Q2 2025 H.B. Fuller Co Earnings Call
Ladies and gentlemen, thank you for standing by my name is Christa and I will be your conference operator today at this time I would like to welcome everyone to the H B Fuller second quarter 2025, Investor Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will.
A question and answer session. If you would like to ask a question during that time simply press star followed by the number one on your telephone keypad and if he would like to withdraw your question.
Steven: Please press star one again, thank you and I would now like to turn the conference over to Steven <unk>, Vice President of Investor Relations you may begin.
Speaker Change: Thank you operator, welcome to H B Fuller second 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.
Speaker Change: After our prepared remarks, we will have a question and answer session.
Before we begin let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP. We believe that these measures are useful to investors in understanding our operating performance and to compare our performance with other companies reconciliation of non-GAAP.
Speaker Change: <unk> 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 Securities and Exchange Commission all of which are available on our website at investors day at H B Fuller dotcom.
Speaker Change: I would now like to turn the call over to the West Mountain.
Speaker Change: Yes.
Speaker Change: Thank you Steven and welcome everyone. Our strong financial performance in the quarter is a testament to our team's disciplined execution in a highly dynamic environment and we are performing better than the underlying markets. We remain nimble and focused on delivering positive organic revenue growth.
Speaker Change: Well managing costs in a deliberate manner and leveraging our global sourcing infrastructure to adapt <unk> respond to geopolitical and market uncertainties.
Speaker Change: Our EBITDA margin expansion highlights the success of the actions. We are taking which include an increased focus on pricing cost savings efforts and our active portfolio shifts towards higher growth higher margin markets, while global economic activity remained subdued we continue to perform well.
Speaker Change: L and are raising our full year outlook to reflect our strong execution.
Speaker Change: Looking at our consolidated results in the second quarter, our organic sales trend remained positive driven by organic pricing growth of 0.7% during the quarter, partially offset by slightly negative volume.
Speaker Change: From a profitability perspective, we executed well and delivered strong results driven in part by cost savings and targeted price actions.
Speaker Change: Our ongoing portfolio transformation, including the strategic addition of higher margin businesses and divestiture of the lower margin flooring business drove most of the year on year margin increase in the quarter, we grew EBITDA, 5% year on year to $166 million.
Speaker Change: The expanded EBITDA margin by 130 basis points year on year to 18, 4%.
Speaker Change: Now let me move on to review the performance in each of our segments in the second quarter in.
Speaker Change: In H H C organic revenue increased one 8% year on year, driven by both positive volume and price strength in medical and flexible packaging was partially offset by weakness in end of line packaging and beverage labeling.
Speaker Change: EBITDA margin of 15, 6% was up nearly 300 basis points versus the first quarter, reflecting seasonally higher volume and increasing pricing momentum in the segment.
Speaker Change: EBITDA margin was down year on year in the second quarter as the favorable impact of organic growth and the contribution from the higher margin medical acquisitions were offset by higher raw material costs.
Speaker Change: In engineering adhesives organic revenue decreased 0.4% in the second quarter widespread strength in transportation related end markets, particularly in automotive was offset by continued weakness in solar excluding solar <unk> organic growth was positive in.
Speaker Change: The second quarter.
Speaker Change: EBITDA increased 24% and EBITDA and EBITDA margin increased 310 basis points year on year to 22, 9% favorable net pricing and raw material actions cost savings and the contribution from acquisitions drove the increase in EBITDA.
Speaker Change: Margin.
Speaker Change: And building adhesive solutions organic sales decreased 0.9% year on year as continued strength in roofing was offset by weakness in glass and wood, which are more closely tied to the residential construction market environment.
Speaker Change: EBITDA for building adhesive solutions increased 5% versus the second quarter of last year, and EBITDA margin expanded 60 basis points to 16.7% favor.
Speaker Change: Favorable net pricing and raw material actions and cost savings drove the improvement in EBITDA margin year on year.
Speaker Change: Geographically Americas organic revenue was up 2% year on year in the second quarter, returning to positive organic growth strength in roofing flexible packaging and medical principally drove the sales growth in the region.
