Note that the 2016 fiscal year had 53 weeks of activity while fiscal years 2015 and 2017 are each the normal 52 weeks in length.
Items of Note for the Fourth Quarter of 2016:
- Net revenue grew 5 percent in the fourth quarter of 2016 versus the fourth quarter of 2015. The Engineering Adhesives and Asia Pacific segments delivered double digit revenue and volume growth, and the Americas and EIMEA segments showed expected solid revenue and volume growth;
- Gross profit margin was 29.2 percent; adjusted gross profit margin3 of 29.3 percent improved 60 basis points versus the prior year’s fourth quarter, reflecting effective management of pricing and raw material costs;
- Net income was $39.1 million; adjusted net income was $37.9 million, or $0.741 per diluted share, an increase of 7 percent versus the prior year;
- Adjusted EBITDA margin4 was 13.9 percent; EIMEA adjusted EBITDA margin4 was 14 percent in the quarter, up 330 basis points from the prior year; Engineering Adhesives adjusted EBITDA margin exceeded 14 percent and Asia Pacific adjusted EBITDA margins were nearly 12 percent, all up solidly from prior year;
- Cash flow from operating activities was $50 million in the fourth quarter, driven by solid net income; fiscal year 2016 cash flow from operations was $195 million.
Based on a comparable 52 week basis:
- 4 percent constant currency revenue growth offset by 3 percent negative foreign currency translation resulting in net 1 percent growth;
- Adjusted diluted EPS in the range of $2.57 to $2.77, an increase of 10 percent at the mid-point;
- Adjusted EBITDA margin of approximately 14 percent, an increase of 60 basis points;
- Core tax rate of approximately 30 percent;
- Capital expenditures planned at approximately $60 million.
We are introducing an adjusted EPS guidance range of $2.57 to $2.77 for the 2017 year. The mid-point of the adjusted EPS range represents 10 percent earnings growth versus a comparable 52 week year in 2016 as communicated in December. Constant currency growth, on a comparable 52 week basis, is expected to be around 4 percent for 2017 versus the 2016 fiscal year, which will be offset by 3 percentage points of negative foreign currency translation. We expect to deliver adjusted EBITDA margin of approximately 14 percent, reflecting approximately $290 million of adjusted EBITDA in 2017. Our core tax rate, excluding the impact of discrete items, is expected to be about 30 percent. We expect to invest approximately $60 million in capital items in 2017.
This guidance excludes approximately $18 million of previously announced pre-tax restructuring charges as well as other unusual items that cannot be quantified at this time.
Fourth Quarter 2016 Results:
Net income for the fourth quarter of 2016 was $39.1 million, or $0.76 per diluted share, versus net income of $25.0 million, or $0.49 per diluted share, in last year’s fourth quarter. Adjusted diluted earnings per share in the fourth quarter of 2016 were $0.741, up 7 percent versus the prior year’s adjusted result of $0.691. Adjusted EBITDA4 was $79.8 million in the fourth quarter, or 13.9 percent of net revenue.
Net revenue for the fourth quarter of 2016 was $574.9 million, up 4.9 percent versus the fourth quarter of 2015. Higher volume/mix and an extra week positively impacted net revenue growth by 7.8 percentage points. Lower average selling prices and negative foreign currency translation negatively impacted net revenue growth by 2.4 and 0.5 percentage points, respectively. Constant currency revenue5 grew by 5.4 percent year-over-year.
During the quarter, margins improved through effective management of pricing and raw material costs and discretionary expenses. Gross profit margin was 29.2 percent. Adjusted gross profit margin3 was 29.3 percent, an increase of 60 basis points sequentially and versus the prior year. Selling, General and Administrative (SG&A) expense was $106.5 million. Adjusted SG&A expense6 was $109.0 million, up by approximately 4 percent versus last year on a comparable 13 week basis, primarily driven by acquisitions and strategic investments for growth, offset by discretionary expense control.
”We delivered on our strategic and financial commitments in the 2016 fiscal year and are positioned for further success in 2017,” said Jim Owens, H.B. Fuller president and chief executive officer. “We delivered double digit sales growth in Engineering Adhesives, we dramatically improved the EIMEA margin profile and we returned to volume growth in Americas Adhesives. The net result was an improvement of consolidated EBITDA margin by 60 basis points, 14 percent growth in adjusted earnings per share and strong operating cash flow – all in-line with our initial guidance for the year. Our plan for 2017 reflects double digit earnings improvement as a result of constant currency revenue growth and continued margin expansion. The 2017 fiscal year will be another year of strong progress toward our 2020 strategic targets of 17 percent EBITDA margin, sizable operating cash flow and solid organic growth.”
Fiscal Year 2016 Results:
Net income for the 2016 fiscal year was $124.1 million, or $2.42 per diluted share, versus income from continuing operations of $88.4 million, or $1.71 per diluted share, in the 2015 fiscal year. Adjusted diluted earnings per share in the 2016 fiscal year were $2.481, up 14 percent versus the prior year’s result of $2.171.
Net revenue for the 2016 fiscal year was $2,094.6 million, up 0.5 percent versus the 2015 fiscal year. Higher volume/mix and an extra week positively impacted net revenue growth by 3.9 percentage points. Lower average selling prices and negative foreign currency translation negatively impacted net revenue growth by 1.6 and 1.8 percentage points, respectively. Constant currency revenue4 grew by 2.3 percent year-over-year.
Balance Sheet and Cash Flow:
At the end of the fourth quarter of 2016, we had cash totaling $142 million and total debt of $706 million. This compares to third quarter 2016 cash and debt levels of $133 million and $712 million, respectively. Sequentially, net debt was down approximately $15 million. Cash flow from operations was positive $50 million in the fourth quarter. Capital expenditures were $14 million in the fourth quarter.
The Company will host an investor conference call to discuss fourth quarter and full-year 2016 results on Thursday, January 19, 2017, at 9:30 a.m. Central U.S. time (10:30 a.m. Eastern U.S. time). The conference call audio and accompanying presentation slides will be available to all interested parties via a simultaneous webcast at www.hbfuller.com under the Investor Relations section. The event is scheduled to last one hour. For those unable to listen live, an audio replay of the event along with the accompanying presentation will be archived on the Company’s website.
The information presented in this earnings release regarding segment operating income, adjusted gross profit, adjusted selling, general and administrative expense, adjusted diluted earnings per share, earnings before interest, taxes, depreciation, and amortization (EBITDA) and constant currency revenue does not conform to generally accepted accounting principles (GAAP) and should not be construed as an alternative to the reported results determined in accordance with GAAP. Management has included this non-GAAP information to assist in understanding the operating performance of the Company and its operating segments as well as the comparability of results. The non-GAAP information provided may not be consistent with the methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the tables below with the exception of our forward looking non-GAAP measures contained in our fiscal 2016 outlook, which are unknown and have not yet occurred.