Customer Destocking Impacts H.B. Fuller's Q3 Performance, CEO Sees Brighter 2024

H.B. Fuller Company FUL reported a 4.3% year-over-year decline in net revenue to $900.63 million for the third quarter of FY23, along with an organic revenue decrease of 7.4% YoY, missing the consensus estimate of $956.26 million.

The decline in revenue is attributed to low volumes, offset somewhat by favorable pricing. Volume decreased by 8.0%, driven by customer destocking actions and generally slower industrial demand.

Gross margin was 29.3% and adjusted gross margin expanded by 350 bps to 30%, driven by pricing and raw material cost actions and restructuring benefits.

Adjusted EPS was $1.06 and remained flat YoY, missing the consensus of $1.14.

Adjusted EBITDA was $156 million (+13% Y/Y); and adjusted EBITDA margin expanded 270 bps to 17.3%.

Net debt at the end of the quarter was $1.79 billion, up $11 million sequentially and down $67 million year-on-year.

Cash flow from operations amounted to $108 million for the quarter, up $50 million year-on-year, which can be attributed to improving margins and reduced net working capital requirements.

"Looking ahead, we are encouraged that the unusual global customer destocking phenomenon that has taken place across nearly all end markets is abating. Customer destocking largely ran its course in Engineering Adhesives and Construction Adhesives and peaked for Hygiene, Health, and Consumable Adhesives during the third quarter. As demand conditions normalize, we expect the continued strength of our innovation pipeline, coupled with the operating leverage created through our restructuring actions, to drive significant value for our business in 2024 and beyond,” commented Celeste Mastin, H.B. Fuller president and chief executive officer.

FY23 Outlook: H.B. Fuller now expects FY23 net revenues to be in the range of $3.50 billion-$3.55 billion (vs. $3.63 billion consensus) with organic revenue down 4.5%-5.5% YoY (prior down 3%- 5%).

FUL sees Adjusted EBITDA of $580 million-$590 million (prior $580 million-$610 million) and Adjusted EPS of $3.80-$3.90 (vs. $3.88 consensus) compared to prior expectation of $3.80-$4.20.

Price Action: FUL shares closed higher by 0.58% at $67.58 on Wednesday.