Q3 2023 H.B. Fuller Company Earnings Call

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I would like to welcome everyone to the H B Fuller third quarter earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Speaker 1: Hello and thank you for standing by. My name is Regina and I will be your conference operator today. At this time, I would like to welcome everyone to the HB Fuller third quarter earnings conference call. All lines have been placed on mute to prevent any background.

Speaker 1: After the speaker's remarks, there will be a question and answer session.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star One again I would now like to turn the conference over to Steven <unk>. Please go ahead.

Speaker 1: If you'd like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, press star one again. I would now like to turn the conference over to Steven Brezone. Please go ahead....

Speaker 2: Thank you, operator. Welcome to HP Fuller's third quarter, 2023 Investor Conf.

Thank you operator, welcome to H B Fuller's third quarter 2023, Investor Conference call.

Speaker 2: Presenting today are Celeste Mastin, President and Chief Executive Officer, and John Corcoran, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will now take a short break.

Presenting today are Celeste, Mastin, President and Chief Executive Officer, and John Corcoran, Executive Vice President and Chief Financial Officer.

After our prepared remarks, we will have a question and answer session.

Speaker 2: Before we begin, let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP.

Before we begin let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP.

We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies reconciliation of non-GAAP measures to the nearest GAAP measure are included in our earnings release.

Speaker 2: We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure are included in our earnings relief.

Speaker 2: Unless otherwise noted, comments about revenue refer to organic revenue, and comments about EPS, EBITDA, and profit margins refer to adjusted non-GAAP measures.

Unless otherwise noted comments about revenue refer to organic revenue and comments about EPS EBITDA and profit margins refer to adjusted non-GAAP measures.

Speaker 2: 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 uncertainty.

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.

Actual results could differ materially from these expectations due to factors covered in our earnings release comments made during this call and the risk factors detailed in our filings with the Securities and Exchange Commission all of which are available on our website at investors that H B Fuller dotcom.

I will now turn the call over to Celeste Mastin Celeste.

Celeste.

Speaker 3: Thank you, Stephen, and welcome everyone. In the third quarter, we delivered a double digit increase in adjusted EBITDA year on year and successfully drove adjusted EBITDA margin meaningfully higher. We achieved this despite weaker than expected volumes driven by a more adverse customer de-stocking impact in hygiene, health and consumable adhesives and lower market demand in construction related markets.

Thank you Steven and welcome everyone in the third quarter, we delivered a double digit increase in adjusted EBITDA year on year and successfully drove adjusted EBITDA margin meaningfully higher we achieved this despite weaker than expected volumes driven by a more adverse customer destocking impact in hygiene health and consumable.

Regina: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the HB Fuller third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, press star one again.

Adhesives, and lower market demand in construction related markets customer destocking actions have been temporarily detrimental to organic growth leading to volume declines in excess of underlying economic demand while challenging in the short term we are successfully managing through this highly unusual.

Speaker 3: Customer de-stocking actions have been temporarily detrimental to organic growth, leading to volume declines in excess of underlying economic demand. While challenging in the short term, we are successfully managing through this highly unusual phenomena, taking actions that reduce our cost structure while sustainably executing our price-to-value discipline and leveraging our raw material scale.

Steven Brazones: I would now like to turn the conference over to Steven Brazones. Please go ahead. Thank you operator.

Phenomena, taking actions that reduce our cost structure, while sustainably executing our price to value discipline and leveraging our raw material scale I.

Steven Brazones: Welcome to HB Fuller's third quarter, 2023, investor conference call. Presenting today are Celeste Mastin, President and Chief Executive Officer and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question and answer session. Before we begin, let me remind everyone that our comments today will include references to certain non gap financial measures. These measures are supplemental to the results determined in accordance with gap. We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies.

Speaker 3: I am quite pleased that we were able to achieve double-digit growth in adjusted EBITDA in the current environment and, without question, the actions we are taking will continue to benefit our ability to grow adjusted EBITDA in 2024 and well into the future.

I'm quite pleased that we were able to achieve double digit growth in adjusted EBITDA in the current environment and without question. The actions. We are taking will continue to benefit our ability to grow adjusted EBITDA in 2024 and well into the future.

Steven Brazones: Reconciliation of non-gap measures to the nearest gap measure are included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue and comments about EPS, EBITDA and profit margins refer to adjusted non-gap 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. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call and the risk factors detailed in our filings with the Securities and Exchange Commission, all of which are available on our website at investors.hp Fuller.com.

Speaker 3: Overall, organic revenue declined 7.4% year-on-year in the third quarter, with all GBUs experiencing lower volume versus the prior year.

Overall organic revenue declined seven 4% year on year in the third quarter with all GBT user experiencing lower volume versus the prior year.

Speaker 3: Overall, the sequential trend in volume largely followed the path we expected, with the exception being the magnitude of volume impact in HHS.

Overall, the sequential trend in volume largely followed the path, we expected with the exception being the magnitude of volume impact in H H C customer destocking actions in E. N C. A are largely complete and we believe they have peaked for H H C. In the third quarter.

Speaker 3: Customer de-stocking actions in EA and CA are largely complete and we believe they have peaked for HHC in the third quarter. Incremental volume development has been improving since the second quarter trough and we expect this to continue and meaningfully improve in the fourth quarter.

Incremental volume development has been improving since the second quarter trough and we expect this to continue and meaningfully improve in the fourth quarter.

Speaker 3: From a profitability perspective, we overcame short-term volume challenges to achieve a 13% increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin 270 basis points year-over-year and 140 basis points sequentially from Q2 to 17.3%.

From a profitability perspective, we overcame short term volume challenges to achieve a 13% increase in adjusted EBITDA year on year and increased adjusted EBITDA margin 270 basis points year over year, and 140 basis points sequentially from Q2.

Celeste Mastin: I will now turn the call over to Celeste Mastin. Celeste?

Celeste Mastin: Thank you, Stephen, and welcome everyone. In the third quarter, we delivered a double digit increase in adjusted EBITDA year on year and successfully drove adjusted EBITDA margin meaningfully higher. We achieved this despite weaker than expected volumes driven by a more adverse customer destocking impact in hygiene, health and consumable adhesives and lower market demand and construction related markets. Customer destocking actions have been temporarily detrimental to organic growth, leading to volume declines in excess of underlying economic demand.

To 17, 3%.

Speaker 3: The benefits from sustainable pricing discipline, proactive raw material cost management, and restructuring savings realization more than offset the detrimental impact from lower volume and drove the improvement in profitability in the third quarter.

The benefits from sustainable pricing discipline, proactive raw material cost management and restructuring savings realization more than offset the detrimental impact from lower volume and drove the improvement in profitability in the third quarter.

Speaker 3: We also delivered another outstanding quarter from a cash flow perspective, with cash flow from operations increasing $50 million year-on-year to $108 million driven by strong profit growth and improved working capital performance.

We also delivered another outstanding quarter from a cash flow perspective, with cash flow from operations, increasing $50 million year on year to $108 million driven by strong profit growth and improved working capital performance.

Celeste Mastin: While challenging in the short term, we are successfully managing through this highly unusual phenomena, taking actions that reduce our cost structure while sustainably executing our price to value discipline and leveraging our raw material scale. I am quite pleased that we were able to achieve double digit growth in adjusted EBITDA in the current environment, and without question, the actions we are taking will continue to benefit our ability to grow adjusted EBITDA in 2024 and well into the future.

Speaker 3: Now let me move on to review the performance in each of our segments in the third quarter.

Now let me move on to review the performance in each of our segments in the third quarter.

Speaker 3: In HHC, organic revenue was down 10.5% year-on-year driven by HHC's customer destocking activity, which we estimate accounted for most of the decline in organic growth. Since the pandemic, most of HHC's customers held significantly higher inventories of raw materials to mitigate the risk of supply chain availability.

N H H C. Organic revenue was down 10, 5% year on year, driven by H H. These customer destocking activity, which we estimate accounted for most of the decline in organic growth since the pandemic most of Hh. These customers held significantly higher inventories of raw materials.

To mitigate the risk of supply chain availability. This has created a very unique situation for channel inventory Destocking in 2023 that is unprecedented historically and has led to volume declines for H H C that have never been experienced before.

Celeste Mastin: Overall, organic revenue declined 7.4% year on year and the third quarter, with all GBUs experiencing lower volume versus the prior year. Overall, the sequential trend in volume largely followed the path we expected, with the exception being the magnitude of volume impact in HHS. C, customer destocking actions in EA and CA are largely complete, and we believe they have peaked for HHC in the third quarter. Incremental volume development has been improving since the second quarter trough, and we expect us to continue and meaningfully improve in the fourth quarter.

Speaker 3: This has created a very unique situation for channel inventory de-stocking in 2023 that is unprecedented historically and has led to volume declines for HHC that have never been experienced before.

Speaker 3: With that said, we know this to be temporary, as underlying demand is stronger than our volume reflects, and we've also recently seen distributor buying patterns improve. Although underlying demand is down slightly given the current economic environment, we are encouraged by the trends in HHC. The team has been successful in gaining new business. This will become much more evident once the HHC customer destocking actions conclude.

With that said, we know this to be temporary as underlying demand is stronger than our volume reflects and we've also recently seen distributor buying patterns improve although underlying demand is down slightly given the current economic environment. We are encouraged by the trends in H H C. The team has been.

Festival in gaining new business. This will become much more evident once the H H C customer destocking actions conclude.

Celeste Mastin: From a profitability perspective, we overcame short-term volume challenges to achieve a 13 percent increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin 270 basis points year-over-year and 140 basis points sequentially from Q2 to 17.3 percent. The benefits from sustainable pricing discipline, proactive raw material cost management, and restructuring savings realization, more than offset the detrimental impact from lower volume and drove the improvement in profitability in the third quarter. We also delivered another outstanding quarter from a cash flow perspective, with cash flow from operations increasing $50 million year-on-year to $108 million driven by strong profit growth and improved working capital performance.

Speaker 3: Adjusted EBITDA for HHC increased 12% year-on-year to $69 million, and adjusted EBITDA margin increased 270 basis points to 17.2%. This is quite impressive given the significant short-term volume challenges we have endured. Favorable price and raw material cost management and restructuring benefits drove the improvement year-on-year.

Adjusted EBITDA for H H C increased 12% year on year to $69 million and adjusted EBITDA margin increased 270 basis points to 17.2%. This is quite impressive given the significant short term volume challenges, we have endured favorable price.

And raw material cost management and restructuring benefits drove the improvement year on year.

Speaker 3: In engineering adhesives, organic revenue declined 3.3% in the third quarter, much improved versus the 9% decline in the previous quarter, led by strength in China. Organic revenue declined due primarily to lower volume in construction-related end markets, which more than offset organic growth in the automotive, electronics, and solar market segments.

In engineering adhesives organic revenue declined three 3% in the third quarter much improved versus the 9% decline in the previous quarter led by strength in China organic revenue declined due primarily to lower volume in construction related end markets.

Which more than offset organic growth in the automotive electronics and solar market segments.

Speaker 3: Adjusted EBITDA and EA increased 26% year on year, and adjusted EBITDA margin increased 450 basis points year on year to 19.3%. The improvement in profitability for EA was driven by favorable price and raw material actions and aggressive cost management.

Adjusted EBITDA and EBITDA increased 26% year on year, and adjusted EBITDA margin increased 450 basis points year on year to 19, 3% the improvement in profitability for <unk> was driven by favorable price and raw material actions.

Celeste Mastin: Now let me move on to review the performance in each of our segments in the third quarter. In HHC, organic revenue was down 10.5 percent year-on-year driven by HHC's customer destocking activity, which we estimate accounted for most of the decline in organic growth. Since the pandemic, most of HHC's customers held significantly higher inventories of raw materials to mitigate the risk of supply chain availability. This has created a very unique situation for channel inventory destocking in 2023 that is unprecedented historically and has led to volume declines for HHC that have never been experienced before.

And aggressive cost management.

