Q1 2022 HB Fuller Co Earnings Call
Unless otherwise specified discussion of revenue refers to organic revenue and discussion of EPS margins or EBITDA refers to adjusted non-GAAP measures.
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 the Russia, Ukraine War, and resulting deterioration of the global business and economic environment.
Actual results could differ materially from these expectations due to factors discussed in our earnings 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 Dot H B Fuller Dot Com now, let me turn the call over to <unk>.
Jim Allen.
Thanks, Barbara and welcome to everyone on the call.
Last evening HB Fuller reported very strong results to start fiscal year 2022.
Organic revenue was up 21% and EPS was up 21% and we delivered $113 million of EBITDA, which was up 12% and ahead of our expectations for the quarter.
This strong performance is continuing as we begin the second quarter and look ahead to the rest of the year, we are driving growth through innovation and strong strategic pricing and as we saw in 2020 and 2021 and.
In turbulent times, we are delivering for our customers and for our shareholders with exceptional consistent operational execution.
Our results were strong in each of our global business units, all three Gpus delivered mid teens or higher organic revenue growth versus last year, driven by strong volumes and pricing gains.
Our volume growth contributed 6% of organic growth and pricing drove 15%.
The tragic events in Ukraine have all of US concern for the safety of people in the region.
And our concerns at HB Fuller with them first and foremost.
From a trade perspective, the conflict is impacting a fragile supply chain with even higher prices for raw materials and transportation.
Raw material inflation will be greater than we forecasted in January and as a result additional pricing actions are being implemented this quarter to remain ahead of the inflation.
We have implemented approximately $130 million of pricing in the first quarter with at least an additional $175 million planned in the second quarter.
These actions are in addition to the $450 million of annualized pricing executed in fiscal 2021 and are expected to more than offset raw material and delivery cost increases.
Our teams are monitoring the situation daily and we are prepared to implement further price increases as necessary.
While H B Fuller doesn't have direct dependency on materials sourced from Russia or Ukraine.
Supply of materials has tightened across the world as the war is impacting the availability and price of feed stream raw materials for many of our suppliers, particularly in Europe .
Deliveries in much of Europe are being impacted by reduced air cargo trucking and ground transportation availability.
While the most acute issues are in Europe , the impacts are being felt globally.
Supply and demand is the key driver of the price increases in specialty chemicals, which make up over 85% of our purchases.
The recent spike in oil prices and commodity chemicals will have a limited impact on our business in the short term, but will create additional pressures if higher prices persist later in the year.
Our commitment to serving customers in this environment is unchanged supply assurance continues to be the number one issue for customers and for us.
We have done a very good job of serving customers, thus far by working closely to secure available materials.
The breadth of our adhesive chemistry, and the diversity of the specialty chemicals that we buy is meant that no single material has had a large impact on our ability to deliver product.
And it has enabled us to help customers find alternatives when short supply exists.
We utilize working capital to help us manage supply assurance and this high demand high inflation environment and we're managing this closely.
Our working capital reflects increased sales volumes and price as well as long lead times for material orders.
We expect working capital as a percentage of revenue to follow our normal quarterly patterns with Q1 is our highest quarter and Q4 is our lowest and we remain on track to deliver our full year working capital targets and strong cash flow.
In addition to meeting demand for supply assurance, our innovation focus has enabled us to gain share and maintained strong growth momentum as we start 2022.
Now let me move on to review the strong performance in each of our segments in the first quarter.
Hygiene health and consumable adhesives first quarter organic sales increased 21% year over year.
With revenue growth in every end market and very strong results in packaging health and beauty and tapes and labels.
<unk> segment, EBITDA was up 4% year on year, driven by volume growth and pricing gains offset by higher raw material costs, we expect HFC organic volume growth to continue for the rest of the year with pricing gains driving sequential margin improvement throughout the year.
Engineering adhesives topline results continued to be extremely strong in Q1 with organic revenue up over 17% versus last year, reflecting share gains and strong pricing execution.
<unk> had strong revenue growth across the portfolio and exceptional growth in transportation related markets, New energy woodworking and insulated glass.
