Q3 2024 HB Fuller Co Earnings Call
Thank you for standing by and welcome to the HV Solar third quarter 2021 learning conference call.
Operator: 24 Earnings conference call. All participants are in a listen-only mode. After the speaker's remarks, we'll have a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone's e-pad. To withdraw any questions, please press star one again. As a reminder, this conference call is being recorded.
Speaker Change: All participants are now listening only mode. After the speakers are marks, we'll have a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone sheet side. To withdraw any questions, please press star one again.
Steven Brazones: I would now like to turn the call over to Steven Brazones, Vice President of Investor Relations. Please go ahead.
Speaker Change: As your reminder, this conference call is being recorded.
Speaker Change: I would now like to turn the call over to Steven Brazones, Vice President of Investor Relations. Please go ahead.
Speaker: Thank you, operator.
Celeste Mastin: Welcome to HB Fuller's third quarter 2024 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-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 is included in our earnings release.
Steven Brazones: Thank you operator, welcome to HP Fuller's third quarter 2024 Investor Conference call.
Speaker Change: presenting today our Celeste Mastin, President and Chief Executive Officer and John Corkrean, Executive Vice President and Chief Financial Officer.
Speaker Change: After our prepared remarks, we will have a question and answer session.
Speaker Change: Before we begin, let me remind everyone that our comments today will include references to certain non-gap financial measures.
Speaker Change: These measures are supplemental to the results determined in accordance with gap.
Speaker Change: We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies.
Speaker Change: Reconciliation of non-gap measures to the nearest gap measure are included in our earnings release.
Speaker: Unless otherwise noted, comments about revenue referred to organic revenue, and comments about EPS, EBITDA, and profit margins refer to adjusted non-GAAP measures. We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties.
Speaker Change: Unless otherwise noted, comments about revenue refer to organic revenue and comments about EPS, EBITDA and Profit Margins refer to adjusted non-gap measures.
Speaker Change: 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.
Speaker: Actual results could differ materially from these expectations to de facto 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.hpfollower.com.
Speaker Change: Actual results could differ materially from these expectations to to fact covered in our earnings release, comments made during this call, and the risk factors detailed in our filings with the Securities and Exchange Commission.
Speaker Change: All of which are available on our website at investors.hpfollower.com.
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 continued to incrementally expand EBITDA margin year-on-year and realized positive organic growth. Several factors, including volume leverage, restructuring actions, and benefits from acquisitions, drove the improvement in EBITDA margin and resulted in an EBITDA performance within the range we expected for the third quarter. With that said, our volume growth came in at the low end of our expectations. Slowing market demand in certain durable goods-related market segments in EA constrained consolidated volume during the quarter. While volume growth was relatively stable sequentially, we were anticipating incremental strengthening throughout the year.
Speaker Change: I will now turn the call over to Celeste Mastin.
Celeste Mastin: Celeste Mastin
Celeste Mastin: Thank you, Steven, and welcome everyone. In the third quarter, we continued to incrementally expand Eva Damarge in year on year and realized positive organic growth.
Speaker Change: Several factors, including volume leverage, restructuring actions and benefits from acquisitions, drove the improvement in EBITDA margin and resulted in an Eva Dopp performance within the range we expected for the third quarter.
Speaker Change: With that said, our volume growth came in at the low end of our expectations.
Speaker Change: Slawing Market Demand in certain durable goods-related market segments in EA constrained to consolidate volume during the quarter. While volume growth was relatively stable sequentially, we were anticipating incremental strengthening throughout the year.
Celeste Mastin: Several market segments in EA, which had exhibited relatively strong market demand even during the rising interest rate environment over the past years, began slowing during the third quarter. This was offset by continued strong volume growth in construction adhesives and improving volume trends across most of the HHC portfolio. While EA volume was below our expectations, we expect these volume dynamics to moderate and reverse over time as interest rates decline. We fully expect EA volume growth to accelerate and be more in line with our long-term expectations as macro-conditions normalize.
Speaker Change: Several market segments in the EA, which had exhibited relatively strong market demand even during the rising interest rate environment over the past years, began flowing during the third quarter.
Speaker Change: This was offset by continued strong volume growth in construction adhesives and improving volume trends across most of the HHC portfolio.
Speaker Change: While EA volume was below our expectations, we expect these volume dynamics to moderate and reverse over time as interest rates decline.
Speaker Change: We fully expect EA volume growth to accelerate and be more in line with our long-term expectations as macro-conditions normalize.
Celeste Mastin: Nice. Additionally, we remain confident that our long-term strategy to disproportionately invest in higher growth, higher margin businesses, while improving our operating efficiency and cost structure, will drive strong EVA dog growth and result in an EVA dog margin of greater than 20%. Looking at our consolidated results in the third quarter, our organic sales trend continued to improve against a weak economic backdrop, and we achieved positive organic sales growth of 0.4%. Volume increased 3% year on year, and pricing declined 2.6%. Index-based pricing adjustments moderated sequentially, as expected, and we anticipate further moderation in the fourth quarter. From a profitability perspective, we executed well and delivered strong results.
Speaker Change: Additionally, we remain confident that our long-term strategy to disproportionately invest in higher growth, higher margin businesses while improving our operating efficiency and cost structure will drive strong Eva Dog Growth and result in an Eva Dog Margin of greater than 20%.
Speaker Change: Looking at our consolidated results in the third quarter, our organic sales trend continued to improve against a weak economic backdrop, and we achieved positive organic sales growth of 0.4%.
Speaker Change: Volume increased 3% year-on-year and pricing declined to 2.6% index-based pricing adjustments moderated sequentially as expected and we anticipate further moderation in the fourth quarter.
Speaker Change: From a profitability perspective, we executed well and delivered strong results.
Celeste Mastin: We grew adjusted EVA dog 6% year on year to $165 million, and expanded adjusted EVA dog margin by 70 basis points year on year to 18%. Volume leverage, restructuring savings, and benefits from recent acquisitions principally drove the increase in margin relative to the prior year.
Speaker Change: We grew adjusted EBITDA 6% year-on-year to $165 million and expanded adjusted EBITDA margin by 70 basis points year-on-year to 18%.
Speaker Change: Volume leverage, restructuring savings, and benefits from recent acquisitions, principally drove the increase in margin relative to the prior year.
Celeste Mastin: Now, let me move on to review the performance in each of our segments in the third quarter. In HHC, organic revenue development continued to improve significantly, improving volume performance across most of the portfolio, and moderating index-based pricing adjustments led to the improved organic sales performance for HHC. Strengthened bottle labeling, packaging, and medical drove the improvement in organic sales performance. We would expect this trend to continue to improve, as evidenced by the fact that nearly every market segment in HHC achieved positive volume growth during the quarter. Adjusted EVA dog was down 7% year on year for HHC in the third quarter, and adjusted EVA dog margin decreased 70 basis points year on year to 16.5%.
Speaker Change: Now let me move on to review the performance in each of our segments in the third quarter.
Speaker Change: In HHC, organic revenue development continued to improve significantly, improving volume performance across most of the portfolio and moderating index-based pricing adjustments led to the improved organic sales performance for HHC.
Speaker Change: Strengthen, Bottle Labeling, Packaging, and Medical drove the improvement in organic sales performance.
Speaker Change: We would expect this trend to continue to improve as evidenced by the facts that nearly every market segment in HHC achieved positive volume growth during the quarter.
Speaker Change: Ajustid Evedot was down 7% year on year for HHC in the third quarter and adjusted Evedot margin decreased 70 basis points year on year to 16.5%.
Celeste Mastin: Positive volume leverage and restructuring savings were offset by unfavorable carryover impact of 2023 index-based pricing adjustments. In engineering adhesives, organic revenue decreased 2% in the third quarter, driven by both slightly lower pricing and volumes, as mentioned earlier. Automotive and electronics had slower but solid organic growth, while clean energy generated significantly lower organic sales as a result of market dynamics, particularly in China, and actions we've taken to reposition the portfolio. Overall, most of the market segments in EA saw positive volume growth during the third quarter. Adjusted EVA dog increased 5% in EA and adjusted EVA dog margin expanded 40 basis points year on year to 19.7%.
