Der Leim-Talk Blog

Top 5 Reasons to Invest in H.B. Fuller

Posted 25 Aug 2022 by Steven Brazones, Vice President, Investor Relations

H.B. Fuller was founded in 1887 by Harvey Benjamin Fuller who successfully aspired to formulate innovative adhesives. Fast forward 135 years, and we have grown into a global leader in adhesive and sealant technology, selling our solutions to 30 market segments in more than 125 countries. Within this time, we have grown our business and increased our margins, and are poised to continue to deliver sustained shareholder value creation as we execute our growth strategy.

Here are the top five reasons we believe H.B. Fuller is a compelling long-term investment:

Gaining market share in attractive specialized adhesives market

The global adhesives market is highly attractive with very favorable long-term growth characteristics. According to industry research reports, the CAGR of the adhesives market is expected to grow at a CAGR of 3.7 percent. Adhesive applications are used in a range of manufacturing processes across numerous specialized end markets. The opportunities for H.B. Fuller, the largest pure-play specialty adhesive formulator and manufacturer in the world, to leverage our competitive position to gain market share through specialized adhesive applications are vast and give us great confidence in our ability to continue to expand our position.

Delivering organic growth through innovation and pricing power

We serve a diverse group of end markets that provide many opportunities to commercialize innovative solutions. We have a rich history of innovation over the past 135 years, and this continues today. With 10,000 unique solutions, 500 active patents, and 17 different technology platforms, we are the innovation partner of choice for our customers. As a result of our collaborative approach to helping customers innovate and solve adhesion challenges, we have very long-term commercial relationships. This unique position enables us to drive volume growth across our portfolio of highly specified solutions.

Supplementing our volume growth through innovative solutions, we also have built a competitive advantage through the development our value-based pricing capability. This discipline has been developed and refined over the past decade. It provides us unique capabilities to not only nimbly adjust to changing raw material cost environments, but also improve our margin profile as we price to the value we deliver to the marketplace.

We expect to grow volume at a CAGR of between 3% to 5% over the long term.

Driving higher margins through portfolio transformation and operational efficiencies

We have strategically repositioned our portfolio to a higher margin, higher specified product offering over the last 10 years. Highly specified products now constitute 54% of our portfolio, up from 34% of our portfolio in 2010. As a result of this improved mix, we have increased our EBITDA margins more than 300 basis points over this period. This strategic shift continues and should provide significant opportunity to further expand EBITDA margin in the future.

We expect to grow EBITDA at a CAGR of 10% over the long term.

Generating strong cash flow across business cycles

We generate strong cash flows across business cycles and through both periods of economic expansion and recession. There are several reasons for this resiliency in cash flow:

  • We serve a diverse set of end markets across the world, with balanced sector exposures to cyclical and non-cyclical sectors;
  • We have built strong pricing and sourcing processes that provide us unique capabilities to nimbly adjust to changing raw material cost environments;
  • We have strong, long-standing customer relationships in the markets we serve;
  • We are strategically focused on innovative and specialty applications that do not require significant capital investment to grow;
  • We have strong working capital discipline.

We expect free cash flow generation greater than 100% of net income over the long term.

Accelerating growth and margin expansion through strategic M&A

Strategic acquisitions have played a key part in our transformation. We have used acquisitions to strengthen our portfolio by enhancing our technology capabilities, diversifying the markets we serve, expanding into new geographies, and accelerating our portfolio mix transformation towards higher margin specialty applications. Our proven ability to identify, close and integrate strategic acquisitions is a source of competitive advantage. We have a track record of success and will continue to leverage this capability to improve our competitive positioning and supplement our organic growth. We expect transactions to generate an IRR of more than 15% and to be accretive to earnings within the first two years.

H.B Fuller has a prudent approach to capital allocation and will continue to utilize its balance sheet and cash flow to fund strategic acquisitions while targeting a debt-to-EBITDA ratio between 2X to 3X over the long term.

Find out more about investing in H.B. Fuller here.

 


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