Engineering adhesive segment EBITDA was up 4% year on year, driven by strong volume growth and pricing gains offset by higher raw material costs like Hh C. We expect engineering adhesives organic volume growth to continue to be solid for the rest of the year with pricing gains driving sequential margin improvement throughout the year.
Construction adhesives organic revenue was up over 38% versus last year with considerable growth and commercial roofing. The strong year over year performance was driven by robust organic volume growth improving customer demand HP for share gains and pricing.
Construction activity in first quarter of 2021 was impacted by severe winter weather in the United States.
Normalizing for that unfavorable weather impact on our business last year Ca's organic growth still would have exceeded 30%.
Construction adhesives EBITDA margin of 14, 1% is up 600 basis points versus the first quarter of 2021, driven by significant volume leverage pricing gains and strong operational execution, we expect.
Continued strong results for the remainder of the year.
We also completed the acquisitions of Apollo and 40 in late January which added $6 million of revenue in the quarter.
While construction adhesives growth this year will primarily be driven by organic roofing flooring and utilities and infrastructure business. We're very excited about these two acquisitions, which significantly expand our construction adhesives footprint in Europe .
Looking ahead, our planning assumptions are that demand will remain positive across our business units. This year, although we have factored into our outlook some slowing in volume growth as the year progresses, we expect that raw materials will continue to be tight throughout the end of the year and raw material inflation will remain elevated against a <unk>.
<unk> demand backdrop.
We expect to more than offset raw material and delivery expense increases through pricing actions.
Overall, when considering our strategic pricing actions, coupled with the solid volume growth. We now expect full year organic revenue growth of between 15 and 20% versus 2021.
Now, let me turn the call over to John Corcoran to review, our first quarter results and our updated outlook in more detail based on these planning assumptions.
Thanks, Jim I'll begin on slide five with some additional financial details on the first quarter net.
Net revenue was up 18% versus the same period last year.
Currency had a negative impact of three 7% and acquisitions had a positive impact of <unk>, 9% adjusting.
Adjusting for currency and acquisitions organic revenue was up 28% with volumes up six 1% and pricing up 14, 7% all three gpus had double digit organic growth versus 2021 with construction adhesives up over 38% year on year, and <unk> and engineering adhesives.
Up 21, and 17% respectively against what was a very strong first quarter last year for both Gpus.
Adjusted gross profit was up 10% year on year, but gross profit margin was down as volume growth and pricing gains were more than offset by higher raw material costs.
Adjusted selling general and administrative expense was down 210 basis points as a percentage of revenue, resulting from volume leverage pricing gains and good expense management.
Adjusted EBITDA for the quarter of $113 million was up 12% versus the same period last year and adjusted earnings per share of <unk> 80 increased 21% versus the first quarter of last year, driven by strong volume growth pricing gains and good cost controls offsetting higher raw material costs.
As expected cash flow from operations declined compared with the prior year driven by higher working capital requirements due to increased sales significantly higher raw material cost and extended lead times.
Working capital as a percentage of revenue is expected to decline to below 16%.
2022 year end, resulting in more normalized levels of cash flow generation for the remainder of the year.
Regarding our outlook based on what we know today, we now expect full year organic revenue growth to be between 15% to 20%.
We expect currency to have a negative impact on full year revenue of between 3% and 4%.
And we expect the Apollo and <unk> acquisitions that were announced at the end of January to add approximately $60 million of revenue for the full year.
We are increasing our adjusted EBITDA guidance range to $530 to $550 million, reflecting the impact of acquisitions and our strong start to the year with forecasted double digit year on year EBITDA growth in each quarter. This year.
As a reminder, we have 53 weeks of business in this fiscal year with an additional week in our fourth quarter, including the additional week, we expect about 29% of our full year EBITDA in Q4.
We also now expect full year interest expense to be between $75 million to $80 million full year, depreciation and amortization expense to be approximately $150 million and capital expenditures of $105 million to $115 million.
All of these projections are updated to reflect the impact of the acquisitions.