Speaker Change: Positive volume leverage and restructuring savings were offset by the unfavorable carryover impact of 2023 index-based pricing adjustments.
Speaker Change: An engineering adhesive, organic revenue decreased 2% in the third quarter, driven by both slightly lower pricing and volumes as mentioned earlier.
Speaker Change: Automotive and electronics had slower but solid organic growth while clean energy generated significantly lower organic sales.
Speaker Change: as a result of market dynamics.
Speaker Change: particularly in China and actions we've taken to reposition the portfolio. Overall, most of the market segments in EA saw positive volume growth during the third quarter.
Speaker Change: Adjusted EBITDA increased 5% in EA and adjusted EBITDA margin expanded 40 basis points year on year to 19.7%.
Celeste Mastin: net price and raw material cost management and acquisition benefits offset partially by the impact of lower volume drove the increase in adjusted EBITDA margin year-on-year. In construction adhesives, organic sales increase 10% year-on-year on continued strength in roofing, which grew nearly 25% year-on-year. Demanding construction remains strong, and we expect a declining interest rate environment will benefit CA moving forward. Adjusted EBITDA for CA increased 36% versus the third quarter of last year to $25 million, and adjusted EBITDA margin expanded 240 basis points to 16.4%. Net price and raw material cost management, volume leverage, and restructuring savings drove the improvement in adjusted EBITDA margin year-on-year.
Speaker Change: Net Price and Romaterial Cost Management and Acquisition Benefits, offset partially by the impact of lower volume, drove the increase in adjusted Eva D'Amargin year-on-year.
Speaker Change: In construction adhesives, organic sales increased 10% year-on-year on continued strengths in roofing, which grew nearly 25% year-on-year.
Speaker Change: Demanding Construction Remain Strong, and we expect a declining interest rate environment will benefit CA moving forward.
Speaker Change: adjusted Eva Dough for CA increased 36% versus the third quarter of last year to $25 million and adjusted Eva Dough margin expanded 240 basis points to 16.4%.
Speaker Change: Net price and raw material cost management, volume leverage and restructuring savings drove the improvement in adjusted EBITDA margin year on year.
Celeste Mastin: Geographically, America's organic revenue was up 3% year-on-year in the third quarter. CA drove the increase for the region, achieving a double-digit increase in organic sales. HHC organic revenue with flat versus the prior year, representing a significant improvement from the first quarter when organic sales in the America's region for HHC declined nearly 10% during destocking. EA organic revenue was down modestly. In EIMIA, organic revenue declined 2% year-on-year, continuing its market improvement in organic revenue performance since the beginning of the year. The organic sales development for all 3 GBUs improved sequentially in the region. HHC was flat year-on-year, while EA and CA were both down modestly.
Speaker Change: Geographically, America's organic revenue was up 3% year on year in the third quarter.
Speaker Change: C.A. drove the increase for the region achieving a double digit increase in organic sales.
Speaker Change: HHC Organic Revenue with flat versus the prior year, representing a significant improvement from the first quarter when organic sales in the Americas region for HHC decline nearly 10% during destocking.
Speaker Change: EA, organic revenue was down modestly.
Speaker Change: In EMEA, organic revenue declined 2% year on year, continuing its market improvement in organic revenue performance since the beginning of the year.
Speaker Change: The Organic Sales Development for all 3GBUs improved sequentially in the region, HHC with flat year on year, while EA and CA were both down modestly.
Celeste Mastin: In Asia Pacific, organic revenue decreased 2% year-on-year, driven by the significant volume decline in clean energy. Excluding clean energy, organic sales for Asia Pacific increased approximately 6% year-on-year. HHC achieved a double-digit increase in organic sales in the region due to strong organic revenue growth in packaging-related end markets. EA experienced a mid-single-digit decline in organic revenue. Excluding clean energy, organic revenue for EA in the region was up 3.5% year-on-year, driven by relatively strong results in insulated glass, automotive, and electronics.
Speaker Change: In Asia Pacific, organic revenue decreased 2% year-on-year, driven by the significant volume decline in clean energy. Excluding clean energy, organic sales for Asia Pacific increased approximately 6% year-on-year.
Speaker Change: HHC achieved a double digit increase in organic sales in the region due to strong organic revenue growth in packaging related end markets.
Speaker Change: EA experienced a mid-singled digit decline in organic revenue.
Speaker Change: Excluding clean energy, organic revenue for EA in the region was up 3.5% year-on-year.
Speaker Change: Driven by relatively strong results in insulated glass, automotive and electronics.
Celeste Mastin: On the M&A front, we completed the acquisition of HHC Beauty Limited in the 3rd quarter. HHC Beauty is the United Kingdom's largest manufacturer and distributor of high-quality beauty tapes servicing the building infrastructure and construction markets. This highly strategic acquisition further strengthens our beauty tape product portfolio and establishes an important beachhead in Europe, where the waterproofing tape market is twice as large as that of the United States. The addition of HSBudel represents a continuation of our efforts to globalize our construction adhesive business and greatly compliments our 2022 acquisition of North American-based GSSI sealants. The acquisition will initially be included in construction adhesives; however, we expect growth opportunities to extend into engineering adhesives in markets such as automotive and other transportation.
Speaker Change: On the M&A front, we completed the acquisition of H.S. butal-limited in the third quarter. H.S. butal is the United Kingdom's largest manufacturer and distributor of high-quality butal-tapes, servicing the building, infrastructure and construction markets.
Speaker Change: This highly strategic acquisition, further strengthens our butal-paint product portfolio and establishes an important beachhead in Europe where the waterproofing tape market is twice as large as that of the United States.
Speaker Change: The addition of HS butel represents a continuation of our efforts to globalize our construction adhesive business and greatly compliments our 2022 acquisition of North American based GSSI sealants.
Speaker Change: The Acquisition will initially be included in construction adhesives, however we expect growth opportunities to extend into engineering adhesives in markets such as automotive and other transportation.
Speaker: HSBudel's 2024 annualized sales are expected to be approximately $23 million.
Speaker Change: H.S. butles 2024, annualized sales are expected to be approximately $23 million.
John Corkrean: Now let me turn the call over to John Corkrean to review our third quarter results in more detail and our updated outlook for 2024. Thank you, Celeste. I'll begin with some additional financial details on the third quarter. For the quarter, revenue was up 1.9% versus the same period last year. Currency had a negative impact of 1.5%, and acquisitions increased revenue by 3%. Adjusting for those items, organic revenue was up 0.4% with volume up 3% and pricing down 2.6% year and year in the quarter. Adjusted gross profit margin was 30.4%, up 40 basis points versus last year.
Speaker Change: Now let me turn the call over to John Corkrean to review our third quarter results in more detail and our updated outlook for 2024.
John Corkrean: Thank you Celeste, I'll begin with some additional financial details in the third quarter. For the quarter, revenue was up 1.9% versus the same period last year. Currency had a negative impact of 1.5% and acquisitions increased revenue by 3%.
John Corkrean: Adjusting for those items, organic revenue was up 0.4% with volume up 3% and pricing down 2.6% year and year in the quarter.
John Corkrean: A gestant gross profit margin was 30.4% up 40 basis points versus last year.
John Corkrean: Volume leverage, restructuring savings, and the benefit from acquisitions primarily drove the increase in adjusted gross profit. Adjusted selling, general, and administrative expense was up 3% year on year, driven by acquisitions. Adjusted EBITF for the quarter of $165 million was up 6% year on year, reflecting volume leverage, restructuring savings, and the favorable contribution of acquisitions, which more than offset higher wage inflation and a net impact of pricing and rise. Adjusted earnings per share of $1.13 was up 7% versus the third quarter of 2023, driven by operating income growth. Year-to-date operating cash flow was flat year on year, as improved profitability was offset by working capital investments related to higher volume.
John Corkrean: Volume leverage, restructuring savings, and the benefit from acquisitions primarily drove the increase and adjusted gross profit.