In construction adhesives organic revenue declined nine 4% year on year, a marked improvement versus organic revenue declines of 26% in Q1 and 14% in Q2.

Speaker 3: In construction adhesives, organic revenue declined 9.4% year on year, a marked improvement versus organic revenue declines of 26% in Q1 and 14% in Q2.

Speaker 3: Customer destocking impacts in CA continued to taper in the third quarter, as expected, and are largely complete now. However, end market demand has weakened in construction-related end markets, and we would ascribe most of the organic revenue declines in the third quarter to end market conditions.

Customer destocking impacts and see a continued to taper in the third quarter as expected and are largely complete now however, and market demand has weakened in construction related end markets and we would ascribe most of the organic revenue declines in the third quarter to end market conditions.

Celeste Mastin: With that said, we know this to be temporary, as underlying demand is stronger than our volume reflects, and we've also recently seen distributor buying patterns improve. Although underlying demand is down slightly given the current economic environment, we are encouraged by the trends in HHC. The team has been successful in gaining new business. This will become much more evident once the HHC customer destocking actions conclude. Adjusted EBITDA for HHC increased 12 percent year-on-year to $69 million and adjusted EBITDA margin increased 270 basis points to 17.2 percent.

Speaker 3: Adjusted EBITDA for CA was down modestly year on year and adjusted EBITDA margin of 14% was effectively flat as favorable price and raw material cost actions as well as restructuring benefits offset the impact of lower volume.

Adjusted EBITDA for <unk> was down modestly year on year, and adjusted EBITDA margin of 14% was effectively flat as favorable price and raw material cost actions as well as restructuring benefits offset the impact of lower volume.

Speaker 3: The restructuring actions the CA team has executed position this business to deliver sustainably strong adjusted EBITDA margins consistently throughout the cycle.

The restructuring actions the team has executed position this business to deliver sustainably strong adjusted EBITDA margins consistently throughout the cycle.

Celeste Mastin: This is quite impressive given the significant short-term volume challenges we have endured. Favorable price and raw material cost management and restructuring benefits drove the improvement year-on-year. In engineering adhesives, organic revenue declined 3.3 percent in the third quarter, much improved versus the 9 percent decline in the previous quarter led by strength in China. Organic revenue declined due primarily to lower volume in construction related end markets, which more than offset organic growth in the automotive, electronics, and solar market segments.

Geographically Americas organic revenue was down 13% year on year customer destocking impacts in H, H C, which were notably outsized in North America relative to the rest of the world adversely impacted the region's organic revenue development in the third quarter.

Speaker 3: Geographically, America's organic revenue was down 13% year on year. Customer de-stocking impacts in HHC, which were notably outsized in North America relative to the rest of the world, adversely impacted the region's organic revenue development in the third quarter.

Speaker 3: In EIMIA, organic revenue declined 6% year on year, driven mostly by weaker demand in the construction and packaging related market segments.

In EMEA organic revenue declined 6% year on year, driven mostly by weaker demand in the construction and packaging related market segments.

Speaker 3: In Asia Pacific, organic revenue increased 7% year on year, driven by a rebound in demand in China in both EA and HHC.

In Asia Pacific organic revenue increased 7% year on year, driven by a rebound in demand in China in both E and H H C. The.

Celeste Mastin: [inaudible] Justice. This is an addition to the restructuring initiative we announced in the first quarter. The majority of the restructuring charges and run rate cost savings associated with this restructuring are expected to be recognized in fiscal year 2024. The Barredo Adams restructuring benefit represents a significant portion of the fiscal 2025 EBITDA contribution from the 2023 collection of acquisitions, which we now expect to contribute approximately $60 million of incremental EBITDA by 2025.

Speaker 3: The organic sales trend for the region continued to improve, as expected, due to particular strength in the automotive, electronics, and hygiene market segment.

The organic sales trend for the region continued to improve as expected due to particular strength in the automotive electronics and hygiene market segments.

From a global economic standpoint conditions remain relatively weak accordingly, we have executed supplemental restructuring initiatives, which will increase our expected annualized pretax savings by approximately $10 million once fully implemented.

Speaker 3: From a global economic standpoint, conditions remain relatively weak. Accordingly, we have executed supplemental restructuring initiatives, which will increase our expected annualized pre-tax savings by approximately $10 million once fully implemented.

On the M&A front, we recently acquired single year limited one of Europe's largest independently owned manufacturers and fillers of spray herbal industrial adhesives. This complementary acquisition expands our innovation capabilities and product portfolio across the U K and Europe .

Speaker 3: On the M&A front, we recently acquired Sanglier Limited, one of Europe's largest independently-owned manufacturers and fillers of sprayable industrial adhesives. This complementary acquisition expands our innovation capabilities and product portfolio across the UK and Europe , particularly in the construction adhesives and engineering adhesives business.

Particularly in the construction adhesives and engineering adhesives businesses.

Speaker 3: In addition, during the third quarter, we announced the restructuring of the recently acquired Bardo Adams business. Once completed, this restructuring is expected to result in an ongoing annualized cost savings of approximately $20 million on a pre-tax basis.

In addition, during the third quarter, we announced the restructuring of the recently acquired Berto Adams business. Once completed this restructuring is expected to result in an ongoing annualized cost savings of approximately $20 million on a pretax basis.

Speaker 3: This is in addition to the restructuring initiative we announced in the first quarter. The majority of the restructuring charges and run rate cost savings associated with this restructuring are expected to be recognized in fiscal year 2024.

This is in addition to the restructuring initiative, we announced in the first quarter.

The majority of the restructuring charges in run rate cost savings associated with this restructuring are expected to be recognized in fiscal year 2024.

Speaker 3: The Burdo-Adams Restructuring Benefit represents a significant portion of the fiscal 2025 EBITDA contribution from the 2023 collection of acquisitions, which we now expect to contribute approximately $60 million of incremental EBITDA by 2025.

The bear no atoms restructuring benefit represents a significant portion of the fiscal 'twenty 25, EBITDA contribution from the 2023 collection of acquisitions, which we now expect to contribute approximately $60 million of incremental EBITDA by 2025.

Speaker 3: Lastly, I would like to inform you that the recent acquisition of Adhesion Biomedical is progressing exceptionally well and is on track for a record sales year. We have a well-defined plan for synergy realization and we are very excited about the future growth prospects of our medical adhesives business.

Lastly, I would like to inform you that the recent acquisition of adhesion biomedical is progressing exceptionally well and is on track for a record sales year, we have a well defined plan for synergy realization and we are very excited about the future growth prospects of our medical adhesives business.

Speaker 3: Now let me turn the call over to John Corcoran to review our third quarter results in more detail and our outlook for 2020.

Now, let me turn the call over to John <unk> to review, our third quarter results in more detail and our outlook for 2023.

Speaker 4: Thank you, Celeste. I'll begin on slide 7 with some additional financial details on the third quarter. For the quarter, revenue was down 4.3% versus the same period last year. Currency had a negative impact of 1.7% and acquisitions positively impacted net revenue by 4.8%.

Thank you Celeste I'll begin on slide seven with some additional financial details on the third quarter for the quarter revenue was down four 3% versus the same period last year.

Currency had a negative impact of one 7% acquisitions positively impacted net revenue by four 8%.

Speaker 4: Adjusting for those items, organic revenue was down 7.4%, with pricing having a favorable impact of 0.6% year-on-year in the quarter, and volume had a detrimental impact of 8%, reflecting customer destocking impacts, particularly in HHC, and a general slowdown in industrial demand.

Adjusting for those items organic revenue was down seven 4% with pricing, having a favorable impact of 0.6% year on year in the quarter in volume had a detrimental impact of 8%, reflecting customer destocking impacts, particularly in H H C and a general slowdown in industrial demand.

Speaker 4: Adjusted gross profit margin was 30 percent, up 350 basis points versus last year, as a net effect of pricing and raw material cost actions, together with restructuring benefits and general cost controls, more than offset the impact of lower volume.

Adjusted gross profit margin was 30% up 350 basis points versus last year is the net effect of pricing and raw material cost actions together with restructuring benefits and general cost controls more than offset the impact of lower volume.

Adjusted selling general and administrative expense was up slightly year over year.

Speaker 4: Adjusted selling, general and administrative expense was up slightly year over year.

Good cost management growing restructuring benefits and lower variable compensation and favorable foreign currency impacts largely offset the incremental SG&A from acquisitions and inflation in wages and other costs.

Speaker 4: Good cost management, growing restructuring benefits, lower variable compensation, and favorable foreign currency impacts largely offset the incremental SG&A from acquisitions and inflation and wages and other costs.

Speaker 4: Adjusted EBITDA for the quarter of $156 million was up 13% year on year, and adjusted EBITDA margin increased to 17.3% up 270 basis points compared to the third quarter of last year.

Adjusted EBITDA for the quarter of $156 million was up 13% year on year and adjusted EBITDA margin increased to 17, 3% up 270 basis points compared to the third quarter of last year.

This reflects proactive actions taken to optimize the price and raw material dynamics as well as restructuring benefits and other cost savings measures. These actions combined with the contribution from accretive acquisitions more than offset lower volume unfavorable foreign exchange and wage and other inflation during the quarter.

Speaker 4: This reflects proactive actions taken to optimize the price and raw material dynamics, as well as restructuring benefits and other cost savings measures.

Speaker 4: These actions, combined with the contribution from accretive acquisitions, more than offset lower volume, unfavorable foreign exchange, and wage and other inflation during the quarter.

Celeste Mastin: Lastly, I would like to inform you that the recent acquisition of adhesion biomedical is progressing exceptionally well and is on track for a record sale year. We have a well-defined plan for synergy realization and we are very excited about the future growth prospects of our medical adhesive's business.

Adjusted earnings per share of $1.06 was flat versus the third quarter of 2022 as strong operating income growth was offset by significantly higher interest expense and unfavorable foreign currency.

Speaker 4: Adjusted earnings per share of $1.06 was flat versus the third quarter of 2022, as strong operating income growth was offset by significantly higher interest expense and unfavorable foreign currency.

Speaker 4: Higher interest expense and unfavorable foreign exchange negatively impacted adjusted EPS in the third quarter by approximately 17 cents and 5 cents respectively.

Higher interest expense and unfavorable foreign exchange negatively impacted adjusted EPS in the third quarter by approximately <unk> 17 cents and <unk> respectively.

John Corkrean: Now let me turn the call over to John Corkrean to review our third quarter results in more detail and our outlook for 2023. Thank you Celeste. I'll begin on slide 7 with some additional financial details on the third quarter. For the quarter, revenue is down 4.3 percent versus the same period last year, currency had a negative impact of 1.7 percent and acquisitions positively impacted net revenue by 4.8 percent. Adjusting for those items, organic revenue was down 7.4 percent with pricing having a favorable impact of 0.6 percent year on year in the quarter and volume had a detrimental impact of 8 percent reflecting customer destocking impacts particularly in HHC and a general slowdown in industrial demand.

Speaker 4: Operating cash flow in the quarter improves significantly year over year as improving margins and lower net working capital requirements more than offset the impacts of lower volume, higher interest expense, and unfavorable foreign currency translation.

Operating cash flow in the quarter improved significantly year over year, as improving margins and lower net working capital requirements more than offset the impacts of lower volume higher interest expense and unfavorable foreign currency translation.

Speaker 4: third quarter and year-to-date cash flow from operations increased year-over-year by 50 million dollars and 168 million dollars respectively.

Third quarter and year to date cash flow from operations increased year over year by $50 million and $168 million respectively.

Speaker 4: With that, let me now turn to our guidance for the 2023 fiscal year.

With that let me now turn to our guidance for the 2023 fiscal year.

Speaker 4: We now expect full year net revenue for fiscal 2023 to be in the range of $3.5 billion to $3.55 billion dollars. And taking into consideration the extra week in 2022, we now expect organic revenue to be down 4.5 to 5.5% versus fiscal 2022.

We now expect full year net revenue for fiscal 2023 to be in the range of $3 5 billion to $3 $55 billion.

