h.b. fuller\'s (ful) ceo jim owens on q2 2016 results - earnings call transcript

by:SANDAO     2020-03-23
H. B.
Fuller Company (NYSE:FUL)
2016 earnings meeting for the second quarter at 10: 30, 2016M.
Masietexecutivesmaximillian-senior manager, Treasury Department and chairman Owens and CEOJohn IRJim Corkrean-Executive Vice President and CFOAnalystsDavid beginleiter-BankMike Harrison, Germany-Seaport Global SecuritiesRosemarie Morbelli-
Analyst Gabelli & CompanyUnidentified
Capital market
Silversteyn-Longbow ResearchBruce Zessar-Consulting & Research, Bloomberg Information Consulting
Please standby.
Ladies and gentlemen, thank you for your support. Welcome to H. B.
Fuller called 2016 investors in the second quarter.
The event has been scheduled for an hour.
Today\'s conference call is live webcast and will also be archived on the company\'s website for future listening.
At this time, I will hand over the meeting to our senior manager, chair Treasury and investor relations.
Maximilian Marcy
You can start, Sir.
Good morning, Maximillian MarcyGood, welcome to our second quarter earnings call for the fiscal year 2016.
We have two speakers today, Jim Owens, our president and Chief Executive Officer.
John Corkrean, our newly appointed executive vice president and chief financial officer.
After we have prepared our speech, we will, as always, have enough time to answer your questions.
Let me remind you of the comments made by me or others representing H. B.
Fuller may contain forward
Forward-looking statements affected by risks and uncertainties.
Our SEC file contains additional information about factors that may lead to different actual results than management expectations.
These documents can be found in the Investor Relations section of our company\'s website at www. hbfuller. com.
In addition, please note that the results of our report include non-
GAAP Financial indicators.
These results should not be confused with the GAAP numbers in yesterday\'s earnings release or the GAAP numbers we will report in Table 10-Q.
We believe that the discussion of these measures is useful for investors as it helps to understand our operating performance and the business sector, as well as the comparability of results.
For these non-
The GAAP measure of the most recent GAAP measure was provided in the earnings report released by our company last night.
In this way, I will transfer the phone to Jim Owens.
Thank you, Max. Thank you for joining us today.
We achieved very good results in the second quarter, half a year has passed and we are still on track to achieve the financial plan for the fiscal year.
Some parts of our business are beyond our expectations for the year, while others are a little behind.
Overall, our current situation is strong and we will maintain momentum in the second half of the year.
Here are the highlights of the second quarter.
The most important development of this quarter is the continuous improvement of our profit margin.
Gross profit margin increased by 220 basis points compared to the previous year.
Our gross margin also increased in turn, up about 70 basis points compared to the results in the first quarter.
Our adjusted gross profit margin is around 30%, currently at the highest level in history and is expected to reach our long-term goalterm targets.
Our global efforts to reduce raw material costs, improve supply chain efficiency and improve production efficiency are reflected in financial results.
The increase in gross profit margin has driven the adjusted EBITDA profit margin to nearly 14%, which is our target for this year.
Our strong cash flow enables us to reinvest our core business, include our balance sheet leverage within our targets and fund strategic acquisitions.
Strong operating margins, improved revenue growth trends and the elimination of almost all one-time costs associated with business transformation and restructuring should support stronger cash flow generation in the second half of the year.
Recognizing that the returns and cash flow performance from the large investments of the past few years are a key deliverables in our 2020 plan, we have a good start.
The breadth and speed of operational performance improvement in our EIMEA department continues to exceed our internal expectations.
One of the most important aspects of EIMEA\'s operational performance is that we see improvements in almost every aspect of the business, we restore volume growth, better raw material cost structure, lower manufacturing costs, simplify operating costs.
We have a good start this year, in short, we are on track to achieve this year\'s goals and lay a solid foundation for achieving the 2020 strategic plan we reviewed with you in February.
With this overview, I will now discuss the performance of each operation section in more detail.
As the US market expected, the overall trend we saw in the first quarter has expanded to the second quarter.
Margins are very strong, but revenue growth remains a challenge.
Compared to last year, the volume of transactions in the second quarter fell by about 2%, which is an improvement in the trend compared to the previous quarter, but did not reach the level of future business we expected.
There are many factors that affect our growth.
First of all, it is important to note that we have some lines of business, especially in viable assembly, that have consistently shown strong revenue growth in the Americas.
Second, the end market in Latin America is not conducive to growth.
About half a year. over-
The decline in sales in the Americas this year can be attributed to the difficulty of terminal market conditions in parts of South America.
Third, although our global health business has maintained strong growth this year, our health business in the Americas has declined slightly compared to the previous year due to time and other customer specific issues.