John Corkrean: adjusted selling general and administrative expense was up 3% year on year driven by acquisitions.
John Corkrean: adjusted even for the quarter of $165 million was up to 6% year on year, reflecting volume leverage, restructuring savings, and the favorable contribution of acquisitions, which more than offset higher wage inflation and the net impact of pricing and raws.
John Corkrean: A Justin earnings per share of $1.13 was up 7% versus a third quarter of 2023, driven by operating income growth.
John Corkrean: Here today, operating cash flow was flat year on year as improved profitability was offset by working capital investments related to higher volume.
John Corkrean: The 13% year-on-year growth in trailing 12-month EBITF resulted in net debt to adjusted EBITF of 3.1 times at the end of the third quarter, flat on a sequential basis versus Q2, and down from 3.3 times at the end of the third quarter of last year. During the third quarter, we made continued progress on our share repurchase program and acquired 225,000 shares, bringing the total share repurchase so far this year to 407,000.
John Corkrean: The 13% year on your growth in trailing 12 month evada resulted in net debt to adjust the evada of 3.1 times at the end of the 3rd quarter, flat on a squintial basis versus Q2 and down from 3.3 times at the end of the 3rd quarter of last year.
John Corkrean: They're going to third quarter, we made continued progress on our share repurchase program and acquired 225,000 shares, bringing the total shares you purchased so far this year to 477,000.
John Corkrean: With that, let me now turn to our guidance for the 2024 fiscal year. As a result of our year-to-date performance and current macroeconomic conditions, we are updating our previously communicated financial guidance for fiscal 2024's follows. Net revenue growth is now expected to be up approximately 2% with organic revenue flat year-on-year. Adjusted EBITF is now expected to be in the range of $610 to $620 million, equating the growth of between 5 and 7% year-on-year. This compares to our original failure guidance range of $610 million to $640 million. Net interest expense is still expected to be approximately $130 million. Our adjusted effective tax rate is still expected to be between 26.5% and 27.5%.
Speaker Change: With that, let me now turn to our guidance for the 2024 fiscal year.
Speaker Change: As a result of our year-to-day performance and current macroeconomic conditions, we are updating our previously communicated financial guidance for fiscal 2024 as follows.
Speaker Change: That revenue growth is now expected to be up approximately 2% with organic revenue flat you're on year.
Speaker Change: The Justice EBITDA is now expected to be in the range of 610 to 620 million dollars, equating to growth of between 5 and 7% year on year. This compares to our original full year guidance range of 610 million to 640 million dollars.
Speaker Change: Net Interest Expenses still expected to be approximately $130 million, or adjusted effective tax rate is still expected to be between 26.5% and 27.5%.
John Corkrean: Fuller depreciation and amortization expense is still expected to be approximately $170 million, and our fully diluted share count is still expected to be approximately $56.5 million shares. Combined, these assumptions result in full year adjusted diluted EPS in the range of $4.10 to $4.20, equating to year-on-year growth of 6 to 9%. Operating cash flow is now expected to be between $325 and $350 million.
Speaker Change: Fully your depreciation and amortization expenses still expect to be approximately $170 million.
Speaker Change: and are fully diluted share count is still expected to be approximately 56.5 million shares. Combined, these assumptions result in full year adjusted diluted EPS in the range of $4.10 to $4.20. Equating to year on your growth of 6 to 9%.
Speaker Change: Operating cash flow is now expected to be between 325 and 350 million dollars. Now let me turn the call back over to Celeste.
Celeste Mastin: Now let me turn the call back over to Celeste. Thank you, John. One of our most important strategic priorities is to be a talent magnet and the employer of choice in the adhesive industry. We do this through building upon our rich history, leveraging our winning spirit and fostering our entrepreneurial culture. We set high expectations for ourselves and track our effectiveness and progress regularly through frequent internal engagement surveys, internal promotion rates, and by monitoring which companies our job applicants are working for when they apply for positions at HB Fuller. I am very proud to announce that we were recently recognized by Newsweek as one of America's Most Admired Workplaces.
Celeste Mastin: Thank you, John.
Celeste Mastin: One of our most important strategic priorities is to be a talent magnet and the employer of choice in the Adheases industry. We do this through building upon our rich history, leveraging our winning spirit and fostering our entrepreneurial culture.
Speaker Change: We set high expectations for ourselves and track our effectiveness and progress regularly.
Speaker Change: through Frequent Internal Engagement Surveys.
Speaker Change: Internal Promotion rates and by monitoring which companies our job applicants are working for when they apply for positions at HB Fuller. I am very proud to announce that we were recently recognized by Newthweek as one of America's most admired workplaces.
Celeste Mastin: Newsweek surveyed more than 250,000 US employees and collected over one and a half million company reviews. One of the key questions they asked all survey respondents was a very simple yet powerful question: for which employer would you love to work? We know from tracking our own internal measures that we are doing well on this key strategic priority, but it is also wonderful to receive external recognition to independently corroborate our internal assessment. We are honored to be amongst the top 400 companies who foster innovation and professional growth, champion work-life balance, and set the standard for what it means to be an admired employer.
Speaker Change: Newsweek surveyed more than 250,000 U.S. employees and collected over 1.5 million company reviews.
Speaker Change: One of the key questions they asked all survey respondents was a very simple, yet powerful question for which employer would you love to work.
Speaker Change: We know from tracking our own internal measures that we are doing well on this key strategic priority but it is also wonderful to receive external recognition to independently corroborate our internal assessment.
Speaker Change: We are honored to be amongst the top 400 companies who foster innovation and professional growth, champion work-life balance, and set the standard for what it means to be an admired employer.
Celeste Mastin: We have a great culture and a fantastic team that embodies it. Congratulations and thank you to all of our team members.
Speaker Change: We have a great culture and a fantastic team that embodies it, congratulations and thank you to all of our team members.
Celeste Mastin: To wrap up, we are pleased with the progress we continue to make in improving our portfolio, streamlining our operations, and driving EBITDA margin expansion. While this quarter's volume growth was at the low end of our expectations, we have a clear and focused strategy and a highly engaged team that is well equipped to execute and drive business success. We remain on track to deliver upon our long-term EBITDA margin and growth targets.
Speaker Change: To wrap up, we are pleased with the progress we continue to make in improving our portfolio, streamlining our operations, and driving EBITDA margin expansion.
Speaker Change: While this quarter's volume growth was at the low end of our expectations, we have a clear and focused strategy and a highly engaged team that is well equipped to execute and drive business success.
Speaker Change: We remain on track to deliver upon our long-term EBITDA margin and growth targets.
Speaker: That concludes our prepared remarks for today.
Operator: Operator, please open the line for questions. Thank you. As a reminder to ask the questions, please press star followed by the number one on your telephone keypad. To withdraw any questions, press star one again.
Speaker Change: That concludes our prepared remarks for today. Operator, please open the line for questions.
Speaker Change: Thank you. As a reminder to ask the questions, please press star, followed by the number one on your telephone keypad. To withdraw any questions, press star one again.
Patrick Cunningham: Our first question will come from Patrick Cunningham from City. Please go ahead. Your line is open.
Speaker Change: Our first question will come from Patrick Cummingham from City, please go ahead your line of open.
Celeste Mastin: Good morning, Celeste and John. Good morning, Patrick.
Patrick Cunningham: Hi, on the EA volume declines, just a couple of questions.
Patrick Cummingham: Good morning Celeste and John
Patrick Cummingham: Good morning, Patrick. Hi. On the E.A. you know, volume declines. Just a couple of questions. Can you frame what was driving the significant when lower clean energy sales and maybe expectations for the next several quarters there? And do you expect any further deceleration in the autos and electronics growth rate?
Patrick Cunningham: Can you frame what was driving the significantly lower clean energy sales and maybe expectations for the next several quarters there? Do you expect any further deceleration in the auto and electronics growth? Great.
Celeste Mastin: Yeah, so as it relates to solar, our solar business saw volumes down in all global regions, and that's really a function of the overcapacity of solar panels that's just plaguing that industry.