And taking into consideration the extra week in 2022, we now expect organic revenue to be down four five to five 5% versus fiscal 2022.

John Corkrean: Adjusted gross profit margin was 30 percent up 350 basis points versus last year as a net effect of pricing and raw material cost actions together with restructuring benefits and general cost controls more than offset the impact of lower volume. Adjusted selling, general and administrative expense was up slightly year over year. Good cost management, growing restructuring benefits, lower variable compensation and favorable foreign currency impacts, largely offset the incremental SGNA from acquisitions and inflation and wages in other costs.

Speaker 4: This reflects lower than previously expected volume due to a more significant de-stocking impact in HHC and Q3 and slightly weaker overall industrial demand conditions.

This reflects lower than previously expected volume due to a more significant destocking impact in H H C. In Q3, and slightly weaker overall industrial demand conditions.

Speaker 4: Additionally, we now expect adjusted EBITDA to be $580 to $590 million, representing a 9 to 11% year on year end.

Additionally, we now expect adjusted EBITDA to be $580 million to $590 million, representing a 9% to 11% year on year increase.

Speaker 4: This reflects lower organic revenue expectations offset by a more favorable pricing and raw material dynamic, additional cost reductions, as well as the benefit of value creating acquisitions completed this year.

This reflects lower organic revenue expectations offset by a more favorable pricing and raw material dynamic additional cost reductions as well as the benefit of value, creating acquisitions completed this year.

John Corkrean: Adjusted EBITDA for the quarter of $156 million was up 13 percent year on year and adjusted EBITDA margin increased to 17.3 percent up 270 basis points compared to the third quarter of last year. This reflects proactive actions taken to optimize the price and raw material dynamics as well as restructuring benefits and other cost savings measures. These actions combined with the contribution from a creative acquisitions more than offset lower volume, unfavorable foreign exchange and wage and other inflation during the quarter.

Speaker 4: Furthermore, we now expect net interest expense to be approximately $135 million for the fiscal year and the full year adjusted effective tax rate to be between 27 and 28 percent.

Furthermore, we now expect net interest expense to be approximately $135 million for the fiscal year and the full year adjusted effective tax rate to be between 27% and 28%.

Speaker 4: Combined, these assumptions result in full year adjusted earnings per share in the range of $3.80 to $3.90.

Combined these assumptions result in full year adjusted earnings per share in the range of $3 80 to $3.90 also we now expect full year capital expenditures to be approximately $125 million.

Speaker 4: Also, we now expect full year capital expenditures to be approximately $125 million.

John Corkrean: Adjusted earnings per share of $1.6 was flat versus the third quarter of 2022 as strong operating income growth was offset by significantly higher interest expense and unfavorable foreign currency. Higher interest expense and unfavorable foreign exchange negatively impacted adjusted EPS in the third quarter by approximately $0.17 and $0.5 respectively. Operating cash flow in the quarter improves significantly year over year as improving margins and lower network and capital requirements more than offset the impacts of lower volume, higher interest expense and unfavorable foreign currency translation. 3rd quarter and year-to-date cash flow from operations increased year-over-year by $50 million and $168 million respectively.

Speaker 4: Regarding savings from restructuring plans, 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. 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. Now let me turn the call back over to Sloane.

Regarding savings from restructuring plans, we now expect actions from the previously announced and subsequently expanded strategic restructuring to generate between 40 and $45 million in annual pretax run rate cost savings up from our original estimate of $30 million to $35 million. This is in addition to approximately.

$20 million of pre tax run rate savings associated with the <unk> Adams integration, which was announced during the third quarter.

Now, let me turn the call back over to us less to wrap us up.

Thank you John strategically we're driving this business, where we said we would as evidenced by our gross profit and EBITDA margin performance, demonstrating our confidence in becoming a higher EBITDA margin company, we strive to be recognized as the imperative ingredient to our customers' success.

Speaker 3: Thank you, John . Strategically, we're driving this business where we said we would, as evidenced by our gross profit and EBITDA margin performance demonstrating our confidence in becoming a higher EBITDA margin company.

John Corkrean: With that, let me now turn to our guidance for the 2023 fiscal year. We now expect full-year net revenue for fiscal 2023 to be in the range of $3.5 billion to $3.55 billion, and taking into consideration the extra week in 2022, we now expect organic revenue to be down 4.5 to 5.5 percent versus fiscal 2022. This reflects lower than previously expected volume due to a more significant destocking impact in HHC in Q3 and slightly weaker overall industrial demand conditions.

Speaker 3: We strive to be recognized as the imperative ingredient to our customers' success. We're committed to driving innovative solutions for our customers to create valuable and sustainable solutions using drops, not trucks, of adhesive.

We're committed to driving innovative solutions for our customers to create valuable and sustainable solutions using drops not trucks of adhesives I would like to thank all of our H B Fuller team members around the world for delivering exceptional results in a challenging environment and for leading the way as we transform.

Speaker 3: I would like to thank all of our HPE Fuller team members around the world for delivering exceptional results in a challenging environment and for leading the way as we transform our company into a higher growth, higher margin, higher ROI seepage.

Our company into a higher growth higher margin higher ROIC business.

That concludes our prepared remarks for today operator, please open the line for questions.

John Corkrean: Additionally, we now expect adjusted EBITDA to be $580 to $590 million, representing a 9 to 11 percent year-on-year increase. This reflects lower organic revenue expectations offset by a more favorable pricing and raw material dynamic, additional cost reductions, as well as the benefit of value-creating acquisitions completed this year. Furthermore, we now expect net interest expense to be approximately $135 million for the fiscal year and the full-year adjusted effective tax rate to be between 27 and 28 percent.

Speaker 3: That concludes our prepared remarks for today. Operator, please open the line for questions.

Speaker 1: At this time, I'd like to remind everyone in order to ask a question, simply press star one on your telephone keypad. Our first question will come from the line of Jeffrey Zukauskas with J.P. Morgan. Please go ahead.

At this time I would like to remind everyone in order to ask a question simply press star one on your telephone keypad. Our first question will come from the line of Jefferies Cowskin with JP Morgan. Please go ahead.

Okay.

Yeah for you maybe on mute.

Our next question will come from the line of Patrick Cunningham with Citi. Please go ahead.

Speaker 1: Our next question will come from the line of Patrick Cunningham with Citi. Please go ahead.

John Corkrean: Combined, these assumptions result in full-year adjusted earnings per share in the range of $3.80 to $3.90. Also, we now expect full-year capital expenditures to be approximately $125 million. Regarding savings from restructuring plans, 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. 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.

Hi, good morning.

Good morning, Paul how are you.

Okay.

Good.

Speaker 5: Good. On the strategic M&A update, you cited this 60 million figure up from the previous 50 million. Can you quantify how much of that is coming from the latest acquisition versus maybe there's better than expected adhesion or other incremental synergies?

On the on the strategic M&A update you cited the $60 million figure up from the previous $50 million can you quantify how much of that is coming from the latest acquisition versus maybe there is better than I expected in <unk> and our other incremental synergies.

Speaker 3: Yeah, it is a blend of both the impact of Saint-Glier as well as better performance across the collection.

Yes. It is a blend of both the the impact of <unk> as well as better performance across the collection.

Okay.

Speaker 3: We prefer not to quantify how much each particular acquisition brings to the blend, but it is composed of both.

Thank you prefer not to quantify we'd prefer not to quantify how much each particular acquisition brings to the blend but but it is it is composed of both.

Celeste Mastin: Now, let me turn the call back over to Celeste to wrap us up. Thank you, John. Strategically, we're driving this business where we said we would, as evidenced by our gross profit and EBITDA margin performance, demonstrating our confidence in becoming a higher EBITDA margin company.

Speaker 5: Yeah, that makes makes sense. And then just, you know, you have to comment that you're, you know, you're encouraged by trends and HHC and just underlying demand as well as. Share gains there, so what end markets have the best underlying demand and where are you gaining share? And do you think any particular end markets will see a restock in 2024?

Yes that makes sense and then just.

You had the comment that youre encouraged by trends in HCA, just underlying demand as well as <unk>.

Regina: We strive to be recognized as the imperative ingredient to our customer's success. We're committed to driving innovative solutions for our customers to create valuable and sustainable solutions using drops not trucks of adhesive. I would like to thank all of our HP Fuller team members around the world for delivering exceptional results in a challenging environment and for leading the way as we transform our company into a higher growth, higher margin, higher ROIC business. That concludes our prepared remarks for today. Operator, please open the line for questions. At this time, I'd like to remind everyone in order to ask a question, Simply Press, star one on your telephone keypad.

Share gains there so what end markets the best underlying demand and where are you gaining share.

Are you seeing any particular end markets Youll see a restock in 2024.

Speaker 3: And when you say end markets, just for clarity, are you talking about the segments within HHC or are you talking more so about the different GBUs?

And when you say end markets just for clarity are you talking about the segments within H H C are you talking more so about the different gpus.

Speaker 5: Um, you know, either or both, but typically, particularly within HHS.

Either again, typically particularly with AJC.

Speaker 3: Okay, great. So, within HHC,

Okay great.

So within H H C.

Okay.

Speaker 3: You know, we're not in any of these businesses, I should just clarify, we're not planning for big restocking impacts.

We're not in any of these businesses I should just clarify we're not planning for a big restocking impacts what we expect is we will progress through the Destocking in H H C. Over the next two or three quarters, and then we'll revert to sort of more normal.

Speaker 3: What we expect is we will progress through the de-stocking in HHC over the next two or three quarters, and then we'll revert to sort of more normal...

Jeffrey Zekauskas: Our first question will come from the line of Jeopardyso-Kauskas with JP Morgan. Please go ahead. Therefore, you may be on mute.

Speaker 3: demand that's maybe a couple of percent lower than what we normally would see in any given year. And we are, you know, we're experiencing some great wins.

Demand that maybe a couple of percent lower than what we normally would see in any given year and we are we're experiencing some great wins with big consumer product companies, which are a part of that space. We've seen a number of wins lately in the hygiene space for example.

Patrick Cunningham: Our next question will come from the line of Patrick Cunningham with City. Please go ahead. Hi, good morning. Good morning, Patrick, how are you? Good, how are you? Good. On the strategic M&A update, you know, you cited this 60 million figure, you know, up from the previous 50 million. Can you quantify how much about us coming from, you know, the latest acquisition versus, you know, maybe there's, you know, better than I expected in EGN or other incremental energies.

Speaker 3: with big consumer product companies which are part of that space. We've seen a number of wins lately in the hygiene space for example and so we're going to you'll see strong performance there as well as taking share in a number of packaging applications in HHC.

And so we're going to you'll see strong performance there.

As well as taking share in a number of packaging applications in a THC. So H H C. I have really a favorable outlook for that particular business again, we've got to work through the Destocking now we're also experiencing some great wins in our other business units as well.

Speaker 3: so a kid c you know i have uh... that really favorable outlook for that particular business again we've got to work through the deep stock

Speaker 3: Now, we're also experiencing some great wins in our other business units as well. In EA, for example, we just had a big win in fuselage airline sealants, so in the aerospace industry, as well as we continue to expand our position in the EV automotive market, a market that's growing very, very fast globally, about 22% annually, and some nice wins in technical textiles.

Patrick Cunningham: Yeah, it is a blend of both the impact of sanghliere, as well as better performance across the collection. We prefer not to quantify how much, you know, each particular acquisition brings to the blend, but it is composed of both. Yeah, that makes your sense. And then just, you know, you have the comment that you're, you know, you're encouraged by trends in HHC and just underlying demand as well as share gains there.

<unk>.

In EMEA for example, we just had a big win in fuselage airline sealants, so in the aerospace industry as.

As well as we continue to expand our position in the EV automotive market a market that's growing very very fast globally about 22% annually and some nice some nice wins in technical textiles, Hardinge cables PBC edge banding. So so really we have.