Based on all of this we now expect full year adjusted earnings per share to be in the range of $4 10 to four.
$4 35, an increase of between 18 and 25% versus fiscal 2021.
With that I will turn the call back to Jim Owens for some closing comments.
John .
We are pleased not only with the 20 plus percent increase in top and bottom line results in the first quarter.
But also with the momentum we have created as we enter the rest of the year.
Our ability to recognize and respond to a changing world, while continuing to innovate and respond to new market opportunities.
Is enabling our continued success.
The momentum we've created over the last couple of years as a direct result of how we are executing our multiyear strategy to grow and transform the company.
Since 2019, we have implemented organizational changes manufacturing efficiencies and process excellence initiatives that have unlocked the highly entrepreneurial and collaborative culture at H B Fuller.
We have focused our organic investments and we've acquired technology in order to grow our portfolio of highly specialized solutions.
And we have built 30 market focused businesses with their own P&L within the three gpus that reinforce our speed and agility to serve customers.
These teams intimately know their markets anticipate trends and work with formulation and application experts across the company to deliver innovation that solves customers' problems first and fastest.
In 2022, we will continue to focus on growing our portfolio of specialized diseases to capitalize on market opportunities for high performance applications and sustainable solutions.
And we will deliver mid to high teens organic revenue and earnings growth.
We are accomplishing this by delivering on three critical priorities.
We will outperform our competition globally by securing access to key raw materials in this high demand and supply constrained environment.
A year ago, our management team developed the mantra.
The company that does the best job of getting materials that are in short supply will win.
We are succeeding in this area and it's showing up in our results.
Our second imperative is to continue to strategically manage pricing aligned to the value we deliver in this inflationary environment.
Our company built pricing expertise pricing tools and in depth value training over the years.
And when material inflation return, we were able to execute with speed and precision to maintain and grow our business while pricing to value.
Sure.
Third.
We continue to innovate to solve our customers' needs using H b Fuller's unparalleled expertise and application science formulation science and our singular focus on adhesives to drive solutions that solve customer problems first fastest and best.
Our company has built an agile business model, where people collaborate remotely with each other with customers and with suppliers around the globe.
And they quickly adapt to changing market conditions to ensure our customer success by getting them the materials and innovation they need to thrive.
We remain confident in our ability to continue to deliver for customers and shareholders. In this turbulent environment as we have over the last several years.
Before we take your questions I'd like to remind everyone that we will be hosting an investor day on April 13th at our global headquarters here in St. Paul Minnesota.
This will be an opportunity for you to meet our senior leaders along with many other employees face to face you will also get an inside look at our innovation capabilities and commercialization successes as you tour, our global Technical center and meet with our technical experts and business leaders.
We will have a three hour business presentation, which will provide in depth insights into our market position, how the company operates and our plans to drive accelerated growth in the years ahead.
The business presentation will also have a virtual feed for those that cannot attend in person.
We're looking forward to this meeting and seeing you in person or virtually.
This concludes our prepared remarks today operator, please open up the call. So we can take some questions.
Thank you as a reminder to ask a question you will need to press star one on your telephone keypad.
Again that is star one to ask a question to be drawn a question just press domanski.
Your first question comes from the line of Ghansham Panjabi from Baird. Your line is now open.
Hi, This is actually Tom dignan sitting in for Ghansham. How are you today. Good morning, Tom Yeah. We're good thanks great.
So first could you call out and quantify what the variances are in relative to the guidance raise just between M&A, the FX headwind incremental supply chain disruptions raw material inflation and anything else I might be missing.
So youre asking about the change in guidance, yes, fundamentally yes fundamentally the.
Two biggest drivers are.
The acquisitions that we did and the over performance here in Q1.
John you want to add yes, I think Tom as far as acquisitions, I think we indicated $60 million in revenue and <unk>.
Most of the increase in the EBITDA guidance.
FX is in the negative 3% to 4% range and then we have more pricing than we.
Anticipated coming into the year, but raw materials are higher as well.
Got it and then one more could you also provide more color on the segment volumes just embedded in the full year outlook, and then kind of related to that could you touch on what drove the volume strength in first quarter and whether you saw any pre buying activity ahead of price increases.
