Q1 2025 H.B. Fuller Co Earnings Call

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Operator: Good morning and welcome everyone to the HB Fuller Q1 2025 Earnings Conference. All lines have been placed on mute to prevent any background After the speaker's remarks, there will be a question and answer session. like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again.

Good morning, and welcome everyone to the H B Fuller Q1, 'twenty to 'twenty five earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time same depressed star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star one again.

Thank you I would now like to turn the conference Robert is deeper zones may begin your conference.

Steven Brazones: I would now like to turn the conference over to Steve Brazones, who may begin your call. Thank you, operator.

Speaker Change: Thank you operator, welcome to H B Fuller's first quarter 2025, Investor Conference call presenting today are Celeste Mastin, President and Chief Executive Officer, and John Corcoran, Executive Vice President and Chief Financial Officer.

Celeste Mastin: Welcome to HB Fuller's first quarter 2025 inves Presenting today are Celeste Mastin, President and Chief Executive Officer, and John Corkrean, Executive Vice President. After our prepared remarks, we will have a question and answer session.

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

Celeste Mastin: Before we begin, let me remind everyone that our comments today will include references to certain on-gap These measures are supplemental to the results determined in accordance with the United States We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other Reconciliation of non-GAP measures to the nearest GAP measure are included in our Unless otherwise noted, comments about revenue refer to organic revenue.

Speaker Change: 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.

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-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.

Celeste Mastin: Comments about EPS, EBITDA, and profit margins refer to adjusted non- We will also be making forward-looking statements during Actual results could differ materially from these experts.

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 call.

Celeste Mastin: Comments made during this call and the risk factors detailed in our filings with the security all of which are available on our website at investors.hbfuller.com.

Speaker Change: 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 that H B Fuller Dot com.

Celeste Mastin: I will now turn the call over to Celeste. Thank you, Steven, and welcome, everyone. I'm encouraged by our first quarter financial performance and positive organic sales. Despite weak overall market conditions, we remain focused on maintaining pricing discipline, driving market share gains, and effectively managing our costs. Simultaneously, we continue to execute our long-term strategic plan to optimize our portfolio mix and streamline our manufacturing cost structure to drive our business toward our greater than 20% EBITDA margin target. As we look ahead, we remain cautious given weak overall market demand and unpredictable geopolitical conditions around the globe. Nevertheless, we are off to a solid start to the year and remain confident we can successfully adapt and execute in this dynamic environment to deliver both growth in organic sales and EBITDA for the year while expanding EBITDA markets.

Speaker Change: I will now turn the call over to <unk>.

Speaker Change: Thank you Steven and welcome everyone.

Speaker Change: I'm encouraged by our first quarter financial performance and positive organic sales growth. Despite weak overall market conditions, we remain focused on maintaining pricing discipline driving market share gains and effectively managing our cost structure.

Speaker Change: Simultaneously, we continue to execute our long term strategic plan to optimize our portfolio mix and streamline our manufacturing cost structure to drive our business towards our greater than 20% EBITDA margin target.

Speaker Change: As we look ahead, we remain cautious given weak overall market demand and unpredictable geopolitical conditions around the globe. Nevertheless, we are off to a solid start to the year and remain confident we can successfully adapt and execute in this dynamic environment to deliver both growth in <unk>.

Speaker Change: Organic sales and EBITDA for the year, while expanding EBITDA margin.

Celeste Mastin: Looking at our consolidated results in the first quarter, organic revenue increased 1.9% year-on-year, driven primarily by positive volume Consolidated pricing was also positive, as our index-based pricing headwinds have subsided, and we made solid progress on our price increase efforts, particularly in HHS. From a profitability perspective, EBITDA of $114 million, which was at the high end of our guidance range, declined year on year as expected and EBITDA margin was 14.5%. Keeping in mind, the first quarter is always our seasonally lowest margin quarter of the The impact of higher raw material costs more than offset positive pricing and volume less.

Speaker Change: Looking at our consolidated results in the first quarter organic revenue increased one 9% year on year, driven primarily by positive volume trends consolidated pricing was also positive as our index based pricing headwinds have subsided and we made solid progress on our price increase.

Speaker Change: <unk>, particularly in HFC.

Speaker Change: From a profitability perspective, EBITDA of $114 million, which was at the high end of our guidance range declined year on year as expected and EBITDA margin was 14, 5% keeping in mind. The first quarter is always our seasonally lowest margin quarter of the year.

Speaker Change: The impact of higher raw material costs more than offset positive pricing and volume leverage.

Celeste Mastin: As we progress through the year, we expect this trend to reverse, resulting in a favorable net benefit from price and raw material actions for the remainder of the year.

Speaker Change: As we progress through the year, we expect this trend to reverse resulting in a favorable net benefit from price and raw material actions for the remainder of the year.

Celeste Mastin: Now let me move on to review the performance in each of our segments in the first quarter. In HHC, organic revenue was up 4% year-on-year on solid volume growth and positive price Volume was up low single digits, driven by strength and hygiene and flexible pack Pricing was also positive as delayed price increases from the fourth quarter began to be realized. Positive volume trends in HHC are very encouraging and primarily reflect market share gains. However, we anticipate that market dynamics in HHC will remain challenging and variable for the remainder of 2025 due to weak consumer demand.

Speaker Change: Now let me move on to review the performance in each of our segments in the first quarter in Hh see organic revenue was up 4% year on year on solid volume growth and positive pricing volume was up low single digits, driven by strength in hygiene and flexible packaging.

Speaker Change: <unk> was also positive as delayed price increases from the fourth quarter began to be realized.

Speaker Change: The positive volume trend in Hh C are very encouraging and primarily reflect market share gains.

Speaker Change: However, we anticipate that market dynamics, and Hh C will remain challenging and variable for the remainder of 2025 due to weak consumer demand.

Celeste Mastin: HHC's EBITDA margin of 12.7% was down versus last year, as expected, as volume growth and pricing actions were more than offset by higher raw material We expect the price versus raw material dynamic to continue to improve throughout the year as we secure additional pricing gains and annualize against the impact of higher raw material. In engineering adhesives, organic revenue declined 2% in the first quarter. Strength in the electronics and automotive market segments was offset by ongoing challenges in silver. Excluding solar, organic growth was positive in the first quarter. EBITDA increased 16% in EA and EBITDA margin increased 180 basis points year-on-year to 18.7%.

Speaker Change: <unk> EBITDA margin of 12, 7% was down versus last year as expected as volume growth and pricing actions were more than offset by higher raw material cost.

We expect the price versus raw material dynamic to continue to improve throughout the year as we secure additional pricing gains and annualize against the impact of higher raw material costs.

Speaker Change: In engineering adhesives organic revenue declined 2% in the first quarter strength in the electronics and automotive market segments was offset by ongoing challenges in solar excluding solar organic growth was positive in the first quarter.

Speaker Change: EBITDA increased 16% in EBITDA and EBITDA margin increased 180 basis points year on year to $18, 7% favor.

Celeste Mastin: Favorable Net Pricing and Raw Material Cost Actions, Restructuring Benefits, and the ND Industries Acquisition drove the increase in EBITDA year on year. In Building Adhesive Solutions, or BAS, organic sales increased 2% year-on-year, driven by continued strength in roofing and improving trends in the infrastructure and mechanical market. Eva Duff for BAS increased 2% year-on-year as volume gains and restructuring savings were partially offset by higher variable companies. The first quarter for BAS is the seasonally lowest volume and EBITDA margin quarter. Geographically, America's organic revenue was down 1% year-on-year, driven by declines in HHC and EA, but largely offset by BAS, which achieved organic revenue growth of more than 8% year-on-year, driven by continued strength in revenue.

Speaker Change: <unk> net pricing and raw material cost actions restructuring benefits and the MD industries acquisition drove the increase in EBITDA year on year.

Speaker Change: In building adhesive solutions or Bas organic sales increased 2% year on year, driven by continued strength in roofing and improving trends in the infrastructure and mechanical market segment.