Speaker Change: In EMEA year over year organic revenue was down 2% strong performance in our hygiene business was offset by weak demand in our construction related end markets.
Speaker Change: In Asia Pacific organic revenue was up slightly year on year, a strong performance in transportation related markets was offset by slower results in solar and electronics.
Speaker Change: Looking ahead, we expect a continued challenging operating environment characterized by a high level of uncertainty and constrained demand also while the dollar has recently weakened we expect currencies to remain unpredictable.
Speaker Change: As previously discussed our strategy to produce in the same region, where we sell to customers not only result in optimal customer service, but also reduces our exposure to tariffs to the extent we have direct tariff exposure. We will continue to offset these impacts through sourcing mitigation and torrey.
Speaker Change: Did pricing actions.
Speaker Change: In the event of share shifts between customers the diversification of our customer base and our geographic footprint puts us in an advantaged position.
Speaker Change: While the global economic impact of the uncertainty associated with the dynamic tariff situation is yet to be fully understood. Our assumption is that volumes will be constrained for the remainder of the year.
Speaker Change: As a result, our guidance reflects slightly weaker volume in the back half of the year. However, our pricing actions and raw material purchasing leverage will result in continued margin expansion and profit growth will accelerate in the second half.
Speaker Change: Now, let me turn the call over to John Corcoran to review, our second quarter results in more detail and our updated outlook for 2025.
John Corcoran: Thank you Celeste I'll begin with some additional financial details on the second quarter for the quarter revenue was down two 1% versus the same period last year.
John Corcoran: Adjusting for the flooring divestiture net revenue was up two 8% year on year.
John Corcoran: Currency had a negative impact of one 2% and the net impact of acquisitions and divestitures decreased revenue by one 3%.
John Corcoran: Adjusting for those items organic revenue was up 0.4%.
John Corcoran: With pricing up <unk>, 7% and volume down <unk>, 3% year on year.
John Corcoran: Adjusted gross profit margin was 32, 2% up 110 basis points versus last year, driven by cost savings the impact of acquisitions and divestitures and targeted pricing actions.
John Corcoran: Adjusted selling general and administrative expense was up 2% year on year adjusting.
John Corcoran: Adjusting for the net impact of acquisitions and divestitures adjusted SG&A was flat year on year, reflecting strong expense management.
John Corcoran: Adjusted EBITDA for the quarter of $166 million was up 5% year on year, driven principally by targeted pricing actions cost savings efforts and the net benefit from acquisitions and divestitures.
John Corcoran: Adjusted earnings per share of $1 18 was up 5% versus the second quarter of 2024 due to higher net income and lower shares outstanding.
John Corcoran: Second quarter operating cash flow of $111 million increased $29 million or 36% year on year.
John Corcoran: <unk> flow from operations was also up versus the first quarter, reflecting higher net income and a slight improvement in working capital.
John Corcoran: Net debt to adjusted EBITDA decreased sequentially from three five times to three four times at the end of the second quarter, reflecting growth in EBITDA as well as lower debt balances as a result of improved cash flow.
John Corcoran: We expect to continue to further reduce our leverage ratio in the second half.
John Corcoran: During the second quarter, we repurchased 300000 shares bringing the year to date total to approximately 1 million shares.
Speaker Change: With that let me now turn to our updated guidance for the 2025 fiscal year.
Speaker Change: As a result of our strong financial performance and the assumptions that Celeste laid out earlier, we are updating our previously communicated guidance for fiscal 2025 as follows.
Speaker Change: Net revenue is now expected to be down 2% to 3% year on year.
Speaker Change: We still expect organic revenue to be flat to up 2% year on year, and we now expect foreign exchange to adversely impact revenue by between 1% and one 5% year on year.
Speaker Change: Adjusted EBITDA is now expected to be in the range of $615 million to $630 million.
Speaker Change: Waiting to growth of 4% to 6% year on year.
Speaker Change: We now expect fully diluted shares outstanding for fiscal 2025 to be in the range of $55 to 56 million shares.
Speaker Change: Combined these assumptions now result in full year adjusted EPS in the range of $4 10 to $4 30 equating.
Speaker Change: Equating to year on year growth of between 7% and 12%.