Volume growth was strong across all the businesses exceptionally strong in CA, but we're pleased with the volume.
I'd say the biggest driver is the innovation work we've been doing over the last couple of years. You know you can look at each one of our businesses and see some key wins with new technologies, whether their sustainability, driven or helping customers deal with reduced labor.
So our innovation engine is really delivering some great results and you see it in our.
In our internal metrics on on percentage of revenue tied to innovation tied to environmental projects. So so that whole piece of this is going really well our supply chain work and securing raw materials means that we're not getting the negative impact that maybe some others are win when there are shortages because we're finding our way through.
These things and making certain that we do is.
Do a good job. So those are really the definitely seeing that momentum building as far as pre buy on pricing.
Increases price increases are happening every quarter, so theres not really a pre buy on price increases and frankly, there's not enough material around for people to pre buy so that's definitely not.
Not not driving any kind of quarterly impact here, John you want to add something no I think Tom you had a SaaS kind of what we were anticipating going forward I think we would expect to continue to see volume growth maybe not at the rate. We saw in Q1, though I think with factor Theres nothing thats slowing down right now Tom but given what's happened in the UK.
Grain and around the world, we factored into our guidance an expectation that volumes underlying volumes will decline so.
The things that we're doing in innovation and driving growth, but I think underlying we're.
We're factoring in a slowdown, but as I said, no real indications yet that that's happening, but I think it's an obvious assumption at this point.
Got it that's it for me thank you.
Thanks, Tom.
Your next question comes from the line of Mike Harrison from Seaport Research Partners. Your line is now open.
Hi, good morning.
Good morning, Mike.
And congrats on the nice quarter.
In terms of the the 12% to 15% increase that you're seeing in raw materials. Since the end of Q4 can you give us a little bit more color on kind of how those inflationary dynamics have evolved over the past few months and do you have some confidence that we're going to see some stabilization.
Here or is there still a lot of volatility or uncertainty as you look at your fairly wide ranging raw material basket.
Yes, yes.
Yes, I think I think I, even said it on the last call right. What we were seeing in Q3 Q4 and projecting into Q1 was a slowing of inflation still inflation, but less inflation and thats. What we had predicted for Q2 right. So inflation, but less inflation in fact, our current view is that inflation in Q2 will.
The highest inflation quarter, we've had and thats, mostly driven by Ukraine. So we do a lot of forward look and we get really good visibility a quarter ahead and.
There is a lot of shortages there is a lot of.
For the quarter. So so our our perspective is up a lot from where we weren't.
For Q1, mostly driven by the shortages in Ukraine, and it's why we have this big increase that were putting in place here in Q2, the big price increase.
Alright, and then I wanted to switch over to the construction phase.
Yes.
<unk>.
You've had a couple of pretty nice quarters. There can you talk about the trends that youre seeing in that business as we head into the busier construction season are you seeing delays are you having issues getting.
Okay.
Some of your raw materials that you might need and I guess, how confident are you around the pricing and volume and kind of margin trajectory through the rest of the year.
Yes.
Yes, the construction team has done a great job here throughout the pandemic and the supply shortage in and a lot of that's driven by a.
Full innovation strategy. So we know who we are which is being the best adhesive company in construction in one of the things. We bring is we enable customers to build projects with less labor and by coming up with innovations like gosh, bramble adhesives, or our fast <unk> adhesives, we're enabling that.
That is accelerating our growth. So those innovations are really key underlying drivers there.
The team has done a great job of pricing.
I think they did a good job of getting ahead of pricing.
And the the supply assurance, we're giving most of our customers are having problems getting some material, but our customers are having trouble getting adhesives. So so we're not slowing down their jobs, we've seen situations where customers have moved from a metal roof to a.
Our laminate or <unk> roof, because they're having trouble getting the metal and they've moved to some other type of roofing material. So.
So definitely there is pent up demand out there and a lot of construction markets because of construction materials, but I'd say our performance in that has really helped us both relative to other adhesive suppliers, but just helping our customers keep going so so so yes, we see robust.