Speaker Change: EBITDA for Bas increased 2% year on year as volume gains and restructuring savings were partially offset by higher variable compensation. The first quarter for us is the seasonally lowest volume and EBITDA margin quarter.

Speaker Change: Geographically Americas organic revenue was down 1% year on year, driven by declines in <unk>, and EMEA, but largely offset by bas, which achieved organic revenue growth of more than 8% year on year driven by continued strength in roofing.

Celeste Mastin: In EIMEA, organic revenue increased 4 percent versus the first quarter of last year, driven by double-digit organic growth in HHS. Our hygiene business performed especially well, with several new customer wins and easier comparisons due to currency restrictions in the Middle East in the first quarter last In Asia Pacific, organic revenue increased 7% year on year.

Speaker Change: In EMEA organic revenue increased 4% versus the first quarter of last year, driven by double digit organic growth in Hh see our hygiene business performed especially well with several new customer wins and easier comparisons due to currency restrictions in the middle East in the first.

Speaker Change: Quarter last year.

Speaker Change: In Asia Pacific organic revenue increased 7% year on year strength in China was responsible for the majority of the growth in the Asia Pacific region.

John Corkrean: Strength in China was responsible for the majority of the growth in the Asia Pacific Now let me turn the call over to John Corkrean to review our first quarter results in more detail and our outlook for 2025. Thank you, Celeste. I'll begin with some additional financial details. Organic Revenue was up 1.9% year-on-year, with Volume up 1.7% and Pricing up 0.1%. Currency at a negative impact of 3.4% and acquisitions and divest... Adjusted gross profit margin was 29.6%. down 50 basis points versus last Volume Gains and Slightly Higher Pricing were Offset by Higher ROM . The adjusted selling, general, and administrative expense was up 2%.

Speaker Change: Now, let me turn the call over to John <unk> to review, our first quarter results in more detail and our outlook for 2025.

John Corcoran: Thank you Celeste I'll begin with some additional financial details on our first quarter for the quarter organic revenue was up one 9% year on year with volume up one, 7% and pricing up 0.2%.

John Corcoran: Currency had a negative impact of three 4% and acquisitions and divestitures decreased revenue by one 2%.

John Corcoran: Adjusted gross profit margin was 29, 6% down 50 basis points versus last year as volume gains and slightly higher pricing were offset by higher raw material costs.

John Corcoran: Adjusted selling general and administrative expense was up 2% year over year with acquisitions and higher variable compensation driving the increase partially offset by foreign exchange.

John Corkrean: with Acquisitions and Higher Variable Compensation driving the partially offset by. The adjusted EBITDA for the quarter of $114 million was down, as expected, versus last year, as volume gains, favorable pricing, and the contribution of acquisitions are more than offset by higher raw material costs, variable compensation, and unfavorable foreign Foreign exchange negatively impacted adjusted EBITDA by approximately $5 million. Adjusted Earnings Per Share of $0.54 was down versus the same quarter in 2024, driven by lower operating Cash flow from operations was down versus last year, as expected, driven by higher working capital needs associated with revenue. Previously communicated, cash flow delivery for 2025 is expected to be second half.

John Corcoran: Adjusted EBITDA for the quarter of $114 million was down as expected versus last year as volume gains favorable pricing and the contribution of acquisitions were more than offset by higher raw material costs variable compensation and unfavorable foreign exchange.

John Corcoran: Foreign exchange negatively impacted adjusted EBITDA by approximately $5 million year on year.

John Corcoran: Adjusted earnings per share of <unk> 54.

John Corcoran: Was down versus the same quarter in 2024, driven by lower operating income.

John Corcoran: Cash flow from operations was down versus last year as expected driven by higher working capital needs associated with revenue growth.

John Corcoran: As previously communicated cash flow delivery for 2025 is expected to be weighted to the second half of the year.

John Corkrean: Net debt to EBITDA of 3.5 times at the end of the first quarter was up versus 3.1 times at the end of 2025. Our long-term leverage target remains unchanged, so it will During the first quarter, we repurchased $678,000. Regarding our Capital Allocation Strategy Continually reassess the most effective and highest returning uses of our The recent volatility in the market has created an opportunity to prioritize share buybacks. We expect to continue to repurchase shares throughout the year on an opportunistic basis.

John Corcoran: Net debt to EBITDA of three five times at the end of the first quarter was up versus three one times at the end of 2020 for our long term leverage target remains unchanged at less than three times.

John Corcoran: During the first quarter, we repurchased 678000 shares regarding our capital allocation strategy, we continually reassess the most effective and highest returning uses of our capital.

John Corcoran: The recent volatility in the market has created an opportunity to prioritize share buybacks, we expect to continue to repurchase shares throughout the year on an opportunistic basis.

John Corkrean: As a result of this, as well as our commitment to achieving our targeted leverage We have temporarily slowed the timing of With that, let me now turn to our guidance for the 2025. as a result of our solid start to the year, which was largely consistent with our expectations. We are reiterating our previously communicated financial guidance. Net revenue is expected to be down 2-4% with organic revenue flat to up 2% Suggested EBITDA is expected to be in the range of $600 to $625 million. Equating the growth of approximately 1-5% year-on-year. Combined, these assumptions result in full year adjusted earnings per share in the range of $3.90 to $4.20.

John Corcoran: As a result of this as well as our commitment to achieving our targeted leverage range, we have temporarily slow the timing of M&A transactions.

John Corcoran: With that let me now turn to our guidance for the 2025 fiscal year.

John Corcoran: As a result of our solid start to the year, which was largely consistent with our expectations. We are reiterating our previously communicated financial guidance for fiscal 2025.

John Corcoran: That revenue is expected to be down 2% to 4% with organic revenue flat to up 2% year on year.

Adjusted EBITDA is expected to be in the range of $600 million to $625 million.

John Corcoran: Equating to growth of approximately 1% to 5% year on year.

John Corcoran: Combined these assumptions result in full year adjusted earnings per share in the range of $3 90 to $4 20.

John Corkrean: Equating the year-on-year growth of between 2% and Continue to expect full year operating cash flow to be between $300 and $325 million, weighted toward the second half of the year.

John Corcoran: Equating to year on year growth of between 2% and 9%.

John Corcoran: We continue to expect full year operating cash flow to be between 300 and $325 million.

John Corcoran: Weighted toward the second half of the year.

John Corkrean: Finally, based on the seasonality of our business, we would expect second quarter EBITDA in the range of $150 million to $160 million.

John Corcoran: Finally based on the seasonality of our business, we would expect second quarter EBITDA in the range of 150 million to $160 million.

Celeste Mastin: Now let me turn the call back over to Celeste to wrap up. Thank you, John. As we navigate the uncertainties of this year, we remain nimble in order to effectively execute in the current operating We are maintaining pricing discipline and being continuously selective about the markets we participate in, while simultaneously leveraging our global sourcing infrastructure to maintain our competitive advantage and drive margins. Our strategy to produce in the same region where we sell to customers results in optimal customer service and acts as a natural hedge against currency fluctuation. In the current environment, it also reduces our exposure to terror.

Speaker Change: Now, let me turn the call back over to <unk> to wrap us up.

Speaker Change: Thank you John as we navigate the uncertainties of this year, we remain nimble in order to effectively execute in the current operating environment focusing on what we can control, we are maintaining pricing discipline and being continuously selective about the markets we participate in.

Speaker Change: Simultaneously, leveraging our global sourcing infrastructure to maintain our competitive advantage and drive margin expansion.

Speaker Change: Our strategy to produce in the same region, where we sell to customers results in optimal customer service and acts as a natural hedge against currency fluctuations in the current environment. It also reduces our exposure to tariffs in fact on average.

Celeste Mastin: In fact, on average, 97% of what we sell in a region is produced in the same region. Our unique operating model of sourcing, producing, and selling in-region, as well as the scale of our raw material infrastructure, the fact that we make up an extremely small portion of our customers' overall cost of goods, and our customers' willingness to pay for innovation sets us apart from our peers in the coatings and specialty chemicals .

