Q4 2024 H.B. Fuller Co Earnings Call
Good morning, and welcome to H, B, Fuller's fourth quarter and fiscal year 'twenty 'twenty four results conference call.
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After the Speakers' remarks, we will conduct a question and answer session.
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Speaker Change: I would now like to turn the call over to Scott Johnson Investor Relations. Thank you. Please go ahead.
Okay.
Speaker Change: Thank you operator, welcome to H B Fuller's fourth quarter 2024, Investor Conference call.
Speaker Change: Stenting 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 Change: Before we begin let me remind everyone that our comments today will include references to certain non-GAAP financial measures.
Speaker Change: 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 reconcile.
Speaker Change: Reconciliations of non-GAAP measures to the nearest GAAP measure are included in our earnings release.
Speaker Change: 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 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 Change: 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 SEC all of which are available on our website and investors that H B Fuller dot com.
Speaker Change: I will now turn the call over Celeste Mastin Celeste.
Celeste Mastin: Thank you Scott and welcome everyone overall I'm proud of the progress we made in fiscal year 2024, we executed on actions to streamline our cost structure and manage the challenging pricing and raw material dynamics as evidenced by the continued expansion of our full year adjusted EBITDA.
Speaker Change: Margins.
Speaker Change: We also made significant progress in reducing our net working capital requirements, maintaining a stable leverage ratio and enhancing the profile of our portfolio through several strategic acquisitions and the divestiture of our flooring business, resulting in a significant margin uplift.
Speaker Change: We remain on track to achieve strategic objectives, we've laid out for the company at the same time I'm disappointed that we were unable to finish the year as strong as we had expected in the fourth quarter, we encountered an unexpected deceleration in volume across the majority of our end markets. Furthermore.
Speaker Change: Slowing customer order patterns, particularly in consumer product goods related market segments and are durable goods distribution channel.
Speaker Change: Did price increase realization into fiscal 2025, delaying the offset to higher raw material costs and resulting in margin pressure.
Speaker Change: We are intensely focused on what we can control and have already begun executing additional pricing actions and cost controls to prudently prepare for a challenging growth environment in 2025.
Speaker Change: Looking at our consolidated results in the fourth quarter, our organic sales were down slightly reflecting a weakening economic backdrop volume increased one 3% year on year, while pricing declined one 5%.
Speaker Change: Although volumes were still positive year on year, the growth was less than anticipated as the portfolio was impacted by a weaker demand environment.
Speaker Change: The unfavorable impact of pricing continued to be moderate, but overall incremental price realization was below our expectations, particularly in H H C.
Speaker Change: Adjusted EBITDA in the fourth quarter was down 14% year on year to $148 million and adjusted EBITDA margin declined year on year to 16, 1%.
Speaker Change: Deterioration in margin versus the prior year was driven by unfavorable price and raw material dynamics and higher variable compensation.
Speaker Change: Although we did not finish the year as strong as expected, we expanded margins and achieved a new record adjusted EBITDA margin for the fiscal year at 16, 6% keeping us on track to achieve our goal of greater than 20% adjusted EBITDA margin.
Speaker Change: Now let me move on to review the performance in each of our segments in the fourth quarter.
Speaker Change: In Hh see organic revenue was down 2.2% year on year, driven by lower pricing and lower volume packaging related end markets exhibited a market slowdown in volume growth during the fourth quarter as customers delayed orders and overall H H C pricing remained negative.
Speaker Change: Year on year.
Speaker Change: Adjusted EBITDA was down year on year for H H C. In the fourth quarter and adjusted EBITDA margin decreased year on year to 13, 9%.
Speaker Change: Negative volume leverage the adverse impact from higher raw material cost and delayed pricing drove the margin decrease versus the prior year.
Speaker Change: In engineering adhesives organic revenue decreased one 9% in the fourth quarter, driven by both slightly lower pricing and volumes. The automotive market segment showed continued strength, but was more than offset by decelerating durable goods related end markets and swelling distributions.
Speaker Change: And on demand as expected solar remained weak during the fourth quarter, excluding solar E delivered positive organic growth in the fourth quarter.
Speaker Change: Adjusted EBITDA for <unk> increased year on year in the fourth quarter, the favorable impact from the acquisition of Endy industries with partially offset by lower volume adjusted EBITDA margin contracted slightly year on year to 19, 7%.
Speaker Change: In construction adhesives organic sales increased 10, 5% year on year on continued strength in roofing, which grew over 30% year on year.
Speaker Change: Our performance in construction remains strong as we continue to innovate and expand market share capitalizing on positive long term market trends such as ongoing data center expansion.
Speaker Change: Adjusted EBITDA for <unk> increased 12% versus the fourth quarter of last year, driven by strong volume growth.
Speaker Change: Adjusted EBITDA margin decreased 30 basis points to 12, 3%, reflecting higher variable compensation expense and one time inventory adjustment.
Speaker Change: Geographically Americas organic revenue was down slightly year on year in the fourth quarter. This represents a deterioration versus the third quarter and was driven by significant deceleration in North America volume, which declined from a year on year growth rate of approximately 5% in the third quarter.
Speaker Change: <unk> to only up slightly in the fourth quarter.
Speaker Change: Both H H C and E organic revenue were down modestly versus the prior year, partially offset by continued strong organic growth in CA.
Speaker Change: In EMEA organic revenue was down 0.8% year on year, driven by slightly lower pricing.
Speaker Change: H H C organic sales were up low single digits year on year, CA was flat and EBITDA was down modestly.
In Asia Pacific organic revenue was flat year on year and continued to be heavily influenced by the solar market segment, which declined approximately 30% year on year in the fourth quarter as expected excluding the impact of solar organic sales for the Asia Pacific region increased approximately 6%.
Speaker Change: Year on year, driven by strength in transportation and packaging solutions.
Speaker Change: Now I'd like to spend a few minutes discussing a couple of focus areas that support our strategic plan to achieve greater than 20% EBITDA margin.
Speaker Change: We recently completed a thoughtful and deliberate review of our manufacturing and logistics network and are finalizing a plan to significantly reduce our global manufacturing footprint streamline our north American logistics and delivery operations and strategically improve inventory management.
Speaker Change: This multiyear plan will reduce the number of manufacturing facilities from 82 at the end of fiscal 2024 to a target of 55 by 2030. We have also completed a redesign of our north American logistics and warehousing structure that will reduce the number of warehouses.
Speaker Change: From 55 today to approximately 10 by 2027.