Speaker Change: We continue to expect full year operating cash flow to be between 300 and $325 million.
Speaker Change: Finally, we would expect third quarter EBITDA in the range of 165 million to $175 million.
Speaker Change: Now, let me turn the call back over to <unk>.
Speaker Change: Thank you John at HB Solar innovation isn't just about new products, it's about solving real world challenges alongside our customers. We are privileged to work with a diverse and innovative group of customers and today I'm excited to highlight the winners of our second annual H B Fuller.
Speaker Change: Our customer innovation awards, which honor groundbreaking innovations that leverage adhesive technologies to improve the world around us.
Speaker Change: CMC packaging automation was recognized for its revolutionary automated packaging technology, which creates right sized packages on demand significantly reducing waste and inefficiencies driven by the rise of E Commerce.
Speaker Change: Chung zoos and U was recognized for advancements in automotive lighting that improved visibility and road safety through better heat management, ensuring long lasting and efficient lighting systems.
Speaker Change: Mitre brands received an award for creating a triple paned glass insulating unit in collaboration with Corning incorporated that enhances thermal efficiency and reduces energy consumption, while using the same frame dimensions as dual paint systems.
Speaker Change: Georgia Pacific was honored for its innovative use of water based barrier coatings for protein based packaging, which offer a sustainable alternative to traditional wax based coatings.
Speaker Change: Congratulations again to these innovative companies we are proud to celebrate your achievements and look forward to continuing our journey of innovation together.
Speaker Change: At H B Fuller sustainability is more than a commitment it's a catalyst for innovation operational excellence and positive impact we're proud to share the progress, we're making toward a more sustainable future and encourage you to learn more by checking out our newly released sustainability report, which launched on.
Speaker Change: Our web site earlier this week.
Speaker Change: We're also thrilled to announce that Newsweek recently named H B Fuller as one of the world's screen as to companies in 2025, we appreciate this honor, which recognizes superior environmental sustainability performance.
Speaker Change: Finally, I would like to announce that Stephen <unk>, Our Vice President Investor Relations has announced his intention to retire from HB Fuller. This summer Stephen has dedicated his deep finance background breadth of experience and strong reputation to enhancing and improving H B Fuller's investor.
Speaker Change: <unk> approach, we will Miss Stephens energy professionalism and sense of humor, but he departs knowing that his work as helps make H b Fuller's IR program much stronger.
Speaker Change: To wrap up we are pleased with our strong first half performance and the momentum we carry into the second half of the year. This is a reflection of the operational improvements we have made and continue to make throughout our business.
Speaker Change: <unk> ongoing economic uncertainties as we look forward to the second half of the year, we are optimistic and encouraged by our team's strong execution. We continue to make sustained progress towards our 20% plus EBITDA margin target and are confident that we will meaningfully expand margins year on year.
Speaker Change: Here again in 2025.
Speaker Change: As a reminder, we look forward to seeing you at our Investor Day on October 20th where we will provide an update on our strategic plan, including our successful M&A strategy transformational footprint optimization and roadmap to our greater than 20% EBITDA margin goal.
Speaker Change: That concludes our prepared remarks for today operator, please open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you'd like to withdraw your question simply press Star. One again, we also ask that you limit yourself to one question and one follow up.
Speaker Change: Your first question comes from the line of Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Yes. Good morning, Thank you operator, good morning, everybody.
Speaker Change: Good morning, Ghansham I guess.
Speaker Change: Good morning, I guess first off big congrats to Steve and others retirement, obviously he'll be missed by our team.
Speaker Change: And congrats to Scott as well look forward to working with you.
Speaker Change: I guess, so let's go back to the second quarter.
Speaker Change: <unk> performance in EMEA, which seem to be the outlier on the plus side.
Speaker Change: Very strong margin performance can you just give us a bit more color on that in context of some of the end markets.
Speaker Change: It also solar being down.
Speaker Change: As you noted in your prepared comments.
Speaker Change: Absolutely. So if you look at E <unk> performance in the second quarter.
Speaker Change: They're really.
Speaker Change: Outstanding contribution there that was made was twofold one one was the.