Speaker Change: 97% of what we sell in our region is produced in the same region.

Speaker Change: Our unique operating model of sourcing producing and selling in region as well as the scale of our raw material infrastructure. The fact that we make up an extremely small portion of our customers' overall cost of goods and our customers' willingness to pay for innovation sets.

Speaker Change: Apart from our peers in the coatings and specialty chemicals industries.

Celeste Mastin: From a strategic perspective, we are focused on streamlining our cost structure, improving our operational efficiency, and optimizing the mix of our portfolio. We are confident in our strategic direction and our ability to drive sustained growth in organic sales and e-commerce. Our profitability goals aren't dependent on a robust, market-driven volume recovery. but are instead company-specific self-help initiatives that we are well-positioned to execute.

Speaker Change: From a strategic perspective, we are focused on streamlining our cost structure, improving our operational efficiency and optimizing the mix of our portfolio.

Speaker Change: We are confident in our strategic direction and our ability to drive sustained growth in organic sales and EBITDA.

Speaker Change: Our profitability goals arent dependent on a robust market driven volume recovery, but are instead company specific self help initiatives that we are well positioned to execute upon.

Celeste Mastin: We look forward to providing you more information in the quarters ahead on these initiatives and a detailed update during our next Investor Day, scheduled for October 20th, later this That concludes our prepared remarks for today.

Speaker Change: We look forward to providing you more information in the quarters ahead on these initiatives and a detailed update during our next Investor day scheduled for October 20th later this year.

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

Operator: Operator, please open the line. We will now begin the 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 keypad. And if you would like to withdraw your question, press star 1 again. Thank you.

Speaker Change: We will now begin the 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 keypad.

Speaker Change: Again, if you would like to withdraw your question Press Star one again, thank you.

Ghansham Panjabi: And your first question comes from the line of Ghansham Panjabi with Baird. Ghansham, please go ahead. Thank you. Good morning, everybody. Morning, Ghansham. Morning. You know, you know, obviously there's a lot of stuff going on with the news flow and tariffs and so on and so forth. Is there? Absolutely, Ghansham Panjabi.

Ghansham Panjabi: And your first question comes from the line of Ghansham Panjabi with Baird Ghansham. Please go ahead.

Ghansham Panjabi: Thank you operator, and good morning, everybody.

Ghansham Panjabi: Good morning Ghansham.

Ghansham Panjabi: Good morning.

John Corcoran: Obviously, theres a lot of stuff going on with the news flow and tariffs and so on and so forth.

John Corcoran: Is there can you just give us a sense as to what youre seeing from an operating condition standpoint as it stands today in terms of customers and how they're thinking about.

John Corcoran: Through this volatility and also.

John Corcoran: Your sense as to whether there was any benefit in either one.

John Corcoran: Part of <unk> from.

John Corcoran: Pre buying et cetera in front of the April 2nd reciprocal tariffs.

Ghansham Panjabi: Yeah, absolutely ghansham.

Celeste Mastin: So as to the question related to pre-buying, I don't think we're seeing that here in the United States or around the world for that matter. You know, certainly our customers have been cautious. They've been hesitant. They do continue to focus on innovation and new product development, which I think is very encouraging. But as far as pre-buying, you know, I think if we were, if we had seen pre-buying, it would have been in more of the durable goods types of products in the United States in particular. And that market was very weak for us. So I don't think we're seeing it at this.

Ghansham Panjabi: As to the question related to pre buying.

Speaker Change: Don't think we're seeing that here in the United States or around the world for that matter.

Speaker Change: Certainly our customers have been cautious they've been hesitant.

Speaker Change: They do continue to focus on innovation and new product development, which I think is very encouraging.

Speaker Change: But as far as pre buying.

Speaker Change: I think if we were if we had seen pre buying it would've been in more of the durable goods types of products in the United States in particular and that that market was very.

Speaker Change: Very weak for us.

Speaker Change: So I don't think we're seeing it at this point.

Speaker Change: Got it.

Ghansham Panjabi: And then as it relates to, you know, the market. Can you repeat that last part of that question, Ghansham? I lost you there. Yeah, just in terms. Yeah, the impact. Mm hmm. Yeah. Okay. Yeah. So as far as market share, yeah, we were we were, we have been gaining share in multiple segments across the portfolio. My comments were specific to HHC. So recall in HHC in that hygiene space, in particular, we've really taken a step back and looked critically at where are the customers and the end applications where we should be playing? Where do we really create value?

Speaker Change: And then as it relates to the market share comments I think it was specific to <unk>.

Jason: Hey, Jason.

Jason: Youre right.

Jason: I guess to the consumer end markets business.

Speaker Change: Can you just give us a broader sense as to the competitive environment at this point.

Speaker Change: And then also give us an update on some of the previous call outs for before as it relates to solar weakness and also.

Speaker Change: The impact of hydrogenated hydrocarbon.

Speaker Change: That impacted price mix price costs I should say.

John Corcoran: Can you repeat that last part of that question Ghansham I lost you there in terms the impact of.

John Corcoran: Raw material cost inflation, I think you called out some unique movement in China as it relates to hydrogenated hydrocarbon.

John Corcoran: Yes, okay, yes, so as far as market share. Yes. We were we were we have been gaining share in multiple segments across the portfolio. My comments were specific to H H C. So recall in Hh seeing that hygiene space in particular, we've really taken a step back and looked critically at what.

John Corcoran: Or are the customers and the end applications, where we should be playing where.

John Corcoran: Or do we really create value and how do we how do we capture that value from customers.

Celeste Mastin: And how do we how do we capture that value from customers? And so in the hygiene market, in particular, the company has taken share with about five large global customers. So they've done a really nice job repositioning, they've moved away from some of the cheaper Chinese baby diapers, and they're winning with innovation. In fact, we just had a win in Latin America where we were able to bring a product that uniquely benefited a customer with a fluffless core. So we've seen some nice work out of the hygiene group there.

John Corcoran: So in the hygiene market in particular.

John Corcoran: The company has taken share with about five large global customers. So they've done a really nice job repositioning they've moved away from some of the cheaper Chinese baby diapers and Theyre, winning with innovation in fact, we just had a win in Latin.

John Corcoran: In America, where we were able to bring a product that uniquely benefited our customer with a fluff list core. So we've seen some nice work out of the hygiene group there in in the solar space.

Celeste Mastin: In in the solar space, it remains very competitive, what you're going to see throughout the course of the year is that revenue will be constrained in our solar business. However, you will see margins improve in that particular business. And again, it's a repositioning, as we're moving away from the cheaper Chinese panels, where technology is not valued as much as it is in some of the more higher end panels that drive higher efficiency and customers that really desire the innovation that we can bring. And as far as raw material inflation, yeah, we really saw kind of a big slug of that move through the portfolio in Q1.

John Corcoran: It remains very competitive what youre going to see throughout the course of the year is that revenue will be constrained in our solar business.

John Corcoran: However, you will see margins improve in that particular business and again, it's a repositioning as we're moving away from the cheaper Chinese panels, where where technology has not valued as much as it is in some of the more.

John Corcoran: More higher end panels that drive higher efficiency and customers that really desire.

John Corcoran: Innovation that we can bring.

John Corcoran: And as far as raw material inflation, yes, we really saw kind of a big slug of that move through the portfolio. In Q1, you saw it in Q4, we've seen the tail end of that in Q1 in particular in the <unk> business that was the reason for the compressed EBITDA margins and HHS.

Celeste Mastin: You seen the tail end of that in Q1. In particular, in the HHC business, that was the reason for the compressed EBITDA margins in HHC. And we're now at a point where we've moved that through the system. And we're in a much better position now to deliver on the $55 million of price and raw material cost benefits that we have guided to for the rest of the year.

John Corcoran: See.

John Corcoran: And we're now at a point, where we've moved that through the system and we are in a much better position now to deliver on the $55 million of price and raw material cost benefits that we have guided to for the rest of the year.

John Corcoran: Perfect. Thank you very helpful.

