icon
icon
icon
icon
Upgrade
icon

H.B. Fuller (FUL) Struggles with Weak Demand and Rising Costs, Trimming FY24 Outlook

AInvestThursday, Jan 2, 2025 11:30 am ET
1min read

H.B. Fuller, the world’s largest pure-play adhesives company, is facing headwinds as weak manufacturing conditions and higher raw material costs weigh on its performance. The company’s sharp reduction in fiscal year 2024 guidance sent its stock lower, highlighting challenges in consumer and industrial end markets.

Lower Guidance Reflects Ongoing Struggles

H.B. Fuller revised its FY24 adjusted EPS guidance to $3.84 from $4.10-4.20 and adjusted EBITDA to $594 million from $610-620 million. With only one quarter remaining, this suggests fourth-quarter results fell significantly short of expectations. Revenue guidance was more stable but could not offset the impact of weaker profitability.

The company cited softer-than-expected conditions and delayed customer orders, particularly in consumer goods, packaging, and durable goods. Additionally, higher raw material costs in its Hygiene, Health, and Consumable Adhesives segment (HHC) and the delayed realization of price increases into FY25 further pressured earnings.

Volume Trends Show Negative Inflection

Late in the fourth quarter, H.B. Fuller observed a negative shift in volume trends across several market segments. This marks a continuation of challenges from the third quarter, where volume growth remained at the lower end of expectations. The anticipated recovery in demand has now been deferred to FY25, pushing out hopes for a near-term turnaround.

The softness in the HHC segment was particularly disappointing. While earlier strength in bottle labeling, packaging, and medical applications drove optimism, these gains were not enough to offset the broader slowdown.

Rising Costs Add to the Pain

The company’s exposure to raw material costs, particularly petroleum and natural gas derivatives, is a significant concern. These materials account for approximately 75 percent of the cost of sales. Even a 1 percent increase in raw material costs can reduce EPS by $0.24, making Fuller highly sensitive to fluctuations in input prices.

With oil and natural gas prices rising in December, the company faces additional risks as it enters FY25. These cost pressures complicate efforts to stabilize margins, which could remain under strain until broader manufacturing activity improves.

Outlook

H.B. Fuller’s challenges underscore the broader issues facing the industrial and manufacturing sectors. While the company has long-term potential given its leadership in adhesives and exposure to diverse end markets, the immediate outlook remains clouded.

A recovery in manufacturing activity, easing raw material costs, and lower interest rates will be critical for driving volume growth and improving margins. For now, however, investors may need to brace for continued volatility as the company navigates these headwinds into FY25.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.