Speaker Change: The India industries acquisition performed better than we anticipated so we like to see that that outperformance to the deal model.
Speaker Change: And secondly that team in addition to others across H B Fuller, but in particular really showed very strong cost control that led to the increase increased expansion in margins now of course, we're seeing strength across that business in a number of their end markets. If you look at the.
Speaker Change: The automotive business actually anything transportation, particularly.
Speaker Change: In Asia Pacific Our team there has just done a fantastic job expanding our business from what has historically been more focused on interior trim to exterior trim applications to the powertrain to various other.
Speaker Change: Sealant applications in thermal management, and not just batteries, but breaking systems and <unk> done an excellent job growing share.
Speaker Change: Yeah.
Speaker Change: Okay, and then for my follow up as you think about volume velocity across your different business units.
Speaker Change: Fiscal <unk> compared to the previous couple of quarters and then just.
Speaker Change: Related to that in terms of solar what is the reasonable timeline for Chinese solar to inflect positively year over year in context of easier comps coming up.
Speaker Change: Yeah.
Speaker Change: Yeah. So we'll start to see less of a impact from the solar space. It toward the end of this year and when I say that I'm, referring to the top line. The team has already taken steps to reposition that business and to mitigate the EBITDA margin.
Speaker Change: Impact of of that particular business on their results. So if you look at the impact of the solar space Q2 of last year on margins in EMEA. It was about 120 basis points.
Speaker Change: This quarter, they reduced that to a negative 80 basis point improvement or.
Speaker Change: A negative 80 basis points, so they've improved margins and they continue to work on doing that by shifting the business into a more differentiated applications in spaces.
Speaker Change: As far as volume velocity across the business are you asking about across EMEA in particular ghansham are across all the end users and applications, yes, sorry to clarify across the portfolio as well as to the HOKA across the portfolio.
John Corcoran: Yeah. So John do you want to jump in on this one sure. So if you look at the total company level. The volume trends are pretty similar we were up about 2%.
Speaker Change: On organic volume in Q1, it was flat in Q2.
Speaker Change: I would say we saw some positive momentum in places like automotive, which is actually it was very strong in Q1, but at a slightly stronger Q2.
John Corcoran: Flexible packaging actually probably saw a little bit of acceleration in medical I would say those are the places seeing a little bit of slowing as we highlighted in.
Speaker Change: Some of the construction related markets, particularly those that have a bigger exposure to residential.
Speaker Change: But overall.
Speaker Change: One of the things we do is we measure how many of our end markets are showing acceleration almoner showing deceleration about half were showing acceleration half, we're showing some level of deceleration. So.
Speaker Change: It's a little little bit softer volume in Q2, I think it's predominantly related to some of the residential construction softness.
Speaker Change: Most of the rest of the portfolio was pretty similar in terms of volume from Q1 to Q2.
Ghansham Panjabi: Yeah. The one other area I would add there ghansham is that in China. We also saw a temporary I'll call. It a temporary what I think is a temporary pause in export markets in China in Q2.
Ghansham Panjabi: Our electronics business. For example is one that has done well and has continued to take share.
Ghansham Panjabi: We really saw that cool off given the underlying market for electronics exports in China in Q2, but we are we feel very strongly about that business and its ability to overcome that in the second half of the year because they have taken.
Ghansham Panjabi: <unk> taken share and.
Ghansham Panjabi: They have become part of new products being developed and introduced in the second half that we'll see volume from upcoming.
Ghansham Panjabi: Okay perfect. Thank you both.
Ghansham Panjabi: Your next.
Speaker Change: Question comes from the line of Patrick Cunningham with Citi. Please go ahead.
Patrick Cunningham: Good morning, Patrick.
Patrick Cunningham: Hi, good morning, and I'd like to Echo congratulations for Steven and pleasure working with them and generally people are to continue to your partnership with Scott, but I guess first of all I mean, maybe just digging into that weakness in electronics a bit more.
Speaker Change: Seems to be a deviation from prior quarters, and I think you hinted at some export weakness and trade uncertainty, but yes, I mean, what are you seeing in terms of just underlying market. What gives you confidence that this is.
