H.B. Fuller’s Earnings Call Contradictions: Pricing Benefit Carryover, EA Growth Drivers, and Solar Revenue Projections at Odds

Date of Call: Jan 15, 2026

Financials Results

• Revenue: $?M, down 3.1% YOY; organic revenue down 1.3% YOY (up 1% adjusting for Flooring divestiture)
• EPS: $1.28 per diluted share, up 39% YOY
• Gross Margin: 32.5%, up 290 basis points YOY
• Operating Margin: 19% (adjusted EBITDA margin), up 290 basis points YOY

Guidance:

• Full year net revenue expected flat to up 2% vs 2025, organic revenue approximately flat.
• Adjusted EBITDA expected between $630M and $660M.
• Adjusted EPS expected in range of $4.35 to $4.70.
• Operating cash flow expected between $275M and $300M.
• Q1 revenue expected down low single digits; Q1 adjusted EBITDA expected between $110M and $120M.

Business Commentary:

Profitability and Margin Expansion:

• H.B. Fuller reported EBITDA of $170 million, up 15% year-on-year, with an EBITDA margin of 19%, a 290 basis points increase from the previous year.
• This was driven by favorable pricing, raw material cost savings, and restructuring actions that offset lower volume impacts.

Segment Performance and Market Dynamics:

• In the HHC segment, organic revenue was down 1.8% year-on-year due to lower volumes, while EBITDA increased almost 30%.
• The decline was offset by strong growth in hygiene, although packaging-related end markets remained soft due to economic conditions.

Engineering Adhesives Growth:

• The Engineering Adhesives segment saw organic revenue increase by 2.2%, driven by favorable pricing and volumes, particularly in automotive, electronics, and aerospace.
• Excluding solar, the segment showed approximately 7% organic revenue growth, reflecting successful efforts to reposition towards higher-growth markets.

Geographic Revenue Trends:

• Americas organic revenue was flat year-on-year, with growth in EA offset by weaker results in packaging and construction.
• EIMEA organic revenue decreased by 6% due to lower volumes in packaging and construction, while Asia Pacific showed 3% growth driven by higher volumes in EA and HHC.

Outlook and Strategic Initiatives:

• For 2026, H.B. Fuller anticipates flat to up 2% net revenue, with organic revenue approximately flat, despite a challenging economic backdrop.
• The company plans to leverage pricing, raw material cost actions, and savings from the Quantum Leap initiative to drive profit growth and margin expansion.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted 'double-digit EPS growth and EBITDA at the top end of our full year guidance range', 'improved profitability and sustained margin expansion', exiting Q4 'with strong momentum heading into 2026', and 'firmly on track to achieve our target of greater than 20% EBITDA margin'.

Q&A:

• Question from Michael Harrison (Seaport Research Partners): Congrats on a nice finish to the year. I was hoping we could start with the Q1 guidance... Maybe just give us a little bit more color on what you think would be driving that weakness. And I'm curious if you can comment at all on what December looked like and if that's informing some of the weaker outlook.
  Response: The primary driver is the timing of Chinese New Year, which shifts $15-20M of revenue and $6-8M of EBITDA from Q1 to Q2. December was 'a little weird' with holiday timing, but the year started as expected.

• Question from Michael Harrison (Seaport Research Partners): ...just wanted to ask another one on raw materials. How are you thinking about raw materials and pricing in fiscal '26?... Any kind of thoughts on that cadence would be helpful.
  Response: Pricing and raw material benefit expected to be about $35M for 2026, up from $25M carryover from 2025, with timing slightly weighted to the first half.

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated): Maybe we can focus on the BAS segment... Just curious as to whether [government shutdown] had any impact on you?
  Response: No impact from government shutdown. Weakness driven by a tough YOY comp from new customer wins in 2024 and a generally weak construction environment.

• Question from Ghansham Panjabi (Robert W. Baird & Co. Incorporated): ...can you give us a sense as to core sales by segment? I know you're guiding towards roughly flat for the year.
  Response: Organic revenue expected approximately flat. Pricing positive in all 3 GBUs (0.5% to 1%). EA expected positive volume growth; HHC and BAS expected down slightly YOY.