Speaker Change: These actions will not only reduce costs through improved capacity utilization. They will also enable us to reduce future capital expenditure requirements and better serve our customers.
Speaker Change: As a result of these actions, we expect to generate approximately $75 million in annualized cost savings once the plan is complete.
Speaker Change: These actions will be implemented over the next five years, and we expect to invest approximately $150 million of incremental capital over this time, we expect the savings to be minimal in 2025, but to ramp significantly in 2026 through 2030.
Speaker Change: These actions are incremental to the previously announced restructuring already underway, which is on track and still expected to generate approximately $45 million in annualized cost savings by the end of fiscal 2025 versus fiscal 2022 with $37 million.
Speaker Change: <unk> achieved through the end of fiscal 2024.
Speaker Change: On the M&A front, we recently announced the acquisitions of two leading medical adhesive companies Jim S. R L and met a fill limited.
Speaker Change: Jim S. R. L based in Italy is a market leading provider of medical adhesives, and innovative application devices approved and certified for over 80 internal indications meta fill Ltd based in Ireland specializes in formulating and producing medical grade Sayano.
Speaker Change: <unk> related he says specifically tailored for the wound closure market.
Speaker Change: These highly complementary acquisitions will enhance our market leading position in cyanoacrylate and expand our market presence in the highly advanced and rapidly growing tissue adhesives market.
Speaker Change: The transactions represent two significant milestones in the expansion of our medical adhesives portfolio, a key strategic priority for the company and build on our previous acquisitions of cyber bond tissue seal and adhesion biomedical.
Speaker Change: The two companies generated 2024 net revenue of approximately $24 million and adjusted EBITDA of $12 million on a combined basis. These acquisitions will be completed at a pre synergy EBITDA multiple of $15 five times and our projected three year post synergy.
Speaker Change: <unk> EBITDA multiple of 9.5 times based on a combined purchase price of 180 million euros.
Speaker Change: Consistent with our next level portfolio management strategy. We also recently divested our flooring business the decision to pursue strategic alternatives for this business came as the result of a robust strategic review and both historical and forward looking financial assessments.
Speaker Change: As a result of the strategic review, we determined it was unlikely we would achieve our minimum EBITDA margin threshold of 15% for this market segment on a timeline and at a level of investment that was acceptable to us.
This move is consistent with our strategy to drive our portfolio focus and capital allocation to the highest margin fastest growing market segments. In this 80 billion dollar global adhesives industry.
Speaker Change: Concurrent with the flooring divestiture, we also announced the reorganization of our building and construction segments into a newly named global business unit building adhesive solutions or B, a S, replacing H b fuller's existing construction adhesives GPU starting in fiscal year 2002.
Speaker Change: 25.
Speaker Change: The reorganization combines the company's insulated glass woodworking and composite segments. Previously included in engineering adhesives with the remaining roofing in building envelope and infrastructure market segments. Historically included in construction adhesives.
Speaker Change: The reorganization into be a S creates a faster growing solutions business with a more complementary customer base across the architectural and infrastructure markets. These organizational improvements allow for more effective spec setting in the architectural space and streamline our exit.
Speaker Change: Houston Playbook. In addition, it consolidates the more cyclical and seasonal construction related markets into one G b U, allowing for greater external transparency.
Speaker Change: On a pro forma basis be a S generated approximately $850 million in sales and $120 million and adjusted EBITDA in fiscal year 2024.
Speaker Change: Our proactive portfolio management strategy is a key part of delivering long term financial targets and tuck in acquisitions are an important part of that our 2023 and 2020 for collections of acquisitions are performing exceptionally well and we have executed successfully to our synergy.
Speaker Change: Targets, even exceeding our business case commitments.
Speaker Change: This success provides us with the confidence to continue pursuing strategic acquisitions to further expand our growth market segment mix and improve our overall business profile.
We wanted to share some of the financial results from our 2023 collection of acquisitions. We now have a full year of results for these six deals which closed throughout 2023 <unk>.
Speaker Change: Collectively these deals delivered approximately $37 million of adjusted EBITDA in 2024 exceeding the collective acquisition case by approximately 10%.
Speaker Change: We grew 2024 adjusted EBITDA, nearly 90% year on year versus full year 2023 by successfully executing our synergy plan. These.
Speaker Change: These six deals represent approximately $15 million of acquired EBITDA at a purchase price of $216 million and a collective pre synergy multiple of 15 times.
Speaker Change: At the time of purchase EBITA margin was collectively 8% through the first full year of ownership. The post synergy multiple has been reduced to less than six times and the EBITDA margin expanded to 21%.
Speaker Change: Per the collective business case, we expect to achieve a combined EBITDA margin of 24% and a post synergy EBITDA multiple of four times by fiscal 2026 for this 2023 collection.
Speaker Change: In 2024, we closed two acquisitions, Andy industries, and H S. Butyl, both are performing very well and on track with the business case in the 2020 for partial year.
Speaker Change: As a reminder, we acquired $27 million of EBITDA at a purchase price of $275 million and a pre synergy multiple of 10 times, we expect to convert this into $47 million of EBITDA by 2027, equating to a post synergy multiple of less than six times.
Speaker Change: We plan to provide a more detailed update on these two deals. This time next year consistent with what we discussed on the 2023 collection.
Speaker Change: The net impact from the annualized nation of the two deals we closed in fiscal 'twenty 'twenty for the two medical adhesive acquisitions that were announced in early December and the divestiture of the flooring business is expected to deliver an approximately 70 basis point adjusted EBITDA margin uplift.
Speaker Change: In 2025.
Speaker Change: Now, let me turn the call over to John Corcoran to review, our fourth quarter results in more detail and our outlook for 2025.
Thank you Celeste I'll begin with some additional financial details on the fourth quarter.
Speaker Change: For the quarter revenue was up two 3% versus the same period last year.
Speaker Change: Currency and acquisitions collectively had a positive impact of two 5%.
Speaker Change: Adjusting for those items organic revenue was down 0.2% driven by lower pricing.
Speaker Change: Volume was up one 3%, reflecting slightly negative volumes in H H.
Speaker Change: Partially offset by a continuation of the strong growth in construction adhesives.
Speaker Change: Adjusted gross profit margin was 29, 6%.
Speaker Change: Down 170 basis points versus last year, driven by a delayed price realization and unfavorable raw material cost developments.