Speaker 3: hiding cables pd pb p edge banding felt the really you know we have a very fragmented faith with these thirty different global market segment and we're driving wins in all of them particularly ea and uh... also think the big wins in a jay

Patrick Cunningham: So, you know, what end markets have the best underlying demand and where are you gaining share and where, and do you think any particular end markets will see a risk back in 2024? And when you say end markets, just for clarity, are you talking about the segments within HHC or are you talking more so about the different GBUs? You know, either a bulk, but typically, particularly within HHC. Okay, great.

A very fragmented space with these 30 different global market segments and were driving wins in all of them, particularly EAA.

<unk> also seen some big wins in HVAC.

Very helpful. Thank you I'll pass it on.

Yeah.

Your next question comes from the line of Ghansham Panjabi with Baird. Please go ahead.

Speaker 1: Your next question comes from the line of Gansha Pangabi with Baird. Please go ahead.

Hey, guys. Good morning, hopefully you can hear me okay.

Celeste Mastin: So, so within HHC, you know, we're not in any of these businesses that should just clarify, we're not planning for big restocking impacts. What we expect is we will progress through the destocking in HHC over the next two or three quarters. And then we'll revert to sort of more normal demand that maybe a couple of percent lower than what we normally would see in any given year. And we are, you know, we're experiencing some great wins with big consumer product companies, which are part of that space.

Good morning Ghansham.

Morning Celeste.

I guess in context of the 8% volume decline in <unk> can you sort of take us through the cadence throughout the quarter and what Youre seeing thus far in September and also EBITDA margins were up I think 270 basis point year over year during the third quarter.

Speaker 6: I guess in context of the 8% volume decline in 3Q, can you sort of take us through the cadence throughout the quarter and what you're seeing thus far in September ?

Casting additional year over year margin expansion in <unk>, we're just trying to reconcile to your guidance for the quarter.

Right. Okay. So so let's talk about the quarter and.

Speaker 3: Right, okay, so let's talk about the quarter and your question on volume decline month over month. So, RP7, which was the first month of our quarter, was much worse than the other two.

And your question on volume decline month over month, So RP, seven which was the first month of our quarter was much worse than the other two.

Speaker 3: So in P7, we saw really extreme de-stocking in our HHC business, but also our EA and CA businesses were down double digit on volume in that month as well. We saw a real inflection point for the EA business in particular come P8 and really experienced more growth through the year onto P8.

So in <unk>, we saw really extreme destocking in our <unk> business.

Celeste Mastin: We've seen a number of wins lately in the hygiene space, for example. And so, we're going to, you'll see strong performance there, as well as taking share in a number of packaging applications in HHC. So, HHC, you know, I have really a favorable outlook for that particular business. Again, we've got to work through the destocking. Now, we're also experiencing some great wins in our other business units, as well. In EA, for example, we just had a big win in fuselage airline sealant.

But also our EMEA and <unk> businesses were down double digit on volume in the in that month as well we.

We saw real inflection point.

For the EA business in particular come P. Eight and really experienced more flat volumes in the EEA P. Eight and P. Nine and a lot of that was due to this rebound in China.

Speaker 3: flat volume in the e a p eight and p nine and a lot of that was due to this rebound in China

Speaker 3: So we're seeing strong performance in China. In fact, when you look at China, from Q1 to Q3, our volume has swung from a negative 15% roughly to a positive. So I give the team in China a lot of credit to be nimble enough to handle operationally that shift in volume.

So we're seeing strong performance in China.

In fact, when you when you look at China from Q1 to Q3, our volume has swung from a negative 15% roughly to a positive. So I give the team in China, a lot of credit to be nimble enough to handle operationally that shift in volume.

Celeste Mastin: So, in the aerospace industry, as well as we continue to expand our position in the EV automotive market, a market that's growing very, very fast, globally about 22 percent annually. And some nice, some nice wins in technical textiles, potting cables, PVC edge banding. So, really, you know, we have a very fragmented space with these 30 different global market segments. And we're driving wins in all of them, particularly EA, and also seeing some big wins in HHC.

Speaker 3: uh... and also you know we thought in the c_-eight business also uh... sort of them leveling off uh... at in the back end of the in the back end of the quarter uh... your question around p ten you know really uh... much my but more of the same

And also we saw in the CA business also sort of some leveling off.

In the back end of the in the back end of the quarter.

On your question around P 10.

Really much.

More of the same so we're really seen Hh see starting to see.

Speaker 3: So we're really seeing HHC starting to settle out a little bit, but there's still de-stocking there. That's going to go on for a couple of quarters. However, in EA and CA, I think this de-stocking is completed, and we're seeing much better volumes in P10 for both of those businesses.

Settle out a little bit, but there's still destocking there that's going to go on for a couple of quarters.

Patrick Cunningham: Thank you all, I'll pass it on.

Ghansham Panjabi: Your next question comes from the line of Gansham Panjabi with Beard. Please go ahead. Hey guys, good morning, hopefully you can hear me okay? Morning, Gansham. Morning, Celeste. You know, I guess in context of the 8% volume decline in 3Q, can you sort of take us through the cadence throughout the quarter and what you're seeing thus far in September? And also, you know, even though margins were up, I think 270 basis points year-rear during the third quarter, are you forecasting additional year-rear margin expansion in 4Q? But we're just trying to reconcile to you guidance for the quarter.

However, in EAA and see a I think this destocking is completed and we're seeing much much better volumes in <unk> for both of those businesses.

Speaker 4: Maybe I can comment on the question on margins, Kanchan. So we are forecasting additional margin expansion in Q4. If you look at our guidance range, both for revenue and EBITDA, that's what is reflected. And we're seeing that so far in P10. We're seeing margins continue to expand. We'd expect a bigger contribution from restructuring in Q4 than we've had the previous quarter. So, you know, something on the order of 100 basis points of margin expansion in the fourth quarter is more or less in line with our forecast.

I can comment on the question on margins Ghansham. So yes, we are.

Forecasting additional margin expansion in Q4, if you look at our.

Our guidance range, both for revenue and EBITDA.

There is reflected and we're seeing that so far and in pizza and we're seeing margins continue to expand we would expect.

A bigger contribution from restructuring in Q4 than we've had the previous quarters. So.

Celeste Mastin: Right, okay, so let's talk about the quarter and your question on volume decline month over month. So our P7, which was the first month of our quarter, was much worse than the other two. So in P7, we saw really extreme destocking in our HHC business, but also our EA and CA businesses were down double digit on volume in that month as well. We saw a real inflection point for the EA business in particular, come P8, and really experienced more flat volumes in EA, P8, and P9, and a lot of that was due to this rebound in China.

Something on the order of 100 basis points of margin expansion in the fourth quarter is more or less in line with our forecast.

Got it thank you John and Jim obviously.

Speaker 6: in four sequences of events, right?

More sequences of events rate over the past couple of months, increasing crude oil prices.

We have auto strikes.

Not an insignificant markets.

Segment.

How are you sort of thinking about these dynamics as we especially on the cost side.

In fiscal year 'twenty four.

Context of pricing starting to moderate.

Plus <unk>, 6% in the most recent quarter and can you just give us any more variances to think about for fiscal year 'twenty for that sort of underlines your confidence on EBITDA.

Celeste Mastin: So we're seeing strong performance in China. In fact, when you look at China, from Q1 to Q3, our volume has swung from a negative 15% roughly to a positive. So, you know, I give the team in China a lot of credit to be nimble enough to handle operationally that shift in volume. And also, you know, we saw in the CA business also sort of some leveling off in the back end of the quarter.

Peer basis.

Speaker 3: Yeah, so a couple of things there. First, I'll just pick off the easy one on your point about the UAW. So if you look at our total sales, only about 1% of H.B. Fuller's total sales are made to the big three automakers or suppliers of their tier one, two, or three suppliers.

Yeah. So a couple of things there first I'll just pick off the easy one on your point about the UAW. So if you look at our total sales only about 1% of H B Fuller's total sales are made to.

The big three automakers or suppliers of their tier one two or three suppliers. So now that said, it's an important market for us we're actually in the automotive space much more prevalent in the EV vehicle market, which is growing much faster. So so.

Speaker 3: So now that said, it's an important market for us. We're actually in the automotive space much more prevalent in the EV vehicle market, which is growing much faster. So I'm, you know, certainly we're watching that market closely, the big three and what develops there, but I don't believe it'll have a material impact on us in 2024.

Celeste Mastin: Your question around P10, you know, really much more of the same. So we're really seeing HHC starting to settle out a little bit, but there's still destocking there. That's going to go on for a couple of quarters. However, in EA and CA, I think this destocking is completed. And we're seeing, you know, much, much better volumes in P10 for both of those businesses.

Certainly we're watching that market closely.

The big three and what develops there but.

But I don't believe it'll have a material impact on us in 2020 for now I think your question around raw material cost and I'm going to relate price to that also is a really important one.

Speaker 3: Now I think your question around raw material cost and I'm going to relate price to that also is a really important one.

Speaker 3: So first I would point out that our raw materials don't move with crude.

First I would point out that our raw materials don't move with crude so we monitor and by about 4000 different types of raw material and all of those have their own supply demand position.

John Corkrean: Maybe I can comment on the question on margins, country. So yeah, we are forecasting additional margin expansion in Q4. If you look at our guidance range, both for revenue and EBIDA, that's what is reflected. And we're seeing that so far in P10. We're seeing margins continue to expand. We'd expect a bigger contribution from restructuring in Q4 than we've had the previous quarters. So, you know, something on the order of a hundred basis points of margin expansion in the fourth quarter is more or less in line with our forecast. Got it. Thank you, John.

Speaker 3: So we monitor and buy about 4,000 different types of raw material, and all of those have their own supply-demand position. What happens is when volume's down, and we're a great indicator of global volume.

Oppens is when volumes down and where we are a great indicator of global volume. So when our volumes down it tends to mean global volume is down across the industrial world and those 4000 raw materials are much more influenced by those unique.

Speaker 3: So when our volume is down, it tends to mean global volume is down across the industrial world. And those 4,000 raw materials are much more influenced by those unique volume movements rather than what happens with crews.

Volume movements, rather than what happens with crude.

John Corkrean: And, you know, obviously, there's been a, you know, more sequences of events, right, over the past couple of months, increasing crude oil prices. We have auto strikes and, you know, that's not an insignificant market for your EA segment. How are you sort of thinking about these dynamics? makes us, you know, especially in the cost side, cycling into fiscal year 24, in context of pricing, starting to moderate at, you know, a quarter plus point 6% in the most recent quarter. And can you just give us any more variances to think about for fiscal year 24 that sort of underlines your confidence on EBITDAB being up on a year basis?

Speaker 3: So the advantage for us in a market like this is given that we have so much scale in this industry, we have great opportunity to leverage our volume and continue to optimize our purchasing positions with those suppliers.

So the advantage for us in a market like this is given that we have so much scale in this industry, we have great opportunity to draw to leverage our volume and continue to optimize our purchasing positions with those suppliers. So.

Speaker 3: So in a low volume market, we will be pushing on suppliers and will get raw material advantage.

<unk> alone in a low volume market.

We'll be pushing on suppliers and we will get raw material advantage, we balance that out on the pricing side. So if you look at price for the next quarter and on into next year, our pricing pricing performed or pricing comparisons will be down there is a few reasons for that one.

Speaker 3: we balance that out on the pricing side so if you look at price for the next quarter and on into next year are pricing pricing performance or pricing comparisons will be down there's a few reasons for that one is you know carryover will have been annualized from previous year when we had big increases in Q2 and Q3

John Corkrean: Yeah, so a couple of things there. First, I'll just pick off the easy one on your point about the UAW. So if you look at our total sales, only about 1% of HB Fuller's total sales are made to the big three automakers or suppliers of theirs, tiered one, two or three suppliers. So now that said, it's an important market for us. We're actually in the automotive space much more prevalent in the EV vehicle market, which is growing much faster. So I'm, you know, certainly we're watching that market closely. The big three and what develops there, but I don't believe it'll have a material impact on us in 2024.