This temporary weakness in our business will be reversed in the second half of the year, and we expect to achieve strong growth again in 2017.
Finally, our packaging business is gaining momentum.
The success of our new business in packaging indicates that we will resume growth in the second half of this year.
At our last conference call three months ago, we said that the Americas will resume positive growth in the second half of this year, which is still our prospect.
Profit Management is still a good new story in the American market.
Adjusted EBITDA profit margin for the second quarter was 20%.
Mainly due to pricing management and raw material cost management, combined with strong continuous profit management, Overall Revenue performance improved in the second half of the year, which will produce solid results in the Americas in 2016.
In our field of construction products, fixed currency income is down more than 10% from the previous year, and our adjusted EBITDA profit margin is lower than the previous year, our long-term
Target range.
In short, we had a tough second quarter with CP.
The explanation begins with the recognition that this area is more volatile than other businesses, and that in the second quarter of last year, both in terms of volume growth and operating profit margins, is an unusually strong period.
The peak of last year\'s performance was mainly due to the addition of additional market share at our key customer lows.
After adjusting the tough comparison with last year, our performance in the CP business in the second quarter was a bit lower than we expected.
Revenue is generally weak due to declining national export sales to the end market and some of the stock rebalancing actions taken this year.
Our profit margins are affected by the reduction in volume and the excess costs associated with our new facility launched in Aurora, Illinois, as well as our Associated network investments.
We expect our sales growth to improve for the rest of the year.
Operating profit margins are also expected to increase by increasing the volume and eliminating excess costs associated with the current manufacturing investment products.
In contrast, the best picture for the second quarter came from our EIMEA division, and recent efforts to improve operational performance continued to be reflected in financial results.
Overall sales in the segment increased by 3% compared to the previous year.
We have seen strong revenue performance in most of our segments and regions.
The most significant growth comes from our health line of business and the continued and steady growth of the various lines of business in India.
The tone of our business and new business channels have become stronger due to improved and consistent supply chain performance.
We expect positive sales growth to continue for the rest of the year.
In terms of profitability, we increased our adjusted EBITDA margin by 490 basis points compared to the second quarter of last year.
The elements of the improvement are extensive, the material cost is reduced, the price management, the supply chain efficiency is improved, and the manufacturing cost is reduced.
We expect to last a year. over-
For the rest of 2016, EBITDA\'s profit margin has increased.
At this point, we are confident that we have reversed the situation and are steadily achieving our long-term goals.
The long-term strategic financial objectives of the region as at the end of 2017.
Now moving to the Asia-Pacific region, our monetary revenue continued to grow by more than 9% in the second quarter, from all sectors in all the sub-regions.
Our core market is a consumer-driven terminal market, and demand in the Asia-Pacific region remains strong.
Compared with the previous year, the adjusted EBITDA profit margin of the market segment was basically flat.
As we increase our investment in new manufacturing plants in Indonesia, strong profit management in our core business is offset by incremental costs.
Finally, I will have a brief discussion of our engineering adhesive section.
Compared with the second quarter of last year, we continue to maintain strong growth, sales increased by 15%.
Tonsan business continues to achieve target growth, and our electronics and automotive business has been strong this year --over-
Year of growth.
Our Adjusted EBITDA profit margin for the second quarter was relatively low, only 7. 4%. For the year --for the year-to-
The adjusted EBITDA margin is approximately 8. 5%.
Throughout the year, we expect the adjusted EBITDA margin to be around 10%.
As we steadily increase investment, product and market development to support future growth, our operating margins will fluctuate quarterly.
Of course, the acquisition of network bonds contains a business trajectory based on the synergy potential with our existing business.
When it comes to online Bonds, let me take a few minutes to talk about the acquisition we recently announced.
Cyberbond sells high-end propylene salts, anaerobic movement and UV-
Curing adhesive technology for electronic, medical, audio equipment, automotive and structural applications.
The increase in this business will enable us to strengthen our position in the high-profit, high-growth engineering adhesive market.
The online bond business aims to accelerate the global synergy of the plans we made when we completed the Tonsan acquisition more than a year ago.
You will remember that the collaborative opportunities offered through Tonsan include expanding our market reach in China and moving the Tonsan platform from China to Europe, North America and other major emerging markets.
Cyber bonds will support two elements of this collaborative program.
In China, Cyberbond provides Tonsan with a stronger portfolio of acrylic products, as well as a wide range of market application knowledge.
This is not a strong point for Tonsan today.
In addition, Cyberbond provides an excellent existing business channel for the sale of Tonsan products to Europe and North America.
Therefore, the acquisition of online bonds has expanded our capabilities in China and accelerated our business beyond China.
Net bond revenues of about $15 million are evenly distributed between Europe and the United States. S.
The purchase agreement was signed on June 6, and we clinched it on June 8.