Speaker Change: Adjusted selling general and administrative expense was up 12% year on year, driven primarily by wage inflation higher variable compensation expense and the impact of acquisitions, partially offset by our continued cost reduction efforts.
Speaker Change: Adjusted EBITDA for the quarter of $148 million was down 14% versus last year, reflecting the negative impact of pricing and raw material cost actions, primarily in H H C.
Speaker Change: As well as higher variable compensation expense.
Speaker Change: The decline was partially offset by the positive impact of acquisitions continued restructuring savings and other cost reduction actions.
Speaker Change: Earnings per share of magnitude.
Speaker Change: It was down versus the fourth quarter of 2023, and primarily driven by a decline in operating income.
Cash flow was strong for the full year, although lower than we expected driven by lower operating income.
Speaker Change: Full year cash flow from operations of $301 million was down year on year, reflecting lower operating profit, partially offset by improved working capital efficiency net.
Speaker Change: Net working capital as a percentage of annualized net revenue declined 160 basis points year on year to 14, 5%.
Speaker Change: As a result, our net debt to EBITDA ratio of three one times was flat versus the end of Q3.
Speaker Change: With that let me now turn to our guidance for the 2025 fiscal year.
Speaker Change: We anticipate full year net revenue to be down 2% to 4% versus 2024, and when adjusting for the divestiture of the flooring business to be up between one and 2%.
Speaker Change: Organic revenue is expected to be flat to up 2%.
Speaker Change: We expect foreign currency translation to negatively impact revenue by about 2%.
Speaker Change: And acquisitions and divestitures, but also unfavorably impacted revenue by about 2% versus fiscal 2024.
Speaker Change: We expect adjusted EBITDA to be between 600, and $625 million, representing a 1% to 5% year on year increase as pricing actions restructuring savings and the impact of acquisitions more than offset variable compensation rebuild and unfavorable exchange.
Speaker Change: On a constant currency basis. This guidance range represents year on year, adjusted EBITDA growth of 3% to 7%.
Speaker Change: We expect our 2025 core tax rate to be between 26, and 27% compared to our 2024 core tax rate of 26, 7%.
Speaker Change: We expect full year interest expense to be between 120 and $125 million.
Speaker Change: Depreciation and amortization to be between 170 and $180 million.
Speaker Change: And the average diluted share count to be between 57, and 57 5 million shares.
Speaker Change: These assumptions result in full year adjusted earnings per share in the range of $3 90.
Speaker Change: The $4 20.
Speaker Change: Representing year on year growth of 2% to 9% versus fiscal 2024.
Speaker Change: Finally, we expect full year operating cash flow to be between 300 and $325 million before approximately $160 million of capital expenditures, which includes approximately $40 million of capital related to the company's global footprint improvement initiative.
Speaker Change: Based on the seasonality of our business and the timing of working capital needs. We expect our operating cash flow to be weighted to the second half of the year.
Speaker Change: Taking into account the current global operating environment as well as the typical seasonality of our business. We expect first quarter revenue to be down low to mid single digits, reflecting a slower operating environment and the divestiture of the flooring business and for adjusted EBITDA to be between 105 and $115 million now.
Celeste Mastin: Let me turn the call back over to Celeste.
Celeste Mastin: Thank you John.
Celeste Mastin: I'd like to take this time to acknowledge and thank all our employees for their dedication and hard work during the year. Despite significant obstacles in the second half of the year. Your efforts enabled us to make meaningful progress on many of our strategic initiatives. As we look ahead to 2025, we remain.
Celeste Mastin: Committed to our portfolio improvement strategy and remain dedicated to the long term strategic plan, we have outlined.
Celeste Mastin: While we are currently facing some near term market weakness, we are taking all necessary actions to manage costs appropriately implement our planned pricing initiatives and navigate this period efficiently and effectively.
Celeste Mastin: We are confident in our ability to permanently transformed this business into a sustainably faster growing higher margin enterprise and we remain on track to achieve an EBITDA margin of greater than 20% on the timeline, we originally communicated.
Celeste Mastin: That concludes our prepared remarks for today operator, please open the line for questions.
Celeste Mastin: Thank you as a reminder to ask a question. Please press star followed by the number one on your telephone.
Hey, let's try any questions. Please press star one again.
Speaker Change: Our first question comes from Kevin Mccarthy from vertical Research partners. Please go ahead. Your line is open.
Yes, Thank you and good morning.
Speaker Change: So last you've unveiled a fairly ambitious restructuring plan here I did have a few questions around that.
Speaker Change: Can you speak to the cash cost.
Speaker Change: To implement the plan that would hit your financials and 2025.
Speaker Change: And then elaborate also on the.
Speaker Change: The flow through of the expected savings I think you indicated it may be modest this year and then ramping into 2026, but I appreciate any thoughts on that.
Speaker Change: So dollars that.
Speaker Change: That would be in the plan. Thank you.
Speaker Change: Sure absolutely Kevin and yes. It is it is an aggressive plan I think it's also a very achievable plan.
Speaker Change: So as we captured as we outlined that plan in the press release, we talked about the cost savings available to us by so executing.
Speaker Change: But when you think about it from a big picture, we've got a big global footprint and within that footprint. There is redundancy in some technology production in some regions, but there's also opportunities for us to grow capacity or some technology in regions where.
Speaker Change: We may not have enough, where we may not be able to grow in an end market as fast as we would like so as we took a step back and really.
Speaker Change: <unk> evaluated that footprint there are a few things that really triggered for me that we that we it was the right time for us to pursue this project I mean first of all we now have the tools in the diagnostics, we need to evaluate the footprint I'm also very confident.
Speaker Change: In our operational leadership. They are we have the right team in place there. They have a good good plans in place they understand the target and they're starting to March forward one of the ways I tested the team just to ensure we were really ready for such.
Speaker Change: And ambitious goal was to pilot a few location closures.
Speaker Change: So in fact, if you look at the bear no atoms acquisition. In fact, there are two facilities in Europe and one facility in the U S that we closed within 12 months, a very ambitious target that was achieved so the team's ready to move forward on this we're announcing a.
Speaker Change: Targeted 27 reduction in facilities. The reality is by the end of 2025 16 of those will already be complete. So you know I am including in 'twenty five the 16 reductions six from the flooring business, we sold I'm, including those three.
Speaker Change: Bear no Adam facilities that we already captured in our synergy numbers. There's a couple of plants that were already in our earlier announced restructuring. So this $75 million is all additive and we will be parse what you know well have taken some will have a lot of tailwind.
