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H.B. Fuller reports fourth quarter and fiscal year 2011 results

Highlights of H.B. Fuller Company’s financial results for the fourth quarter showed that the company “delivered a second consecutive year of strong organic growth, displayed a positive trend in gross margin progression throughout the year in the face of continued raw material cost escalation…”.

H.B. Fuller Company reported financial results for the fourth quarter that ended 3 December 2011, with highlights including:
•    net revenue increased 21% year-over-year or 13% when adjusting for the extra week;
•    gross profit margin improved 50 basis points year-over-year despite ongoing raw material cost inflation and was essentially unchanged from the prior quarter;
•    operating income was up 36% from the prior year, and up 27% after adjusting for the extra week.
Full-year 2011 highlights included:
•    net revenue increased by nearly 15% year-over-year, or nearly 13% after adjusting for the extra week;
•    year-over year growth in Selling, General and Administrative (SG&A) expense was less than 7% when adjusted for the extra week; SG&A as a percentage of net revenue declined 120 basis points in 2011 to 20.4%;
•    operating income increased nearly 24% year-over-year, or 21% after adjusting for the extra week;
•    adjusted diluted EPS grew 19% year-over-year.
Net income for the fourth quarter of 2011 was USD 26.4 million, or USD 0.53 per diluted share, versus USD 21.9 million, or USD 0.44 per diluted share, in last year’s fourth quarter. Two previously announced events negatively impacted net income in the quarter. These were the pre-tax cost directly associated with the EIMEA transformation plan and the pending acquisition of the Industrial Adhesives business from the Forbo Group totalled USD 7.5 million, or USD 0.12 per diluted share. After adjusting for these special charges, net income for the fourth quarter of 2011 was USD 0.65 per diluted share. Therefore, adjusted diluted earnings per share in the fourth quarter of 2011 increased 48% compared to the results of the prior year.
Net revenue for the fourth quarter of 2011 was USD 436.5 million, up 21.2% versus the fourth quarter of 2010, or up 13% when adjusted for the extra week. Higher average selling prices, favourable foreign currency translation, and higher volume inclusive of an extra week positively impacted net revenue growth by 11.0, 2.6 and 7.6 percentage points, respectively. Organic revenue grew by 18.6% year-over-year.
Gross profit margin was up 50 basis points versus the fourth quarter of 2010, and essentially flat versus the previous quarter reflecting the cumulative positive impact of pricing actions, product reformulations and substitutions over the past year. Relative to the prior year, SG&A expense was up 17.6%, or 9.2% after adjusting for the extra week. SG&A expense was down 60 basis points as a percentage of net revenue compared to the prior year. Operating income was up 36% compared to the fourth quarter of 2010, or up 27% when adjusted for the extra week.
At the end of the fourth quarter of 2011, the company had cash totalling USD 156 million and total debt of USD 232 million. This compares to third quarter levels of USD 149 million and USD 238 million, respectively. Net debt was USD 76 million at the end of the fourth quarter, down approximately USD 13 million from the previous quarter. Cash flow from operations was USD 40 million in the fourth quarter and USD 102 million for the full year. Capital expenditures for the fourth quarter were USD 12.4 million and USD 36 million for the full year.
Net income for the 2011 fiscal year was USD 89.1 million, or USD 1.79 per diluted share, versus USD 70.9 million, or USD 1.43 per diluted share, in the 2010 fiscal year. The pre-tax cost associated with the EIMEA transformation plan and the pending acquisition of the Industrial Adhesives business from the Forbo Group totalled USD 7.5 million, or USD 0.11 per diluted share. Excluding these charges, net income for the 2011 fiscal year was USD 94.9 million, or USD 1.90 per diluted share. Net income for the 2010 fiscal year included exit costs and non-cash impairment charges associated with the exiting of the company’s polysulfide insulating glass sealant product line in Europe. After adjusting for these charges, net income for the 2010 fiscal year was USD 79.3 million, or USD 1.60 per diluted share. On an adjusted basis, diluted earnings per share were up 19% from the prior year.
Net revenue for the 2011 fiscal year was USD 1,557.6 million, up 14.9% versus the 2010 fiscal year, or up nearly 13% when adjusted for the extra week. Higher average selling prices, favourable foreign currency translation, acquisitions, and higher volume inclusive of an extra week positively impacted net revenue growth by 9.7, 2.7, 0.8 and 1.7 percentage points, respectively. Organic revenue grew by 11.4% year-over-year.
Gross profit margin was down 60 basis points versus the gross profit margin in 2010, primarily reflecting the impact of raw material cost escalation of nearly 20% in the 2011 fiscal year. Relative to the prior year, SG&A expense was higher by less than 9%, or less than 7% when adjusting for the extra week, and was down 120 basis points as a percentage of net revenue. Operating income was up nearly 24% in 2011, or 21% when adjusting for the extra week, compared to the 2010 fiscal year.
“We are very pleased with our results for the fourth quarter and the 2011 fiscal year,” said Jim Owens, H. B. Fuller president and chief executive officer. “The business delivered a second consecutive year of strong organic growth, displayed a positive trend in gross margin progression throughout the year in the face of continued raw material cost escalation and we leveraged our investments to drive SG&A as a percentage of net revenue down by over 100 basis points. We expect a strong 2012 fiscal year and steady progress towards the long-term financial goals that we laid out in July of 2011. The addition of Forbo’s Industrial Adhesive business will further strengthen our business as it is integrated and we realize the potential of the combined businesses.”
The following highlight the company’s expectations for several key metrics in its 2012 financial outlook:
•    net revenue up 4 to 7% relative to 2011, or 6 to 9% growth when adjusted for the extra week in 2011;
•    earnings per diluted share of between USD 2.05 and USD 2.15;
•    key foreign exchange translation rate assumption is one dollar and 38 cents per euro;
•    capital expenditures of approximately USD 40 million;
•    The company’s effective tax rate, excluding discrete items, is expected to be 31%.
This guidance excludes certain non-recurring costs associated with the EIMEA transformation project and non-recurring costs related to the proposed acquisition of the Industrial Adhesive business from the Forbo Group. This guidance will be adjusted to include the impact of the pending acquisition once the transaction closes.

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