Patrick Cunningham: Sort of normalizes back to your sort of consistent growth rate there because.
Patrick Cunningham: Just look surprising just in terms of Thats been one of the strongest categories. You. Obviously, you still had quite a strong quarter with the engineering adhesives. So just any additional commentary would be helpful.
Speaker Change: Yeah, we had a we had a very good quarter in electronics in the U S took some exciting new business. There we had wins in aerospace and defense in particular in radar assembly in pressure sensors in tires in fighter fighter jet fiber.
Speaker Change: Optic communications.
Speaker Change: Really good growth in our U S electronics market and we've taken good positions in growing end markets like electronics for medical devices for example, glucose monitoring systems as.
Speaker Change: As well as automotive electronics, because theres a lot more electronics in an automobile today. So those are good examples of ways that we've expanded our electronics business into faster growing electronics applications and also taking share in those new applications and as I highlighted yes, we.
Speaker Change: We saw a pause in in electronics in Asia Pacific This quarter, which is unusual however, what we recognize is that that underlying export market for electronics was weaker in Q2 coming out of China, but again, we've taken.
Speaker Change: And some new business with some of the new designs being introduced in the second half with multinationals.
Speaker Change: There in particular that we'll see the benefit from upcoming in the remainder of the year.
Speaker Change: So I feel that we're in a good position in the electronics business. It was just notable that it was slower this quarter than it has been in previous quarters and were very pleased that our EMEA business was able to deliver on so many other segments and overcome that challenge.
Speaker Change: Very helpful. And then how should we think about the progression of price cost and margin profile, specifically for Hh see given what appears to be youre getting strong pricing there you've got some high margin acquisitions, starting to have an impact I guess, if the underlying volume environment stays relatively stable it should be.
Speaker Change: Start to see more significant year on year margin expansion within that segment.
Speaker Change: Yes in fact, Patrick.
Speaker Change: What I highlighted during the last call and we included in the script is just recall this reference to $55 million $55 billion call. It spread benefit in 2025 that you will see so that's benefits from raw material cost reductions and from pricing.
Speaker Change: So today through Q2 raw material cost was higher than it was the previous year, but the benefits that we've highlighted you're going to see.
Speaker Change: Really backend loaded here in the remainder of this year a lot of that will happen in the <unk> business and the HFC business is performing very well.
Speaker Change: We've seen.
Speaker Change: This medical adhesive business growing successfully there.
Speaker Change: That's contributing to a stronger margin profile also in flexible packaging, we've taken a significant amount of share basically with our ability to develop and enable our customers a solution that solves global regulatory compliance challenge.
Speaker Change: <unk> and that really simplifies their product profile given.
Speaker Change: Given the supply chain challenges that that are happening at this point in time, but even more interesting to me is the height. The Hh CS team teams' ability to really address some of these what you would think would be slower growing legacy markets tissue towel is a great.
Speaker Change: Example.
Speaker Change: We'll call it the premium amortization of toilet paper and paper towels is happening as multiple applies are being used that increases the amount of adhesive required and actually oftentimes even requires a higher performing more differentiated adhesive.
Speaker Change: To meet the challenge so so theres a lot going on in that space and the team is executing well growing margins and bringing new product ranges and new product lines out to solve new problems in this space.
Speaker Change: Yes.
Speaker Change: Very helpful. Thank you.
Speaker Change: Yes.
Speaker Change: Your next question comes from the line of Kevin W. Mccarthy with vertical research partners. Please go ahead.
Kevin: Good morning, Kevin very much good morning, Celeste and Stephen though I'll add my.
Speaker Change: <unk> on your retirement, you will definitely be missed and and Scott look forward to talking with you even more frequently.
Speaker Change: I wanted to ask Celeste.
Speaker Change: About your view of the quarterly cadence of EPS, that's embedded in your new range of four tenths of 430, if I look back at history. It seems that it's often the case your November quarter.
Speaker Change: Is stronger than the fiscal third quarter, but that was not the case last year. So maybe you can kind of.
Speaker Change: Through how you're how you're thinking about the flow through given the comparisons that you had last year.
Speaker Change: Yeah.