The company\'s purchase price is slightly higher than $40 million, equivalent to about 12 times the EBITDA multiple of its existing business.
In view of the profit profile of the network bond business, the independent good growth prospects and the dynamic market space for engineering adhesives, the valuation of this transaction is appropriate, and the opportunity to take advantage of the larger Tonsan acquisition through the online bond platform.
We are very happy to welcome the online bond team to H. B.
Fuller and look forward to working with them to achieve our vision for the field of engineering adhesives.
Before I turn the phone over, I would like to introduce you shortly to our new executive vice president and chief financial officer, John Cochrane.
John is an experienced treasurer who has held many financial leadership positions in Ecolab and has a long career.
John was quick to keep up with our business and I hope you will be with him as soon as possible.
Now I transfer the phone to John.
Thanks, Jim.
Jim offers some of the highlights of second-quarter results, so I will provide some additional details.
Continued monetary revenue growth was slightly lower than expected, down by 0.
Up 4% from last year.
However, three of our five segments have strong sales growth --on-
Compared with the first quarter, sales growth in the first quarter of the United States has improved.
As Jim mentioned, our CP business has gone through a tough quarter, but we expect this part to improve in the second half, based on several key factors.
First of all, after some temporary inventory repositioning in recent times affected our results, our load business did restore a good foundation.
In addition, we expect our export sales to improve slightly from a very weak period in the second quarter.
Finally, we have launched a number of specific initiatives that will support further improvements in all of our distribution channels.
The impact of product pricing has become a more important factor in our second quarter performance.
You will see some price erosion during the long term raw material cost deflation, which shows that we believe we are effectively dealing with the normal process of managing pricing with our customers.
The best evidence is the continuous improvement of the gross margin we have delivered.
Looking into the future, we expect the raw material cost environment to stabilize, and in the case of price stability, further incremental benefits from lower input costs should also be minimal.
Sales, general and administrative expenses increased slightly in the second quarter.
Here are a few factors at work.
First, according to the improvement of business performance, the incentive pay cost in 2016 is higher than last year.
In the second quarter of the second half of this yearon-
This alone illustrates the annual growth of the adjusted SG & A.
Second, as Jim mentioned earlier, we increased our spending on the engineering adhesives business this quarter.
Taking into account the improvement of the revenue geography portfolio, our tax rate has a note, in which case more favourable results from the European business we operate in a lower tax rate environment, our core tax rate assumptions for the fiscal year fell to about 32% from previous expectations of 33%.
Lower tax rates in the second quarter included gains from higher tax rates in the first quarter.
Adjusted diluted earnings per share are $0.
Meet our expectations.
Second-quarter results included relatively high foreign currency losses, mainly related to exposure to Latin America and other emerging markets, which were reduced by about $0.
Compared to the results of the previous year, we adjusted the earnings per share to 02. For the year-to-
These unusually high foreign currency losses have had a negative impact on our adjusted earnings per share of about $0.
Compared to 09 per share in the previous year.
We believe that the risk of more significant foreign exchange losses in the second half of this year has been greatly reduced.
Now, let me talk about the guidance for the rest of the year.
Foreign exchange\'s impact on income this year is smaller than originally planned.
We now expect that foreign exchange will have a negative impact on revenue growth of about 100 basis points.
In addition, due to the low pricing level of construction products and the slow growth of income in the Americas, we now expect the currency to continue to grow by about 3%, compared with our previous expectation of 4%.
It is expected that the annual profit margin of EBITDA will still increase, with an average of about 14%.
Capital spending is expected to remain around $60 million this year.
The most important capital project this year is to support the expansion and productivity improvement of our construction product operation department and complete our greenfield investment in Indonesia.
Driven by strong net income, operating cash flows were strong in the second quarter.
We expect strong free cash flow to generate results for the rest of the year, as we are steadily reducing one-time costs, reducing working capital and improving profitability throughout the year.
With all these factors in mind, we have narrowed the EPS guidance to between $2. 45 and $2.
From the previous $2 range of 60. 40 to $2. 60 with year-on-
As we move from the third quarter to the fourth quarter, annual growth has improved.
In this way, I will transfer the phone back to Jim Owens and wrap us up.
Thank you, John.
We are expanding our business in key areas and improving the overall cost structure to increase profit margins.
That\'s what we said when we made our strategic plan.
This year is to use our strong foundation to achieve results based on our investments.
This is the first year of our 2020 strategic plan.
The plan revolves around driving the continued growth of our engineering adhesive business and the growth of emerging economies, while optimizing profit performance in our other areas.
Our 2020 plan is a solid continuation of the smooth progress of our business and has a clear vision for future improvements.
Our second-quarter results are aligned with our strategic direction and our business momentum is growing.
Our EBITDA deposit is 13.