Speaker Change: Yeah, so as it relates to solar, our solar business volumes down in all global regions.
Speaker Change: and that's really a function of the overcapacity of solar panels that's just plaguing that industry.
Celeste Mastin: But it is still an exciting industry for us, particularly as it relates to the new technology with HJT, but it's going to be a little bumpy. You know, we're expanding with new customers, which is exciting. We're expanding into new regions. We have a very unique leading technology that allows us to succeed in that HJT, which is an offset of our PBS 101 product, which really helps reduce moisture sensitivity of the panels.
Speaker Change: but it is still an exciting industry for us.
Speaker Change: Particularly as it relates to the new technology with HAT.
Speaker Change: but it's gonna be a little bumpy.
Speaker Change: We're expanding with new customers, which is exciting, we're expanding into new regions.
Speaker Change: We have a very unique leading technology that allows us to succeed in that HJT, which is an offset of our PBS 101 product which really helps.
Celeste Mastin: And so we see that as an opportunity to really transform an industry into growing it, but it is definitely a weak space today given just a macro environment for solar.
Speaker Change: Reduce moisture, sensitivity of the panels, and so we see that as an opportunity to really transform an industry and to grow in it, but it is definitely a weak space today given just a macro environment for solar.
Celeste Mastin: As it relates to some of the other durable goods markets, if you look at the EA business, actually 10 of our 15 market segments showed positive volume growth in Q3. So solar clearly did not. We did see positive growth in autos and electronics. It was solid. It was good single-digit growth, but it wasn't the double-digit growth that we've seen in previous quarters. So I anticipate we're going to continue to hold steady there. We've taken a lot of share in that market.
Speaker Change: and other relates to some of the other durable goods markets. If you look at the EA business,
Speaker Change: Actually, 10 of our 15 market segments showed positive volume growth.
Speaker Change: in Q3. So solar clearly did not. We did see positive growth and autos and electronics. It was solid, it was, you know, good, single digit growth, but it wasn't the double digit growth that we've seen in previous quarters.
Speaker Change: So, I anticipate we're going to continue to hold steady there, we've taken a lot of share in that market and you know, I just think that what's happening in durable goods is this fatigue around multiple years of higher interest rates is starting to catch up with those markets and we're just now starting to see the front end of that.
Celeste Mastin: And you know, I just think that what's happening in durable goods is this fatigue around multiple years of higher interest rates is starting to catch up with those markets. And we're just now starting to see the front end of that.
Patrick Cunningham: Yeah, that's very helpful.
Patrick Cunningham: And then there's similar follow-up on the prepared comments for EA. You mentioned some actions to re-position the portfolio.
Speaker Change: i
Speaker Change: We've got a very helpful, and then similar follow-up on the repair comments for EA, you mentioned actions to re-position the portfolio. There's some business that you're walking away from there, just any additional color there would be helpful.
Celeste Mastin: So there's some business that you're walking away from there, or just any additional color there would be helpful. Yeah, clearly as we look at that solar industry, we are definitely picking where we play. We've had wins in a lot of new geographies. And, as I mentioned, we've got great new technology. We're in the process of determining where do we best place that technology that we can derive value for? And there clearly are parts of that industry where we look at it, we say, you know, there's probably no short-term solution to the overcapacity that it is experiencing.
Speaker Change: Yeah, clearly as we look at that solar industry, we are definitely picking where we play. We've had winds and a lot of new geographies, and as I mentioned, we've got great new technology. We're in the process of determining where do we best place that technology that we can derive value for it? And there clearly are parts of that industry where we look at it and we say, you know, there's probably no short-term solution to the over-capacity that it is experiencing. So there are some places where we're going to retrench.
Celeste Mastin: So there are some places where we're going to retrench, walk back where we can't generate real value. Meanwhile, we're going to really double down on the parts of the industry that believe in the value we're bringing and that are bringing new, great technology to the market. You might have noticed with our customer innovation awards that one of the customers we recognized was on We Presson. They have really increased the efficiency of solar panels. And we're part of helping them achieve that. So we have customers like that. We have new customers in India where we're expanding the IRA in North America. It is going to be beneficial to us, and we're taking a leading position there.
Speaker Change: Walk back where we can't generate real value. Meanwhile we're going to really, um...
Speaker Change: Gabbledown on the parts of the industry that [inaudible]
Speaker Change: believe in the value we're bringing and that are bringing new great technology to the market.
Speaker Change: You might have noticed with our customer innovation awards that one of the customers we recognized was on We Plus On, they have really increased.
Speaker Change: the efficiency of solar panels. And we're part of helping them achieve that. So we have customers like that. We have new customers in India where we're expanding the IRA in North America is going to be beneficial to us if we're taking a leading position there. But it is a matter of re-balancing our efforts and moving away from some of the customer base that's really plain in the technology
Celeste Mastin: But it is a matter of rebalancing our efforts and moving away from some of the customer base that's really playing in the old technology, passé market.
Kevin Mccarthy: Thank you so much. Our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead; your line is open.
Speaker Change: and Pass A Market.
Brazones: Brazones, thank you so much.
Speaker Change: Our next question comes from Kevin McCarthy, from Vertical Research Partners, please go ahead and your line is open.
Celeste Mastin: Yes, thank you, and good morning. Celeste, good morning, Kevin.
Kevin Mccarthy: Think about good morning. We're going to think about your volume trends on a regional basis. Can you talk a little bit about what you saw in China versus other regions, and you mentioned the solar weakness. I assume that a large chunk of that may be in China. Can you talk about the recent stimulus efforts in China?
Kevin Mccarthy: Thank you, and good morning.
Celeste Mastin: Celeste Mastin.
Celeste Mastin: We're to think about your volume trends on a regional basis.
Speaker Change: He talked a little bit about what you saw in China versus other regions and he mentioned the solar weakness I assume that.
Speaker Change: Lodge, chunk of that, maybe in China. He talked about the recent stimulus efforts in China. It's only been a few days, but we'd welcome any comments you have on China's efforts to reinvigorate and how you see that playing out.
Celeste Mastin: It's only been a few days, but what would welcome any comments you have on China's efforts to reinvigorate and how you see that playing out? Yeah, so our China business this quarter was down low single digits, but if you extract the impact of the solar market, it was actually up high single digits. We showed really strong growth in automotive, in China, really good performance in HHC. In fact, interestingly, in our HHC market, we're really revising our portfolio strategy in Asia. We actually grew volume in 10 of the 13 market segments where we participate in Asia, and that's because we're adjusting away from markets like baby diapers and focusing more on higher value markets, like beverage labeling, packaging, femcare, adult incontinence, and really the there is done a remarkable job.
Speaker Change: Yeah!
Speaker Change: So our China business this quarter was down low single digits, but if you extract the impact of the solar market, they were actually up high single digits.
Speaker Change: So, you know, we showed really strong growth in automotive, in China, really good performance in HHC. In fact, interestingly in our HHC market, we're really revising our portfolio strategy in Asia. We actually grew.
Speaker Change: Volume in 10 of the 13 market segments where we participate in Asia and that's because we're adjusting away from markets like baby diapers and focusing more on higher value markets like beverage labeling, packaging, femme care, adulting continents and you know really the team there has done a remarkable job when I look at where we were in the first quarter in Asia we were down or getting growth with down high single digits.
Celeste Mastin: When I look at where we were in the first quarter in Asia, we were down organic growth with down high single digits. They shifted that business to up high single digit organic growth in Q2, and now it is double digit organic growth in Q3. So the HHC team in Asia has done a remarkable job in repositioning. And in EA, we've really done a tremendous job in automotive. In fact, we just signed a strategic alliance with the Chinese Tier 1 supplier to transform together exterior trim in ways that increase vehicle intelligence, comfort, and environmental sustainability. And we continue to have success with Chinese EV producers.
Speaker Change: They shifted that business to a high single digit organic growth in Q2 and now it is double digit organic growth in Q3. So the HHC team in Asia has done a remarkable job in repositioning.