Kevin Mccarthy: Your next question comes from the line of Kevin McCarty with Vertical Research Partners.

John Corcoran: Your next.

Speaker Change: Question comes from the line of Kevin Mccarthy with vertical Research partners. Kevin. Please go ahead.

Kevin Mccarthy: Kevin, please go ahead. Yes, thank you. Good morning, everyone. Celeste, just to follow up on HHC, you comment on your outlook for pricing there. And then if we take into account, prospective pricing and the share gains that you referenced. How would you describe your level of confidence in restoring the segment EBITDA margin? say 15% or more. What are you baking? the margin profile in HHC within your overall guidance.

Kevin Mccarthy: Yes. Thank you good.

Speaker Change: Morning, everyone.

Speaker Change: Just to follow up on H H C. Can you comment on your outlook for pricing there and then if we take into account.

Speaker Change: <unk> pricing and the share gains that you referenced how would you describe your level of confidence in restoring the segment EBITDA margin to.

Speaker Change: 15% or more or what are you baking in for the margin profile.

Speaker Change: <unk> see within your overall guidance. Thank you.

Celeste Mastin: Thank you. Yeah, we are.

Speaker Change: Yes. Thank you Kevin we're now at a point, where we are going to continue to see improving margins in Hh see throughout the rest of the year there'll be more so up in that normalized range, where they should be ideally that business is operating in a 16% to 17%.

Celeste Mastin: Thank you, Kevin. We're we're now at a point where we are going to continue to see improving margins in HHC throughout the rest of the year. They'll be more so up in that normalized range where they should be. Ideally, that business is operating in a 16 to 17% EBITDA margin range. We did push through price increases, as I mentioned, in Q4 that got delayed because of the volume in that quarter. And so we're starting to realize those now in Q1. You saw a little bit of that. You'll continue to see more of that distributed throughout the year with overall, for the business, a better raw material position.

Speaker Change: <unk> EBITDA margin range, we didn't push through price increases as I mentioned in Q4 that got delayed because of the low volume in that quarter.

Speaker Change: So we're starting to realize those now in Q1, you saw a little bit of that and you'll continue to see more of that distributed throughout the year with with.

Speaker Change: Overall for the business are better raw material position.

John Corkrean: and Kelly. Thank you for that. just wanted to give you your question on kind of assumptions on pricing and margin expectations. So we've, we've said that for the full year, we expect pricing to be, you know, up one to 2%, the majority of that should come from HHC. And you saw that they're, you know, starting to get some traction in that area in Q1. Accelerate. from a margin standpoint, yeah, we would we would anticipate that the, you know, the last three quarters of the year are going to be even on margin ranges. As we execute that pricing and we see some of this unfavorable raw material impact.

And Kevin and thank you for that.

Speaker Change: Just wanted to give you a question on kind of assumptions on pricing and margin expectation. So.

Speaker Change: We've said that for the full year, we expect.

Speaker Change: Pricing to be.

Speaker Change: 1% to 2% the majority of that should come from HFC and you saw that they're starting to get some traction in that area in Q1 that should accelerate.

Speaker Change: From a margin standpoint, yes, we would we would anticipate that the.

Speaker Change: Three quarters of the year are going to be in that.

Speaker Change: Closer to 15% to 17%.

Speaker Change: EBITDA margin range as we as we execute that pricing and we see some of this unfavorable raw material impacts subside.

John Corkrean: Okay, that's helpful. And then maybe as a follow up for you, John, it looks like working capital was an appreciable drag. And I think last quarter, you had signaled, you know, the back end loaded nature of the cash flow profile for fiscal 2025. But, you know, water under the bridge, maybe you can just update us on your thoughts about working capital and your level of confidence in, in achieving that cash from operations range of 300 to 325. I guess that would imply, you know, 350 plus in the remaining nine months, maybe you can just kind of talk, talk through what you're seeing.

Speaker Change: Okay. That's helpful. And then maybe as a follow up for you John It looks like working capital was an appreciable drag and I think last quarter you had signaled.

Speaker Change: The backend loaded nature of the cash flow profile.

Speaker Change: For fiscal 2025, but what water under the bridge, maybe you can just update us on your thoughts about working capital and your level of confidence.

And achieving that cash from operations range of 300 to $303 25, I guess that would imply $3 50, plus and the remaining nine months, maybe you can just kind of talk through.

Speaker Change: What youre seeing there.

John Corkrean: Yeah, sure. And in the cash flow story is largely a working capital story with, you know, the need to build some working capital related to this, you know, volume and pricing growth we're seeing. So it's not surprising that we would see the increase in working capital, it's a little bit higher than we expected in Q1. And so, you know, delivering on the full year, a part of that will just be kind of getting into these normalized trends for Q2 through Q4. But we'll also, we also have some self help actions to all of those, just to drive an improvement year on year and working at a percentage.

Speaker Change: Yes sure in the cash flow story is largely a working capital story with the.

Speaker Change: The need to build some working capital.

Speaker Change: Related to this.

Speaker Change: Volume and pricing growth, we're seeing so it's not surprising that we would see the increase in working capital, it's a little bit higher than we expected in Q1.

Speaker Change: And so delivering on the full year, a part of that will just be kind of getting into these normalized trends for Q2 through Q4, but will will also we also have some self help actions too.

Speaker Change: To drive an improvement year on year in working capital as a percentage that should improve.

John Corkrean: That should improve steadily as we go throughout the year. The other big driver is we think about cash flow, you know, sequentially versus Q1 is just, you know, profit will will increase as we go through the year. And it's it's a little bit of a mirror of what we saw last year with raw materials being such a tailwind in the first half of the year and then a headwind in the second. I'd say if you looked at our 2023 cash flow by quarter, it's a much better It's a much better comparison to what we expect to see in 2020.

Speaker Change: Steadily as we go throughout the year the other big driver as we think about cash flow sequentially versus Q1 is just profit will will increase as we go through the year and it's a little bit of a mirror, what we saw last year with raw materials being such a tailwind in the first half of the year and then a headwind in the second half.

Speaker Change: And I'd say, if you looked at our 2020 free cash flow by quarter, it's a much better.

Speaker Change: It's a much better comparison to what we expect to see in 2025.

Speaker Change: Okay.

John Corkrean: Thank you very much.

Speaker Change: Got it thank you very much.

Kevin Mccarthy: Thanks, Kevin.

Speaker Change: Thanks, Kevin.

David Begleiter: And your next question comes from the line of David Begleiter with Deutsche Bank. David, please go ahead. Thank you. Good morning. Morning, David.

Speaker Change: And your next question comes from the line of David Begleiter with Deutsche Bank. David. Please go ahead.

David Begleiter: Thank you good morning.

Speaker Change: David <unk>.

Celeste Mastin: Celeste, can you talk about March? Are you seeing a normal seasonal uptick in demand, or has there been some maybe pushout? Yeah, so when you look at, just maybe take a step back, and we'll talk about progression through Q1, you know, we, we, we had a strong p3 in Q1. So that would have been February. And we're continuing to see progression like that throughout this quarter. So I, we're not seeing customers push, push volumes, you know, out or move them forward. You know, it's not really a volume story. Anyway, it's just like a slow, steady crawl of volume that we're that we're experiencing in the market.

Speaker Change: Les can you talk about March are you seeing the a normal seasonal uptick in demand or has there been some maybe pushed out into April given the trade and tariff uncertainties.

Speaker Change: Yes. So when you look at just maybe take a step back and I'll talk about progression through Q1.

Speaker Change: We had a strong P. Three in Q1, so that would have been in February and we're continuing to see.

Speaker Change: Progression like that throughout this quarter.

Speaker Change: So.

Speaker Change: We're not seeing customers push push volumes.

Speaker Change: Out or move them forward.

Speaker Change: <unk>.

Speaker Change: It's not really a volume story anyway, its just like a slow steady crawl of volume that we're that we're experiencing in the market.