Is carryover will have been annualized from previous year, when we had big increases in Q2 and Q3.

Speaker 3: Also, we've got some customers tied to index.

Also we've got some customers tied to indexes those indexes and those customers that have pricing tied to indexes have their price tied directly to the raw materials that we buy and put in their formula. So while it will look like price.

Speaker 3: Those indexes and those customers that have pricing tied to indexes have their price tied directly to the raw materials that we buy and put in their formula. So while it will look like pricing is coming down, it's really a margin preservation.

<unk> is coming down it's really a margin preservation strategy for us so you'll see a price incremental price reduction because of that in the upcoming year and also the.

Speaker 3: strategy for us. So you'll see a price, incremental price reduction because of that in the upcoming year and also the third thing being we're reformulating a lot of products right now where we can save money on raw materials, we're reformulating our adhesives and we're sharing that savings with our customers.

John Corkrean: Now, I think your question around raw material cost and I'm going to relate price to that also is a really important one. So first, I would point out that our raw materials don't move with crude. So we monitor and buy about 4,000 different types of raw material and all of those have their own supply demand position. And what happens is when volumes down and we're we're a great indicator of global volume.

The third thing being we're reformulating a lot of products right now, where we can save money on raw materials, we're reformulating, our adhesives and where.

Sharon that savings with our customers. So again, you'll see price decrease when you look at a comparison, but margin preserved. So at the beginning of the year I talked about this $130 million to $160 million bucket of value that we would get out of this bal.

Speaker 3: So again, you'll see price decrease when you look at a comparison, but margin preserve.

Speaker 3: So at the beginning of the year I talked about this $130 to $160 million dollar bucket of value that we would get out of this balance between price and raw material movement. What you'll see is that in the first half of the year a lot of that was related to price and in the second half of the year we'll be getting more tailwinds on raw material. So that's how the balance works and that's why we like to talk about it that way.

John Corkrean: So when our volumes down, it tends to mean global volume is down across the industrial world and those 4,000 raw materials are much more influenced by those unique volume movements rather than what happens with crude. So the advantage for us in a market like this is given that we have so much scale in this industry, we have great opportunity to draw, to leverage our volume and continue to optimize our purchasing positions with those suppliers.

<unk> between price and raw material movement, what you'll see is that in the first half of the year a lot of that was related to price and in the second half of the year, we'll be getting more tailwind on raw material. So that's how the balance works and that's why we like to talk about it that way.

Speaker 4: Maybe, Gansham, I'll give a little more perspective on considerations for 2024, you know, not getting too granular here because we're still in our planning process. But, you know, what Celeste described in kind of the price-raw balance, it's been very consistent this year, kind of in this $40 to $40 million, $45 million benefit each quarter. Now it's flipped between being more of a benefit from pricing and actually more of a benefit from Roz.

We got some I'll give a little more perspective on.

Considerations for 2020 for not getting too granular here, because we're still in our planning process, but what Celeste described I'm kind of a price raw balance it's been very consistent this year kind of in this 40 to 40 million $45 million.

John Corkrean: So in a low, in a low volume market, we will be pushing on suppliers and we'll get raw material advantage. We balance that out on the pricing side. So if you look at price for the next quarter and on into next year, our pricing performance or pricing comparisons will be down. There's a few reasons for that. One is, you know, carryover will have been annualized from previous year when we had big increases in Q2 and Q3.

Benefit each quarter now it's flipped between being more of a benefit from pricing to more of a benefit from raws.

Speaker 4: But we'll carry that over next year. And if raw material costs settle out.

But we will carry that over.

Next year.

And if if raw material costs settle out.

Speaker 4: Where they are, it will not be as big a benefit as it will be this year, but we'll see some benefit and we think it'll be.

They are it will not be as big a benefit as it will be this year, but we will see some benefit and we think it'll be.

Speaker 4: you know, equal to or slightly greater than any price decreases. Obviously, some of the other big drivers are the restructuring impact will be much larger in 2024 than 2023.

Equal to or slightly greater than any any price.

Creases.

Obviously, the big some of the other big drivers are the restructuring.

John Corkrean: Also, we've got some customers tied to indexes. Those indexes and those customers that have pricing tied to indexes have their price tied directly to the raw materials that we buy and put in their formula. So, you know, while it will look like pricing is coming down, it's really a margin preservation strategy for us. So, you'll see a price incremental price reduction because of that in the upcoming year and also the third thing being, we're reformulating a lot of products right now, where we can save money on raw materials, we're reformulating our adhesive and we're sharing that savings with our customers.

<unk> will be much larger in 2024 and 2023.

Speaker 4: As we've said, we project $40 to $45 million at run rate. We'll probably capture about $10 to $12 million this year. So you can kind of extract.

As we as we've said, it's we project $40 million to $45 million of run rate, we'll probably capture about $10 million to $12 million. This year. So you can kind of extrapolate that.

Speaker 4: The midpoint of that being kind of what we'd experience in 2024. And then the contribution from acquisitions that we talked about 60 million by 2025.

The midpoint of that being kind of what we had experienced in 2024 and.

And then the contribution from acquisitions that we talked about $60 million by 2025.

Speaker 4: We'll probably be about 12 million this year. So again, you can probably sort of extrapolate that.

You read about $12 million. This year. So again, you can probably you can sort of extrapolate that.

The negative we would have is we do have a fairly sizeable variable comp benefit this year.

Speaker 4: The negative we'd have is, you know, we do have a fairly sizable variable comp benefit this year that's in the neighborhood of $30 million lower than last year that will be rebuilt. But, but given those, you know, we're projecting that

<unk> had a $30 million lower than last year that will be rebuilt, but but given those were projecting that.

Speaker 4: You know, it will be a continued challenged volume environment. That's kind of what we're building our plans on. You know, we don't expect to see nearly the impact from de-stocking in 2024 that we had in 2023. But those are the components that we're looking at that give us confidence that we can deliver another profit growth year and will likely be another challenging environment.

John Corkrean: So, again, you'll see price decrease when you look at a comparison but margin preserved. So, at the beginning of the year, I talked about this $130 to $160 million bucket of value that we would get out of this balance between price and raw material movement. Well, you'll see is that in the first half of the year, a lot of that was related to price and in the second half of the year, we'll be getting more tailwinds on raw material.

It will be a.

Continued challenged.

Volume environment, that's kind of what we're building.

Our plans on.

We don't expect to see nearly the impact from Destocking in 2024 that we had in 2023.

But those are the components that we're looking at getting that give us confident that we have confidence. We can we can deliver another profit growth year and will likely be another challenging environment.

Okay got it thanks, so much.

John Corkrean: So, that's how the balance works and that's why we like to talk about it that way, and maybe Ghansham, I'll give a little more perspective on considerations for 2024, you know, not getting too granular here because we're still in our planning process. But you know, what Celeste described in kind of the price, raw balance, it's been very consistent this year, kind of in this 40 to 45 million dollar benefit each quarter.

Speaker 1: Your next question comes from the line of Mike Harrison with Seaport Research Partners. Please go ahead.

Your next question comes from the line of Mike Harrison with Seaport Research Partners. Please go ahead.

Hi, Good morning Martin.

Mike.

Speaker 7: I was hoping that you could maybe give a little bit more detail on the increase.

I was hoping that you could maybe give a little bit more detail on the increase.

Speaker 7: in the restructuring expectations. I believe you're in the midst of an operational review that has maybe helped to increase that target. Just curious, what stage is that operational review in, and do you have any sense of how much more savings could potentially be identified in the future?

In the restructuring expectations I believe you're in the midst.

John Corkrean: Now it's flipped between being more of a benefit from pricing, the more of a benefit from Ros. But we'll carry that over next year and if raw material costs settle out where they are, it will not be as big a benefit as it will be this year but we'll see some benefit and we think it'll be, you know, equal to or slightly greater than any price decreases. Obviously the big some of the other big drivers are the restructuring impact will be much larger in 2024 than 2023.

And operational review.

Has maybe helped to increase that target just curious what stages that operational review in.

And do you have any sense of how much more savings could potentially be identified in the future.

Okay.

Speaker 3: So we're very early on, Mike, in the operational review that we're doing. Just to take a step back on that, recall, we are in the process of identifying capacity utilization with Low Houses.

So we are we're very early on Mike in the operational review that we're doing.

Just to take.

Step back on that recall.

We're in the process of identifying capacity utilization.

Byproduct.

John Corkrean: As we said, it's, we project 40 to 45 million dollars at run rate, we'll probably capture about 10 to 12 million this year. So you can kind of extrapolate the midpoint of that being kind of what we'd experienced in 2024 and then the contribution from acquisitions that we talked about 60 million by 2025, we'll probably be about 12 million this year. So again, you could probably sort of extrapolate that. The negative we'd have is, you know, we do have a fairly sizable variable comp benefit this year that's in the, you know, neighborhood of 30 million dollars lower than last year that will be rebuilt.

Speaker 3: by plant, by line, by region. We should have a complete assessment of that outlook as well as how it relates to our future growth plans by the end of this year.

By plant by line by region, we should have a complete assessment of that outlook as well as how it relates to our future growth plans.

By the end of this year and.

Speaker 3: Following that, we will be announcing steps we're going to be taking to optimize that footprint. This is very early in, and what you see in the updated restructuring is that we've identified there are additional plants that we can take out of the network, but again, we're not completely through that analysis.

Following that we will be announcing steps, we're going to be taking to optimize that footprint. So so this is very early in and what you see in the updated restructuring.

Is that we've identified there are there are additional plants that.

John Corkrean: But, but given those, you know, we're projecting that, you know, it will be a, a chat continued challenged volume environment. That's kind of what we're building our our plans on, you know, we don't expect to see nearly the impact from destocking in 2024 that we had in 2023. But those are the components that we're looking at. They give us confident that we confidence we can, we can deliver another profit growth year and it will likely be another challenging environment. Okay, got it. Thanks so much.

We can take out of the network, but again, we're not completely through that analysis.

Speaker 4: And I guess I'll just comment, Mike, on the increase. You know, we increased the range by $10 million. I think when we came out with our initial estimates of 30 to 35, we said about two thirds of that impact was related to manufacturing costs and about a third related to SG&A. We did increase the number of anticipated plant closures. We had talked about two plant closures after Q1. 4Point Motors.

And I guess I'll just comment Mike on the increase we increased the range by $10 million I think when we came out with our initial estimates of 30 to 35, we said about two thirds of that impact was related to manufacturing costs and about a third related to SG&A.

We did increase the number of anticipated plant closures that we had talked about two plant closures.

After Q1, we now have eight.

Mike Harrison: Your next question comes from the line of Mike Harrison with Seaport Research Partners. Please go ahead. Hi, good morning. Morning, Mike. Was hoping that you could maybe give a little bit more detail on the increase in the restructuring expectations. I believe you're in the midst of an operational review that has maybe helped to increase that target. Just curious, what stage is that operational review in? And do you have any sense of how much more savings could potentially be identified in the future?

Speaker 4: that are planned. They're small, but they do have an impact. But I would say the recently announced changes to restructuring savings estimates actually are a little more weighted to SG&A. So this sort of second round we went through, we focused in more on SG&A where we had potential redundancies, opportunities to...

That are planned.

They're small.

But they do have an impact, but I would say the.

Recently announced changes to restructuring savings estimates actually a little more weighted to us to SG&A. So theres sort of second round. We went through we focused in more on SG&A, where we had potential redundancies opportunities too.

Speaker 4: you know, reduce costs given lower volume. And so, you know, the balance now might be 60% manufacturing costs, 40% SG&A. But I think what's alluded to is I think there's more opportunity in the manufacturing footprint and supply G, we will be...

Reduce costs, given lower volume and so the balance now might be 60% manufacturing cost, 40% SG&A, but I think what's allowed.

Russ alluded to is I think there's more opportunity in the manufacturing footprint and supply chain.

We will be focused on here in the near term.

