St. Paul, MN - H.B. Fuller Company reported financial results for the third quarter that ended August 31, 2013.
Third Quarter 2013 Results: Net income from continuing operations for the third quarter of 2013 was $27.2 million, or $0.53 per diluted share, versus net income from continuing operations of $24.6 million, or $0.48 per diluted share, in last year's third quarter. Adjusted diluted earnings per share in the third quarter of 2013 were $0.741, up 40 percent from the prior year's adjusted result of $0.531.
Net revenue for the third quarter of 2013 was $514.6 million, up 2.8 percent versus the third quarter of 2012. Higher volume, higher average selling prices and positive foreign currency translation positively impacted net revenue growth by 1.4, 0.1 and 1.3 percentage points, respectively. Organic revenue grew by 1.5 percent year-over-year.
"Our third quarter results showed strong progress toward our 2015 strategic goals," said Jim Owens, H.B. Fuller president and chief executive officer. "We got our revenue growth moving in the right direction and managed our margins and discretionary spending to deliver our commitments for operating profit growth. At the same time we successfully completed major milestones in our European business integration project, keeping us on track to fully deliver the planned financial and strategic benefits from this investment. We have momentum for a strong fourth quarter and to complete another successful, transformational year as part of our current five year plan."
Adjusted Gross profit margin1 was up approximately 150 basis points compared to the prior year's result reflecting solid operational improvement as a result of the ongoing business integration project and a generally favorable raw material cost environment. Selling, General and Administrative (SG&A) expense was down by over 3 percent, or 50 basis points as a percentage of net revenue versus the prior quarter and also down by 1 percent, or 70 basis points as a percentage of net revenue versus the prior year as the Company actively reduced discretionary spending.
Balance Sheet and Cash Flow:
At the end of the third quarter of 2013, the Company had cash totaling $160 million and total debt of $493 million. This compares to second quarter 2013 levels of $161 million and $496 million, respectively. Sequentially, net debt was down by approximately $2 million. Capital expenditures were $35 million in the third quarter and $83 million for the year-to-date, with the bulk of this spending related to the Company's ongoing business integration activities. Operating cash flow in the third quarter was $48 million.
Year-To-Date:
Net income from continuing operations for the first nine months of 2013 was $74.0 million, or $1.44 per diluted share, versus net income from continuing operations of $43.3 million, or $0.85 per diluted share, in the first nine months of 2012. Adjusted total diluted earnings per share in the first nine months of 2013 were $1.901, up 22 percent from the prior year's first nine months adjusted result of $1.561.
Net revenue for the first nine months of 2013 was $1,513.4 million, up 10.2 percent versus the first nine months of 2012. Higher volume, higher average selling prices, positive foreign currency translation and acquisitions positively impacted net revenue growth by 0.5, 0.4, 0.5 and 8.8 percentage points, respectively. Organic revenue grew by 0.9 percent year-over-year.
Business Integration and Special Charges
The Company has implemented a comprehensive business integration program to deliver synergies related to the acquisition of the Forbo adhesives business and to improve the performance of the EIMEA operating segment. The table below provides an estimate of the expected one-time costs of executing this multi-year project. In addition, the table lists, for each cost element, the costs incurred in the current quarter, for the fiscal year to date and since the project's inception in the fourth quarter of 2011.
Expected Costs
Expected Costs | ____________Costs Incurred_____________ Q3 2013 YTD 2013 Inception | ||||||
Cost Elements | ($ millions) | ($ millions) | ($ millions) | ($ millions) | |||
Acquisition and transformation | 35 | 2 | 6 | 32 | |||
Workforce reduction | 53 | 3 | 7 | 35 | |||
Facility exit | 17 | 4 | 7 | 8 | |||
Other | 10 | 3 | 6 | 8 | |||
Total cash costs | 115 | 12 | 26 | 83 | |||
Total non-cash costs | 8 | 1 | 3 | 6 | |||
The estimate of cash costs for the project have remained unchanged from the inception of the project. The estimate of non-cash costs has increased from $6 million to $8 million, reflecting an updated view of the expected fixed asset write-downs associated with the project.
Fiscal 2013 Outlook:
The Company has narrowed earnings guidance for the 2013 fiscal year to a range of $2.60 to $2.65 per diluted share. Earnings for the fourth quarter are expected to be in a range of $0.70 to $0.75 per share. Guidance is based on adjusted earnings per share, which exclude all special charges related to the business integration project which is ongoing.
The table below shows each of the elements of the Company's 2013 guidance. All amounts shown are presented on the basis described above.
