H.B. Fuller has announced the company’s third quarter 2023 financial results. Net revenue for the third quarter of fiscal 2023 was $901 million, down 4.3% versus the third quarter of fiscal 2022. Organic revenue declined 7.4% year-on-year, driven by lower volume, offset somewhat by favorable pricing. Volume declined 8%, driven by customer destocking actions, principally in hygiene, health, and consumable adhesives. These numbers were further hindered by slower industrial demand across all three global business units. Volume in the third quarter improved significantly versus the second quarter, when volume declined 14.2% year-on-year. Pricing actions favorably impacted organic growth by 0.6%. Foreign currency translation reduced net revenue growth by 1.7% and acquisitions increased net revenue growth by 4.8%.
Gross profit in the third quarter of fiscal 2023 was $263 million. Adjusted gross profit was $270 million. Adjusted gross profit margin of 30% increased 350 basis points year-on-year. Pricing and raw material cost actions, restructuring benefits, and general cost reductions drove the increase in adjusted gross margin year-on-year and more than offset the impact of lower volume.
Net income for the third quarter of fiscal 2023 was $38 million, or $0.67 per diluted share. Adjusted net income was $59 million. Adjusted EPS was $1.06 per diluted share, essentially flat year-on-year as strong operating income growth was offset by higher interest expense and unfavorable foreign currency impacts, which reduced diluted earnings per share by approximately $0.17 and $0.05, respectively, year-on-year in the third quarter.
Adjusted EBITDA in the third quarter of fiscal 2023 was $156 million, up 13.1% year-on-year. Adjusted EBITDA margin increased 270 basis points year-on-year to 17.3%, driven by the combined impact of pricing and raw material cost actions versus the prior year’s third quarter, as well as restructuring savings, partially offset by the impacts of lower volume and wage and other inflation.
“In the third quarter we successfully drove a double-digit increase in adjusted EBITDA year-on-year and increased adjusted EBITDA margin meaningfully, demonstrating the strength of our business model and ability to increase profitability regardless of market conditions. We achieved profit growth despite weaker than expected volumes, driven by a more adverse customer destocking impact in hygiene, health, and consumable adhesives, and lower market demand in construction related markets,” said Celeste Mastin, H.B. Fuller, president and CEO.
“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.”
Net debt at the end of the third quarter of fiscal 2023 was $1,790 million, up $11 million sequentially versus the second quarter, and down $67 million year-on-year. The sequential increase in net debt was driven by acquisition activity during the third quarter, offset by improved cash flow from operations.
Cash flow from operations in the third quarter was $108 million, up $50 million year-on-year, reflecting improving margins and lower net working capital requirements.
Looking forward, net revenue for fiscal year 2023 is now expected to be in the range of $3.50 billion to $3.55 billion with organic revenue down 4.5% to 5.5% versus fiscal 2022, reflecting lower volume expectations due to customer destocking actions and slower than anticipated underlying demand conditions.
Adjusted EBITDA for fiscal 2023 is now expected to be in the range of $580 million to $590 million, reflecting lower volume expectations more than offset by higher margins, contributions from acquisitions, and restructuring benefits, equating to growth of approximately 9% to 11% versus fiscal year 2022.
Adjusted EPS (diluted) is now expected to be in the range of $3.80 to $3.90, equating to a range of down 2.5% to 5.0% year-on-year.
The company now expects actions from the previously announced, and subsequently expanded, strategic restructuring to generate between $40 and $45 million in annual pre-tax run-rate cost savings, up from the original estimate of $30 to $35 million in savings. This is in addition to the approximately $20 million of savings associated with the Beardow Adams integration, which was announced during the third quarter.
The company announced that its Board of Directors declared a regular quarterly cash dividend of $0.205 per share of common stock, payable on November 2, 2023, to shareholders of record at the close of business on October 19, 2023.
To learn more, visit www.hbfuller.com.