentlemen, if you have any questions. At this time. Please press star one on your telephone keypad.
If your question has been answered or you would assume would yourself from the queue press the pound key.
We have a follow up question coming from Mike Harrison from Seaport Global Securities. Your line is now open.
Hi.
One more question on the HFC business, you mentioned, the the challenging comp as you get into the second quarter.
I wanted to ask about the the lower number of births debt.
As expected in 2021 as a result of the pandemic. It seems like Theyre talking about that across a number of developed countries. So can you maybe help to frame up how much of the agency business.
Typically related to diapers and maybe.
If you can break out how much of that is developed versus emerging maybe.
Maybe just in talking about how that lower birth rate could impact the hygiene business potentially over the next couple of years.
Yes, yes.
I would say, Mike first off there's a different dynamic as you pointed out.
The emerging countries versus <unk>.
Mature countries and a big piece of our business is in emerging countries, because thats, where most of the babies on around the world. So.
I think one of the beauties of HB Fuller is the level of the diversity of our business. So while the hygiene business is one of our biggest ones. It's still makes up maybe about 10% to 12% of our business and of birth rates are off versus standard rates, 1% to 2%, it's really a small impact on the overall company. So the.
The IGT team managing it yes.
And then as you point out.
Baby diapers on one part of that business, but there's also adult care businesses, which are growing and then the first.
Nicely around the world as economies mature so.
So short answer is for the overall HB Fuller.
Or it's a.
It's a one or 2% of 10% to 12% of our business as the impact so relatively small.
Understood. Thanks, very much okay. Thank you.
Thank you.
On this concludes our question and answer session I would now like to showing Mexico <unk> for you Jim Owens for any closing remarks.
Thanks, everybody for the thoughtful questions and for all of your support for HB Fuller, who will talk to you soon bye now.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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