9% is the second quarter in H. B.
Fuller, let\'s reach 2016. term plans.
I am confident to continue to be successful for the rest of the year, and then we will take advantage of those successes in the coming years.
We have built a solid foundation in H. B. Fuller.
We have a clear vision of where we are going, we have an excellent team, they are experts in our business and they are effectively executing our plans globally.
We did well in the second quarter, but more importantly, we have strong momentum and a solid road ahead.
This is the end of our prepared speech, so now I look forward to answering your questions. Question-and-
Operator [answer]
Operation instructions].
We will answer the first question from David Begleiter of Deutsche Bank. Go ahead David.
Thank you. Good morning.
In terms of US adhesives, in terms of sales growth in the second half of the year, what level do you expect in the second half of this year?
Jim Owens, I\'ll have John try to give you something specific, but it\'s going to be positive single, low single --
The figures for the second half of the year will be the way I think.
So, we\'re moving from negative to positive here, and that\'s going to be single. digits.
John CorkreanI thinks it\'s right Dave, and I think you\'ll see more in the third quarter and the second half of the fourth quarter.
So, when we pass, we make this shift ---
Into the last half of the second half.
David begeliterso, what you\'re talking about is 1% to 2% in the third quarter, maybe in this range, or . . . . . . ?
This is the case with Jim Owens.
I would say single
The numbers are zero.
David begleiter got it, in terms of profit, do you expect these downwinds, given recent or recent increases in oil prices ---
Become headwinds later this year or sometime early next year, does that mean their margins here have peaked?
Jim Owens, of course I will. -
As you know, there is a big gap between oil prices and oil prices.
So I think oil prices will have to go up substantially and sustainably so that we can put any real pressure on raw materials.
So I think what we are considering is that if oil prices and specialty prices remain the same, our raw material costs will remain relatively stable for the rest of the year and for the next year.
If you see a significant rise in where they are now, it could lag 9 months before we see any pressure.
So we don\'t think it\'s a risk.
But I think so for this year and next.
David begeliterand last Jim, the pricing pressure for the second quarter is still very high, especially in our adhesive market, is this through a little less headwind or at least you will expect this year?
Jim Owens, I think the rest of the year is roughly the same.
I mean, when you think about our business and the price, I think what we are doing, we have to manage both ends of it.
We have to manage things with our suppliers and then we can bring a lot of alternative raw materials into the market to help our customers when suppliers move prices up.
So you will see whether it is in the process of our cooperation with customers to introduce new technologies, or in the process of our cooperation with customers, the introduction of new raw materials, so that we can manage this price, we have done very well in this regard.
If you look back on the last few years, we managed our gross margin very effectively as the raw materials grew, and as the gross margin fell, we managed them effectively, this is because we work with our customers in both cases. So, --
I think this positive and negative impact you see in our business is what I hope to continue.
Thank you very much.
Thanks Dave. Operator[
Operation instructions].
We will answer the next question from Mike Harrison of Seaport Global Securities. Go ahead Mike.
Good morning, Mike Harris.
Good morning, Mike.
Mike Harris Jim when I look at the pricing component of your growth, it looks like this is the biggest pressure on the Americas, and I think in Latin America you see the environment of inflation, pricing is the fact, this shows me that there is actually more pressure on North America.
Is this just a function of the lower cost of raw materials? Or can you talk about how much it might be relevant to restore some of the lost share discounts or other efforts in North America?
The main thing I want to say is,-
The first thing I will say is that we will not sell the business according to the cost of raw materials.
We provide value-added products that meet a range of needs, and then we manage ourselves through the market dynamics that exist in the market.
We have some customers who are less than 10% and we move their prices up and down with raw materials.
Most of our business is negotiating pricing, and I wouldn\'t say what is the difference between the pressure in Latin America and North America, so I don\'t think our business is under inflationary pressure.
This is almost a situation where, as the price of oil has fallen for several years, the release of some raw materials is happening and we will properly give our customers while continuing to increase their profit margins while negotiating prices, keep business with them.
So this is the balance we have to achieve in our business.
Find ways to compete properly while also increasing our profit margin.
I will not say that our American business will have a great discount effect.
I think you will see that our operations in Asia Pacific and Latin America have had the same impact in Asia.
John, what do you want to add?
I think Jim is right.
This is definitely a feature of the raw material market, not a discount.
I would like to say that it is also important for the Latin American business. In terms of revenue, a large part of our business is denominated in local currency.
This will reduce the chances of inflation.
Does this answer your question? Is that good.
As far as I know, you are adding some sales resources and making long-term investments there, and while you are your expectation, do I understand correctly as we move into the second half of the year, let\'s make our annual EBITDA profit margin around 10%, and the profit margin will increase significantly.
