Adjusted EBITDA of $138 million, up 24% y-on-y; Adjusted EBITDA Margin Increased 120 basis points y-on-y
H.B. Fuller reported that net revenue for the third quarter of fiscal 2022 was $941.2 million, up 13.8% versus the third quarter of fiscal 2021. Robust pricing actions to recover unprecedented raw material cost inflation increased net revenue by 18.7 percentage points.
As expected, volume was down 0.3% as a result of slowing economic conditions, offset by market share gains. As a result, organic revenue increased 18.4% versus the third quarter of fiscal 2021. Unfavorable foreign currency exchange rates reduced net revenue growth by 6.6 percentage points, while acquisitions increased net revenue growth by 2.0 percentage points.
On a year-on-year basis, Hygiene, Health and Consumable Adhesives organic revenue increased 22.9%, Engineering Adhesives organic revenue increased 17.5%, and Construction Adhesives organic revenue increased 6.9%.
Gross profit in the third quarter of fiscal 2022 was $249.2 million. Adjusted gross profit in the third quarter of fiscal 2022 was $249.8 million. Adjusted gross profit margin of 26.5% increased 280 basis points year-on-year. Strong pricing actions to recover raw material cost inflation, as well as operating efficiencies, drove adjusted gross margin higher year-on-year.
Selling, general and administrative (SG&A) expense was $161.2 million in the third quarter of fiscal 2022 and adjusted SG&A was $156.2 million. Adjusted SG&A as a percent of net revenue increased 100 basis points versus the third quarter of last year. The increase in SG&A, as a percentage of net revenue, was largely driven by higher variable compensation and higher travel related expenses following the pandemic driven slowdown in travel.
Net income attributable to H.B. Fuller for the third quarter of fiscal 2022 was $46.5 million, or $0.84 per diluted share. Adjusted net income attributable to H.B. Fuller for the third quarter of fiscal 2022 was $58.3 million, up 35.9% year-on-year. Adjusted EPS was $1.06 per diluted share, up $0.27 or 34.2% year-on-year, reflecting strong organic revenue growth and operating efficiencies which more than offset the unfavorable impact of currency and higher interest rates.
Adjusted EBITDA in the third quarter of fiscal 2022 was $137.7 million, up 24.4% compared with the third quarter of last year. Adjusted EBITDA margin increased 120 basis points year-on-year from 13.4% to 14.6%. Strong pricing actions, continued strategic mix shift towards more highly-specified products, and operational discipline drove the improvement year-on-year.
“Our strong organic growth and improved profitability in the third quarter serve as additional proof points that our strategy is working, particularly in light of continued raw material inflation and currency headwinds from the strong dollar,” said Jim Owens, H.B. Fuller president and chief executive officer. “Our innovation driven market share gains and mix shift to a more highly specified product portfolio through innovation and strategic M&A, coupled with our responsible pricing actions, are delivering significant improvement to our financial results.
“Our underlying market share gains are enabling us to drive a more favorable volume performance in the marketplace and position us well as the rate of raw material inflation subsides. These share gains will endure and should grow as we execute our strategy. At the same time, our ability to substitute adhesive technologies greatly improves with supply chain normalization and allows us to provide competitive offerings while improving margins. These substitution capabilities, combined with the pricing actions we have taken throughout this unprecedented inflationary environment, will enable us to grow organic revenues and expand margins in recessionary economic environments.
“We have very effectively managed both economic and currency headwinds and we remain on track to achieve significant double-digit EPS growth and EBITDA growth at the top end of the range we provided in the first quarter. We are performing exceptionally well, and we are uniquely positioned to continue to deliver above-market organic growth while expanding our margins,” concluded Owens.
Fiscal 2022 Outlook:
Company is increasing full-year expectations for adjusted EBITDA, despite slower economic conditions, stronger U.S. Dollar, and continued raw material cost inflation;
Organic revenue growth for fiscal year 2022 is expected to be in the range of 17% to 18%, excluding the impact of the extra week;
Adjusted EBITDA for fiscal 2022 is expected to be in the range of $540 to $550 million, up from the previously provided range of $530 to $550 million and equating to growth of 16% to 18% versus fiscal year 2021;
Net interest expense for fiscal 2022 is expected to be between $80 and $85 million reflecting higher interest rates and the expectation of some opportunistic refinancing before the end of the year;
Adjusted EPS in the fourth quarter of fiscal 2022 is expected to be in the range of $1.15 to $1.30, resulting in fiscal year 2022 adjusted EPS increasing 19% to 23% year-on-year, despite the significantly stronger U.S. dollar and higher borrowing costs;
Working capital, as a percentage of annualized net revenue, is expected to be in the range of 16% to 17% by fiscal year-end, resulting in full-year cash flow from operations similar to the prior year.
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