Speaker Change: That Kevin's John I'll try to field. This one so I think this year will look more like kind of a normal H b Fuller year in terms of the cadence of the quarters. So.
Speaker Change: You are correct last year I would I would say it was an anomaly we had a number of headwinds in the fourth quarter, which resulted in lower EBITDA lower EPS I think we view this year as being more similar to maybe if you went back two years to 2023, where you will see modest.
Speaker Change: Step up in EBITDA and EPS in Q3.
Speaker Change: We gave the guidance on where we think that range should be and then likely a further step up so that's mostly a reflection of volume being a little bit higher in Q4 than Q3, but we also expect this pricing and raw material momentum too to show up a little bit bigger in Q4.
Speaker Change: And then Q3.
Speaker Change: I see very helpful and then John.
Speaker Change: I'm wondering if you could comment or elaborate on your view of the capital expenditure trajectory, you're kind enough to give us.
Speaker Change: The full cash flow statement with the release.
Speaker Change: So I look at the first half I guess, you spent maybe $65 million versus $90 million in the first half of last year. So that's running down.
Speaker Change: Quite a bit what are your thoughts on the back half and the full year and then I guess related to that my recollection is if we look ahead to 2006 and beyond at some point, maybe you have a step down related to your SAP <unk> project. So.
Speaker Change: Perhaps an update on that aspect of it would be helpful.
Speaker Change: Yeah. So yeah, I would say, we're a little bit behind in terms of capital spending year to date versus our budget I would expect we'll close that gap in the back half of the year, we guided to $150 million of Capex for the full year.
Speaker Change: We will get there I think theres, a little bit of risk.
Speaker Change: There are some large chunky projects that will happen in the back half of the year looking.
Speaker Change: Looking forward, we've talked about the fact that with this footprint consolidation, we're going to have about $50 million $40 million. I guess is the number of incremental capex. This year, probably a similar number next year, but you are right. We will start to come to the end of our SAP deployment.
Speaker Change: At the end of next year, we probably have about $20 million of capital associated with that project on an annual basis. So it doesn't mean, there won't be any capital, but that will step down significantly and we also expect as we go from roughly 80 manufacturing facilities down to 55 that will reduce maintenance capital.
Speaker Change: So we don't really have a new updated.
Speaker Change: Assumption for let's say beyond 2026, but.
Speaker Change: But I would say that.
Speaker Change: We would hope to see that stepped down a little bit as we go forward.
Speaker Change: Perfect. Thank you so much.
Speaker Change: Thanks, Kevin.
Speaker Change: Your next question comes from the line of Jeff Zekauskas with J P. Morgan. Please go ahead.
Speaker Change: Good morning, Jeff.
Speaker Change: Good morning.
Speaker Change:
Speaker Change: Maybe first some housekeeping questions.
Speaker Change: <unk>.
Speaker Change: Your acquisition project costs were $3 6 million in the quarter, but I don't think that you bought anything.
Speaker Change: So why.
Speaker Change: Why the three six in spending and does that drop off in the second half and what was your pension income in the quarter.
Speaker Change: So yes, so the acquisition costs in the second quarter, primarily related to some lingering cost associated with the flooring divestiture. So I would anticipate that those will tail off in the second half of the year, we do have some ongoing.
Speaker Change: A deal evaluation related costs that will.
Speaker Change: We will continue through the year.
Speaker Change: But I think we should see a little bit of a step down pension income in the quarter was about $5 $7 million.
Speaker Change: And that compares to about $4 million last year in Q2.
Speaker Change: Yeah.
Speaker Change: And then.
Speaker Change: Is it the case that your raw materials are sequentially declining.
Speaker Change: And as far as demand goes you cited.
Speaker Change: Some slowness in domestic.
Speaker Change: Home construction.
Speaker Change: Is it fair to say that outside of that business is pretty steady across the geographies.
Speaker Change: Yes, if you're referencing the U S in particular, Jeff.
Jeff: True. We are we are seeing a decline in some volumes as a consequence of lower residential activity now only less than 6% of H B Fuller's revenue comes from residential construction.
Jeff: We're not going to see that.
Jeff: That's not going to cause a very big swing.