Speaker Change: And in EA, we've really done a tremendous job in automotive. In fact, we just signed a strategic alliance with the Chinese Tier 1 supplier to transform together exterior trim in ways that increase vehicle intelligence.
Speaker Change: and Comfort and Environmental Sustainability, and we continue to have success with Chinese EV producers. So we're in the right spaces there, so we're really...
Celeste Mastin: So we're in the right spaces there. Solar really overshoot the good performance we're seeing in China, the growth, again, high mid single digits if not for the solar business.
Speaker Change: Over should the good performance we're seeing in China that grows, again, high mid-singled digits, if not for the solar business.
Celeste Mastin: Now you ask about the stimulus. What's going to happen with that? I'm very optimistic. I think we'll see some impact. We're not in the housing space in construction in China, but still it should build for a more robust economic environment. It's very helpful.
Speaker Change: Now, you ask about the stimulus, what's going to happen with that. I'm very optimistic. I think we'll see some impact we're not in the housing space in construction in China, but still, it should build for a more robust economic environment.
Kevin Mccarthy: And then I want to ask you about margins. You were just a margin, notwithstanding maybe a little pressure on the top line was still north of 30% in the quarter at 30.4. As you look ahead, what's your level of confidence that you'll be able to sustain that adjusted gross margin north of 30, and might you be able to grow it?
Speaker Change: It's very helpful and then I want to ask you about
Speaker Change: Margins, you were just a gross margin, notwithstanding.
Speaker Change: You know, maybe a little pressure on the top line was still north of 30% in the quarter at 30.4. As you look ahead, what's your level of confidence that you'll be able to sustain that adjust the gross margin north of 30 and might be able to grow it?
Celeste Mastin: Yeah, so a big part of achieving our 20% EBITDA margin target is to continue to grow those gross margins into mid 30s. And so that's a major emphasis for the company. We're doing things like restructuring programs and footprint optimization to help reduce our conversion cost. We've really enhanced our pricing process and continue to be successful there. And as you look at how we're thinking about growing the business and acquiring, we have focused on selectively targeting our top 20 opportunities, which are higher margin, faster growing spaces. So the mixed shift to higher margin products is part of this, but also our own self-help around restructuring and conversion cost optimization will help us continue to expand those.
Speaker Change: Yeah, so a big part of achieving our 20% EBITDA margin target is to continue to grow those gross margins into, you know, mid...
Speaker Change: 30
Speaker Change: and so...
Speaker Change: That's a major emphasis for the company. We're doing things like restructuring programs and footprint optimization to help reduce our conversion costs.
Speaker Change: Weave.
Speaker Change: We've really enhanced our pricing process and continue to be successful there.
Speaker Change: and as you look at how we're thinking about growing the business and acquiring, we have focused on selectively targeting our top 20 opportunities, which are higher margin, faster growing spaces.
Speaker Change: So, the mixed shift to higher margin products is part of this, but also our own self-help around restructuring and conversion cost optimization will help us continue to expand those.
Kevin Mccarthy: Good to hear.
Celeste Mastin: Thank you, Celeste. Thanks, Kevin.
Mike Harrison: Our next question comes from Mike Harrison from Seaport Research Partners.
Speaker Change: Good to hear. Thank you, Celeste.
Kevin: Thanks Kevin!
Speaker: Please go ahead to line as open.
Speaker Change: An next question comes from like Harrison from C.Port Research Partners. Please go ahead to the line of the open.
Mike Harrison: Morning, Mike. Hi, good morning.
Celeste Mastin: Well, something we could dig in a little bit on the construction business.
Mike: Moine Mike.
Mike: Hi, good morning!
Celeste Mastin: If some of the growth that you're seeing right now related to restocking or maybe some pent-up demand or other unusual factors that might not repeat, just trying to get a sense of how confident you are on the, you know, maybe not the growth rate, maybe kind of the activity level or revenue level that you can sustain or build on going into next year. Yeah. Our performance in the construction adhesive business is a culmination of a number of things. You know, first of all, that team got after it in the fourth quarter of last year and really started to restructure the business, lower their break-even point, and change their cost profile, recognizing that this is always going to be a cyclical end market.
Mike: What's one thing we could dig in a little bit on the construction business. It's some of the growth that you're seeing right now related to.
Speaker Change: Restocking or maybe some pent-up demand or other unusual factors that might not repeat.
Speaker Change: I'm just trying to get a sense of how confident you are on the, you know, maybe not the growth rate, maybe kind of the activity level or revenue level that you can sustain or build on going into next year.
Speaker Change: Yes, the art performance in the construction at use of business is a culmination of a number of things.
Speaker Change: First of all, that team got after it in the fourth quarter last year, really started restructuring the business, lower their break even point.
Speaker Change: and change their cost profile, recognizing that this is always going to be a cyclical end market.
Celeste Mastin: In the roofing space in particular, we've continued to take share. We're in the right segments, so we're benefiting from growth in data centers and institutional buildings, as well as participating on a few chip manufacturing projects. So that's exciting. Then again, we're also, again, taking share with innovation. We just introduced Mike, a product called PG1EF Eco. It's a two-per-canisterized foam spray adhesive, and it doesn't use a fluorinated hydrocarbon as a propellant. So it's much more environmentally friendly than other products. It's actually easier to dispense as well, which contractors like. It's labor-saving, and, you know, it's really been successful.
Speaker Change: In the Roofing space, in particular, we've continued to take share. We're in the right segments, so we're benefiting from growth and data centers.
Speaker Change: and Institutional Buildings, as well as participating on a few chip manufacturing projects.
Speaker Change: So that's exciting. Then again, we're also again taking care with innovation.
Speaker Change: We just introduced Mike a product called PG1 EF ECO, it's a two-purpose canisterized foam spray adhesive and it doesn't use a fluorinated hydrocarbon as a propellant So it's much more environmentally friendly than other products, it's actually easier to dispense as well, which
Speaker Change: Contractors Like, It's Labor Saving, and...
Celeste Mastin: So I think it's a combination thing of things when you look at our construction business. It's good, solid innovation, working closely with our customers to bring solutions and drive share, and it's our own self-help around driving cost reduction as well that you're starting to see there.
Speaker Change: You know, it's really been successful so I think it's a combination thing of things when you look at our construction business.
Speaker Change: Good solid innovation, working closely with our customers to bring solutions and drive share, and it's our own self-help around driving a cost reduction as well that you're starting to see there.
Celeste Mastin: The march you asked about restocking? I don't see restocking. We monitor a few things to assess whether we've got volume flowing through, things like order size, things like lead time, things like how the distributors are responding. And we're really seeing flow through all the way to the market on the volume we're supplying. So I don't think we're seeing restocking. I think this is just good market demand, and we're seeing that carry into the fourth quarter.
Speaker Change: Yeah!
Speaker Change: The Maki Waffle Are Re-Shocking
Speaker Change: I don't see Reeves talking.
Speaker Change: We monitor a few things too.
Speaker Change: A Cess weather, we've got volume flowing through, things like order size, things like lead time, things like, you know, how the distributors are responding, and we're really seeing flow through all the way to the market on the volume we're supplying. So I don't think we're seeing restocking. I think this is just good market demand and we're seeing that carry into the fourth quarter.
Mike Harrison: All right, that's very helpful.
Mike Harrison: And then I know it's still early, and it seems like there are a lot of uncertain needs around demand and the macro environment going into next year.
Speaker Change: All right, that's very helpful and then I know it's still early and it seems like there are a lot of uncertainties around the man and the macro environment going into next year.
Mike Harrison: But as we're starting to turn our attention and investors are thinking about fiscal 25, can you talk about some of the things that are within your control, things like restructuring, contribution from acquisitions, synergies? How much should those contribute to year-on-year EBITDA growth? And maybe any other puts and takes that we might want to keep in mind as we're starting to think about our models for next year.
Speaker Change: But as we're starting to turn our attention and investors are thinking about fiscal 25, can you talk about some of the things that are within your control, things like restructuring, contribution from acquisitions, synergies?