<unk> for.
For the foreseeable future here. The next couple of quarters based on the feedback we're getting from our customers.
Alright, Thats good to hear and then a quick one for John and then I'll pass it along you called out the higher FX impact on the top line, 3% to 4%.
Does that impact look like on the EBITDA line and do you think you could have raised guidance.
Little more if not for that additional headwind from currency.
Yes, so I think it hurts our.
Our bottom line, a little bit and that's certainly factored into our guidance.
I would also say.
You can easily make a case that we should have upped our guidance more right. We've got a lot of them.
Good momentum and you can see that but I think we've been prudent in building our guidance with a with a view that the world changes a lot right. If you think about this call rights first quarter call. Two years ago. We were the first ones out there talking about the pandemic first quarter call last year. We were the first one is talking about the supply shortages related to jewelry and now this year.
So the first one is out there talking about Ukraine. So.
We've got pretty good.
I'm going to prognosticate the future here.
Need to get it right here again, this year, but I think.
I think we're conservative.
Our thinking here going forward for currency reasons, and other reasons and I think it's a good.
A good guidance range I don't know you want to add something that describes it perfectly in the 3% to negative 3% to 4% was consistent with our guidance. We gave last quarter. So it didn't really impact our guidance per se.
Alright, thats great color, thanks, very much everyone.
Thanks, Mike.
Your next question comes from the line of Vincent Anderson from Stifel. Your line is now open.
Yes, good morning, and nice start to the year there. Thanks man.
So I know these were relatively small acquisitions, but I was wondering if you could take some time to characterize how you arrived at these targets, whether it's opportunistic buy versus build capacity portfolio synergies what have you.
And if this was very portfolio driven does this make additional European capacity more of a priority to extend it to expand your footprint there or does this really gets you where you want to be for the time being in Europe .
Yes, so we like we love both of these deals and.
I think for H B Fuller these small deals that bring in.
Either new technology with boat, which both of these do or market position with both of these do a really valuable. So RCA franchise is very much a U S. Based franchise, we've got a lot of good penetration of certain product lines in Europe . This gives us a center with particularly on Apollo a great team and a great business.
<unk> and the business is a little different in Europe . So foreign he gives us better insight into that business. So so two really nice additions that give us.
A really strong presence in CA and I think it was important for US we have a lot of global strength as a company, but having a good position there.
I'd say broadly speaking what you.
Look to see from us from future deals these kind of sizes or even smaller that bring in new technology or entry into a new market space, especially if we can add good people, which.
Businesses did so.
So I could see us doing more deals, but not necessarily.
In Europe .
And I could see us certainly in EMEA, where theres a piece of technology or in a market segment that we can strengthen ourselves, but theres a lot of opportunities out there to buy companies.
Because were a good acquirer and we've done a good job of helping people integrate into our company.
We were in a good position to buy the companies that we target and are looking to bring on board, especially in that kind of space. So that's a little look at our strategy in those two deals, but the great deals theyre good strategic additions.
That's great. Thanks, and you actually kind of hit on some of my next question, but.
Jim you made a huge effort to get your company re segmented into global business units, but as you said construction has historically been just very heavily weighted towards North America.
Do you feel good that construction is ready to start functioning as a more globalized business or is the thing that you expect to be a little bit further down the down the road to integrate.
Especially any European products that would come back to the U S for instance.
Yes.
A fundamental part of our strategy as we think can be a much stronger pillar. If we add on the right technology around the world. So so yes, I think I think construction adhesives are.
As long as you choose the right segment segments are very highly specified they create a lot of value for customers and our ability to turn that into a global business. We have a lot of great technology in the U S that we havent brought around the world and then when we buy someone like Apollo Theres, all kinds of opportunity to instantly, bringing that to the U S. So so theres going to be nice.
Synergy deals, especially offensive synergy deals in the C&I space.
Okay, great and if I could ask one more just kind of staying high level here.
When you think about your runway of new sales coming off of recent innovation wins.
