H.B. Fuller Co. recently reported financial results for the first quarter ended February 29, 2020. Net revenue of $647 million decreased 3.9% compared to the first quarter of 2019. Foreign currency exchange rates and the sale of the surfactants, thickeners, and dispersants business negatively impacted revenues by 2.6% on a combined basis.
Organic revenue, which excludes impacts from foreign currency and divestitures, was down 1.3% vs. last year. Organic revenue growth in Construction Adhesives (CA) partially offset a decline in Engineering Adhesives (EA) and flat revenues in Hygiene, Health and Consumables Adhesives (HHC). The decline in organic revenue was driven by an impact on sales resulting from the COVID-19 pandemic. The company estimates the shutdown in China following the outbreak impacted sales in the region by approximately $15 million in the quarter, including an estimated $12 million in Engineering Adhesives and an estimated $3 million in HHC. Excluding this impact, volumes would have increased compared to last year in all segments.
“Despite the outbreak of COVID-19 and resulting shutdown across China which began on January 23rd, H.B. Fuller delivered strong performance in the first quarter,” said Jim Owens, president and CEO. “We believe that our robust global supply chain and nimbleness affords us a significant competitive advantage, which was evident in our first quarter results. Our results also reflected operational improvements and efficiencies following our realignment to three global business units. As forecasted, Construction Adhesives returned to growth and double-digit EBITDA margin, driven by an improved growth portfolio and actions we took last year. We continued to drive strong cash flow performance with a significant year-over-year increase in cash flow from operations.”
As the shutdown in China began due to the coronavirus, H.B. Fuller reports that it implemented business continuity plans for employees, supply chains, and production to enable customer deliveries. Around the world, H.B. Fuller is following all government requirements as they are issued. To date, H.B. Fuller’s factories are open and operational, delivering adhesives considered vital to support many customers that are providing essential goods during the pandemic.
“We have built plans that anticipate the short-term impacts of the COVID-19 pandemic as well as recessionary impacts that are expected following the pandemic,” said Owens. “Our success in managing through the outbreak in China is a solid baseline informing our business continuity plans and enabling us to establish expectations and plans for potential impacts in the United States, Europe and the rest of the world. Our sustained leadership in the adhesives industry, the diversity of our business portfolio, the strength of our cash flow, and the plans we are implementing to improve the efficiency and ability of our company are enabling us to successfully manage through the crisis. Importantly, the fundamentals of our business plan and the execution of our strategy remain solidly intact which will also drive long term value for our shareholders.
“Adhesives are essential during this crisis. H.B. Fuller plays an important role in the supply chain for hygiene, health, and consumer products, as well as advanced adhesive applications that support digital connectivity. We continue to utilize our vast global resources and make extensive efforts to meet demand for these vital products. I credit our entire team around the world for working to meet our customers’ needs while preserving our health and safety, with extraordinary collaboration and unwavering focus.”
While the extent of the impact of COVID-19 on global economic factors is uncertain and continues to rapidly evolve, based on current economic views, the company’s experience in China, current order patterns around the globe, and assumptions for expected impact of COVID-19 on global commercial activity, the company anticipates that revenue in the second quarter will be down 5-15% year over year. The company is also preparing for recessionary forces to result in lower revenue in the second half of 2020 and planning for declines in raw material costs in the second half of the year, given supply-demand dynamics for specialty chemicals and petrochemical feedstock costs impacted by oil below $35/barrel.
For more information, visit www.hbfuller.com.