Is this just a step higher from Q2 to Q3 to Q4? Or what is the trajectory there?
Jim OwensYes, so I think at the highest level we focus on creating growth there.
If you think about the last quarter, it may have spent about $3 million more than the previous year.
Most of them are sales and R & D costs.
So these are the investments we make to drive technology and overall performance.
What I want to say is that based on the numbers in our business, we expect these profits to expand.
But again, business will be a bit confusing this quarter. to-
When we invest in various parts of the market segment, we need a quarter.
But, yes, the simple answer is that we see an increase in profits for the business in the second half of the year.
The last question is for John.
I hope you can comment on what attracted you to the chance to go to Fuller, except for the changes in the commuter landscape, maybe you plan on how to implement some of the methods that you have already taken and now you are already studying in Ecolab. B. Fuller?
My last role at Ecolab was in Houston, where commuting was not easy.
So it\'s better in Minnesota.
Well, what attracted me was the guy sitting across the table and I would say most of the time.
I really get to know Jim, understand his vision for the company, understand what he thinks we have the ability to do, and how he plans to get there, which makes me very excited.
Ecolab is a great company.
I wish I could bring a lot of what I learned there, and I think one of the things we\'re talking about is getting more consistent this business is a business, and in the last few years, they have some operational challenges and I think you are starting to see more consistency now.
I think this is something that we are going to attach great importance to, and I think I can help in that regard.
Good John Mike Harris.
Thank you very much.
Thanks Mike.
Operator we will answer the next question from Rosemarie Morbelli of Gabelli & Company.
Thank you.
Good Morning, everyone.
Good morning, Rosemary.
Welcome to John.
Thank you, John corcrane.
When we saw the EIMEA on the 7th, Rosemarie MorbelliI was just.
9% profit, do you mean that it will continue to improve in the second half of the year, or do you say that this comment refers entirely to the engineering adhesive?
Jim OwensI believes that this will improve compared to previous years, which is our commitment to Rosemary in the second half. So --
I think what we see is-
I think we\'re starting this year to say that compared to the previous year, it\'s going to be a quarter of several hundred basis points in a quarter, and we \'ve surpassed that in the last two quarters.
I think we will at least do well in the future.
Therefore, your expectation is 200 basis points compared to Q3, and 200 basis points will remain better than Q4.
And then you mentioned that most markets are--
Some improvements have been shown in the EIMEA, and I was wondering if you could give us the feeling of a market, which are doing better, why, which are lagging behind, or may have deteriorated?
Jim OwensPart, who performed particularly well in the market this quarter, is our health business and our Indian business remains a very strong performance business in our EIMEA business.
Rosemary did everything else well.
I want to say--
What I want to say is that some parts of our Russian business have declined in the quarter, but it is also a smaller business for us.
As a result, overall sales growth for the quarter was generally positive.
It\'s a bit surprising that Rosemarie MorbelliAnd looks at the health business in the Americas and sales are down.
Everyone seems to be having children.
So, I was wondering if you lost some share or is there any other reason for this decline?
The biggest reason for the decline is the story of Latin America.
So I think there have been some changes in the dynamics of Latin America, which is very difficult for the people of Latin America and for the people who supply products to the region in a wide range.
So, this is the biggest driver.
We also have some design changes made by a specific customer, resulting in a smaller amount of adhesive in our business.
Not a big share loss, but a change in design.
So, I think, as I said, every quarter is improving and we\'re going to be back on track, as we \'ve been in the health industry.
Rosemarie MorbelliOkay, this is helpful. Thank you.
Finally, on building products, there is no change for any reason other than the load adjustment profit margin, I mean, the environment is still very strong in terms of new buildings and alterations, can you help us?
I think you\'re right.
The market as a whole is very strong.
We grew 33% in the second quarter of last year.
Part of the reason is the pipe filling, which I think is the biggest driving force.
In the second quarter of this year, we also carried out some destocking of the load.
They are the two biggest drivers.
I think I briefly mentioned in the script that our export business has fallen, actually two lows, and how strong they were last year in terms of destocking is the quantity driver.
On the edge, we have these two factories running now.
So we invested in a new facility, but now we have twice the operating cost.
So these are all coming together in the second quarter, and we\'re going to see some of the same results in the third quarter, but the business is very strong overall, and that\'s a--
Our business has been growing at double.
In the past five years, profits have been rising and innovations have been introduced, so this is a major problem in the pipeline inventory business.
Where are you exporting Jim?
Jim OwensIt, a very special business, is actually part of the export of liquefied natural gas construction to the Middle East, related to the business, which is some of the infrastructure projects that took place this time last year, this time this year has not happened.
As a result, the increase is affecting millions of dollars in income.
Thank you.
We will answer the next question from Jeff Zukakauss [ph]with JP Morgan.