Just curious like as best you can estimate what share of these wins are upgrading an existing product line and then gaining share as a result versus a product that's really a new win that is opening up additional sales channels.
If that's something that you can answer just any trends in the focus or relative success between those two product development strategies.
So we need to do both right all of our customers need to upgrade in all the markets. We're in.
Generally it's them upgrading their product so a window manufacturer wants a more energy ascension.
Window right, we need to be specced in on that baby diaper manufacturer wants to get something thats more absorbed in a more flexible electronics manufacturer wants a more waterproof cell phone those are the opportunities that we tackle. So so I would say, it's typically upgrades of our technology, but it's the real innovation on our customer.
Did that we're enabling and it's a big part of what we do right. We're not just upgrading adhesives that people don't generally see that is value added them upgrading their products and us being a part of that that's that's what we're driving in our innovation strategy.
Okay excellent. Thanks again, okay.
Thank you.
Your next question comes from the line of Jeff Zekauskas from Jpmorgan. Your line is now open.
Thanks very much.
Do you plan to acquire anything else this year.
Yes, I'd say, Jeff we will look at opportunities as they come up.
That would be in our pipeline would be relatively small so.
I don't think we're looking to do any major acquisitions I think.
Paolo was sizable.
So that would be the short answer yes.
So.
Well, we take oil prices it stands on the day, when we build our guidance.
Jeff in our business.
Most of.
The impact of oil is is delayed 85% of what we buy.
<unk> specialty chemicals that are more supply demand driven and then that's that 15% that's <unk>.
Solid materials monomers that move more with with oil. So so for those products, we've assumed today as well as a couple of days ago, I guess I haven't looked at today's price but.
<unk> built that into our models going forward, but the impact there Jeff for US is more in Q3 Q4 phenomenon more for Q4, even in Q3.
So what it means is it to assume $1 20 or 100.
Or whatever.
Whenever it was Friday, so we'll have to take it as what we would we would put into our model.
But it's not a big impact here in the short run rate I think that's the important yes.
There was sort of.
Very low.
Okay.
Health and hygiene.
Engineering, but very very good ones in construction and I get.
That last year.
You had you had a very easy comparison, but if you go back over time, you've never really reported this kind of EBITDA level in the first quarter was demand just unusually strong.
What happened why is this business different from your other two businesses.
Maybe I'll talk about each one separately construction did a great job of getting ahead of the pricing. So I think they did a really good job in Q4 on pricing.
So.
Our innovations are very very high value.
Innovations and I'd say those are the two factors that are driving that margin frankly up to where we expect it right. So we're looking at that business being a high teens margin.
In business and Baas and the team are there when.
And you look at the EPA and the <unk> businesses this quarter Theyre up against very strong performances first quarter of last year, so, especially.
In these times Q1, 'twenty 2021 and 'twenty two should we got to look at them in aggregate, but but but they were up 20% in Q1 of last year. So so I would say really good performances in all of those all of those businesses, Jeff and <unk>.
CA getting where it should be I think in terms of performance is the way I'd characterize it.
So you said that your volume was up about 6% in the first quarter and I think you said that you thought you are a vault your rate of volume growth would decline.
From that level in the course of the year.
<unk> got an extra week, so maybe that adds I don't know, 2% to your volume growth something like that.
So exclusive of the extra week.
Your volume growth this year as far as you expect that I don't know about two or 3%.
Yes.
Those comments I made Jeff are exclusive of the extra week. So I think if you.
The extra week and on top of that so.
I think I think the momentum we see today in the business, which shows very strong volume even going here into Q4, I think we are building into our models and assumptions that with everything that's happening around the world and particularly over in Europe , that's going to be some slowdown and that's that's just an assumption based on macroeconomic.
<unk>, but but.
Yeah. So that's what's built into the model.
And lastly for John .
As SG&A, just going to be up a few percent this year and if you add up all your nonrecurring all the nonrecurring charges you expect to take this year, how much would it be.
Well I'd say it was it's going to be up more than a few percent I think it was up about 5%.
Nice quarter.
I would expect it to be a little higher as we progress through the year, Jeff So maybe up in the high single digits.
