FULLER H B CO Q3 FY2026 earnings call

• Financial Execution: Delivered strong revenue, EBITDA, and EPS growth. Pricing actions successfully offset elevated raw material costs. Adjusted gross profit margin expanded 120 basis points to 33.5%.
• Quantum Leap Initiative: Progressing as expected to optimize manufacturing and distribution. Expected to reduce facility footprint from 82 (end of 2024) to ~62 by end of 2026, below 60 by end of 2027, targeting 55 long-term. Targeting $75 million annualized conversion cost savings by 2030, with ~$25 million realized by end of 2026. Capital spending for the program is ~$150 million total, with ~$50 million planned for 2026.
• Petrochemical Supply Chain: Supply chains remain disjointed due to global conflicts. Raw material prices have stabilized at elevated levels; management expects them to remain near current levels through year-end. Pricing actions are being used judiciously to protect margins.
• AMS Acquisition: On track for regulatory approval and closing before year-end. AMS demonstrated 8% adjusted EBITDA improvement and 4% revenue growth in H1 2026. Management anticipates ~8% average annual organic growth for AMS.
• Innovation & Sustainability: Highlighted customer innovation awards, specifically noting partnerships for sustainable HVAC insulation and recyclable dairy cups, reinforcing commitment to technical leadership and circular economy goals.

The company reported consolidated organic revenue growth of 4.4%, driven by 7.4% pricing partially offset by lower volume. Adjusted EBITDA was $187 million (up 9% YoY) with an adjusted EBITDA margin of 19.9%. Performance by segment:

• HHC: Organic revenue grew 6% YoY, supported by hygiene, beverage labeling, and tape/label segments, offsetting softness in packaging. Adjusted EBITDA margin was 17.6%, up 70 basis points YoY.
• EA: Organic revenue grew approximately 5% YoY excluding solar (total organic growth 1% including solar). Strength came from aerospace and general industries, while electronics softened due to chip shortages in Asia Pacific. Adjusted EBITDA margin was 23.8%, up 50 basis points YoY.
• BAS: Organic revenue increased 5% YoY, driven by roofing and insulating glass, partially offset by wood softness. Adjusted EBITDA increased 8% YoY, with margins expanding 50 basis points, primarily due to positive price impact.

• FY 2026 Net Revenue: Expected to be up mid-single digits versus FY 2025. Excludes AMS impact.
• FY 2026 Organic Revenue: Expected to be up low single digits versus FY 2025, driven by mid-single-digit pricing growth offset by low-single-digit volume decline.
• FY 2026 Adjusted EBITDA: Raised to a range of $655 million to $670 million (previously implied tighter or lower guidance).
• FY 2026 Adjusted EPS: Raised to a range of $4.70 to $4.85.
• FY 2026 Cash Flow from Operations: Maintained expectation of $300 million to $325 million (excluding AMS-related items).
• FY 2027 Outlook: Management confirmed top-line and bottom-line growth expectations. Pricing/raw material spread expected to remain positive but narrower than 2026. Quantum Leap incremental savings of $20-$25 million expected in 2027.

• Macroeconomic Volatility: Construction markets remain sluggish due to high interest rates, impacting BAS residential performance. Electronics and auto sectors face headwinds from chip shortages and demand fluctuations.
• Supply Chain Disruption: Petrochemical supply chain dislocation continues, with expectations of normalization only after the conflict subsides. This keeps raw material costs elevated and volatile.
• Volume Sensitivity: Volume trends are highly sensitive to external factors such as household formation (impacting HHC), mobile phone production cycles (impacting EA), and CPG customer behavior.
• Integration Risks: While AMS synergies are on track, integration challenges and debt levels post-acquisition require disciplined deleveraging to return leverage to 2.5-3x target within two years.

Q: Why did volumes perform better than guided (-3% vs expected -mid single digit) and what drives this variance? / A: Management attributed the outperformance to less severe customer material constraints than anticipated, as supply tightness wasn't absolute. Demand markets are fluctuating more than usual, with some mid/small customers showing strong back-to-back orders that continued into Q4, supporting volume resilience despite broader market weakness.