John Corkrean: Hey, David, just to give you a little bit of color, because we've talked, I think, you know, all the questions we've had right now also evolved around Q1, revenue performance and volume. We're, as we said, in our guidance, which is unchanged, we're expecting volume and pricing organic revenue to be up one to 2% with most of that from pricing. So we've, we've forecasted the rest of this year with pretty flat volume, so we're not counting on kind of the, the improvement we saw in Q1, if that, if that transpires, that'll be an upside, but we're, we're expecting that the volume growth.

Speaker Change: Hey, David just to give you a little bit of color because I.

Speaker Change: I think.

Speaker Change: The questions. We've had right now also evolved around Q1 revenue performance and volume as we said in our guidance, which is unchanged we are expecting volume.

Speaker Change: And pricing organic revenue to be up 1% to 2% with most of that from pricing. So we've we've forecast for the rest of this year with pretty flat volume. So we're not counting on kind of the.

Speaker Change: The improvement we saw in Q1.

Speaker Change: If that transpires that'll be an upside, but we're we're expecting that.

Speaker Change: Volume growth in Q2 through Q4 will be a little constrained versus versus what it was in Q1.

Celeste Mastin: very good.

John Corkrean: And just with leverage at three and a half turns, and the macro and certain how are you thinking about debt reduction versus share buybacks for the rest Yeah, so so what one of the comments that we made in the script was that we have Delayed some of our M&A pipeline and the transactions there they're in, you know That's largely in response to the leverage that you just pointed out, you know, three and a half times is is Stands out in this particular environment. And so we're moving a little more slowly there on Share buyback we announced last year that we would be buying back shares to counteract the creep that we have due to our compensation plans and we Accelerated those buybacks in the first quarter.

Speaker Change: Very good and just with leverage of three five turns and the macro uncertain. How are you thinking about that.

Speaker Change: Debt reduction versus share buybacks for.

Speaker Change: For the rest of the year.

Speaker Change: Yes, so so one of the comments that we made in the script was that.

Speaker Change: We have.

Delayed some of our M&A pipeline and the transact transactions there Darrin that's largely in response to the leverage that you just pointed out.

Speaker Change: Three five times.

Speaker Change: Is is stands out in this particular environment and so we're moving a little more slowly there on share buyback, we announced last year that we would be buying back shares to counteract the creep that we have due to our compensation plans.

Speaker Change: And we accelerated those buybacks in the first quarter in fact.

John Corkrean: In fact Now we're looking at share buyback very opportunistically Very good. Thank you.

Speaker Change: Now, we're looking at share buyback very opportunistically.

Speaker Change: Very good thank you.

Speaker Change: Yeah.

Speaker Change: Yeah.

Mike Harrison: And your next question comes from the line of Mike Harrison with Seaport Research Partners. Mike, please go ahead. Hi, good morning.

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

Mike Harrison: Hi, good morning.

Celeste Mastin: I was hoping that you could talk a little bit about what you guys are seeing in China. We've heard some conflicting comments on kind of what trends have looked like since the end of Lunar New Year. I'm just curious if you can talk about what you're seeing and kind of what your expectations are over the next few months or few quarters. Absolutely, Mike. So in China, we're seeing, you know, mid to high single digit growth. In fact, both businesses, HHC and EA performed very well there in Q1. HHC, as you'll recall, repositioned their portfolio, really focusing around higher growth, higher margin opportunities and applications where we had a lot of value.

Mike Harrison: I was hoping that you could.

Speaker Change: Talk a little bit about what you guys are seeing in China. We've heard some conflicting comments on kind of what trends have looked like.

Mike Harrison: Since the end of lunar new year.

Mike Harrison: Just curious if you could talk about what youre seeing and kind of what your expectations are over the next few months or few quarters.

Speaker Change: Absolutely Mike So in China, we are seeing.

Speaker Change: Mid to high single digit growth in fact, both businesses <unk> and EEA performed very well there in Q1.

Speaker Change: H H C. As Youll recall, we repositioned their portfolio really focusing around a higher growth higher margin opportunities and applications, where we add a lot of value in China, that's been successful and in the EEA business.

Celeste Mastin: In China, that's been successful. And in the EA business, that team is just doing a fantastic job taking share in electronics and in EVs. And in fact, if you strip out the impact of solar on the EA business in China in the quarter, it was up high 15. So the business is performing very well there.

Speaker Change: That team is just doing a fantastic job taking share in electronics and in Evs and in fact, if you strip out the impact of solar on the EEA business in China in the quarter. It was up high teens.

Speaker Change: So the business is performing very well there as far as the overall environment. It is an interesting one we don't participate there in the construction space and I'm pretty glad about that right now.

Celeste Mastin: As for the overall environment, it is an interesting one. We don't participate there in the construction space, and I'm pretty glad about that right now. Consumer electronics for us was flat, flat to just slightly up. So I do think in some of the smaller electronics, there is really weak consumer demand there. I don't know if you've heard about the cell phone upgrades that normally would have been announced by now by Chinese producers getting delayed a bit. We're clearly seeing that. But the team's doing a good job repositioning EA as well in Asia and in China, in particular, away from solar, more so into these applications where we've already been having success, and now redefining how they're looking at our general industries segment, seeing wins in MRO, in appliances, in electrical motor applications there.

Speaker Change: Consumer electronics for US was flat flat to just slightly up so I do think in some of the smaller electronics.

Speaker Change: There is really weak consumer demand there I don't know if you've heard about this cell phone upgrades that normally would have been announced by now by Chinese producers getting delayed a bit we're clearly seeing that.

Speaker Change: But the team is doing a good job repositioning ebay as well in in Asia and in China in particular away from solar more so into these applications, where we've already been having success and now redefining how theyre looking at our general industry segment.

Speaker Change: <unk> seen wins in MRO in appliances, and electrical motor applications there.

Mike Harrison: So our experience in China is good and continues to be good, and I think will remain so. All right, that's great to hear.

Speaker Change: So we're our experience in China is good and continues to be good I think will remain so.

Speaker Change: Alright, Thats, great to hear and then I wanted to ask you about in the news we've seen that there has been a recent recall on Tesla fiber trucks because of issues with the adhesive bonding.

Celeste Mastin: And then I wanted to ask you about, in the news, we've seen that there's been a recent recall on Tesla's Cybertrucks because of issues with the adhesive bond So I wanted to ask, is that a Fuller adhesive, if so, I'm sure this would not be the first time you've had, you know, maybe an issue with performance, you know, how do you manage through a recall or kind of warranty issue like that? And if not, you know, is this an opportunity for you guys to step in and maybe pick up some, you know, some, some, some business, repairing those recall vehicles, and maybe using your adhesives in the future, rather than something that that wasn't Mike, that was absolutely not an HB Fuller product.

Speaker Change: So I wanted to ask is that a fuller adhesives.

Speaker Change: So.

Speaker Change: I'm sure. This would not be the first time, you've had maybe an issue with performance here, how do you manage through a recall or kind of a warranty issue like that and if not.

Speaker Change: Is this an opportunity for you guys to step in and maybe pick up some.

Speaker Change: Awesome.

Some business repairing those recalled vehicles and maybe.

Speaker Change: Using your adhesives in the future rather than something that there wasn't working.

Speaker Change: Mike that was absolutely not an H b fuller product and and in fact, it even emphasizes the opportunity that we have.

Celeste Mastin: And in fact, it even emphasizes the opportunity that we have. You know, our team has continued to grow that automotive business. Despite seeing some market declines, they've continued to take share, and they're taking share through innovation. And so, you know, if you look at the business today, we're the world leader in interior trim applications in automotive. I've talked previously about us expanding the business into exterior trim applications. This is a great example of an exterior trim application where customers need to work with a partner like HB Fuller that has highly technical, successful products to bring as a solution.

Speaker Change: Our team has continued to grow that automotive business.

Speaker Change: Despite seeing some market declines they've continued to take share and they're taking share through innovation and so if you look at the business today, we're the world leader in <unk>.

Speaker Change: Interior trim applications in automotive I've talked previously about us expanding the business into exterior trim applications. This is a great example of an exterior trim application where customers need to work with a partner like H B Fuller that has.