John Corkrean: So we're we're very early on, Mike, in the operational review that we're doing. Just to take, you know, a step back on that recall, we are in the process of identifying capacity utilization by product, by plant, by line, by region. We should have a complete assessment of that outlook as well as how it relates to our future growth plans by the end of this year. And Following that, we will be announcing steps we're going to be taking to optimize that footprint.

Alright, perfect and then my other question is on the M&A front, you've done several acquisitions now.

Speaker 7: All right, perfect. And then my other question is on the M&A front. So you've done several

Speaker 7: Now, with the exception of Beardo, I think most of them are relatively small. But just curious at what point do you start to worry about reaching capacity on trying to integrate too many things that want to be able to reach capacity?

With the exception of.

<unk> I think most of them are relatively small, but I'm just curious at what point.

You start to worry about reaching capacity on trying to integrate too many things at once.

Speaker 7: Obviously, you've got 30 different market segments and three GPUs that you work on, and not all of them were in the same markets. How do you think about integration and your capacity to integrate as a bigger company?

Obviously, you've got 30 different market segments and three Gpus.

Thank you work on it and not all of them were in the same markets, but how do you think about integration and your capacity.

To integrate.

<unk> as a bigger company.

Yeah.

John Corkrean: So this is very early in, and what you see in the updated restructuring is that, you know, we've identified there are additional plants that we can take out of the network, but again, we're not completely through that analysis. And I guess on this kind of mic on the increase, you know, we increase the range by $10 million. I think when we came out with our initial estimates of 30 to 35, we said about two thirds of that impact was related to manufacturing costs and about a third related SGNA.

Speaker 3: I feel good about it Mike. So we have focused our M&A and capital allocation activities around our top 25 growth opportunities. And we continue to update that list every year.

I feel I feel good about it Mike so so we have.

<unk> focused our M&A and capital allocation activities around our top 25 growth opportunities and we continue to update that list every year.

Speaker 3: Within that list, there's a lot of opportunities to expand and grow the business. And we end up getting a lot of different market segments involved in doing so. So when we do an acquisition, from the very beginning, we assign an integration leader during due diligence. That integration leader participates in diligence and that embedded knowledge is very instructive as we...

Within that list, there's a lot of opportunities to expand and grow the business and we ended up getting a lot of different market segments involved in doing so so when we do an acquisition from the very beginning we assign an integration later during due diligence that integration later.

John Corkrean: We did increase the number of anticipated plant closures, we had talked about two plant closures after Q1, we now have eight that are planned, they're small, but they do have an impact. But I would say the recently announced changes to restructuring savings estimates, actually are a little more weighted to SGNA. So this sort of second round we went through, we focused in more on SGNA where we had potential redundancies, opportunities to, you know, reduce costs, give them lower volume.

Participates in diligence in that embedded knowledge is very instructive as we were.

Speaker 3: work through the integration process. Now as we integrate, we primarily use people from within the business that did the acquisition. And so, you know, when you think about it, we have integrations going on in different regions, managed by different people, or being performed by different people in different businesses concurrently.

Work through the integration process now as we integrate we primarily use people from within the business that did the acquisition and so when you think about it we have integrations going on in different regions managed by different people.

Are being performed by different people in different businesses concurrently.

John Corkrean: And so, you know, the balance now might be 60% manufacturing costs, 40% SGNA, but I think what's the less alluded to is I think there's more opportunity in the manufacturing footprint and supply G, we will be focused on here in the near term. All right, perfect.

Speaker 3: net we're very careful if we look at our pipeline you know we would not double up on a region in a business for an acquisition if we felt like we would not have the uh... the the people the resources to place against that and the good news is we have a lot of other target

Careful as we look at our pipeline, we would not double up on a region in our business for an acquisition. If we felt like we would not have the people the resources to place against that and the good news is we have lots of other targets lots.

Mike Harrison: And then my other question is on the M&A front. You've done several acquisitions now. With the exception of beer dough, I think most of them are relatively small.

Speaker 3: lots of other places where we can acquire and drive high EBITDA margin and high growth rates.

There are other places, where we can acquire and drive high EBITDA margin and high growth rates. So.

Speaker 3: So I think it'll be a long time, Mike, before we get to the point where we're really ever saturated with integration activity, particularly because we're integrating these businesses fully within two or three years.

I think it will be a long time, Mike before we get to the point, where we are we're really ever saturated with integration activity, particularly because we're integrating these businesses fully within two or three years.

Celeste Mastin: But just curious, at what point do you start to worry about reaching capacity? I'm trying to integrate too many things that want, obviously you've got, you know, 30 different market segments and three GPUs that you work on, and not all of them were in the same market. But how do you think about integration and your capacity to integrate? As a bigger company?

Alright sounds good thank you very much.

Thank you.

Your next question comes from the line of Vincent Anderson with Stifel. Please go ahead.

Speaker 1: Your next question comes from the line of Vincent Anderson with CIFIL. Please go ahead.

Yes. Thanks.

Speaker 8: Yeah, thanks. So, Celeste, I just wanted to spend maybe a bit more time on the cost-saving side, if that's okay. It sounds like the savings are...

Celeste Mastin: I feel good about it, Mike. So we have focused our M&A and capital allocation activities around our top 25 growth opportunities. And we continue to update that list every year. Within that list, there's a lot of opportunities to expand and grow the business. And we end up getting a lot of different market segments involved in doing so. So when we do an acquisition from the very beginning, we assign an integration leader during due diligence.

So the last I just wanted to spend maybe a bit more time on the cost savings side.

Okay. It sounds like.

The savings are more around footprint consolidation versus site specific costs out.

Speaker 8: costs out, but if that's so, can you help me get comfortable handicapping your expectations on the manufacturing cost savings prior to completing your review? And then I'll go ahead and ask you to go ahead and ask your question. I'm going to go ahead and ask you to go ahead and ask your question.

Just can you help me get comfortable handicapping your expectations on the manufacturing cost savings prior to completing a review and then just the part b to that are these initiatives being paired with the inventory management changes that we can expect incremental cash return on those savings.

Celeste Mastin: That integration leader participates in diligence, and that embedded knowledge is very instructive as we work through the integration process. Now, as we integrate, we primarily use people from within the business that did the acquisition. And so, you know, when you think about it, we have integrations going on in different regions managed by different people or being performed by different people in different businesses concurrently. We're very careful as we look at our pipeline.

So what we've described in the restructuring actions.

Speaker 3: So what we've described in the restructuring actions.

Speaker 3: Vincent, and good morning by the way, what we've described in the restructuring actions is more so footprint related. However, we have actions underway within the businesses today to optimize.

Vincent and good morning by the way.

We've described and the restructuring actions is more so footprint related however, we have actions underway within the businesses today to optimize.

Speaker 3: the, you know, our shift load to drive productivity improvement in the plants. So there's a lot of cost-saving effort underway that would impact conversion cost that's happening already. We're just not, we're not talking about it in the form of a restructuring.

Our shift load to drive productivity improvement in the plants. So there's a lot of cost saving effort underway.

It would impact conversion cost that's happening already we're just not we're not talking about it in the form of a restructuring.

Speaker 3: And yes, you're right, we do have work ongoing as it relates also to the supply chain. We're adding capabilities that will allow us to more analytically manage, in particular, our inventory levels. We've started down a path. We've made an act. We've acquired some.

Celeste Mastin: You know, we would not double up on a region and a business for an acquisition if we felt like we would not have the people, the resources to place against that. And the good news is we have lots of other targets. Lots of other places where we can acquire and drive high EBITDA margin and high growth rates. So I think it will be a long time, Mike, before we get to the point where we're really ever saturated with integration activity, particularly because we're integrating these businesses fully within two or three years.

Yes, you're right. We do have work ongoing as it relates also to the supply chain.

We are adding capabilities that will allow us to more analytically manage in particular, our inventory levels.

Mike Harrison: All right, sounds good.

We've started down a path, we've made and that we've acquired some some software to do that and we actually are piloting that activity as we speak at six of our facilities. So yes.

Mike Harrison: Thank you very much.

Speaker 3: some software to do that and we actually are piloting that activity as we speak at six of our facilities.

Speaker 3: So yes, those efforts are proceeding in parallel and not just focused around the footprint. But don't sound too bad because we are all responsible.

Yes, those efforts are proceeding.

In parallel.

Not just focused about around the footprint.

Okay Alright.

Helpful.

On bolt was my next question, so I'm trying to pick which one.

Speaker 8: All right, so you mostly answered this one, which was along the lines of, do you feel like HPE Flutter is already leveraging best-in-class analytical systems available for procurement inventory management? Maybe taking that a step further, I mean the pricing.

Vincent Anderson: Thank you. See your next question comes from a line of Vincent Anderson with Stevele. Please go ahead. Yeah, thanks. So, bless. I just wanted to spend maybe a bit more time on the cost saving side. That's okay. It sounds like the savings are more around footprint consolidation versus site specific costs. So, can you help me get comfortable handicapping your expectations on the manufacturing cost savings prior to completing your review? And then just a part B to that.

Alright, so you mostly answered this one.

Which was along the lines of do you feel like H B Fuller's already leveraging best in class analytical system available for procurement inventory management, but maybe taking that a step further I mean, the pricing and procurement.

Systems were really kind of normalized after the 2019 restructuring. So same question is there more that could be.

<unk> there.

So we we have excellent pricing system pricing team and pricing methodology, and I think I've mentioned before that that I'm on.

Speaker 3: So we have an excellent pricing system, pricing team, and pricing methodology. And I think I've mentioned before that I'm on a call with our pricing group every two weeks. So it's definitely an area of focus. And what I'll say is that every two weeks, we have an excellent pricing system.

Vincent Anderson: Are these initiatives being paired with the inventory management changes that we can expect incremental cash returns on those savings? So, what we've described in the restructuring actions, Vincent, and good morning, by the way, what we've described in the restructuring actions is more so footprint related. However, we have actions underway within the businesses today to optimize the, you know, our shift load to drive productivity improvement in the plants. So, there's a lot of cost saving effort underway that would impact conversion cost that's happening already.

A call with our pricing group every two weeks. So it's definitely an area of focus and what I'll say is that.

Every every two weeks.

Speaker 3: something new comes out of that. We expand our capabilities, we focus on some other reporting that we could do, we identify strategies for price increases in parts of the portfolio, and it's not just myself, I get to see the outcome of the work that's going on.

Something new come comes out of that.

Expand our capabilities we.

Focus on some other reporting that we could do.

We identify strategies for price increases in parts of the portfolio and it's not just myself I get to see the outcome of the work that's going on.

Vincent Anderson: We're just not, we're not talking about it in the form of a restructuring. And yes, you're right. We do have work ongoing as it relates also to the supply chain. We're adding capabilities that will allow us to more analytically manage in particular our inventory levels. We've started down a path. We've made an act, we've acquired some software to do that. And we actually are piloting that activity as we speak at six of our facilities.

Speaker 3: with that pricing team and in concert with the GBUs.

Vincent Anderson: So, yes, those efforts are proceeding in parallel and not just focused around the footprint. Okay, all right. That's helpful. And you touched on both of my next question, so I'm trying to pick which one to start with. All right. So, you mostly answered this one, which was along the lines of, you know, do you feel like HB Fuller is already leveraging best in class analytical system available for procurement inventory management. But maybe taking that a step further, I mean, the pricing and the procurement systems were really kind of formalized after the 2019 restructuring.

With that pricing team and in concert with the Gpus and so.

Speaker 3: And so, you know, we're never going to be satisfied that we're perfect pricers.

We're never going to be satisfied that we're perfect prices.

Speaker 3: um... you know we continue to to work on

We continue to work on what I think is already an excellent capability and continue to make it better.

Speaker 3: what I think is already an excellent capability and continue to make it better. And one of the things that is a very important part of that is the technology leverage, right? Not just in pricing systems, but ensuring that...

And one of the things that is a very important part of that is is the technology leverage right not just in pricing systems, but ensuring that.