Hello, thank you very much.
Your income has dropped by 8 in the construction industry. 2 million year-over-
Your EBIT is down 6 million in the year, why is EBIT so much lower relative to revenue?
What I\'m trying to say is that if I take it, it\'s mostly volume, as you think.
These are businesses with relatively high profit margins on marginal contribution businesses.
So if you consider it from the perspective of pricing and original marginal contribution, our interest rate is online.
However, we do have additional manufacturing costs associated with these dual factories, so this is the second factor.
Then, the growth of operating expenses in the business is in line with our expectations for some growth, and can gradually decline in the future.
So the biggest driver is production, but the second is manufacturing costs, which are higher, and the third is marginal growth in operating expenses.
Before you talk about the better business calls, unidentified analysts, do you mean that business is getting worse or that this year is getting better and betterover-
A year in the second half?
Jim Owens thought I would look at it in order.
Yes, I mentioned that we grew 33% in the second quarter of last year and 30% in the third quarter.
So we have a bit of an impact on this pipeline, which will affect our performance in the third quarter.
So Jeff, for us, the typical model of this business is that the second quarter is the peak year, and the third quarter is slightly lower than the second.
So I would say that from an income point of view it will be the normal model, and then I expect that by the end of this year it will be a bit more than the previous year.
Unknown analyst how much will your incentive pay rise-over-
A year?
Our rewards may increase--
It probably paid around £ 70% last year, which could be what it calls a million dollars.
How much is the unidentified analyst sorry?
About $10 million.
Unknown analyst 10 million, yes.
Jim OwensSo because we were below the target last year, we are 10 million lower than the target, and we will reach or approach the target of the whole organization this year.
Your SG & A as a percentage of sales is, I mean, your gross margin is doing very well, but I think your SG & A as a percentage of sales may be 17.
Now, maybe I don\'t know that this year is almost touching.
Do you think you need to fix this or do you depend on the sales you may deliver in the future, are you satisfied with what is happening on the SG & A production line?
Jim Owens believes that when you see what we think about the long term business --
The term Jeff, our 2020 plan, the gross profit margin we\'re talking about is about 31% and SG & a is about 17%, right.
That\'s why we got a profit of 17% EBITDA, which we think is long termterm target.
So if you look at it Quarterly, it\'s higher than we want.
This is because we are investing in emerging markets because CP is a little higher.
But I think you\'re right to model our business in the long term.
Tracking to terms within the 17ish percentage range is more like a higher peak level.
Would you like to add, John?
John corkreanthe is right. We have a few companies that have not invested on a large scale yet, and the investment is getting heavier and heavier.
So I think when you start to see these businesses continue to grow at their level of growth, you see an increase in that ratio.
Unidentified analysts, so this will improve as sales will grow faster or because the absolute level of SG & A will fall?
The main lever of John CorkreanIt is the quantity lever.
Jim o\'winsett is different from business Jeff.
Some of our businesses will get better leverage.
I mean, we have said that we want to increase the profit margin of our business in Asia and Europe, our packaging business so that we can get SG & A from these businesses when investing
Unidentified analyst, did you buy back any stock this quarter, what is your stock repurchase intent?
Jeff, we didn\'t buy back any stock this quarter.
I think we bought about $4 million in stock in the first quarter and we suspended it because we funded some acquisitions in the second and third quarters.
So I expect that as we exit this year, we may be back at the end of last year in the first quarter.
Finally, where do you think you get market share and where do you think you lose market share?
Of course, we do a very good job in EA business in every segment.
So we see a good market share growth in our health business overall, which is a good positive story for us.
India is certainly a story of market share growth in some regions.
At present, in Southeast Asia, our investment in Indonesia is bringing considerable growth to our southeast Asia business.
This will be some of the areas where we have achieved tremendous growth in market share.
You see, just in the first quarter, we have a good growth in Europe and a decline in the Americas, but I think if you look more broadly, we have an ongoing market share in the Americas.
Given the geographic dynamics of our business, the European market share has grown overall.
I would like to say again that, unlike what we have seen in the last few years, our construction products business has gained a very substantial market share growth over the last few years.
So this is a very positive market share story in our building products business in North America.
So the biggest problem for us in the last few quarters is obviously that our biggest and most profitable business has not gained a share, perhaps in the second half of this year, and that is the Americas business.
Okay, great. Thank you very much.
Thanks Jeff.
We will answer the next question of Curt Siegmeyer with KeyBanc Capital Markets.
Good morning, guys.
Good morning, Kurt.
Curt siegmeyer is just a couple, one about engineering adhesives, and obviously you talked about some of the investments that have been going on there.