From a special charges standpoint.
I Couldnt tell you what that would do I mean, I think there wasn't anything unusual.
We have had some restructuring and reorganization charges, but those have been tailing off.
It's been pretty consistent and I would expect it to sort of stay consistent but maybe increasing at a slightly higher rate as we go through the year.
Okay great.
And then the only comment I'd make Jeff is in.
In the first quarter, we did incur some onetime charges related to the acquisitions.
Adjusted out so those those I guess would be the unusual ones that may be made that number a little bit bigger yes.
Yes.
Thank you so much.
Thank you Jeff.
Your next question comes from the line of Eric Petrie from Citi. Your line is now open.
Hi, Good morning, Jim and John .
Good morning, Eric.
You noted potential for slowing volumes just a high level question is that macro issue or is that youre expecting demand with.
Two to higher product pricing.
That's all about macro issues, we don't see outside of very small pockets.
And impact in attrition related to pricing.
Okay, and then on your raw material guidance of 12% to 15% for first half whats embedded in your guidance for the full year and in terms of the pricing gains youre, making in the first quarter and second quarter, how does that spread by business and do you see better price re openers in engineering adhesives.
Yes, I would say.
We were not were trying not to project exactly what's going to happen in Q3, and Q4 with raw material inflation, our pricing inflation and I think we've shown an outstanding track record of when the raw materials come we can deliver the pricing and that's our expectation here in Q3 and Q4 so.
I think if raw steak off again in Q3 that will add to the number it will also add to the pricing.
And as far as across the businesses.
The amount of price that we're getting.
Great. Thank you.
Thank you Ed.
Your next question comes from the line of David Begleiter from Deutsche Bank. Your line is now open.
Thank you good morning.
Jim and John .
David.
Just going back to guidance for Q2 from Q4 ex M&A is it fair to say that this guidance is unchanged versus prior guidance.
Pretty similar pretty similar I think.
Pretty similar.
Got it.
Just on <unk>.
I'd say, that's the net net.
There's a lot that goes behind that right I think I think there is.
A lot of good momentum in the business. Some some some great work on pricing thats, improving the margins and then there's this temporary it's built into the guidance.
And that segways into my next question just on Q2, given the increase we're seeing in raws.
How should we think about the cadence of earnings in Q2 versus prior expectations, maybe a little bit less given where are.
You actually behind.
In Q2 price versus raws.
Yes, I would say we're doing a good you got to remember when we get our raw material increases we have to buy the price of products that go through inventory they have to be transformed and then when we raise the prices that happens on the day. So so the timing is not that far off. So we don't have a timing phenomenon, where rolls are coming in ahead of ahead.
The head of price.
<unk>.
I do think our guidance involves that that extra week in Q4 so.
Some of that is embedded in Q4 in terms of where the guidance.
Directing us right and we've tried to be clear about that.
But yes, so but I wouldn't say, we're looking for some big dip here in Q2, I think I think it's going to be a tough quarter.
Corner, but we have good visibility to it and we think we can deliver solid results I think John said double digit EBITDA growth, excluding the extra week.
Boeing yet of demand activity.
Due to the Russia Ukraine.
And conflict.
Surprisingly no.
The biggest challenge in Europe right now is.
<unk> is trucking it theres a lot of the truck drivers in Europe , or Russian or Ukrainian in there. So there is a.
A real shortage of trucking thats, having an impact, but but early days, we don't see a big decrease in demand in Europe at least at this point.
Got it thank you very much.
Thank you David.
Yes.
Your next question comes from the line of Rosemarie <unk> more belly from Gabelli <unk> company.
Thank you and good morning, everyone.
Rosemarie so.
First I wanted to congratulate you on a great first quarter.
Yes.
One area or one region, we haven't talked about is China could you talk and you have a decent business.
Hfcs will actually could you talk about what he is going on there whether the COVID-19 .
And the restriction.
Government and so on.
Operations in the region and what do you see for the next three quarters, yes.
Yes, thanks for asking that question Rosemarie because.