Jeff: In the U S in particular.
Speaker Change: Our construction business overall remained good with roofing in particular strong this quarter.
Speaker Change: And yes, I mean, if you look at pricing in all of our Gpus in the U S.
Speaker Change: We performed better in the second quarter, EAA and Hh see both show better volume growth in the U S. In the second quarter.
Speaker Change: Albeit.
Speaker Change: Not great volume growth.
Speaker Change: Uh huh.
Speaker Change: It was pretty stable on demand is pretty consistent there you asked about raw materials.
Speaker Change: Materials do continue to decline as I mentioned, they're still up year on year, but we've taken some actions to reallocate raw materials to different suppliers in Q1 that will have an impact on our overall raw material cost throughout the course of the second half.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: You bet.
Speaker Change: And as a reminder, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Mike Harrison with Seaport Research Partners. Please go ahead.
Speaker Change: Good morning, Mike Hi.
Mike Harrison: Good morning.
Mike Harrison: Thanks for taking my question wanted to say my congrats to Scott and best wishes to Steven on your retirement it has been.
Mike Harrison: Really nice work with you over the years.
Mike Harrison: Wanted.
Speaker Change: I wanted to see if you could talk at all about overall volume trends as you looked from kind of March April may and then into June so far and I'm kind of curious.
Mike Harrison: When exactly did the pause in China exports happen like what was there a specific month. When you saw that and then have you seen recovery here in June.
Mike Harrison: Yeah.
Mike Harrison: Yeah. So so if you look throughout month by month throughout the second quarter.
Mike Harrison: Overall, what we experienced was really just slightly negative to flat volume throughout there was not a big differentiation between from one month to the next now the only the only.
Mike Harrison: Caveat I would make there is that in Rbis business, we did see more weakening in volume performance in PS six so in in may than in the previous two months and again as we look out to the second half our guidance includes an impact of a slower construction market.
Mike Harrison: But as a consequence.
Mike Harrison: As it relates to China in particular, I can't point to a particular month.
Mike Harrison: I don't have that level of precision.
Mike Harrison: To really do that but what I would say is that you know.
Mike Harrison: Later in the quarter, we experienced more of this pause in the electronics market I think youll see that extend for a couple more months before the actual improvement in volumes in electronics in Asia picks up because of the new designs that we.
Mike Harrison: We have that we're that we've become a part of so again temporary.
Mike Harrison: Call. It later second quarter.
Mike Harrison: And probably will continue a month or two more.
Speaker Change: Alright, that's very helpful. And then wanted to dig in a little bit on some of your comments.
Speaker Change: Packaging within the H H C business.
Speaker Change: I got on a plane yesterday and someone sitting near me wins with EDI crackers Aldo.
Speaker Change: Our flexible package.
Speaker Change: I think what had traditionally been.
Speaker Change: <unk> box and so I'm curious as some of the end of line weakness that youre seeing in the strength and flex pack is is maybe some shift.
Speaker Change: Away from traditional cardboard packaging and growth in our flex pack that might have like a resealable.
Speaker Change: Opening on it is is that happening and is that.
Speaker Change: How is that benefiting your business.
Mike Harrison: Yes, that's a viable hypothesis Mike.
Mike Harrison: The flex pack in particular is growing in some of the more developing nations in the world faster like Latin America, India and parts of Asia.
Mike Harrison: But still growing is it growing faster than typical cardboard end of line packaging. Yes. It is that said the the strong outperformance that we've had in the flex pack market has really been more a function of share gains then.
Mike Harrison: The market growth.
Mike Harrison: Theres not a lot of differential in these like European or U S market.
Mike Harrison: Over the last two or three years in flexible packaging growth rates.
Mike Harrison: So I believe it is more so the solutions, we're bringing to customers and the shifting that's happening around regulations, the increasing demands on customers due to supply chain disruption in our ability to provide simpler solutions that have brought.
Mike Harrison: Or applicability that is that's really driving our growth rate there.
Mike Harrison: And in terms of the adhesive that's used in our Flexpath, though that is even more differentiated in a I guess, a more qualified higher higher and adhesive then what.
Mike Harrison: A cardboard package is that correct.