Speaker Change: I'll say on the in the first stage of the program to reduce from <unk>.
Speaker Change: 82 by 16 by the end of 'twenty five you know John do you want to talk about exactly how that schedules in overtime sure. So so I'd say, it's still a little bit of a work in progress, Kevin, but I, but for 2025, the savings should be roughly $5 million that's.
Speaker Change: That's on top of.
Speaker Change: Another $8 million related to the restructuring we announced in 2023. So we'll complete that this would be an incremental five probably in 2025, I think that number steps up to closer to $20 million in 2026, and then I would say, it's kind of pro rata over the next three years to get to the get to the <unk>.
Speaker Change: $5 million run rate.
Speaker Change: In terms of cost to implement so.
Speaker Change: In the press release, we talked about the capital costs were at island on sort of the other cash cost again, thats still being developed I would anticipate we'll have some in 2025, but it won't be significant.
And over the course of that program. This this this footprint realignment it's.
Speaker Change: I'm still estimating it I'm going to guess, it's going to be between 25 and $50 million of.
Speaker Change: Cat non capital cash cost.
Speaker Change: We will have proceeds associated with the sale of these facilities were exiting.
Speaker Change: Very hard to exit it may not completely cover the cash costs, but it will cover a significant portion I would say.
Speaker Change: And then capital we said in the press release, the $150 million of capital over the next five years still an estimate that's being refined but for 2025, we will have about $40 million.
Speaker Change: Capital spend specifically related to the footprint Russo.
Speaker Change: So I hope does that answer your questions Kevin.
Speaker Change: Yes.
Speaker Change: Helpful.
Speaker Change: And then secondly, if I may I wanted to talk about.
Speaker Change: Pricing, maybe a two part question.
In the fourth quarter.
I think you indicated that some pricing was delayed particularly in the H H C segments. I was wondering if you could elaborate on what's going on there and then the second part would be what is the level of price that youre prospectively baking into your organic sales growth forecast of zero.
Speaker Change: <unk> to 2% for fiscal 'twenty five.
Speaker Change: Yeah. So.
Speaker Change: So let's talk about H H C. So in a N H H C. In particular, we saw some significant raw material cost increases.
Speaker Change: Really flow through the P&L in Q4, starting in Q3, the team had identified price increases to address that.
Volume was lower than anticipated in the fourth quarter, we didn't get that full price realization imply in place in Q4. So there's a significant increases that they will have that they're putting in place in Q1.
Speaker Change: You're asking about the level of price is anticipated for 2025 call it sort of zero to 2% increase in price.
Speaker Change: With volume down mostly across the total business in 2025.
Speaker Change: Okay.
Speaker Change: That makes sense Kevin.
Speaker Change: Okay.
Speaker Change: Our next question will come from Ghansham Panjabi from Baird. Please go ahead. Your line is open.
Speaker Change: Good morning, Ghansham good morning, everybody good morning Celeste.
Speaker Change: I just wanted to go back to Kevin's question on the manufacturing footprint optimization.
Speaker Change: Zoom out as part of the strategy to kind of build bigger more productive plants, particularly across the leverage portion of the portfolio.
Speaker Change: I know you talked about.
Speaker Change: 16 months or so coming out of the system in fiscal year 'twenty five but also just your view in terms of how you're managing the execution risk and customer service throughout this process because it is obviously very significant.
Speaker Change: <unk>.
Speaker Change: Yeah, absolutely. So so if you look at again the.
Speaker Change: The program, there's definitely an opportunity for us to put in capacity that capitalizes on some growth markets.
Speaker Change: But it will there is there are a number of cases, where we can reduce redundancy and certainly for the H H C business. We're looking very very hard at how do we continue to reduce their overall cost of production.
Speaker Change: They have more leverage market segments in their portfolio than the other businesses so absolutely.
Speaker Change: We want to make sure that we're driving to an optimal cost profile in those businesses and in some cases.
Speaker Change: Our cost to produce an H H C is is just too high so they will be the primary beneficiary of.
Speaker Change: This global footprint reduction activity, there's some greenfield activity ghansham, but but overall more.
Speaker Change: But more most broadly we're really are working.
Speaker Change: Working on consolidating within the existing footprint.
Speaker Change: Got it and then going back to the fourth quarter I think this was the first just looking at my model.
Speaker Change: The decline in EBITDA margin since fiscal.
Speaker Change: Fiscal year 'twenty two.
Speaker Change: I'm still trying to reconcile that because your volumes were up but pricing was down but it wasn't worse than in <unk>.
Speaker Change: Why were margins down so much it over 300 basis points.
Speaker Change: So.
Speaker Change: Maybe.
Speaker Change: Our quarterly a question as it relates to volumes for the first quarter of fiscal year 'twenty five.
Speaker Change: Tracking relative to what you saw in <unk>.
Speaker Change: So margins were down primarily in Q4 because of the raw material cost flow through that we experienced and I don't know if you remember like over the last several quarters, we've pointed out that in the first half of the year, we would have tailwind on raw.
Speaker Change: Cereal and price the comment of that bucket and again price was negative because we were overcoming a lot of index pricing issues, but in the second half.
Speaker Change: Raw materials became a headwind and as we pointed out last quarter, we anticipated a $20 million increase in raw material cost in Q4, we did experience that in we experienced all of that in N. H H C. So that's that was the primary driver of down margins.
Speaker Change: In the quarter.
Ghansham Panjabi: Yes ghansham.
Speaker Change: If your question about what are we seeing so far in Q1, and we only have one month. So it's a small sample size I'd say, they're modestly better.
Speaker Change: But you also have to remember Q1 is always our lowest margin quarter rate volumes in Q1, because of the Christmas and new year's holidays Chinese new year are probably on average, we'll probably have a $100 million less revenue in Q1 that we will have in any other quarter in the year.
Speaker Change: But I'd say there are modestly better I'd say some of the act.
Speaker Change: The actions, we're taking on pricing, we'll see a little bit of that impact in Q1, but probably more in Q2.
Speaker Change: Around raws.
Speaker Change: Raw material underlying raw material costs are pretty stable from Q4 to Q1, I think our sourcing team has been doing a good job of going out and finding alternative sources of supply and they have taken some actions that.
Speaker Change: Reduce the impact of what we saw in Q4, but again because of the timing when they are buying materials when they actually work their way through our cost of goods.