One of the interesting things about the quarter as Asia was weak from a from a topline perspective, mostly driven by a little bit of an extended Chinese new year, which took away more volume and the slowdowns.
In China. So if you told me, we were going to generate 20% organic growth and and Asia was going to be in low single digits right I'd be very surprised but that's where we're at today at Rosemary and but I think do you think there is an upside there as the year goes on as I talked to our team on the ground in China.
This whole thing, we're reading the press, where theres going to be a little loosening of some of these restrictions.
Is going to happen I don't think we're going to see the Chinese government, let the economy tanked, so probably still a little bit of impact here in Q2, but we're expecting China to get better than it has been but it's been a it's been a bit of a drag on the top line here in the first quarter anything to add on that John I think it's perfect description.
How large is this.
In China, if you put it all together.
Yes about 12%.
Okay. Thanks.
And then.
You said that you are not seeing any pre buying that.
Do you and I understand that there is a supplies.
The supply challenges.
Do you see customers building inventory because that those supply challenges and just making sure that just the way you do that they will have enough to produce whatever it is that they are producing.
Yes, I think Thats, an interesting question as well Rosemarie, mostly what we're dealing with as customers who are short of supply right. So we've got a lot of customers that we're hand to mouth meeting their needs but.
I think there probably are pockets of oversupply. So I think the net net is probably neutral.
But but I think that's a question across the supply chain right you see inventories building in lots of companies. So what is that I know for us.
So last was just telling me the other day she was at one of our factories and.
Im sure some of our customers are in the same mode, but I.
I can't point to a big uptick in inventory out there, but I'm sure there's some of that as well as.
Some other customers that are very short.
Thanks, anytime you are expecting margins to improve sequentially.
However price cost.
Our increasing sequentially as well isn't there some kind of a lag between the.
Pricing and I think you mentioned that between the pricing and the higher cost and therefore, where you're getting your sequential margin improvement.
It may not.
Sally.
Okay every quarter.
Yes, I think Thats a comment more about the next couple of quarters.
And I think we've caught up here Rosemary right. So if you think about where we were early early in this inflationary period, we were getting raw materials at a faster rate than the end of last year, we caught up and now we're slightly ahead right. So I think we're managing through this in a bit.
In a very thoughtful way.
And doing what we need to so yes. So.
I also got to remember Q1 is our lowest volume quarter. So that affects some of our margins as well. So so yes, I think margin progression here in the next couple of quarters is what we're expecting and driving forward.
Okay, great. Thank you. Thank you.
Your next question comes from the line of parent Posh Misra from bearing Burke. Your line is now open.
Thanks, and good morning, just going back to your China business post the new year has to recovery in orders in China after the new year being stronger or weaker than what you typically see at this time of the year.
Yes, I think as I mentioned I think the shutdowns that we're all reading about are affecting various people in the supply chain. So I think the underlying demand is there, but I think the shutdowns in shenzen in some other parts of China are slowing down the speed of pickup after the new year.
I see.
And then what are you seeing in your electronics business are you expecting volume growth this year to be higher or lower versus last year.
Electronics business, thanks for bringing that up that's one of our real stars, we're really pleased with how that's.
How that's going in.
Good strong growth really solid bottomline delivery on that business, mostly driven by innovation. So I wouldn't say, we're a bellwether as to what's happening underlying in electronics. Because these are mostly new innovations and new opportunities that we're winning.
Yeah, good good solid growth and we do see it progressing throughout the rest of the year.
Got it and I don't know if you've given this number but on a full year basis in.
In 2022.
Sort of raw material inflation are you assuming.
For this year.
Well I think we're like we said.
1% to 15% is the is the number we're looking at.
Okay, great. Thanks, guys Okay.
Okay. Thanks very much.
There are no further questions at this time I would now like to turn the call back over to Mr. Owens.
Again, thanks, everybody for their support their questions, we really would like to see here in our headquarters here in St. Paul I think you will get really good insight and meet some of our team we're going to host a dinner for those of you who are in town and the night before but if you can't make it the presentation virtually I think will be up also.
Helpful and informative have a great day, everyone. Thanks.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].
Okay.