Speaker Change: Highly technical successful products to bring as a solution.

Celeste Mastin: And so, yes, I think there's a lot of opportunity for us in that market. And I've talked also previously, Mike, about, as we look at our top 20 opportunities to grow this business, the highest margin, fastest growing spaces, one of those is structural adhesives. And this is a good example of an application where structural adhesive from HB Fuller would be successful. Well, I've seen some of the videos of that. I didn't think it was your product, but I want So thank you for the.

Speaker Change: And so yes, I think theres a lot of opportunity for us in that market and Ive talked also previously Mike about as we look at our top 20 opportunities to grow this business the highest margin fastest growing spaces. One of those is structural adhesives and this is a good example of an application where structural adhesive.

Speaker Change: <unk> from H B Fuller would be successful.

Speaker Change: I've seen some of the videos of that.

Speaker Change: I didn't think it was your product.

Speaker Change: Wanted to chat so thank you for the detail there.

Celeste Mastin: Thank you for asking.

Speaker Change: Thank you for asking.

Speaker Change: Okay.

Jeff Zekauskas: And your next question comes from the line of Jeff Zekauskas with J.P. Morgan. Jeff, please go ahead. Thanks.

Speaker Change: And your next question comes from the line of Jeff Zekauskas with Jpmorgan, Jeff. Please go ahead.

Jeff Zekauskas: Thanks very much.

Celeste Mastin: Um, your solar business has been for a while, do we have maybe another quarter to go before we lap comparisons and that Unstabilized. So, so Jeff, that business will on a top line, continue to be weak throughout the rest of the year. And the reason for that is, we are repositioning that business away from certain applications, certain suppliers, you know, some of the cheaper panels that don't have high efficiency, and we're migrating the business into the more demanding, innovation driven applications, particularly in the panels of the future, with higher efficiency. So while you're going to continue to see this revenue drag on that business throughout the rest of the year, the margins on that business will appreciate significantly.

Speaker Change: Your solar business has been weak.

Speaker Change: For a while do we have maybe another quarter to go before we lap comparisons in that.

Speaker Change: Business begins to stabilize in China.

Speaker Change: Yeah.

Speaker Change: So suggest that business will on a top line continued to be weak throughout the rest of the year and the reason for that is we are repositioning that business away from <unk>.

Speaker Change: Certain applications certain suppliers some of the cheaper panels that don't have high efficiency and we're migrating the business into the more demanding innovation driven applications, particularly in the panels of the future with higher efficiencies so while <unk>.

Speaker Change: We're going to continue to see this revenue drag on that business throughout the rest of the year the margins on that business will appreciate.

Speaker Change: <unk> significantly.

Speaker Change: Yeah.

John Corkrean: Maybe another way to ask it is what was the EBITDA penalty from that in the quarter? Or what do you expect? Yeah, so, you know, I would say that this is a business, Jeff, that is probably, you know, down, it's a $100 million business in terms of revenue. Last year, it'll probably be down about 20% year on year. You know, a pretty decent margins, you know, in the 35% kind of flow through margin. So, you know, $20 million and a 35% flow through is kind of the negative drag we have related to solar from an EBITDA standpoint.

Speaker Change: Well, maybe another way to ask it is what was the EBITDA penalty from that in the quarter or what you expect the EBITDA a penalty to pay for the year.

Speaker Change: And Paula.

Speaker Change: Yeah. So I would say that this is a business Jeff that is probably.

Speaker Change: Down $100 million business in terms of revenue last year will probably be down about 20% year on year.

Speaker Change: Pretty decent margins when the.

Speaker Change: 35, 35% kind of flow through margin so 'twenty.

Speaker Change: $20 million and 35% flow through is kind of the negative drag we have related to solar from an EBITDA standpoint.

Speaker Change: Okay.

Speaker Change: Okay.

Celeste Mastin: In terms of raw materials, what's going up? And is it more a raw material or a set of raw materials that's peculiar to HHS? and that, you know, I don't really see much margin deterioration. Yeah, so raw materials are are in about 20% of the portfolio is increasing. If I look at it from a from a material count, you know, we monitor 4000 different raw materials, because we've got so many different rods going into the business. So there is a segment of those that are inflationary, a lot of those were in HHC. And those, those continue to increase.

Speaker Change: In terms of raw materials.

Speaker Change: What's going up and is it more a raw material or a set of raw materials that's peculiar.

Speaker Change: A change.

Speaker Change: And that.

Speaker Change: I don't really see much margin deterioration in the other customers.

Speaker Change: Yes, so raw materials are our inquiry about 20% of the portfolio is increasing if I look at it from a from.

Speaker Change: From a material count we monitor 4000 different raw materials, because we've got so many different raws going into the business.

Speaker Change: So there is a segment of those that are inflationary a lot of those were in Hh C.

Speaker Change: And those those continue to increase.

John Corkrean: And again, we're reacting by driving price and also reallocating raw materials to different suppliers around the globe. And Jeff, just to comment on raw material movement. You know, it's it's pretty flat sequentially from Q4 to Q1. So I know we made a lot of comments in our prepared remarks around the negative impact of raw materials on EBITDA versus last year. But that's primarily a carryover impact for the increases we saw last year, they're pretty, pretty flat sequentially from Q4 to Q1. And that's why we know that, you know, to the extent raw materials stay flat for the rest of this year, or we drive savings.

Speaker Change: And again were reacting by driving price and also reallocating raw materials two different suppliers.

Speaker Change: Around the globe.

Speaker Change: Geoff just to comment on the raw material movement.

Speaker Change: It's pretty flat sequentially from Q4 to Q1, so I know we made a lot of comments in our prepared remarks around the negative impact of raw materials.

Speaker Change: EBITDA versus last year, but thats, primarily a carryover impact for the increases we saw last year, they are pretty pretty flat sequentially from Q4 to Q1.

Speaker Change: And that's why we know that.

Speaker Change: To the extent raw materials stay flat for the rest of this year or we drive savings.

John Corkrean: that we'll start to see a year-on-year favorable comparisons of raw materials as we annualize against last year.

Speaker Change: That will start to see a year on year favorable comparisons in raw materials as we annualize against last year's increases.

John Corkrean: And then lastly. or maybe there are two left. Your pre-tax charges in the quarter were about $23 million. But about 10 of the 10 were acquisition protocols. So I guess those will go away. So maybe your non-recurring charges for the remainder of the year or another 30 million, you did 22 or 23 or so. So maybe your non-recurring $35 million pre-tax. Is that a reasonable estimate? Yeah, that's a reasonable estimate, maybe even a little bit lower than that, Jeff. And you're right, the biggest impact in the quarter was acquisition costs. Of that $10 million, over six was related to the flooring divestiture, so that obviously isn't repeating.

Speaker Change: And then lastly.

Speaker Change: I don't know maybe there to us.

Speaker Change: Yes.

Speaker Change: Youre, a pre tax charge offs in the quarter were about $23 million, but about 10 of the 10 or acquisition product costs.

Speaker Change: So I guess those will go away.

Speaker Change: So maybe your nonrecurring charges for the remainder of the year or another 30 million you.

Speaker Change: You did 22 or 23 or so.

Speaker Change: So maybe your nonrecurring items or $55 million pre tax for the year is that a reasonable estimate yes, that's a reasonable estimate and maybe even a little bit lower than that Geoff and you're right. The biggest impact in the quarter was acquisition costs of that $10 million.

Speaker Change: Over six was related to the flooring divestiture. So that obviously isn't repeating we will have a little bit of activity related to acquisition.

John Corkrean: We will have a little bit of activity related to acquisition. Activity that's ongoing, but that number should get smaller. And so I think, you know, I'm thinking this number is probably in the $40 to $50 million pre-tax.

Speaker Change: Activity that's ongoing.

Speaker Change: But that number should get smaller.

Speaker Change: And so I think.

Speaker Change: Thinking this number is probably in the $40 million to $50 million pre tax range.

