H.B. Fuller Company reported financial results for the fourth quarter that ended November 30, 2013 and guidance for 2014:
Items of Note for 2014 Guidance:
Adjusted diluted EPS projected at between $3.00 and $3.15, an increase of 16 to 22 percent over 2013;
EBITDA margin improves to 14 percent, up 150 basis points from the prior year;
Business continues to be on track to deliver 2015 strategic targets;
Company will launch important information technology project and complete business integration;
Core tax rate 30 percent.
Items of Note for the Fourth Quarter of 2013:
Organic revenue increased by 3.6 percent compared to the prior year, the highest quarterly organic growth rate of the year;
Contribution margin was strong and consistent with prior quarters, but additional non-recurring manufacturing costs totaling about $4 million in the fourth quarter, primarily in facilities involved in the business integration project, caused gross profit margin to fall below the recent trend line;
Selling, General and Administrative (SG&A) expenses were tightly controlled, in line with internal plans, and about 3 percent lower than the prior year's fourth quarter;
Adjusted diluted EPS of $0.681 was up 6 percent versus last year.
Items of Note for the Full-Year 2013:
Achieved record levels of net revenue, operating income and adjusted diluted EPS;
Organic revenue increased about 2 percent, despite ongoing weakness in European end-markets;
Adjusted EBITDA margin1,2 of 12.5 percent was 80 basis points above last year and in line with the Company's strategic plan to achieve 15 percent EBITDA margin in 2015;
Adjusted segment operating income1,3 increased 19 percent year-over-year;
Adjusted diluted EPS1 grew 17 percent year-over-year and, since 2010 our adjusted diluted EPS has increased at a compound annual rate of 17 percent.
Fiscal 2014 Outlook:
Our 2014 fiscal year represents the fourth year of our current, transformational five-year plan. We expect to take further significant steps toward our 2015 goals this year, following on the success of the prior three years. Our key long-term financial objectives remain unchanged: achieve organic revenue growth of between 5 and 8 percent per annum, increase our EBITDA margin to 15 percent by 2015, grow EPS by 15 percent per annum and increase Return on Invested Capital (ROIC) to 15 percent by 2015.
In 2014, we expect revenue growth at the low end of our long-term growth targets of 5 to 8 percent. We expect our recent momentum in the Asia Pacific and Construction Products operating segments to lead our growth this year. Our gross profit margin is expected to increase in 2014, primarily driven by the cost benefits that will be realized upon the completion of the business integration project in Europe. SG&A expenses should increase at a rate below the increase in net revenue. Overall, we expect our EBITDA margin2 to be about 14 percent for the full year, about 150 basis points higher than the level in the 2013 fiscal year. Our core tax rate should remain steady at about 30 percent, excluding the impact of discrete items. Finally, our adjusted diluted EPS for the year is expected to fall within a range of $3.00 and $3.15 per diluted share, representing an increase of between 16 and 22 percent over 2013. We expect our financial performance to improve as the fiscal year progresses and anticipate that our first quarter adjusted diluted EPS will be about $0.50 per share.
Our core capital expenditures to fund ongoing operations will be about $45 million, representing about 2 percent of net revenue and in line with our long-term strategic cash generation model. We expect capital expenditures for Project ONE, which is described later in this release, to be about $20 million in 2014, and the completion of the business integration project to add $40 million to our capital expenditure plan, bringing the total 2014 capital spend to $105 million. In 2015, our capital expenditures should move toward normal levels, or about 2 percent of net revenue plus any residual capital requirements for Project ONE.
Fiscal 2013 Performance Compared to Initial Guidance and Prior Year:
"We are pleased with our 2013 financial results which demonstrate solid operational improvement and another step towards our 2015 targets," said Jim Owens, H. B. Fuller president and chief executive officer. "In the midst of a major business integration and weaker than expected end-market conditions in some key markets, our team delivered solid results. We delivered record revenue and grew organically for the fourth year in a row with stronger organic growth at the end of the year. We significantly improved our EBITDA margin toward our strategic target of 15 percent and delivered another year of record earnings per share. We are still gaining momentum as we complete our business integration in EIMEA, which we anticipate to finish by the middle of the 2014 fiscal year. Our 2014 fiscal year guidance indicates that we are on track to achieve the key performance metrics established in our five-year plan."
At the beginning of the 2013 fiscal year we communicated an aggressive plan, along with financial projections (guidance), for several key financial metrics. These projections were provided in our quarterly earnings press releases, quarterly conference calls and during our investor conference held in February of 2013. The table below shows our actual results in 2013 relative to our original projections and guidance and the prior year.