Speaker Change: More of a Q2 issue so I'd say, they're holding in if not a little bit better and we're taking it and we see the underlying actions that will help them improve sequentially in Q2.
Speaker Change: Okay perfect. Thank you.
Speaker Change: Our next question comes from Mike Harrison from Seaport Research Partners. Please go ahead. Your line is open.
Speaker Change: Good morning, Mike.
Mike Harrison: Hi, good morning, and appreciate the details.
Mike Harrison: The acquisition progress that you've made with the deals you've done that's great to hear.
Mike Harrison: I wanted to dig in a little bit more on the Hec business, you called out packaging and consumer.
Mike Harrison: And to think of those areas is being a little bit more defensive in nature, and I think packaging had been kind of a bright spot for you earlier in the year.
Mike Harrison: You talk a little bit about what what's changed and what drove some of the weakness in those markets to what extent, we may be seeing some customer inventory rationalization going on and I guess, how have those trends progressed.
Mike Harrison: As we went from kind of November into December and now into January.
Mike Harrison: Yes, Q4, Mike was a very.
Mike Harrison: I'd call it a dramatic slowdown in D. H H C business ultimately in consumer packaged goods in.
Mike Harrison: In fact in Q4, we saw a deceleration in 10 out of our 13 H H C market segments. So so so things really slow down there.
Mike Harrison: B some inventory rationalization at customers that's a possibility.
Mike Harrison: The other thing we see is.
Mike Harrison: Even in the distribution business in the packaging arena.
Mike Harrison: Our distributors are very cautious.
Mike Harrison: They have seen a significant slowdown I think a lot of share is shifting within consumer packaged good customers. So so it's been a it was a it's been a very very weak market.
Mike Harrison: When you look at the market segments that are actually accelerating its because of share gains. So all in one example would be our flexible packaging business. That's one of our top 20 growth priorities.
Mike Harrison: Our team there has been able to take business away from.
Mike Harrison: From competitors that have had it for for 20 years with some customers and so that's a really exciting growth potential for us that was one of the businesses that was.
Mike Harrison: Accelerating and and actually when you look at that that's fully driven by innovation that was catalyzed by our ability to solve customer problems, where they want to be able to.
Use the same product here that passes European regulatory requirements for example, and required a re formulating on our part to be able to meet needs like that so you know had it not been for our innovation and market share gains in flexible packaging and it probably wouldn't have been a lot.
Mike Harrison: That market.
Mike Harrison: The market is likely decelerating there as well so broad based.
Mike Harrison: Deceleration in the consumer packaged goods space.
Mike Harrison: And Mike just on your question on what we're seeing so far.
Again, we just have kind of P. One I would say that the packaging space remained soft.
Mike Harrison: We so les alluded to we knew last year in the first three quarters, we were kind of outgrowing the market. So we do have tougher comparisons there.
Mike Harrison: Hygiene has actually shown some growth in Q1, which is positive now they have easier comparisons.
Mike Harrison: And then we've talked about this deceleration mostly being HFC, there was a little bit in engineering adhesives, and the durable goods distribution area and.
Mike Harrison: That's actually come back nicely in Q1, so I would say.
Mike Harrison: The three areas we saw softness.
Mike Harrison: Packaging is continues to show softness.
Mike Harrison: Hygiene and other consumer packaged goods are kind of improving a little bit as as durable goods distribution.
Mike Harrison: So this is as we look at H H C series.
Mike Harrison: Serious actions underway there to be able to perform effectively in 2025, regardless of what kind of volume the market has to offer the team's got aggressive price increase plans, they're adding on to their cost reduction plans and as I mentioned even longer term.
Mike Harrison: Global footprint rationalization will benefit H H C more than the other business units and again, we've redirected resources and focus within that business unit onto the higher returning market segments. So flexible packaging being one of those but also you've seen our success.
Mike Harrison: In the medical adhesives market and our focus there.
Mike Harrison: These are the kinds of things that we're doing to try to return H H C to the kind of margins and growth rate that that business should have.
Mike Harrison: In Q4 of 20.
Three we were comparing to a 19.9% EBITDA margin, we said at that time, that's not likely to go forward in forward rate. This was 600 basis points less. This is also not the go forward rate. This is a business that should be operating around 16% EBITDA margin.
Mike Harrison: And the team is taking actions to make sure that that happens.
Mike Harrison: Alright, and just to follow up on that.
Speaker Change: You mentioned that the share shift that maybe going on a more on consumer packaged goods customers is that leading you guys to potentially lose some market share or can you talk about those dynamics a little bit.
Okay.
Mike Harrison: Yeah.
Mike Harrison: We work with a variety and many customers.
Mike Harrison: In cases, where the consumer is switching down to lower quality lower cost products.
Mike Harrison: <unk>.
Mike Harrison: There can be share shifts as a consequence that that include that influence us negatively.
We tend to work with the cusp.
Mike Harrison: Customers that are very interested in innovation and the value. The solutions. We provide are so that it's a tougher market for that at this point.
Mike Harrison: Alright understood.
Mike Harrison: Then last one for me if I look at it.
Mike Harrison: Just another question on guidance.
Mike Harrison: I look back over the last couple of years you came in toward the lower end of your guidance range in fiscal 'twenty three.
Mike Harrison: You missed fairly substantially here in fiscal 'twenty four for reasons that we've been talking about here, but can you talk about.
Mike Harrison: So last whether you have baked in some conservatism.
Mike Harrison: For your initial 2025 outlook and I guess aside from end market demand what are some of the levers are key key factors that are going to help determine whether you can deliver within the guidance range.
Mike Harrison: Yeah, we're committed to delivering within the guidance range, Mike I mean, if you think about what are the opportunities that could impact the business in 25 here, we're going into 2025 anticipating.
Mike Harrison: Slightly negative volume growth environment.
Mike Harrison: So we want to make sure that where we are.
Mike Harrison: Prepared and that we're doing the things now that need to happen should that.
Mike Harrison: Volume in this market continue to be weak and sluggish.
Mike Harrison: No.
Mike Harrison: What we're anticipating in 2025 and that's what we're that's what we're planning for but there are opportunities to grow certainly.
Mike Harrison: Beyond what we've indicated I mean, any kind of volume is going to be beneficial in 2020 fives. It's since we don't have any baked in we also don't we don't have any interest rate cuts included in our outlook again, those would if should they happen should.
Mike Harrison: Probably favorably.
Mike Harrison: Affect volume.
Mike Harrison: But also will affect our interest rate expense.