• Question from Kevin McCarthy (Vertical Research Partners): John, I was wondering if you could speak to your free cash flow outlook for 2026... anything in particular you would call out that might be weighing on the free cash flow conversion?
  Response: Operating cash flow guided to $275M-$300M, roughly $25M increase driven by higher income. Working capital expected to remain slightly higher due to Quantum Leap, and maintenance CapEx may be elevated.

• Question from Kevin McCarthy (Vertical Research Partners): ...expand on the key assumptions that you're baking into the annual guide... what sort of macro help, if any, you might need to achieve the earnings targets.
  Response: No macro help expected. Relies on self-help: pricing, raw material cost actions, Quantum Leap savings, and portfolio optimization.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co): When I look at your other income adjusted in the fourth quarter... Can you talk about those numbers?
  Response: Increase driven by higher pension income (about half the difference) and reduced FX hedging gains/losses.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co): Your deferred taxes were a use of $50 million versus $36 million last year. Can you talk about what's going on there?... What's going on there?
  Response: Deferred tax impact from a 2024 dividend withholding tax paid in 2025. Trade payables down due to timing of inventory and dividends, but payables as a percentage of revenue are stable.

• Question from Patrick Cunningham (Citigroup Inc.): I was hoping you could just dig into sort of the level of confidence in the volume growth in EA 2026, maybe ex solar... do you feel like you have a good line of sight?
  Response: High confidence. EA team delivering strong results (e.g., 7% organic growth ex-solar in Q4). Growth driven by automotive, electronics, aerospace, and successful acquisition integration.

• Question from Patrick Cunningham (Citigroup Inc.): ...how should we think about long-term free cash flow conversion? And then maybe what should we expect in terms of peak working capital drag and peak CapEx drag associated with Quantum Leap?
  Response: Operating cash flow muted near term due to higher working capital (Quantum Leap) and elevated maintenance CapEx. Expect improvement after Quantum Leap and SAP implementation are complete.

• Question from Lucas Beaumont (UBS Investment Bank): I just wanted to go back to the organic growth outlook... to get to kind of flat for the year, you probably need the second half to kind of be up low single digits... where you see the acceleration coming from?
  Response: EA to grow mid-single digits ex-solar, with solar headwind moderating in second half. All GBUs positive on pricing, but volume declines in HHC and BAS.

• Question from Lucas Beaumont (UBS Investment Bank): ...on the pricing side... how you sort of see that slowing... how much do you think you can kind of hold that in there?
  Response: Pricing supported by portfolio mix shift to higher-value solutions and customer enablement. Combined pricing/raw material forecasting is key to managing volatility.

• Question from David Begleiter (Deutsche Bank AG): Just in construction, you mentioned the environment is weakening. Is that more a U.S. comment or a European comment?
  Response: Weakening in both, but offset in U.S. by data center construction growth.

• Question from David Begleiter (Deutsche Bank AG): ...on the packaging weakness, can you discuss the competitive intensity in that market as volumes decline? And do you think you've maintained your share?
  Response: Market is competitive. Company is selecting out of lower-value segments and focusing on innovation and service to maintain share in targeted areas.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co): When you look at your overall geographic markets, if you exclude the places where you're gaining market share, do you see an acceleration in demand growth in any of your 3 major regions? Are there green shoots?
  Response: Green shoots seen in China, which bounced back to double-digit organic growth and reported a record $1 trillion trade surplus.

• Question from Jeffrey Zekauskas (JPMorgan Chase & Co): ...why do you expect as a base case for your HHC volumes to be down a little bit in 2026?
  Response: Continued constraint in packaging, especially among CPG customers in Europe and U.S. due to affordability issues.

Contradiction Point 1

Pricing and Raw Material Benefit Cadence

Contradiction on the timing and amount of pricing/cost benefit carryover into the next fiscal year.