What is your long-term EBITDA profit target of 20%, we are obviously--
This is obviously a considerable gap if ---
I think there are several different ways to ask if you have ruled out the investment, maybe what the profit margin will be, what else needs to happen, do you need the quantity to grow to a certain level, or all that needs to happen to bridge this gap to achieve your long-term goalsterm target.
Jim owensto gave you the right idea, right in the quarter I said --over-
Compared to the previous year, we invested about $3 million in operating expenses.
If that\'s the case, we don\'t have an additional investment of 3 million [ph]
We will not drop by 150 basis points, but will rise by 250 basis points.
Therefore, this alone may result in a difference of 400 to 500 basis points.
When you see the basis of this business, the marginal contribution and gross profit margin of this business are fundamentally higher than our business.
So the investment we are making is the technology for future business growth and we see that because we have the location of the business we buy and where they are, we can get a lot of market share gains in a market with very high profit margins.
So we think it is very important for our investors to get some profits, we are creating some more mature areas, and investing them in these areas can build a strong long-term
However, the long-term growth of business.
As you know, our expectation is that the EBITDA profit margin for this business will reach 20% by 2020, so this is the way we are going.
We will invest here in the short term to make sure we get there in the long term.
Then it may just be a follow-up, you lower your fixed-currency earnings outlook, is this mainly CP or is it the lower price you see in the quarter, you expect to remain similar to the second half, is this part of it, or is it part of a lower income outlook?
Jim OwensYes, I think this is mostly a pricing issue, but let John give you a little more color.
You\'re right, John corkelino.
Jim is right. The price is higher.
Pricing was a little bit more headwind in the second quarter and throughout the year than we might have at the beginning of the year, reflecting the time-to-expect decline in raw material prices.
If you consider the sales impact cost, this is for us, this is a net impact that is beneficial to gross profit.
Curt siegmeyer got it, how big is the building product export business you mentioned?
Jim Owens will say, this is what I should know from the beginning.
It\'s less than 15 million so they have a really tough quarter because it\'s quite big.
So it\'s a small part of the business, but they have a couple and it\'s project-driven.
So normally one of these things is in the background, but in general less than 15 million.
Okay, I got it. Thank you.
We will answer the next question from Christopher Perrella of Bloomberg Intelligence.
Good morning, thank you for taking my call.
Just a quick follow-up question, where are you on SAP implementation and what will be the cost in this regard?
As you know, the implementation of SAP has been delayed due to global promotion so that we can stabilize and strengthen our business in North America.
Our operating system in North America is running very well.
So the business investment we made there created some problems in 2014 that affected our performance today in 2015, which helped improve our business and run at a much higher level than in history
We are very satisfied with the system.
We may launch this project from 2017, so we will launch this project later this year and then start our first launch later in 2017.
Although we will do it in a very different way from North America.
One day, we did our biggest business in a hurry.
We will take small businesses like the Latin American business and do it in three separate sections in three different activities.
Therefore, considering a very different overtime strategy, the cost will be extended, but this is an important investment for our business and will strengthen our company.
So the simple answer is that our next launch may be later in 2017, and we will invest later in the year, and then successfully invest for most of 2017.
Thanks a lot to Christopher perrellaok.
Thanks, Jim.
The next question comes from Dmitry Silversteyn of Longbow Research.
Good morning, guys, thanks for taking mine-
-Many of my questions have been answered, but I just wanted to follow up on the US FX impact regarding the questions asked earlier about pricing in the Americas and the foreign exchange numbers you have raised.
I think you said that you really don\'t have a significant price increase in Latin America, which is contrary to some of the more aggressive pricing by quoting manufacturers and many other related businesses that are trying to offset deflation and currency.
So I just want to understand, what is preventing you or the entire adhesive market from taking a typical path in emerging markets when the currency depreciates, and you raise the price to make up for that?
Secondly, in the foreign exchange market, your investment is much lower than I expected. Three --
Foreign exchange fell 30 basis points a year-over-
In the second half of this year--
In the second half of last year, real and other currencies in Latin America and Canada fell sharply.
Why is your FX impact not higher than you reported?
The answer to these two questions is relevant because H. B.
Fuller has been in Latin America for a long time and we have established our position in Latin America, mainly based on dollar pricing.
So we price the product based on USD currency, so our price in this case fluctuates locally, but when we quote the customer, there are some exceptions, there are exceptions, of course. We raised the price.
But mostly it\'s dollar-based pricing for all our customers in Latin America, which is why you don\'t see the monetary effect that people with other pricing products might see.
The reason Dmitry SilversteynI got it is basically because you are priced in dollars, but your customers see a higher price for their local currency, but for you there is no need to translate, dollars.
That\'s right, Jim.
Dmitry silversteynget it, see.
Also, let me follow up on growth in the Asia-Pacific region and we see double growth
In the current quarter of digital growth, you have some mid-term single
Digital growth in the first quarter, what are your expectations for the rest of the year.