Mike Harrison: We may say you know if it's a really slow really poor volume environment, we're going to push towards greater raw material savings. So we've indicated that the price raw material bucket would be favorable by about $55 million.
Mike Harrison: There is an opportunity for us to do better there if volume is worse and we've added to our cost reduction programs. We can add further to though is if we see the year not clean out like we like we believe it will.
Mike Harrison: Yes.
Speaker Change: Alright very helpful. Thanks.
Mike Harrison: Sure.
Mike Harrison: Our next.
Speaker Change: Comes from Jeff Zekauskas from Jpmorgan. Please go ahead your line is open.
Jeff Zekauskas: Good morning, Jeff Hi, good morning, Thanks very much.
Speaker Change: Yeah.
Speaker Change: I think <unk> spent about $275 million for acquisitions and 24.
You think you might spend in 'twenty five.
Speaker Change: Yeah.
Speaker Change: Well, Jeff we have spent a year to date already 180 million euros on our two medical adhesives businesses as you know.
Speaker Change:
Speaker Change: Now if you take into account that we also divested the flooring business in 2025, we're sitting at about $100 million.
Speaker Change: The the our pipeline continues to be robust there are some wonderful opportunities. We see there you know the good news about our proprietary deal pipeline.
Speaker Change: The kind that we kind of we participate in that we're growing is that we have a little more flexibility around timing with a pipeline like that so.
Speaker Change: As we've as we've said from from the start or our allocation for M&A.
Speaker Change: Tends to be in the $250 million to $300 million range.
Speaker Change: So you can count on additional M&A happening in 2025 beyond what we've done and announced so far.
Speaker Change: Okay alright. Thanks.
Speaker Change: You talked about some raw material inflation.
Speaker Change: I think the dam in acetic acid or down propylene polyethylene is down.
Speaker Change: What went up.
Speaker Change: Yeah. So.
Speaker Change: Our Hh C business in particular.
Speaker Change: Which is where most of the raw material increase was centered we saw some increases in waxes oils, but most notably in hydrogenated hydrocarbon resins.
Speaker Change: More as a function of a consumption tax that was not necessarily put in place in China, but that was now being reinforced in China.
Speaker Change: That's where the where the impact was.
Speaker Change: I see okay.
Speaker Change: It's not only.
Speaker Change: The resin impact obviously, we monitor 4000 raw materials about a quarter of those actually Jeff were inflationary.
Speaker Change: Look at that on an account basis, but you know.
Speaker Change: I'm pointing to a couple of that were the more significant on a dollar basis inflationary.
Speaker Change: Sure and a unique situation.
Speaker Change: You talked about weakness in packaging at the very end of the quarter.
Speaker Change: Is that food packaging or whats the packaging end market that seems to have softened and a more pronounced way.
Speaker Change: So as you know where we participate in all kinds of packaging applications, so, but most notably I'd say, it's the packaging applications that are sort of case in carton seal.
Speaker Change: More at the end of the line when the customers taking the goods they've produced in boxing them up in order to ship them out.
Speaker Change: That's where now we've also we see it across the board, though Jeff really I mean, like you will see it and tapes in.
Corrugated.
Speaker Change: A lot of the other different applications and packaging, where we participate it's fair to say they were.
Speaker Change: Okay.
Speaker Change: Summarily down yes.
Speaker Change: And then just so just John doesn't feel neglected.
Speaker Change: [laughter].
Speaker Change: 36 million outflow in deferred taxes.
Speaker Change: Is that ongoing and sort of what's that about.
Speaker Change: Yes, it was mostly related to China dividend large trying to dividend we took in 2024.
Speaker Change: And so that was accrued for in 2023, but we pulled the cashback accordingly or something on the order of $100 million came back in.
Speaker Change: There is withholding taxes associated with that so that's more of a onetime item.
Speaker Change: So that number should go down 25, yeah. So I'd say, if you look at our tax impacts between the the withholding tax impact we did have a few.
Speaker Change: Some timing on other payments in 2025, some audit settlements timing on our European taxes that.
Speaker Change: <unk> made that number probably $20 million to $30 million higher than <unk>.
Speaker Change: Run rate and we anticipated that but that should be more less unfavorable next year.
Speaker Change: Uh huh.
Speaker Change: I guess lastly.
Speaker Change: Youre, bringing down your warehouses.
Speaker Change: And in the U S over time.
Speaker Change: Hmm.
Speaker Change: How many warehouses do you have in Europe.
Speaker Change: Oh, that's out there.
Speaker Change: That's the.
Speaker Change: We can talk about that on another call Jeff Let me go through the let me get from 55 to 10 in the U S first and really that shift in in the U S logistics structure you know.
Speaker Change: We're in the process of adding a tools.
Speaker Change: Tools and capabilities to allow us to more efficiently manage inventory to manage transportation and yes, I mean 55 warehouses.
Speaker Change: Being reduced to 10 is a significant challenge that's largely driven by a model shift so we're gonna be moving more toward a D C model.
Speaker Change: In the U S and we're testing these concepts these new systems and tools out in the U S.
Speaker Change: As in assuming they will be successful then we can redeploy them to other regions. So I think it's fair to assume that in Europe, we probably have a.
Speaker Change: A lot of warehouses also okay, alright, thank you very much.
Speaker Change: Our next question comes from David Begleiter from Deutsche Bank. Please go ahead. Your line is open.
Speaker Change: Good morning Gail.
Speaker Change: Good morning.
Speaker Change: As far as on engineering adhesives, he talk to what's driving the forecast of lower volumes.
And how much lower volumes are you forecasting that in that segment and 25.
Speaker Change: As far as forecasting for 'twenty and you want to talk about the sort of area. So I think just to kind of frame it David so.
Speaker Change: Our outlook on revenue as we talked about is organic revenue to be flat to up 2%, we've reflected slightly positive pricing, maybe one 2% and slightly negative volume down low single digits.
Speaker Change: If we think about how that looks.
Speaker Change: Hi.
Speaker Change: <unk> you.
Speaker Change: We're projecting that that.
Speaker Change: Engineering adhesives will be.
Speaker Change: Will be flattish next year.
Speaker Change: That.
Speaker Change: <unk> will be will be down low.
Speaker Change: Low single digits and.
Speaker Change: Yes.
Speaker Change: Up.
Speaker Change: Kind of low to mid single digits, so from a volume standpoint.
Speaker Change: Pricing in all three will be up.