Speaker Change: How much should those contribute to year-on-year, EBITDAG gross and maybe any other puts and takes that we might want to keep in mind as we're starting to think about our models for next year. Thank you.
Speaker: Thank you.
Celeste Mastin: Yeah, let me just talk a little bit about the macro.
Celeste Mastin: Then I'm going to turn it over to John to talk a little bit more about some of the things you could use to model it. When I think about next year, what we're planning for relates to a continuation of what we're seeing from a volume perspective and sort of our P7-P8 known into the fourth quarter. So, you know, sort of sub-dude market demand, good opportunities for us to continue to finish our restructuring program. As you recall, that was a $45 million restructuring program with the last $10 million of benefits happening next year. I think price raw material balance is going to be a lot less lumpy than it was this year.
Speaker Change: Yeah, let me just talk a little bit about the macro, then I'm going to turn it over to John to talk a little bit more about some of the things you could use to model it. When I think about next year, what we're planning for relates to a continuation of what we're seeing from a volume perspective and sort of our P7, P8, no one into the fourth quarter. So, you know, sort of subdued market demand, good opportunities for us to continue to finish our restructuring program.
John Corkrean: As you recall, that was a $45 million restructuring program with the last 10 million of benefits happening next year. I think price raw material balance is going to be a lot less lumpy than it was this year. It's going to be more.
John Corkrean: It's going to be more normalized. And of course, then we've got, you know, great synergies and growth coming off the companies that we acquired in 2023 and now in 2024 that are really going to be compounding starting next year.
John Corkrean: Mo-mo normalised
John Corkrean: and of course then we've got great synergies and growth coming off the companies that we acquired in 2023 and now in 2024 that are really going to be compounding starting next year.
John Corkrean: You know, John, you might want to provide a little more detail on some of these things. Sure.
John Corkrean: So, I can help you ask about some of the self-help or other things that are maybe a little bit more not market dependent. So, you know, we talked about our restructuring program delivering $40 to $45 million of savings by the end of 2026. You know, we'll be at a run rate of 30 to 35 by the end of this year, so that that carry over the additional amount will show up in 2025. You know, acquisitions deliver probably another 20 to 25 million of EBIDA based on the two deals we close this year. We'll annualize those, and then the synergies on those deals, as well as the ones we closed last year.
Speaker Change: You might want to provide a little more detail on some of these things. Yeah, so I can help you ask about some of the self-help or other things that are maybe a little bit more about market dependence. So, you know, we talked about our restructuring program delivering.
Speaker Change: 40 to 45 million dollars of up savings by the end of 2026.
Speaker Change: and we'll be at a run rate of 30 to 35 by the end of this year, so that carry over the additional amount will show up in 2025. You know, acquisitions deliver probably another 20 to 25 million of EBEDA based on
Speaker Change: The two deals we close this year will analyze those and then the synergies on those deals as well as the ones we closed last year.
John Corkrean: Always have, you know, wage inflation merit increase. I think we all parked that in the $20 to $25 million range last year. I expected to be the same. And then there'll be some variable copper rebuild. It'll probably be less than we anticipated coming into this year, but it'll still be in that $10 to $20 million range.
Speaker Change: Always have, you know, wage inflation, merit increase, I think we all parked that in the 20 to 25 million dollar range last year, I expected to be the same.
Speaker Change: and then there'll be some variable copper rebuild, it will probably be less than we anticipated coming into this year, but it'll still be in that 10 to 20 million dollar range.
John Corkrean: So, as Wes said, we expect to grow volume; pricing rise ought to be relatively neutral. So, we're still in the early days of our budgeting, but hopefully that helps with a little bit of insight in terms of how we're thinking about the operating environment and some of the drivers.
Speaker Change: SOS said we expect to grow volume, pricing, raws ought to be relatively neutral. We're still in the early days of our budgeting, but hopefully that helps with a little bit of insight in terms of how we're thinking about the operating environment and some of the drivers.
David Begleiter: Thank you very much. Our next question comes from David Begleiter from Gloucabank. Please go ahead; your line is open.
Speaker Change: Thank you very much.
Speaker Change: Our next question comes from David Bageliders from Deutsche Bank. Please go ahead and
Celeste Mastin: Good morning, David. Good morning.
David Begleiter: So let's back on the solar business, how big is this business? How much the business is in China? And what were volumes down in the quarter in China for you guys? When you ask about how much were the volumes down in China, just for clarity? Are you asking about solar? Are you asking about in total? Just solar. Just solar, yeah.
Speaker Change: Morning, Celeste Mastin, how big is this business, how much the business is in China and what we're volumes down in the quarter in China for you guys.
Speaker Change: When you ask about how much we're the volumes down in China, just for clarity, are you asking about solar, you asking about in total?
Celeste Mastin: Okay, so if you look at our portfolio, it's very diverse, and there's no single business, no business region, no market segment region combo that's great. Then five percent of revenue. Now what was interesting in solar was how the impact that we saw from that business was weak on a global level. So, you know, overall, we definitely experienced slowdowns such that I'd say, you know, some total the impact of the solar business on our range pushed us to the bottom end. And of our even guidance. How much was it down in China? I mean, solar was down significantly in China; you know, double-digit reduction, almost half.
Speaker Change: Just solar, okay. So if you look at our portfolio, it's very diverse and there's no single business that is...
Speaker Change: No business region, no market segment region combo that's greater than 5% of revenue. Now, what was interesting in solar was how the impact that we saw from that business was weak on a global level.
Speaker Change: So...
Speaker Change: You know, overall we definitely experienced.
Speaker Change: Slowdowns such that I'd say, you know, some total, the impact of the solar business on our range pushed us to the bottom end of our EBITDA guidance.
Speaker Change: How much was it down in China? I mean, solar was down significantly in China, you know, double digit reduction almost half.
John Corkrean: Yeah, that's right. And so, yes, Celeste is right. It's less than five percent, you know, probably between three and four, two and three percent in that range.
Speaker Change: and Celeste Mastin 5% probably between 3 and 4% or 2 and 3% in that range, about 60% of the businesses in China, about 40% outside of China, so hopefully that helps.
John Corkrean: About 60 percent of the businesses in China, about 40 percent outside of China. So hopefully that helps dimensionize a little bit for you.
David Begleiter: No, very helpful.
Celeste Mastin: And is this this is destocking by palm manufacturers? If so, how long do you expect to continue? Are there competitor threats that's impacting your you're sharing that region any for the color on that?
Speaker Change: Dimensionalize a little bit for you.
Speaker Change: No, very helpful. And is this this is destocking by how many factors is so, how long the expected to continue, all there are competitors, threats, that's impacting your share in that region, any for the color on that.
Celeste Mastin: So, just to speak about the Chinese market in particular, that's in particular where we see heavy overcapacity. And one of the things that we've experienced since this construction market slowed down in China was that some of the silicon sealants from the construction industry have been redeployed into the solar industry. So you got a situation which is compounded. We've got over capacity in the end market, particularly in China. And we've got more suppliers bringing alternate raw material into the market. So it was a it was a double whammy in China.
Speaker Change: Just to speak about the Chinese market in particular.
Speaker Change: and that's...
Speaker Change: In particular where we see heavy over capacity and one of the things that we've experienced since this construction market slowed down in China was that some of the silica sealants.
Speaker Change: From the construction industry have been redeployed into the solar industry. So you got a situation which is...
Speaker Change: Compounded We've Got
Speaker Change: Over Capacity in the end market, particularly in China, and we've got more suppliers bringing alternate raw material into the market. So it was a double whammy in China.
Speaker: Thank you.
Jeff Zekauskas: Our next question comes from Jeff Zikoskis from JP Morgan. Please go ahead.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Jeff Zikoscus from JP Morgan. Please go ahead to line us open.
Speaker: Your line is open. Thank you, Jeff.
Jeff Zekauskas: Hi, good morning. You're your guide in EBITDA for the year used to be 630 at the midpoint and now it's 615. So there's a decrease of 15 million that you'll experience. I guess mostly in the fourth quarter. Can you explain what that's from? Is it lower pricing or lower volumes? What what's causing the lower returns?
