FUL - H.B. Fuller: A Tough Call With Weak Manufacturing Activity Ahead

2024-04-10 06:23:37 ET

Summary

• H.B. Fuller's top line is under pressure due to a shaky manufacturing sector, despite falling material costs providing a boost to margins.
• The company's Q1 results showed weaker revenue, but gross margin outperformed expectations due to lower input costs. China was a positive surprise, but Europe was very weak.
• H.B. Fuller's manufacturing markets are not expected to improve in 2024, but construction is expected to be a relative bright spot, and electronics could offer some upside.
• While EV/EBITDA suggests some upside from here, it's not enough for me to take on the risk of the Street's "soft landing" consensus expectation falling through.

With H.B. Fuller ( FUL ) serving a wide range of manufacturing markets with its specialty adhesives, sealants, and coatings, it’s a good way to play the broader global economic cycles. Unfortunately, that’s not a particularly favorable cycle right now; while construction in North America looks healthier, manufacturing activity is looking pretty shaky and the “soft landing” that the Street is hoping for may end up being harder than expected. That, in turn, is going to put pressure on Fuller’s top line even while low material costs boost margins....

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