Speaker 3: we're pricing to the value that our customers are experiencing. So, you know, pricing is sort of the last thing to happen. The first thing that happens is understanding our customers' needs, knowing how they use our product, understanding their goals, and really driving innovation around bringing a solution that matters to them and that we can be paid for.

We're pricing to the value that our customers are experiencing so.

Pricing sort of the last thing to happen. The first thing that happens is understanding our customers' needs knowing how they use our product understanding their goals and really driving innovation around bringing a solution that matters to them and that we can be paid for so pricing, we're never going to.

Speaker 3: So pricing, you know, we're never going to be done and we're going to continue to capture value there. And similarly, our procurement system, you're right, we have a great team, it's been in place for quite some time now. And, you know, we continue to leverage our scale successfully in these multiple raw material segments that we participate in. And each one of them is different. It's very interesting.

Done and we're going to continue to capture value there and similarly, our procurement system, you're right that we have a great team that's been in place.

For quite some time now and we continue.

Vincent Anderson: So, same question, is there more that could be, you know, investigated there? So, we have an excellent pricing system, pricing team, and pricing methodology. And I think I've mentioned before that I'm on a call with our pricing group every two weeks. So, it's definitely an area of focus. And what I'll say is that, you know, every two weeks, something new comes out of that, right? We expand our capabilities, we focus on some other reporting that we could do.

To leverage our scale successfully in these multiple raw material segments that we participate in.

And each one of them is different it's very interesting.

Sure Alright Thats helpful.

Alright, so so last one.

Speaker 8: last one, you talked a bit about this, it sounds like...

Yes.

A bit about this it sounds like a lot of it is still kind of.

To be determined through the end of the year, but a lot of your non U S site at.

Speaker 8: through the end of the year. But a lot of your non-US sites at least appear to be running fewer tech

Or at least appear to be running fewer technologies on a per site basis than what we see with your kind of legacy U S assets.

Speaker 8: So as I think to your growth strike.

As I think to your growth strategy.

Speaker 8: You know, you've been globalizing a lot of US developed products through buy rather than build. Are there opportunities to get more leverage out of the non-US sites?

You've been globalizing, a lot of U S developed products through buy rather than build.

Vincent Anderson: We identify strategies for price increases in parts of the portfolio. And it's not just myself, I get to see the outcome of the work that's going on with that pricing team and in concert with the GPUs. And so, you know, we're never going to be satisfied that we're perfect pricers. You know, we continue to work on what I think is already an excellent capability and continue to make it better. And one of the things that is a very important part of that is the technology leverage, right?

Are there opportunities to get more leverage out of the non U S sites, where the footprint and staffing might be underutilized and is any of that in your current savings targets or is that more related to again kind of your growth strategy.

Speaker 8: staffing might be underutilized, and is any of that in your current savings target, or is that more related to, again, kind of your...

Yeah.

So that again will.

Speaker 3: will be addressed as we look at our global footprint. So when you look at our plant base, well over half of those...

B.

Addressed as we look at our global footprint.

Our so when you look at our when you look at our plant base well over half of those plants.

Speaker 3: uh... serve multiple gb use uh... and you're right most of them are technology-based probably two or three different types of technology that they will be focused on our intention is not to have big mega site we want to continue to produce close to our customer uh... and there's that value in doing that we just need to make sure that again when we look at the business

Serve multiple gpus.

Vincent Anderson: Not just in pricing systems, but ensuring that we're pricing to the value that our customers are experiencing. So, you know, pricing sort of the last thing to happen, the first thing that happens is understanding our customers needs, knowing how they use our product, understanding their goals, and really driving innovation around bringing a solution that matters to them and that we can be paid for. So, pricing, you know, we're never going to be done and we're going to continue to capture value there.

And Youre right. Most of them are technology based probably two or three different types of technology that they will be focused on.

Our intention is not to have big Mega sites, we want to continue to produce close to our customer and there is a value in doing that we just need to make sure that again, when we look at the business.

Speaker 3: capacity utilization by technology that, you know, where there is redundancy that's unnecessary, that we can remove it.

Capacity utilization by technology that that.

Where there is redundancy that's unnecessary that we can that we can remove it.

Vincent Anderson: And similarly, our procurement system, you're right, we have a great team that's been in place for quite some time now. And, you know, we continue to leverage our scale successfully in these multiple raw material segments that we participate in, and each one of them is different. It's very interesting. Sure. All right, that's helpful. All right, so the last one, you know, and you talked a bit about this, it sounds like a lot of it's still kind of to be determined through the end of the year.

Speaker 8: Did I answer your question, Vincent? Yeah, I might try again in six months, but yeah. Okay.

Did I answer your question Vincent.

Yes.

Try again in six months, but yeah. Okay.

Okay.

Thats It from me thank you.

Your next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.

Speaker 1: Your next question comes from the line of David Bidlider with Deutsche Bank. Please go ahead.

Speaker 9: Thank you, good morning. Good morning, David. Good morning. Celestine John , your Q4 guidance implies a pretty steep ramp.

Thank you good morning good.

Good morning, David Good morning, So lesson, Jon your Q4 guidance implies a pretty steep ramp from Q3.

Speaker 9: Can you use some color on the various drivers and buckets? How much from price cost? How much from cost savings? How much from volume and normalized app?

You give us some color on the various drivers in buckets, how much from price cost how much from cost savings how much from.

Vincent Anderson: So I, you know, a lot of your non-US site, at least appear to be running fewer technologies on a per-site basis than what we see with your kind of legacy US assets. So as I think to your gross strategy, you know, you've been globalizing a lot of US developed products through buy rather than build. Are there opportunities to get more leverage out of the non-US sites where the footprint and staffing might be underutilized and is any of that in your current savings target or is that more related to again, kind of your your gross strategy.

Volume and normalize operations to drive that that ramp.

Yeah, I think so but I think the biggest driver is the momentum we're seeing from raw material savings and.

Speaker 4: Yeah, I think the biggest driver is the momentum we're seeing from raw material savings, and I think we've done a really good job managing pricing. So as I said, it's been very consistently kind of a $40 to $45 million of savings.

We've done a good really good job managing pricing so.

As I said the.

Yes, it's been very consistently kind of a $40 million to $45 million of savings.

Speaker 4: per quarter between the two, and we would expect a similar number in Q4 on better volume performance. Right, so those are the major drivers.

Per quarter between the two and we would expect a similar number in Q4 on better on.

Better volume performance.

So those are the major drivers.

Vincent Anderson: This is that that again will will be addressed as we look at our global footprint are so when you look at our when you look at our plant based well over half of those plants serve multiple GPUs. And you're right, most of them are technology based probably two or three different types of technology that they will be focused on. Our intention is not to have big mega sites. We want to continue to produce close to our customer and there's a value in doing that.

Speaker 4: And we would, you know, the impact from restructuring and acquisitions will be.

And we would.

The impact from restructuring and in.

And acquisitions will be.

Speaker 4: more in Q4 than it has been in any of the other quarters.

<unk> more in Q4 than it has been in any of the other quarters.

Maybe close to double based just on the timing of the acquisitions and the ramping up of restructuring. So those are the things that would drive this ramp now we also I would say.

Speaker 4: maybe close to double based just on the timing of the acquisitions and the ramping up of restructuring. So, thank you very much.

Haven't easier comparison than Q1 through Q3 as it relates to the macro environment that we were facing in Q4 last year versus the previous quarter. So the growth rates are in part a reflection of an easier comparison, but it's it's more of those things that I talked about.

Vincent Anderson: And we just need to make sure that again, when we look at the business capacity utilization by technology that that you know where there is redundancy that's unnecessary that we can that we can remove it. Could I answer your question Vincent? Yeah, I might try again in six months, but yeah. Okay. That's it for me. Thank you.

Speaker 4: It's more of those things that I talked about, the timing on ROZ, management of pricing.

The timing on raws management of pricing, improving volume and ramping up of restructuring savings and acquisition impact.

Speaker 4: improving volume and ramping up of restructuring savings and access.

Speaker 9: And John , how about 40 or 45 million price cost tailwind, how much of that is locked in?

And John how about $40 million to $45 million price cost tailwind how much of that is locked in.

Speaker 9: I presume pricing is locked in and I presume most of the raw material costs are locked in as well. Is that fair?

And pricing is locked in and I presume most of the raw material costs are locked in as well is that fair.

Yes, I think Thats fair I mean, I think everything is a little bit, particularly on the raw materials side on a lag right because it's the products that we purchased in Q2 were really the ones that impacted our P&L in Q3. So if you think about what's the Q4 impact it's really.

David Begleiter: Your next question comes from the line of David Biglider with Deutsche Bank. Please go ahead. Thank you. Good morning. Good morning, David. Good morning.

Materials that we've already purchased.

David Begleiter: Celeste and John, your Q4 guidance is a pretty steep ramp from Q3. You can color on the various drivers and buckets how much from price cost, how much from cost savings, how much from volume and all my operations to drive that that that ramp. Yeah, I think I think the biggest driver is the moment that we're seeing from raw material savings and and I think we've done a good really good job managing pricing.

And pricing.

Speaker 4: You know, we do have quarterly resets on our formula based pricing, but we have a, those are based on the previous quarters, raw material costs. So we do have pretty good visibility on that as well.

We do have quarterly resets.

Our formula based pricing, but we have a.

Based on the previous quarters raw material costs. So we do have pretty good visibility on that as well.

Speaker 9: Great, and this last thing, in 24 on the non-formula based products, which I know will be down, do you expect prices to be down on the other portion of the business, the negotiated portion of the business? Well, again-

Great and just last thing in 24 on a non formula based products, which I know will be down.

Do you expect pricing to be down on the other portion of the business the negotiated a portion of the business.

David Begleiter: So as I said, the, you know, it's been very consistently kind of a 40 to 45 million dollars of savings per quarter between the two. And we would expect a similar number in Q4 on better on better volume performance, right? So that those are the major drivers. And we would, you know, the impact from restructuring and acquisitions will be more in Q4 than it has been in any of the other quarters.

Well again will we.

Speaker 3: We will because there will be plenty of reformulated products that we introduce to customers that are at a lower price to the customer while still being margin preserving for us.

We will because there will be plenty of reformulated products that we introduced to customers that.

Or at a lower price to the customer while still being margin president preserving for us.

So theres a lot of activity, David right now underway to reformulate and provide savings to customers given the weak volume demand that's out there.

Speaker 3: So there's a lot of activity, David, right now underway to reformulate and provide savings to customers given the week volume demand that's out there.

David Begleiter: You know, maybe close to double based just on the timing of the acquisitions and the ramping up of restructuring. So those are the things that would drive this ramp. Now, you know, we also I would say and have an easier comparison than Q1 through Q3 as it relates to the macro environment that we were facing Q4 last year versus the previous quarters. So the growth rates are in part a reflection of an easier comparison, but it's, it's more of those things that I talked about that the timing on raw management of pricing, improving volume and ramping up of restructuring savings in X, and John, how about that 45 million price cost hellwind?

Speaker 3: Now, some customers will take advantage of that and some won't. Again, we're a very small part of our customers end product and very enabling. There may be cases certainly where we're introducing...

Now some customers will take advantage of that and some won't.

Where we.

We're a very small part of our customers and product and very enabling.

There may be cases, certainly where were introducing higher priced products that bring overall total savings to them by allowing them to use a different substrate or run their lines faster.

Speaker 3: higher priced products that bring overall total savings to them by allowing them to use a different substrate or run their lines faster. So it's a bit of a mixed bag, but I think that the overall...

So it's a bit of a mixed bag, but I think that the overall.

I think the overall movement on price will be flat to incrementally lower for all of those reasons.

Speaker 3: I think the overall movement on price will be flat to incrementally lower for all of those reasons.

David Begleiter: How much that is locked in? I presume pricing is locked in and I presume most of the raw material costs are locked in as well. Is that fair? Yeah, I think that's fair. I mean, I think everything is a little bit particularly on the raw material side on the lag, right? Because it's the products that we purchased in Q2 were really the ones that impacted our P&L and Q3. So if you think about what's a Q4 impact, it's really materials that we've already purchased and pricing, we do have quarterly resets on our formula-based pricing but we have those are based on the previous quarters raw material costs. So we do have pretty good visibility on that as well.