Jeff Zikoscus: Thank you very much. Thank you.
Jeff Zikoscus: Good morning.
Speaker Change: You're guide in EbitDA for the year used to be 630 at the midpoint and now it's 6-15.
Speaker Change: So there's...
Speaker Change: There's a decrease of 15 million that you'll experience, I guess, mostly in the fourth quarter. Can you explain what that's from? Is it lower pricing or lower volumes? What's causing the lower returns?
Celeste Mastin: Yeah, I'll start, and then I'll turn it over to John. So originally when we planned for 2024, we anticipated we would see solid mid-single-digit volume growth in the second half. And up until P7, that was definitely the case. In fact, P7, we thought would be very indicative of the volume profile we would see in the second half. Now what we experienced was a pronounced slow down in P7 and P8. Still positive volume growth, but really a reset lower. And as we updated our guidance for the second half, we took that into account.
Speaker Change: Yeah, I'll start and then I'll turn it over to John so originally when we planned for 2024 we anticipated we would see.
John Corkrean: Solid mid-single-digit volume grows in the second half.
John Corkrean: and...
John Corkrean: Up until P7, that was definitely in the case. In fact, P7, we thought would be very indicative of the volume profile we would see in the second half. Now what we experienced was a pronounced flow down in P7 and P8.
John Corkrean: Still positive volume growth, but really a reset lower. And as we updated our guidance for the second half, we took that into account.
John Corkrean: Just add a little color, Jeff. So just as it relates to previous guidance versus current guidance and how that pacing is working, you know, we were about 5 million below our midpoint in Q3. And then we lower the full year, as you said, midpoint to 15 million. The way we thought about it is looked at the way Q3 played out. It did weaken, but really in the second half of the quarter. And then we've kind of projected that Q4 will look more like the second half of Q3 for those markets that we saw the weakness.
John Corkrean: and just add a little card Jeff
Jeff Zikoscus: So, just as it relates to previous guidance versus current guidance and how that pacing is working, you know, we were about 5 million below our midpoint in Q3 and then we lowered the full year as you said midpoint to 50 million.
Speaker Change: The way we thought about it is looked at the way Q3 played out. It did weaken, but really in the second half.
Speaker Change: of the quarter, and then we've kind of projected that Q4 will look more like the second half of Q3 for those markets that we saw the weakness and so it's a kind of a full quarter versus a partial quarter. But it is really all volume as Celeste alluded to and you can see that in our revenue guidance.
John Corkrean: And so it's a kind of a full quarter versus a partial quarter. But it is really all volume, as less alluded to. And you can see that in our revenue guidance. You know, we lowered it by, you know, the equivalent kind of at the midpoint for the revenue guidance of about 1%. That's all volume that would equate to, you know, roughly 35 million dollars. And that flows through to the bottom line at, you know, roughly 40%. So that's kind of how you would bridge our previous guidance to our current guidance.
Celeste Mastin: and we lowered it by the equivalent at the midpoint for the revenue guidance of about 1%.
Speaker Change: That's all volume, that would equate to roughly $35 million in that flow through to the bottom line at roughly 40% so that's kind of how you would bridge our previous guidance to our current guidance.
Jeff Zekauskas: I think for the first three quarters of the year, your acquisition benefit to sales is about 4%. And for the first three quarters, you've grown your adjusted operating income, your adjusted EVTA at about 8%. Is it fair to say that 4% of the growth comes from acquisitions that is of the EVTA growth or the operating income growth, or is it higher or is it lower? So, yeah, Jeff, I'd say, you know, the, it's probably in that range. I think we indicated coming into the year that we thought that we would see a contribution from acquisitions in the 20 to 25 million dollar range.
Speaker Change: Great.
Speaker Change: Secondly, I think for the first three quarters of the year.
Speaker Change: Your acquisition benefit to cells is about 4%.
Speaker Change: and for the first three quarters you've grown your adjusted operating income and your adjusted EVTA at about 8%.
Speaker Change: Is it fair to say that 4% of the growth comes from acquisitions, that is of the EVDA growth or the operating income growth, or is it higher or is it lower?
Speaker Change: [inaudible]
Speaker Change: It's probably in that range. I think we indicated coming into the year that we thought that we would see contribution from acquisitions in the $20 to $25 million range. That'll be a little bit higher now with the acquisition of...
John Corkrean: That will be a little bit higher now with the acquisition of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of, of Great.
Speaker Change: and D. Industries in H.S. butel, so, you know, as an example in this quarter, you know, we probably saw a contribution of about seven million dollars from acquisitions. And it'll probably be similar, maybe a million dollars, more than that in Q4.
John Corkrean: And then on your gross margin, that the sales of the third quarter were essentially flat with the second quarter, but your cost of goods sold on an adjusted basis was up maybe 7 million. Should we read that sequential role materials are now beginning to rise a little bit or flat now? And often in your fourth quarter, your gross margin jumps relative to your third quarter. What's the reason for that? And will that, would you expect that to happen this year? Yeah, I think what you're seeing on the sequential move in gross profit margin from Q2 to Q3 is, and we mentioned this on the last call, the pricing rod dynamic had been a tailwind for us in the first half of the year.
Speaker Change: and then on your gross margin that the...
Speaker Change: The sales to the third quarter were essentially flat with the second quarter, but your cost of good sold on a trusted basis was up maybe 7 million.
Speaker Change: Should we read that as?
Speaker Change: The sequential raw materials are now beginning to rise a little bit or flat now.
Speaker Change: and often in your fourth quarter, your gross margin jumps relative to your third quarter.
Speaker Change: What's the reason for that and what do you expect that to happen this year?
Speaker Change: Yeah, I think what you're seeing on the sequential move and gross profit margin from Q2 to Q3 is, and we mentioned this on the last call, you know, the pricing rod dynamic had been a tailwind for us in the first half of the years, probably a $10 million tailwind.
John Corkrean: It's probably a $10 million tailwind in Q2, and we, as we said, that would flip in the second half of the year. And it did, and we said it would be about a negative 10 million in Q3 year on year. And that's what we saw. And that really is what drove it. There really wasn't any change in sequential raw materials, sequential pricing. It really is a year-on-year impact. If you look into Q4, we'd expect that pricing raw material difference to be about the same, maybe a little bit more pronounced, maybe a little bit higher than 10 million had when, but we would expect raw profit margin to tick up slightly, really driven by higher volume.
Speaker Change: and Q2, because we said that would flip in the second half of the year and we said it would be about a negative 10 million in Q3.
Speaker Change: and that's what we saw and that really is what drove it. There really wasn't any change in sequential raw materials, sequential pricing, it really is a year on your impact.
Speaker Change: If you look in to Q4, we'd expect that pricing raw material difference to be about the same, maybe a little bit more pronounced, maybe a little bit higher than 10 million.
Speaker Change: had when we would expect Rome, the first part of the margin to tick up slightly, really driven by a higher volume. So Q4 is our highest volume quarter of the year.
John Corkrean: So Q4 is our highest volume quarter of the year, and we are projecting that. That's really more of a seasonality thing than a market-driven thing.
Speaker Change: and we are projecting that that's really more of a seasonality thing than a market-driven thing.
Jeff Zekauskas: And then lastly, I don't recall what your solar comparisons were in the first two quarters year over year.
Speaker Change: Okay, and then lastly, um...
Speaker Change: I don't recall what your solar comparisons were in the first two quarters, you're over year. So could you just give us a rough idea of what the solar comparisons were like in the first two quarters and how that compares to the third quarter?
John Corkrean: Could you just give us a rough idea of what the solar comparisons were like in the first two quarters and how that compares to the third quarter? Oh yeah. So the first two quarters, we were, and it was, we saw organic volume in the first quarter, relatively flat, down kind of mid-teens in the second quarter. And then we were down more than 30%, more than 35% in the third quarter. So it really picked up steam.