Speaker Change: Kind of 1% to 2%, probably up one ish percent and and and and one ish percent NPA is up a little more in HFC. So volume as I said kind of down low single digits, and Hh see flattish in EMEA and up low single digits and a and b.
Speaker Change: Yes.
Speaker Change: What you were looking for.
Speaker Change: Very helpful.
Speaker Change: Given the macro forecast to call for growth this year.
Speaker Change: Pretty severe volume decline in 'twenty, three which you only partially got back to Tso.
Speaker Change: Why arent volumes up.
Speaker Change: In 2005.
Speaker Change: Well a few.
Speaker Change: Let's talk about some of the positive trends there. So one of the big factors will be that we will wrap around on the solar.
Speaker Change: The solar volumes right. So those started declining in Q2 that will start to improve in the second half of this year also we've been successful in winning in many of these markets we have grown our electron.
Speaker Change: Onyx business.
Speaker Change: Double digits, I mean, 2030% kind of rate, depending on which quarter. We're talking about so a lot of positivity, there and even though the oh, there's a lot of.
Speaker Change: Macro concerns over the automotive industry, we are growing the automotive space like Crazy and that's really a function of our innovation and ability to expand beyond being the interior trim leader in automotive two extra.
Speaker Change: Your your trim applications and even to the powertrain.
Speaker Change: In fact, we just took some business by introducing a highly thermally conductive silicone product for EV powertrains.
Speaker Change: And stuff.
Speaker Change: Stuff like acrylic based structural adhesives that bond spoilers onto the back of the cars in the area of exterior trim you have to be very fast curing high stress application.
Speaker Change: And actually very humidity resistant interestingly enough.
Speaker Change: Taking business in the headlamp space in automotive. So so there are some markets, where you would say oh that doesn't sound like it should be.
Speaker Change: A market that would foster growth, but in our case, we were able to grow despite.
Speaker Change: So the market underpinnings.
David Begleiter: And David I would say.
Speaker Change: We may be being a bit conservative around <unk> I think the.
Speaker Change: As we've said, we're projecting negative volume growth.
Speaker Change: Primarily from HFC and then flat.
Speaker Change: It started off stronger than that.
Speaker Change: Some of the things we're baking into our assumptions is that although our auto team has done a terrific job.
Speaker Change: Winning new business the macro trends arent good there so we're expecting that to be slower.
Speaker Change: Clean energy.
Speaker Change: As Les said, we will start to annualize against some of that.
Negative performance, we saw in the second half, but it'll still be a headwind in the first half of the year.
Speaker Change: But the other markets electronics durable assembly as I said has bounced back nicely. So hopefully we're conservative I think the team is setting higher targets than what we outlined.
Speaker Change: But there are a few macro headwinds that we're trying to reflect in our outlook.
Speaker Change: Understood and then just a good segway to Hh and see the guidance.
Speaker Change: Down I.
Speaker Change: I guess, two 3% volumes in 2025 given.
Speaker Change: Given the rapid deceleration in Q4.
Speaker Change: I would've thought we would see volume growth in 'twenty five is what else is.
Speaker Change: Underpinning that that forecast down.
Speaker Change: Two or three 4% volumes in 'twenty five.
Speaker Change: Agency <unk>.
Speaker Change: Well, it's predominantly the packaging business remaining weak and where we're seeing that still today.
Speaker Change: So thats had a big effect now of course, a lot of our H H C business is in Europe is in Europe. Europe is just broadly not a growth region and you know there's a.
Speaker Change: Overall.
Speaker Change: There's the consumer packaged goods space is one that is it's hard hard to predict going into the upcoming year.
Speaker Change: I'd say, David is we're going to be more aggressive on pricing.
Speaker Change: As we've discussed HFC I think to get back to the margins, we need them to get back or that's really where most of the pricing activity is going to have to happen and we may get some volume attrition from that and that's that's okay. So we've kind of reflected that in our assumptions as well.
Speaker Change: No very helpful. Appreciate that thank you guys.
David Begleiter: We announced this space, David where if if volumes.
David Begleiter: In any given region or globally are really weak, which is what we saw in recall 2023, we saw volume down 10% across the portfolio, that's where we have the opportunity to push much harder on our suppliers and mitigate some of the.
David Begleiter: EBITDA impact there should we actually get into a position like that.
David Begleiter: Yeah.
Speaker Change: Our next question comes from Patrick Cunningham from Citigroup. Please go ahead. Your line is open.
Speaker Change: Good morning, Patrick.
Speaker Change: I wanted to retry sort of the price cost question here I guess first I'm curious on how large of an impact whether it's to HFC or the whole business, how large raw material inflation was in <unk> and what impacts expected in <unk> and I also thought a decent portion of the price declines throughout the year.
Speaker Change: Were either index based contracts or re formulation pressure, where generally margin dollars preserving so I guess why have you been able to unable to pass that through and how confident should we be that you can push pricing HFC for 2025 in this depressed volume environment.
Speaker Change: Yeah, well the index price remember Patrick the index pricing does lag.
Speaker Change: Three to six months so.
Speaker Change: We've seen now this increase in raw material cost.
Speaker Change: The indexes will reflect that next year. So that's one component of this yes reformulation is ongoing for customers, particularly in a low volume environment and also in Q4, our teams were very successful renegotiating multi.
Speaker Change: 10 year contracts with very large customers that will be volume enhancing.
Speaker Change: So now that depending on the year, you'll see that maybe.
Speaker Change: Maybe two years three years out depending on what the overall market environment is for volume, but from a share perspective. The team did a very good job on those contracts. Some of that did have an impact on price in Q4.
Speaker Change:
Speaker Change: So, yes, and yes large impact of raws in Q4, when we look at the price raw material bucket for 2025, we're anticipating about a 55 billion dollar benefit to EBITDA next in this in this upcoming 2025 year.
Speaker Change: Add to that John just in terms of the impact in Q4, Patrick I'd say, it was probably $10 million unfavorable to Q3.
Speaker Change:
Which was largely unanticipated going into the quarter, we expected the raws to be pretty flat sequentially.
Speaker Change: Sequentially and so that was really what drove that margin compression, particularly in HFC and then.
Speaker Change: Q1, we would expect them to be flat sequentially to Q4.
Speaker Change: That's what we're seeing so far.
Speaker Change: Some expectation that we might see some improvement in Q2 based on some actions we are taking around changing sources of supply and other things and we should also see.
Speaker Change: The pricing actions, we're taking in Q1 really show up much much more in Q2.
