FULLER H B Q3 FY26 earnings call FUL

The petrochemical supply chain continues to experience dislocation, with disjointed supply chains not expected to normalize^📎 until well after the current conflict subsides. Raw material prices have stabilized at elevated levels and are anticipated to remain at or near these levels for the remainder of 2026. H.B. Fuller is committed to judiciously raising prices as needed to offset these costs and protect margins, confident in its ability to mitigate inflationary pressures.

Project Quantum Leap, a multiyear initiative to optimize manufacturing and distribution, is tracking as expected. The program aims for $75 million in annualized conversion cost savings by the end of 2030, with $25 million realized by the end of 2026 and an additional $20 million to $25 million expected in 2027. Capital investment for the program is projected at $150 million over its life, with $50 million in 2026 and less than $25 million in 2027. Total one-time^📎 cash costs of $50 million are expected to be offset by real estate sales, and the program will also generate substantial cash flow benefits through improved working capital and reduced maintenance capital.

H.B. Fuller recognized two winners for its 2026 Customer Innovation Awards: Ben Dasmal General Trading Company for an innovative HVAC insulation system using Foster Neo Clad, and Hudamaki for a recyclable paper-based dairy cup called Pro Dairy. These awards highlight successful collaborations that deliver measurable advances in sustainability, safety, and performance. The company emphasizes its technical leadership and commitment to innovation in solving real-world challenges and advancing sustainability.

The proposed acquisition of Advanced Medical Solutions (AMS) is progressing well through regulatory approvals and is on track to close by year-end. Management is committed to its deleveraging plan, expecting the net debt to adjusted EBITDA ratio to return to the 2.5x to 3x target range within two years of closing, supported by the combined company's strong cash generation and Quantum Leap benefits. AMS reported an 8% adjusted EBITDA improvement and 4% revenue increase in the first half of 2026 versus 2025, with an anticipated average annual growth rate of approximately 8%.

Deleveraging is a very high priority for the company, especially following the AMS acquisition. A rigorous portfolio review was conducted in August, leading to increased scrutiny on business plans to assess if H.B. Fuller is the optimal owner for every market segment. The possibility of divestitures is being seriously considered as a means to accelerate debt reduction. Significant cash flow benefits from the Quantum Leap program, including working capital and CapEx reductions, are also expected to support the deleveraging efforts.

While Q3 volumes were better than anticipated due to fewer customer constraints on non-adhesive materials, demand remains fluctuating. Electronics softened due to chip shortages in Asia Pacific, and the construction market remains muted due to high interest rates. HHC volumes have been impacted by GLP-1s affecting packaged food consumption and a slowdown in household formation. China is identified as a key region to watch for 2027, while Europe is showing signs of improvement.