Speaker Change: Oh yeah, the first two quarters.
Speaker Change: We were in a organic volume in the first quarter, relatively flat.
Speaker Change: Down kind of mid-teens in the second quarter, and then we were down more than 30% more than 35% in the third quarter. So it really picked up steam we expected this to be a soft market.
John Corkrean: We expected this to be a soft market, but not as soft as we saw the development of this in the third quarter. Okay, great.
Speaker Change: But not as soft as we saw the development of this in a third quarter.
Speaker: Thank you very much. Thanks, Jeff.
Speaker Change: Okay, great. Thank you very much.
Ghansham Panjabi: As a reminder to ask a question, please press star, followed by the number one on your telephone keypad.
Jeff Zikoscus: Thanks Jeff
Speaker Change: As your reminder to ask a question, please press star, follow the number one on your telephone keypad.
Matt Krieger: Our next question comes from Ganchum Punjabi from Baird. Please go ahead; your line is open.
Speaker Change: Our next question comes from Ganton Punjabi from Barrett, please go ahead. Your line is open.
Celeste Mastin: Hi, good morning, Celeste John. This is Matt Krieger, sitting in for Ganchum. Thanks for taking your time. So, you know, given the level of volumes generated in the HHNC business for the third quarter, were margins in that segment as you would have expected? And, you know, if not, was there anything unique or impactful in the quarter that you would call out for that segment from a profitability perspective? Thanks. So the margins were as expected for HHC in the quarter. I think you might remember last quarter; we mentioned that. As John just said, we were going to see what had been tailwinds in the raw material price bucket flip mid-year.
Speaker Change: This is Matt Corkrean, sitting in Forgotchum. Thanks for taking part in the mission.
Ganton Punjabi: So, you know, given the level of volumes generated in the HHNC business for the third quarter, we're margins in that segment as you would have expected and you know, if not, was there anything unique or impactful in the quarter that you would call out for that segment from a profitability perspective? Thanks.
Ganton Punjabi: Now the margins were as expected for HHC in the quarter, I think you might remember last quarter, we mentioned that, as John just said, we were going to see.
Speaker Change: What had been tailwinds in the raw material price bucket flip mid-year, we saw about a $10 million impact of that in Q3 and that impact was in HHC. So, we've seen now that's worked through the...
Celeste Mastin: We saw about a $10 million impact of that in Q3, and that impact was in HHC. So we've seen, now that's worked through the, you know, that's worked through the P&L. If you look at HHC going forward, which is probably your next question, where you're going to see there is continued pricing improvement. So price, these price indexes are really resetting every quarter or so. And so you'll start to see price less negative in HHC in the next quarter and flattening out moving forward. Meanwhile, we've had positive volume growth in, what, 13 to 14, HHC market segments.
Speaker Change: You know, that's worked through the P&L. If you look at H-H-C going forward, which is probably your next question, where you're going to see there is continued pricing improvement. So price, these price indexes are really,
Speaker Change: ReSetting, every quarter or so, and so you'll start to see price less negative in HHC in the next quarter and flattening out moving forward.
Speaker Change: Meanwhile, we had positive volume growth in 1314 HHC market segments, so good solid growth in volume and we're seeing pricing improve. This is the quarter where you saw the squeeze.
Celeste Mastin: So good solid growth in volume, and we're seeing pricing improved. This is the quarter where you saw the squeeze.
Celeste Mastin: He's got it, understood. And then, you know, understanding that the rollover and pricing has been largely formulaic across the business.
Speaker Change: got it understood and then you know understanding that the roll over and pricing has been largely formulaic across the business. Can you talk about what you're seeing from a competitive landscape perspective as volumes are fluctuating across certain end markets and raw materials are oscillating you know and then you know just to follow on there. What are you expecting from Brazones cost?
Celeste Mastin: Can you talk about what you're seeing from a competitive landscape perspective as volumes are fluctuating across certain end markets and raw materials are oscillating? You know, and then, you know, just to follow on there, what are you expecting from price cost as it relates to the first half of 2025? Appreciate the comments they've already given on the fourth quarter here. Yeah, I think, you know, this year in 2024 price raw, the price raw buck up was really lumpy from one quarter to the next. And that's what happens after we've had, you know, a strong increase or decrease in overall raw material prices.
Speaker Change: As it relates to the first half of 2025, appreciate the comments they've already given on.
Speaker Change #100: The fourth quarter.
Speaker Change #101: You know, this year in 2024, price, the price Rob Bucket was really lumpy.
Speaker Change #102: from one quitter to the next. And that's what happens after we've had, you know, a strong increase or decrease in overall raw material prices.
Celeste Mastin: As we move into 2025, that's going to really level out a lot. If I look at the 4,000 raw materials that we monitor, 4,000 material, those are pretty evenly balanced from an, you know, a third of them increasing, a third of them decreasing, and a third of them staying flat. And we're already taking pricing actions in Q4 as it relates to some of those markets. As far as the competitors go, you know, we have, we have very responsible, sophisticated, two very large, two or three very large, sophisticated, large competitors there; they have good pricing acumen and they will price responsibly.
Speaker Change #103: As we move into 2025, that's going to really level out a lot. If I look at the 4,000 raw materials that we monitor, 4,000 material classes that we monitor, those are pretty evenly balanced from a third of the increasing, a third of them decreasing, and a third of them staying flat, and we're already taking pricing actions in Q4 as it relates.
Speaker Change #103: to some of those markets.
Speaker Change #104: As far as the competitors go, we have very responsible, sophisticated, two very large, two or three very large, sophisticated.
Speaker Change #104: Mars Competitors.
Speaker Change #104: They have good pricing, acumen, and they will price responsibly. I'm seeing that across the market in general, and that really hasn't changed over time.
Celeste Mastin: I'm seeing that across the market in general, and that really hasn't changed over time.
John Corkrean: I had to add a little color on your question about what to expect going forward versus what we've seen and pricing rods. So, coming into this year, you know, you're aware that, you know, the price, our ability to capture price and manage rods has been a big generator of value. But we also, there's also a lag impact, and coming into this year, we knew that although we captured a lot of raw material savings last year, there's a little bit of catch up on pricing adjustments related to our index based contracts. So we expected it to be pretty neutral, but pretty big numbers, you know, offsetting each other.
Speaker Change #104: I'd just add a little color on your question about what to expect going forward versus what we've seen in pricing rods.
Speaker Change #104: So coming into this year, you're aware that the price, the ability to capture price and manage laws has been a big generator.
Speaker Change #104: of VALU, but we also have a lag impact coming into this year. We knew that we captured a lot of raw material savings last year. There's a little bit of catch up on pricing adjustments related to our index-based contracts.
Speaker Change #104: We expected it to be pretty neutral, but pretty big numbers off-setting each other as we exit this year.
John Corkrean: As we exit this year, based on what we know today, you know, both our relatively small impacts that would carry over. Again, pretty much offsetting each other. So we expect next year to be relatively neutral like this year, but less of the big volatility, less lumpy. For the basis. Yeah. Great.
Speaker Change #104: Based on what we know today, you know both are relatively small impacts that would carry over. Again, pretty much off sending each other. So we expect next year to be relatively neutral like this year, but less of the big volatility. You want me to have less lumpy? Yeah.
Speaker: That's that's very helpful.
Speaker: Thank you.
Speaker Change #105: from a closer to further bases.
Celeste Mastin: We have no further questions in queue.
Speaker Change #106: Great, that's very helpful, thank you.
Operator: I would like to turn the call back over to Celeste Master for any closing remarks. Thanks, everyone else, for joining us this morning, and we look forward to having you back next quarter. Have a great day.
Speaker Change #106: We have no further questions in Q. I would like to turn the call back over to Celeste Mastin for any closing remarks.
Celeste Mastin: Thanks everyone else for joining us this morning and we look forward to having you back next quarter.
Speaker: This concludes today's conference call. Thank you for your participation. You may now.
Celeste Mastin: Have a great day!
Speaker Change #107: This concludes today's conference call, thank you for your participation, you may now disconnect.