Celeste Mastin: And lastly, can you talk about whether I know you commented already. Yeah, so so if you look at our 30 segments, in Q1, we saw half of those accelerating. So that's a those are global market segments. So about 16. Now, if you looked at, you know, those 30 market segments, in Q4, only eight were accelerating. So, you really, you know, twice as many of our market segments are showing acceleration versus prior quarter. If I look just at the European and, and the US this, this quarter. And, you know, we can talk about some of the wins there.

Speaker Change: Great and then lastly can you talk about weather.

Speaker Change: Feels like the European and U S economies are accelerating or decelerating or staying.

Speaker Change: I know your comments already about Asia.

Speaker Change: Yes. So so if you look at our 30 segments in Q1, we saw half of those accelerating.

Speaker Change: So that's a those are global market segments.

Speaker Change: So about 16 now if you looked at those.

Speaker Change: Of those 30 market segments in Q4, only eight we're accelerating so.

Speaker Change: Really.

Speaker Change: As many of our market segments are showing acceleration versus prior quarter. If I look just at the European <unk> and <unk>.

Speaker Change: In the U S businesses.

Speaker Change: I really feel like the U S business, the North American business is slowing.

Speaker Change: Our our U S business.

Speaker Change: Was really buoyed by our Bas segment. This this quarter.

Speaker Change: And we can talk about some of the wins there.

Celeste Mastin: But, you know, I think suffice it to say, our HHC business, our EA business, where we have more of that durable good exposure, both of them were weak in the US. And I think the US consumer is weak. In Europe, we saw a different story. In our, our EA business, which is exposed to automotive there and other durable goods also was weak. But you know, the HHC business was in really good shape in in Europe, which, you know, tells you a little more maybe about the European consumer. However, there's a big component of that, which is share wins.

Speaker Change: But.

Speaker Change: Suffice it to say, our <unk> business, our <unk> business, where we have more of that durable. Good exposure both of them were weak in the U S and I think the U S consumer is weak.

Speaker Change: In Europe, we saw a different story.

Speaker Change: Europe the construction market was not very good so our bas business was slower.

Speaker Change: Our our EAA business, which is exposed to automotive there and other durable goods also was weak, but the HD business was in really good shape in in Europe, which.

Speaker Change: It tells you a little more maybe about the European consumer.

Speaker Change: However, there is a big component of that which is share wins.

Celeste Mastin: And so I don't want to draw too many conclusions about the consumer feeling really good in Europe, because a lot of the benefit that we saw was both from innovation and share wins. And also, we did have an easier comp in Q1 for HHC in the Middle East, or in Egypt in particular, and in Turkey, because you recall, Jeff, last year, first quarter, we had some currency constraints that kept us from selling in that market.

Speaker Change: So I don't want to draw too many conclusions about the consumer feeling really good in Europe because.

Speaker Change: A lot of the benefit that we saw was both from.

Speaker Change: Innovation and share wins and also we did have.

Speaker Change: An easier comp in Q1 for Hh C in the Middle East.

Speaker Change: In Egypt in particular and in Turkey, because you might recall, Jeff last year first quarter, we had some currency constraints that kept us from selling in that market.

Celeste Mastin: So, is that enough color? Yeah, that's enough color. Thank you so much. Sure, absolutely.

Speaker Change: So is that enough color yup.

Speaker Change: Is enough color. Thank you so much.

Speaker Change: Sure absolutely.

Operator: Again, if you would like to ask a question, simply press star followed by the number one on your telephone cable.

Speaker Change: Again, if you would like to ask the questions into breast star followed by the number one on your telephone keypad.

Rachel Leon: And your next question comes from the line of Patrick Cunningham with TD Group. Patrick, please go ahead. Hey, good morning. This is Rachel Leon for Patrick. Um, hey, follow up. Hey, maybe a follow up on the Europe environment.

Speaker Change: And your next question comes from the line of Patrick Cunningham with Citigroup Patrick. Please go ahead.

Speaker Change: Hey, Good morning. This is Rachel Li on for Patrick.

Speaker Change: Okay radio a follow up.

Speaker Change: Maybe I'll follow up on the.

Celeste Mastin: Can you point to the areas of Sherwin's and HHC and how have volumes been performing this quarter? How have, can you say that again? How has what been performing this quarter? I'll have your volumes in performing this. Yeah, so the so we've experienced share wins across the board in HHC. In fact, almost every single segment grew in Europe this quarter. I mentioned some of those hygiene wins. We've taken share with about five major global hygiene customers, much of that was in was in Europe. Of course, in beverage labeling, we have a great new product that has been taking share.

Speaker Change: Europe environment can.

Speaker Change: Can you point to the areas of share wins in <unk> and how have volumes been performing this quarter.

Speaker Change: How can you say that again, how is what been performing this quarter.

Speaker Change: Has Europe volumes in performing this quarter.

Speaker Change: Yeah. So the so we've experienced share wins across the board in Hh C. In fact, almost every single segment grew in Europe this quarter.

Speaker Change: I mentioned some of those hygiene wins.

Speaker Change: Taken share with about five major global hygiene customers much of that was in was in Europe of course in beverage labeling we have a great new product.

Speaker Change: That has been taking share.

Speaker Change: Essentially a beverage label with a biocide incorporated into the adhesive that prevents.

Celeste Mastin: Essentially, a beverage label with a bio side incorporated into the adhesive that prevents mold growth on labels. Our tape and label business has been doing a super good job there. Our end of line packaging business is growing or grew this quarter in Europe. And so really strong share take across the board. Also not HHC related, but as it relates to aerospace in Europe, the team has done a nice job continuing to grow the business in that commercial MRO space, and is well positioned in aerospace to to benefit from defense spending in Europe and in North America.

Speaker Change: Load growth on labels.

Speaker Change: Our tape and label business has been doing a super job. There are underlying packaging business is growing grew this quarter in Europe, and so really strong share take across the board.

Speaker Change: Also not <unk> related but as it relates to aerospace in Europe.

Speaker Change: Team has done a nice job continuing to grow the business in that commercial MRO space and is well positioned in aerospace two to benefit from defense spending in Europe and in North America.

Speaker Change: Okay.

Celeste Mastin: Got it. That's very helpful, Celeste. And in BAS, it seems to be strong. But given some of the headlines and tariff pressures, market growth in 2025 doesn't seem to be a given. Do you see any volume risk across specific end markets? I am so glad you asked about BAS, Rachel. I was hoping someone would. So, you know, I got the BAS team has really come together nicely. There's a lot of benefit in having these various construction related segments working together. If you look at the construction market, particularly in the US for us, I think we're in a very good position.

Speaker Change: Got it that's very helpful for us and and Bas.

Speaker Change: To be strong, but given some of the headlines and tariff pressures.

Speaker Change: Growth in point clarify because it seems to be a given.

Speaker Change: See any volume risk across specific end markets.

Speaker Change: I am so glad you asked about Bas, Rachel I was hoping someone would.

Speaker Change: No.

Speaker Change: Got it.

Speaker Change: His team has really come together nicely, there's a lot of benefit in having these various construction related segments working together.

Speaker Change: If you look at the the construction market, particularly in the U S for US I think we're in a very good position and I say that because we're in the right spaces and we're innovating so as far as being in the right spaces. The places where construction growth is still occur.

Celeste Mastin: And I say that because we're in the right spaces and we're innovating. So as far as being in the right spaces, the places where construction growth is still occurring in the US is in health care, it's in education, it's in data centers. And what are those? Those are big, flat, adhered roofing systems, which is perfect. That is really where our product creates a lot of value. In fact, I think there may be some benefit for us from these tariffs as mechanically fastened roofing systems may be tariffed because of the of the steel component. So back to data centers, you know, we continue to grow there.

Speaker Change: In the U S is in health care, it's an education, it's in data centers and what are those those are big flat adhered roofing systems, which is perfect that is really where our product.

Speaker Change: Creates a lot of value in fact, I think there may be some benefit for us from these tariffs as mechanically fastened roofing systems, maybe tariffs because of the of the steel component.

So back to data centers.