Mike Harrison: Yes, it's definitely a more demanding application that's absolutely correct.
Mike Harrison: Alright, Thank you very much thanks.
Mike Harrison: Thanks, a lot Mike.
Speaker Change: Your next question comes from the line of Rosemarie more belly with Gabelli funds. Please go ahead.
Rosemarie Morabito: Hi, Good morning, everyone Hi, good morning, Thank you, everyone and best of luck to Stephen on his next chapter you will be thoroughly Mr. And Scotts you will be very capable, but you'll have big shoes to fill.
Speaker Change: It's nothing new going forward.
Speaker Change: Now most of my questions have been answered, but I was wondering celesta, even though you talked about the difficulty of estimating the impact from tariffs.
Speaker Change: If we assume which of course is anybody's guess that the level is going to be whatever has been announced to date, what would be the impact on the direct and indirect impact and which categories would be more affected than others.
Speaker Change: Yeah.
Speaker Change: Yeah. So.
Speaker Change: Recall Rosemarie that.
Speaker Change: On average, 90%, 97% of what we sell in a region, we make and source there.
Speaker Change: The United States, that's 99% and in China, that's 96% so from a direct tariff impact.
Speaker Change: There is there is a limited effect that we by default will feel now there are actions that the team has taken I don't want to minimize this because theyre doing great work.
Speaker Change: And throughout April meeting twice, a day to ensure that as they understand the tariff implication.
Speaker Change: At present, they are able to offset the direct impact of that through either sourcing solutions, maybe reallocating product to a different supplier or.
Speaker Change: <unk> with current supplier.
Speaker Change: Or putting through targeted pricing actions to offset so from a direct impact we won't see an impact because of the work that's being done by dedicated people across H B Fuller.
Speaker Change: From a from an indirect perspective.
Speaker Change: We addressed in the script. This concept of share shifting I think we're going to see that we're going to see well see some business shifting between customers in any given region.
Speaker Change: We're well positioned to manage that as well as you know we have a global footprint. So if product needs are shifting from one region to another the likelihood is that we'll be working with a customer in a different region that picks up the business or if there's a shift within our region again.
Rosemarie Morabito: It is highly likely given the thousands and thousands of customers that we work with that we will be able to pick up the business from a from another angle through through another customer. The biggest question I think Rosemarie and it's what we all have as businesses is what will be the.
Rosemarie Morabito: Ultimate volume impact of tariffs globally. Once there is some certainty around around a tariff program and and Thats hard to know so the way. We look at that is we need to be prepared for potentially lower volumes given you know.
Rosemarie Morabito: <unk> more constrained economies and you saw the impact in this quarter of the cost reduction efforts, we've taken in in advance of that to try to get ahead of it and again the the.
Speaker Change: The work that we have started already to drive cost reduction efforts throughout our raw material base will also be more evident and something we will use to mitigate lower volumes in the second half should they come to pass.
Speaker Change: Thanks that is very helpful and it was you mentioned something in your prepared remarks.
Speaker Change: Regarding.
Speaker Change: Your work with a different categories I had not focused on which would be the defense area. You mentioned and he sees for radars into and could you give us a better feel for how big that business is and obviously we are in a world where there is going to be the need.
Speaker Change: For more defense, so what could we see from your end.
Rosemarie Morabito: Rosemarie that this business of ours is so diversified that there. There is no single market segment region combination that represents more than 5% of sales and so aerospace is another good example of.
Rosemarie Morabito: Differentiated fast growing high margin space within our overall network. It is growing quickly and we anticipate that it'll still that'll continue to be the case.
Speaker Change: Will it have a outsized material impact ultimately on H B Fuller, maybe in a decade, but.
Speaker Change: In the near term that growth is is well fast still on a smaller base.
Speaker Change: Thank you very much.
Speaker Change: And that concludes our question and answer session and I will now turn the conference back over to <unk> for closing comments.
Speaker Change: Yes.
Speaker Change: Thanks to everyone for joining this morning, we look forward to speaking with you again next quarter.
Speaker Change: And ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Yeah.
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Speaker Change: Yeah.
Speaker Change: Yeah.