What's your strategy for raw materials and pricing in fiscal 2026, and what's the anticipated margin trend year-over-year? - Michael Harrison (Seaport Research Partners)

2025Q4: In 2025, combined price and raw material benefit was ~$30 million. For 2026, this is expected to improve to ~$35 million, a carryover benefit of ~$25 million plus new initiatives. - John Corkrean(CFO)

What is the update on the $55 million pricing versus raw material cost benefit, including realized amount and fiscal 2026 outlook? - Michael Harrison (Seaport Research Partners)

2025Q3: As of Q3, about $15 million of the $55 million in planned pricing and cost action benefits had been realized. An additional $15 million is expected in Q4, with the remainder wrapping into the beginning of fiscal 2026. - Celeste Mastin(CEO)

Contradiction Point 2

EA Volume Growth Drivers and Outlook

Contradiction on the primary driver of EA's strong performance and its expected future growth trajectory.

What drives confidence in EA volume growth for 2026 (excluding solar), and will 2025's strong performance normalize? - Patrick Cunningham (Citigroup Inc.)

2025Q4: Confidence is high due to successful execution, strong market positions (especially in automotive, aerospace, electronics), and innovation partnerships. Excluding a ~$30 million solar headwind in 2026, EA is expected to continue its mid-single-digit organic growth trend. - Patrick Cunningham(Citi)

What drove the positive volumes and margins in EA, and were factors like product mix or acquisitions a contributing factor? - Alex (on behalf of Patrick Cunningham, Citi)

2025Q3: The EA business had a strong quarter... This momentum is expected to continue due to market share gains, new customer wins, and strong execution. - Celeste Mastin(CEO)

Contradiction Point 3

Near-Term Financial Impact of Quantum Leap

Contradiction on the timing and nature of the working capital impact from the Quantum Leap initiative.

What is the free cash flow outlook for 2026, and are factors like working capital impacting its conversion? - Kevin McCarthy (Vertical Research Partners)

2025Q4: Working capital will remain slightly elevated (~15.8% of revenue) due to the Quantum Leap initiative, which requires higher inventory in the near term. - John Corkrean(CFO)

Could you explain the reason for the cash flow guidance reduction? - Emily Fusco (Deutsche Bank AG)

2025Q3: The reduction in operating cash flow guidance is due to higher inventory levels needed in preparation for the company's manufacturing footprint optimization initiatives. These increased inventory levels are temporary and are expected to be normalized in the future. - John Corkrean(CFO)

Contradiction Point 4

Volume Outlook for Health & Hygiene (HHC) Segment

Contradiction on the expected volume direction for the HHC segment in 2026.

Did the U.S. government shutdown impact BAS in Q4, what drove the weakness in packaging (HHC), and can you provide guidance on core sales by segment for 2026? - Ghansham Panjabi (Robert W. Baird & Co.)

2025Q4: For 2026: ... HHC volumes expected slightly down. - Celeste Mastin(CEO), John Corkrean(CFO)

How did value velocity (volume trends) across the portfolio in Q2 compare with previous quarters, and what is the expected timeline for a positive inflection in Chinese solar? - Ghansham Panjabi (Robert W. Baird & Co. Incorporated)

2025Q2: Overall company volume was flat in Q2 vs. up about 2% in Q1... Momentum was positive in automotive and flexible packaging... - John Corkrean(CFO), Celeste Beeks Mastin(CEO)

Contradiction Point 5

Solar Business Outlook and Financial Impact

Contradiction in projected solar revenue and its EBITDA impact for 2026.

Will 2026 see an incremental penalty from solar weakness and become a meaningful acquisition year? - Jeffrey Zekauskas (JPMorgan Chase & Co.)

2025Q4: Solar revenue is expected to decline from ~$80 million in 2025 to ~$50 million by end of 2026... a ~$30 million reduction in the first three quarters. - Celeste Mastin(CEO)

Is there another quarter before the solar business stabilizes in China? - Jeffrey Zekauskas (JPMorgan)

2025Q1: The solar business (about $100M last year) is expected to be down about 20% year-on-year. With ~35% flow-through margin, this represents a ~$20M negative EBITDA drag. - John Corkrean(CFO)