Understood. Thank you very much.

Your next question will come from the line of Jefferies <unk> with J P. Morgan. Please go ahead.

Speaker 1: Your next question will come from the line of Jeffrey Zukauskas with J.P. Morgan. Please go ahead.

Thanks very much.

Speaker 4: Morning, Jeff. Hi, good morning. Did you reiterate your cash flow guidance for the year of 350 or no? We didn't reiterate it, but it's...

Morning, Jeff Hi, good morning.

Could you reiterate your cash flow guidance for the year of $3 54 now.

We didnt reiterate it but it remains intact.

So you just reiterated it.

Speaker 4: So you just reiterated it? Is that what you're talking about? I guess you could say we just reiterated it. Okay. And we feel good about cash flow. We had another strong quarter as expected and everything is lining up to be in line with the gains we gave in cash flow.

Yes.

Yes, I would just reiterate that.

Okay, and we feel good about cash flow.

We had another strong quarter as expected and everything is lining up to be in line with the guidance we gave in Q2.

David Begleiter: Great. This last thing, in 24 on the non-formular-based products, which I know will be down, do you expect price to be down on the other portion of the business, the negotiated portion of the business? Well, again, we will because there will be plenty of reformulated products that we introduce to customers that are at a lower price to the customer while still being margin-preserving for us. So there's a lot of activity David right now underway to reformulate and provide savings to customers given the weak volume demand that's out there.

Okay great.

Speaker 4: So you've spent 195 million on acquisitions.

So you've spent 195 million on acquisitions so far.

Speaker 10: exclusive of the costs that you might take out or the synergies that you might achieve. What's the annual EBITDA of that?

Exclusive of the costs that you might take out of the synergies that you might achieve.

David Begleiter: Now some customers will take advantage of that and some won't. Again, we're a very small part of our customers end product and very enabling. There may be cases, certainly, where we're introducing higher priced products that bring overall total savings to them by allowing them to use a different substrate or run their lines faster. So it's a bit of a mixed bag, but I think the overall movement on price will be flat to incrementally lower for all of those reasons.

Okay.

What's the annual EBITDA of that.

$95 million and spending and what are the annual revenues roughly.

Speaker 4: So this year we'll recognize approximately $100 million of revenue for these acquisitions and roughly 12 million of EBITDA. And you know, I'd say that that is roughly reflective of a half a year's worth of contribution because we acquired them over the course of this year. So you can kind of double those numbers and get to what we've acquired for them.

So this year will.

We'll recognize approximately $100 million of revenue for these acquisitions and roughly $12 million of EBITDA.

David Begleiter: Understood.

It's.

I would say that that is roughly reflective of a half a year's worth of contribution because we acquired them over the course of this year. So you can kind of double those numbers and get to what we're what we've acquired for the amount. We spent now theres a little bit of synergy in that though we're getting this year. So maybe the numbers not to.

Jeffrey Zekauskas: Thank you very much.

Speaker 4: amount we spent. Now there's a little bit of synergy in that that we're getting this year. So you know maybe the number is not 24.

<unk> for its <unk>.

Speaker 4: 18 to 20, and then our synergies add another four to six. So does that answer your question, Jeff? Yeah, it does. Your non-recurring charges this quarter were about 30...

18 to 20.

Our synergies add another four to six.

So does that answer your question Jeff.

Your.

Nonrecurring charges this quarter were about 36.

Speaker 10: I was listening to your to your answers to some previous questions. Did you effectively say that your non recurring charges and.

I was listening to your to your answers to some previous questions.

Did you effectively say that youre nonrecurring charges in the fourth quarter would be double that or about 72.

Speaker 4: No. I think that, and I kind of look at it on a pre-tax basis.

No.

I think that and I kind of look at it on a pre tax basis.

Jeffrey Zekauskas: Your next question will come from the line of Jeff Reza-Kauskas with JP Morgan. Please go ahead. Thanks very much. Good morning Jeff. Hi, good morning. Did you reiterate your cash flow guidance for the year of 350 or no? We didn't reiterate it, but it remains intact. So you just reiterated it? I guess so. I think it's there we just reiterated it. We forgot about cash flow. We had another strong quarter as expected and everything is lining up to be in line with the guidance we gave in Q2.

Yeah.

And as of the end of the third quarter, the nonrecurring charges were about $40 million.

Speaker 4: And as of the end of the third quarter, the non-recurring charges were about $40 million.

Some of those where we're wont be repeating we had an earn out related to an acquisition. We did last year, which is a.

Speaker 4: Some of those were, were, um, won't be repeating. We had an earn-out related to an acquisition we did last year, which...

Speaker 4: payment we made because the business is performing better than our deal model reflected, which is a good thing. And we are, but we are seeing the impact of these restructuring related charges and the integration costs for these.

Payment, we made because the business is performing better than our deal model reflected which is a good thing.

And we are but we are seeing the impact of these restructuring related charges and the integration costs for these acquisitions I would expect that the fourth quarter for the full year.

Speaker 4: I would expect that the fourth quarter for the full year, you know, these non- these, um,

These.

Speaker 4: non-recurring charges will be around $55 to $60 million on a pre-tax basis. And the other thing we had going on in Q3, which made that number a little larger, was a fairly large discrete tax item related to settling some old tax audits. So we're not anticipating that repeating in Q4. In the end, we're going to have to go back to the last slide.

These nonrecurring charges will be around $55 million to $60 million on a pretax basis.

Jeffrey Zekauskas: Okay. So you've spent $195 million on acquisitions so far, exclusive of the cost that you might take out or the synergies that you might achieve. What's the annual EBITDA of that? $195 million. Million, and Spending, and what are the annual revenues roughly? So this year we'll recognize approximately a hundred million dollars of revenue for these acquisitions and roughly twelve million of EBITDA. And, you know, it's on it, I'd say that that is roughly reflective of a half a year's worth of contribution because we acquired them over the course of this year.

And the other thing we had going on in Q3, which which made that number larger was a fairly large discrete tax item related to settling some old tax audits. So we're not anticipating that repeating in Q4.

In the engineering segment, you're keeping.

Speaker 10: EPDA went up about 10 million sequentially, even though your revenues were flat.

EBITDA went up about $10 million sequentially, even though your revenues were flat.

With that raw material benefits or something else.

So couple of things going on there, yes, raw material benefits are ramping and all three GB use and that is impacting <unk> as well. The other thing is the mix was very favorable in Q3 relative to the first two quarters.

Speaker 4: So a couple of things going on there. Yes, raw material benefits are ramping in all three GBUs and that is impacting EA as well. The other thing is the mix was very favorable in Q3 relative to the first two quarters as the performance of electronics and automotive continued, automotive continues to be very strong, electronics improved significantly in Q3. Some of that is this China.

Jeffrey Zekauskas: So, you can kind of double those numbers and get to what we've acquired for the amount we spent. Now, there's a little bit of synergy in that that we're getting this year. So, you know, maybe the number's not 24, it's, you know, 18 to 20, and then our synergies add another four to six. So, does that answer a question, Jeff? Yeah, it does. You're non-recurring charges this quarter, we're about 36 cents.

As the performance of electronics and automotive continues.

Automotive continues to be very strong electronics improved significantly in Q3 some of that is this China effect.

Speaker 4: So I would attribute half of it to raw material trends and the other half to the growth in the higher margin parts.

I would attribute half of it too.

Raw material trends and the other half to the growth in the higher margin parts of the business.

Speaker 10: And then lastly, Celeste, do you plan to buy anything in the fourth quarter of any size?

And then lastly, Celeste do you plan to buy anything in the fourth quarter of any size.

Jeffrey Zekauskas: I was listening to your answers to some previous questions. Did you effectively say that your non-recurring charges in the fourth quarter would be double that, or about 72 cents? No, you know, I think that, and I kind of look at it on a pre-tank basis, and as of the end of the third quarter, the non-recurring charges were about 40 million dollars. Some of those were, won't be repeating. We had an urn out related to an acquisition.

Speaker 3: We are constantly rebuilding our pipeline. Jeff?

We are constantly rebuilding our pipeline Jeff.

Speaker 3: It's a real focus area for us. So, you know, I never want to say I'm going to do a deal until it's done.

It's a real focus area for us so.

I never want to say I'm going to do a deal until it's done.

Uh huh.

But youre working.

Speaker 3: We're always working the pipeline and there's a lot of opportunities that we find to invest in those top 25 growth opportunities for the business. We have 30 market segment leaders that are...

We're always working we're always working the pipeline and there's a lot of opportunities that.

That we find to invest in those.

Those top 25 growth opportunities for the business.

Jeffrey Zekauskas: We did last year, which is a payment we made because the business is performing better than our, our deal mile reflected, which is a good thing. And we are, but we are seeing the impact of these restructuring related charges and the integration costs for these acquisitions. I would expect that the fourth quarter, for the full year, you know, these non-recurring charges will be around 55 is $60 million on a pre-tank basis.

We have 30 market segment leaders that are.

Speaker 3: desirous of growing their business, they're encouraged and incentivized to grow their business and they've recognized that one of the ways that they can fill some of these most critical needs is through M&A. So, yeah, so we have a strong pipeline and...

Desirous of growing their business, they're encouraged and incentivized to grow their business and they've recognized that one of the ways that they can fill some of these most critical needs is through M&A. So yes.

Yes, so we have a strong pipeline and.

And we'll continue to work that those those deals to close.

Speaker 3: and we'll continue to work those deals to a close, you know, many quarters to come.

Jeffrey Zekauskas: And the other thing we had going on in Q3, which made that number a little larger, was a fairly large discrete tax item related to settling some old tax on it. So, we're not anticipating that repeating in Q4. In the engineering segment, your EPITDA went up about 10 million sequentially, even though your revenues were flat. Is that raw material benefits or something else? So, a couple of things going on there. Yes, raw material benefits are ramping in all three GVUs, and that is impacting EA as well.

Many quarters to come.

Okay, great. Thank you so much.

Speaker 1: And we have no further questions at this time. I'll hand the call back to Sir Walt Mastin for any closing remarks.

And we have no further questions at this time I'll hand, the call back to Masson for any closing remarks.

Thanks to everyone for joining us. This morning, we appreciate your time and have a great day.

Speaker 3: Thanks everyone for joining us this morning. We appreciate your time. And have a great day.

Okay.

Everyone that will conclude today's meeting we thank you all for joining and you may now disconnect.

Speaker 1: Everyone, that will conclude today's meeting. We thank you all for joining.

Yeah.

Yeah.

Jeffrey Zekauskas: The other thing is the mix was very favorable in Q3 relative to the first two quarters, as the performance of electronics and automotive continues to be very strong. Electronics improved significantly in Q3. Some of that is this China effect. So, I would attribute, you know, half of it to raw material trends and the other half to, you know, the growth in the higher margin parts of the business.

Yeah.

Okay.

Jeffrey Zekauskas: And lastly, Celeste, do you plan to buy anything in the fourth quarter of any size? We are constantly rebuilding our pipeline. Jeff, it's a real focus area for us. So, you know, I never want to say I'm going to do a deal until it's done. But you're working. We're always working, we're always working to pipeline and there's a lot of opportunities that we find to invest in, you know, those top 25 growth opportunities for the business.

Jeffrey Zekauskas: We have 30 market segment leaders that are desirous of growing their business, they're encouraged and incentivized to grow their business and they've recognized that one of the ways that they can fill some of these most critical needs is through M&A. So, yeah, so we have a strong pipeline and we'll continue to work that, those deals to a close, you know, many quarters to come. Okay, great, thank you so much. Do we have no further questions at this time?

Jeffrey Zekauskas: I'll hand the call back to Celeste Mastin for any closing remarks. Thanks everyone for joining us this morning. We appreciate your time and have a great day. Everyone that will conclude today's meeting, we thank you all for joining and you may now...