I mean, I\'m sure your main market there is electronics and cars, and I\'m talking about engineering adhesives as well, because it\'s mostly Asian based on my understanding.
These markets seem to have become a bit weak, so I\'m just wondering if Tokyo\'s stock rally and a more focused approach to Asia will allow you to offset trend market conditions or general conditions that might slow down.
What do you expect from the growth of the business in the second half of the year?
Jim Owens is very important. -
So our engineering adhesive, you\'re right, the overall market is not as strong as it used to be, but this is the opportunity for us to bring people, technology, this is a very strong company.
As a result, the business has grown by 15% in less robust environments in China and Asia. So, very solid.
This includes our investment in electronics, and we have won some good victories in electronics.
So, I think it\'s a very good news in terms of engineering adhesives, even though it\'s affordable.
Again, in our AP business, I agree with you, Dmitry, we don\'t have a strong foundation in the Asia-Pacific region.
But for us, there are two things. One is that many of our businesses are connected to local consumer goods, and these parts of the economy are also very good.
So these parts of packaging, hygiene, business are still positive.
Maybe not as positive as before, but very positive in how they operate.
We will continue to win.
We have invested heavily in Indonesia to help us in Southeast Asia, our team in China is very strong in target areas and we can bring value to our customers.
So, we will provide double
It may be a high wish but a high single
I think the number of our Asia Pacific operations can be achieved in the second half of this year.
It was great to hear the news.
The last question is that in the second and first quarter, profit margins in the Asia-Pacific region will decline in turn, to some extent, what is that driver, or what is the driver, how do you see profit growth for Asia Pacific for the rest of the year?
Jim OwensOverall\'s goal for the first half of the year is our expectation for the first half of the year, which is also our expectation for the second half of the year.
So, I will take the average of both as a good goal and a good progress.
The difference between the two quarters is that we are increasing our investment in this Indonesian facility.
Dmitry SilversteynOkay, get it.
Jim owensso, they have goals in general.
Thanks, Jim.
Thank you, Dmitry. Operator [
Operation instructions].
We will answer the next question from Bruce Cesar\'s Consulting study.
Thank you, Bruce zeza.
I want to go back to the online bond acquisition Jim, what do you say their sales are, 12 months later, I guess?
Jim OwensOkay, about 15 million
Bruce zesaro, 15 million, okay, so do you have any estimates, 15 million, yes, that\'s what you said.
Well, in terms of potential synergies, the multiple you mentioned is 12x, but we can go back to what EBITDA is, but do you have any estimates of the synergies that you think you might get from the transaction?
Jim OwensYes, I don\'t have it at hand, Bruce, but they are quite synergistic.
What happened was that we anticipated a series of synergies outside of Tonsan, and then we saw that the acceleration of these synergies was mainly due to this opportunity.
The Tonsan plant is basically built on the organic development of infrastructure in North America and Europe, which is developing rapidly.
But all the work we have done over the past year is now accelerating the possibility of driving revenue growth.
So, not a specific number, but all the income.
I think the earliest and simplest revenue opportunity is in China, in fact because China\'s very strong team has mastered the technology of online bonds, which will bring about technological growth that we did not expect later this year.
People from online bond companies have gone to China to meet with our team to discuss how to achieve this, and then the synergies of revenue will be seen in the second half of this year and next year.
Bruce zesalock, then an issue with John, Jim Giltz at the last conference call, said he expected operating cash flow to be slightly higher than 0. 21 billion for the current fiscal year, if this is still the expectation?
I\'m Bruce. I\'m John.
So, if you look at the normal net worth of the company, the cash flow seems to be back in half.
So, so far, there is $80 million in operating cash flow, which should give us some insight into what Jim says.
Thank you, Bruce zesarock.
Thanks Bruce.
Jim OwensOkay, thank you for your participation and--
Any other questions?
Yes, Rosemarie Morbelli asked another question.
Rosemarie MorbelliThank, you eat it. Jim is quick. Look at Cyberbond. They have matching products ---
Or are they brand new engineering adhesives for entering different markets or for different applications?
Jim OwensYes, their biggest product line is owned by Tonsan, but not so powerful.
Their other product lines in Tonsan are not as strong as before.
Therefore, they complement each other in this regard.
The market knowledge of people gained through the business is very strong in all these areas.
So there is a lot of market knowledge to share. Technically, a technology owned by online bonds can help us in China, and most of the technology owned by Tonsan can really accelerate the growth of online bonds.
Thank you, Rosemarie MorbelliOkay.
Thank you, Rosemary.
OK, thank you for your support and participation in today\'s call.
Thank you, operators.
H today. B.
Fuller called 2016 investors in the second quarter.
You can disconnect now.
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