Celeste Mastin: That's a business. That's a space that's growing over 40% a year and is expected to do so in 2025 and over 30% in 2026. That's the overall market. We've introduced some new adhesives, speaking to innovation in that space. In fact, within probably momentarily, you'll be seeing the introduction of our PG-1 EF-ECO-2 product, the Millennium product, which is actually a spray adhesive. So it enables customers that are labor constrained to spray adhesive. And while those have been around for a little while, ours, our new introduction, is actually non-fluorinated, no VOC, so low global warming impact. Now, I talked a little bit about how these BAS businesses are working together.

Speaker Change: We continue to grow there that's a business.

Speaker Change: It's a space that's growing over 40% a year and is expected to do so in 2025 and over 30% in 2026, that's the overall market.

Speaker Change: We've introduced some new adhesives.

Speaker Change: Speaking to innovation in that space in fact within <unk>.

Speaker Change: Probably momentarily you'll be seeing the introduction of our PG, one es eco two product the millennium product, which is actually a spray adhesive. So it enables customers that are labor constrained to spray adhesive and while those have been around for a little while.

Speaker Change: Ours are new introduction is actually non fluorinated no VLCC, so low global warming impact now.

Speaker Change: I talked a little bit about how these businesses are working together, we now have the glass wood and composites business as part of Bas and one of the most exciting innovations that I saw this quarter from our wood business wouldn't composites business was the introduction of <unk>.

Celeste Mastin: You know, we now have the glass, wood, and composites business as part of BAS. And one of the most exciting innovations that I saw this quarter from our wood business, wood and composites business, was the introduction of a product for data center elevated floors that dissipates static electricity. That's a really important need in these data centers, and we introduced a very novel, unique product that enables that to happen. So, you know, I think we're going to see a lot more synergies that come from these market segments working together in these spaces like data centers over the coming years.

Speaker Change: Product for data center elevated floors that dissipate static electricity, that's a really important need in these data centers and we introduced a very novel unique product that enables that to happen. So I think youre going to see a lot more.

Speaker Change: More synergies that come from these market segments working together in these spaces like data centers over the coming years and I feel like our Bas business is very well positioned in the U S. Because we're in the right spaces and we're delivering innovation in these very calm.

Celeste Mastin: And I feel like our BAS business is very well positioned in the U.S. because we're in the right spaces, and we're delivering innovation in these very complex, you know, non-traditional construction markets that puts us ahead.

Speaker Change: Complex.

Non traditional construction markets that puts us ahead.

Celeste Mastin: Great, thank you so much for the call.

Speaker Change: Great. Thank you so much for the color.

Rosemarie Morbelli: And your next question comes from the line of Rosemarie Morbelli with Gabba Elephants. Rosemarie, please go ahead. Thank you.

Speaker Change: And your next question comes from the line of Rosemarie <unk> with Gabelli funds Rosemarie. Please go ahead.

Rosemarie: Thank you and good morning, everyone.

Rosemarie Morbelli: Good morning, everyone. Morning, Rosemarie. Celeste, I was wondering if you could touch, if we could go back to the tariffs for a second. I understand that the direct impact is most likely going to be minimal, but when you look at your customers, some of which are going to be affected, can you put a percentage number on, you know, those customers' revenues, contribution to your operations, that could be affected by the tariffs and therefore affect you indirectly? Yeah, I think it's gonna be, it's a hard question to answer, Rosemarie. I think the simplest answer is that durable goods production will be more so impacted by tariffs, like the automotive business, than other businesses.

Speaker Change: Good morning Rosemarie.

Speaker Change: And then just I was wondering if you could judge if we could go back to the tariffs for a second I understand that the direct impact is most likely going to be minimal, but when you look at your customers some of which are going to be affected can you put a percentage NIM.

Speaker Change: Uh huh.

Speaker Change: Those customers revenues contribution to your operations that could be affected by.

Speaker Change: By the tariffs and therefore affect you indirectly.

Speaker Change: Yes, I think it's going to be it's a hard question to answer Rosemarie I think the simplest answer is that durable goods production will be more so impacted by tariffs like the automotive business.

Speaker Change: Then than other businesses, but the consumer overall in the United States is likely to be impacted and.

Celeste Mastin: But the consumer overall, in the United States is likely to be impacted. And so, you know, I'm not sure how big the indirect impact will be. But what I do know is that HB Fuller is a great stock to own in a recession. You know, our suppliers are more volume sensitive than we are. That gives us a lot of opportunity to drive down raw material costs in a low volume environment. And I think if that happens, what you're going to see is a situation similar to what we delivered in 2023, which was a year where volume was really constrained, if you remember that, because of the de-stocking phenomena.

Speaker Change: So.

Speaker Change: I'm not sure.

Speaker Change: How big the indirect impact will be.

Speaker Change: But what I do know is that H B Fuller is a great stock to own.

Speaker Change: Recession.

Speaker Change: Our suppliers are more volume sensitive than we are that gives us a lot of opportunity to drive down raw material cost and a low volume environment.

Speaker Change: And I think if that happens what youre going to see is a situation similar to what we delivered in 2023, which was a year where volume was really constrained. If you remember that because of the destocking phenomena, but we were able to grow EBITDA, 10%, even in that environment and I.

Celeste Mastin: But we were able to grow, we got 10%, even in that environment. And I think that's, that's, you know, how we think about this year, we're not counting on volume at all. In fact, we don't have any baked into our guidance. However, if and if that happens, you know, we'll be able to continue to deliver the $55 million in price and raw material benefit action that we have already guided to and planned.

Speaker Change: That's that's how we think about this year, we're not counting on volume at all in fact, we don't have any baked into our guidance.

Speaker Change: However.

Speaker Change: And if that happens, we'll be able to continue to deliver the $55 million in price and raw material benefit action that we have already guided to implant.

Rosemarie Morbelli: That is very helpful.

Speaker Change: That is very helpful and if I may ask another question.

Celeste Mastin: And if I may ask another question, they are, my understanding is that they are PFAS. in sealants and some adhesives. Do you have products that actually could replace those? Unless you have them in your own, but I don't think so. And how large could that particular market be? Yeah, that is an exciting market for us, particularly as the innovator in the space. And yes, we have already in the past introduced some products and taken some share, particularly in the electronics market, Rosemarie, because we had PFAS-free alternatives to other PFAS-containing products. So we are working closely with customers on this topic.

Speaker Change: And my understanding is that they are piece has.

Speaker Change: In sealants and adhesives do you have products that actually could replace.

Speaker Change: And as you have them in your own but I don't think so and how large could that particular market be for you.

Speaker Change: Yes that is an exciting market for us, particularly as the innovator in this space.

Speaker Change: And yes, we have already in the past intra.

Speaker Change: Introduced some products and taken some share.

Rosemarie: Particularly in the electronics market Rosemarie.

Rosemarie: Cuz, we had P fast free alternatives to two other PFS containing products. So so we are working closely with customers on this topic.

Celeste Mastin: As far as how large that market could be, it's very hard to say, hard to state, but I do think the overall industrial production will continue to migrate away from PFAS containing materials, and we'll be at the front end of that. Thank you.

Rosemarie: As far as how large that market could be it's very hard to hard to hard to say hard to state, but I do think the overall and.

Rosemarie: Industrial production will continue to migrate away from P fast containing materials and will be at the front end of that.

Speaker Change: Thank you.

Speaker Change: Yeah.

Celeste Mastin: If there are no further questions at this time, I will now turn the conference back over to Celeste Mastin for closing remarks. Thank you and thank you to all of you for joining us this morning. We look forward to speaking with you again next quarter.

Speaker Change: Since there are no questions. There is no further question at this time I will now turn the conference back over to sell that's Mustang for closing remarks.

Speaker Change: Thank you and thank you to all of you for joining US. This morning, we look forward to speaking with you again next quarter.

Operator: That concludes today's conference call. You may now.

Speaker Change: Okay.

Speaker Change: That concludes today's conference call you may now disconnect.

Speaker Change: Okay.

Speaker Change: Yeah.