Speaker Change: Okay.
Speaker Change: Very helpful. And then construction stood out as being particularly strong in 2025, how would you characterize the strong topline and margin performance, whether the data centers share gains or is it simply just lapping lapping destocking and then market growth in 2025 doesn't seem to be a given at this point.
Speaker Change: Why should volumes be up across the building segment.
Speaker Change: So in our roofing business in particular, which was the primary driver of CA as it has been reported.
Speaker Change: Theres a few positive things happening there one.
Speaker Change: One is first of all introduction of innovative products for example, our PG one <unk> eco <unk> adhesive product took share the other thing that happened in this current year is we added a business with a with a.
Speaker Change: With a large customer so we.
Speaker Change: Shifting share from a large customer.
Speaker Change: Across the board there so that that had a big influence and finally, we were playing in the right segments of the construction market that data center build for example, we don't see that abating anytime soon so we're playing in the right spaces in.
Speaker Change: <unk> do you think the construction market should continue to be strong for us because of those things and that occurred in 2024 that will reoccur in 2025, but yes. We are now annualizing against tougher comps from 2024.
Speaker Change: The other thing I guess, just ripped us to remember is.
Speaker Change: Yeah.
This is a little bit different portfolio than it was in 2024 as well in the sense that we have.
Speaker Change: Now have wood glass in composites, which did.
Speaker Change: Did not see the same type of positive macro trends around data centers and other things that we saw in the broader construction market are in roofing in particular so.
Speaker Change: So that's another reason we would expect.
Speaker Change: The.
Speaker Change: To be a little bit slower in 2025.
Speaker Change: Understood. Thank you so much.
Speaker Change: Our last question will come from Rosemary more belly from Gabelli funds. Please go ahead. Your line is open thank.
Speaker Change: Thank you good morning, everyone.
Speaker Change: Rosemarie.
Speaker Change: So listen I was wondering.
Speaker Change: How soon you said that fourth quarter was going to be below expectation.
Speaker Change: That was a surprise from and is there anything that you are doing currently.
Speaker Change: To better manage expectations. For example, can you help us in all of the different.
Speaker Change: Actions you are taking if anything is addressing that.
Speaker Change: Yeah absolutely.
Speaker Change: So we knew Q4 was going to be challenging in advance of Q4 in <unk>. In particular, we were we moved to put price increases in place not quickly enough Ted took too long for those too rude in given the lower volume we experienced.
Speaker Change: At the same time during that quarter.
Speaker Change: You know what are we doing about it.
Speaker Change: Because this is obviously top of.
Speaker Change: Our our list Rosemarie, we are aggressively re valuing Val re validating our cost reduction efforts that have been already underway. There those have been added to by the GPU leader the pricing actions that we already.
Speaker Change: Had in flight have been increased and enhanced so you should see better pricing performance from that business given the increase in raw materials or sourcing team has already.
Speaker Change: Reallocated business for some of these key H H C raw materials to other suppliers as a consequence of the cost increases what you were seeing from.
Speaker Change: Chinese consumption tax coming out of out of Asia.
Speaker Change: So it's it's all hands on deck Rosemarie not just longer term plans like the global footprint reduction, which will benefit the business, but also immediate actions that we're taking to address it.
And we have immediate action similarly underway in the CA business.
Speaker Change: CA margin was about 300 basis points lower than it should have been this quarter, we had some one time issues there.
Speaker Change: That the team is addressing and you know they as well are on top of pricing actions and cost reduction too.
Speaker Change: Improve the portfolio.
John Corcoran: And just in terms of his very helpful. I'm Sorry go ahead John.
Speaker Change: Just in terms you had asked sort of them out.
John Corcoran: What do we know.
John Corcoran: What was it when.
John Corcoran: When do we become aware how do we manage.
John Corcoran: The.
John Corcoran: Potential for these things and avoid surprises. So it was the impact in Q4 was definitely weighted to the second half of the quarter right. So if we looked at the results are P. 10 was very good capital.
John Corcoran: It kept us on track for delivering on our our expectations. It was really weakening in late October into November.
John Corcoran: Some of the markets, where we've seen softness coming into the quarter.
John Corcoran: <unk> energy as an example.
John Corcoran: It was down.
John Corcoran: In Q4.
John Corcoran: Pretty significantly but in line with our expectations. So we were able to anticipate that we weren't able to anticipate the weakness in.
John Corcoran: And the packaging of consumer products good space, just because it happened sort of in the middle to the latter part of the quarter.
Speaker Change: Okay that is very helpful. Thank you and I was just wondering looking at the H H she are there.
Speaker Change: Additional divestitures of either product lines or any specific categories that you think you should exit in order to get to your 20% EBITDA margin.
Speaker Change: Yes.
Speaker Change: Divesting anything out of this portfolio is very challenging because and again because our plants. While they are assigned to a GPU. They really are technology based.
Speaker Change: And we have such raw material scale that.
Speaker Change: That we get benefits from that across the portfolio.
Speaker Change: Flooring was very unique in a in that not being the case that was part of the reason why we divested so rather than looking for divestitures in the H H C space, we're very focused on how do we grow that portfolio in higher margin faster growing market.
Speaker Change: Segments I talked about flexible packaging, that's an area, where we're certainly focused in where the team has done a fantastic job growing the business.
Speaker Change: And Julien doing so profitably, but also in the medical space, that's an area, where our Hh see resources are being directed toward growth.
Speaker Change: And we had really an exciting win just recently Rosemarie were our secure port IV product was actually not only approved for use in Phoenix Children's hospital by the way. It's in use now in 10 of the top 10 children's hospitals in America, but also at Phoenix children's.
Speaker Change: Little they approved secure port IV for not just applications in the in the central IV catheter space, which is about 10% of that business, but they approved it for every catheter IV catheter application there in the facility.
Speaker Change: We're really seeing growth in higher margin much.
Speaker Change: Much more profitable faster growing spaces, even in this H H C business, where the medical business resides.
Speaker Change: We have no further questions I would like to turn the call back over to Celeste Mastin for closing remarks.
Celeste Mastin: Thank you very much for joining us today, we look forward to updating you on the business during the next quarter.
Celeste Mastin: Have a good day. This concludes today's conference call. Thank you for your participation you may now.
Celeste Mastin: Yeah.
Celeste Mastin:
Celeste Mastin: Yeah.
Celeste Mastin: Yeah.
Celeste Mastin: Yeah.