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• My name is Rosemarie Morbelli and I follow the Specialty Chemicals Industry for G Research.
• We recently hosted a virtual fireside chat with Jim Owens, H.B. Fuller’s President and Chief Executive Officer. We discussed the company’s operations during the current Covid-19 pandemic as well as its long-term potential. Note that Fuller is a pure adhesives play within a fragmented and consolidating industry.
• The company has been participating in the global industry consolidation, which has resulted in an increased exposure to faster-growing and more diverse end-markets and geographies.
• Some of the benefits from being a Pure Play Adhesives company include a model based on solving problems in partnership with customers without the distraction from other businesses. In addition, with different chemistry depending on substrates, speed of manufacturing or packaging processes, and the required properties of the final products, the company competes differently in each end-market.
• Fuller recently reorganized its operations into 3 global businesses. Engineered Adhesives, which was previously the company’s only global segment, demonstrated the benefit of offering solutions to customers anywhere in the world, resulting in closer relationships and market share gain.
• The same model is now being applied to the newly formed segments, namely Hygiene, Health & Consumable Adhesives, and Construction Adhesives, allowing these businesses to quickly identify and respond to global trends.
• Covid-19 is affecting the company’s operations in a different way depending on its end-markets. Hygiene, Health & Consumable Adhesives benefited from strong demand for essential goods. However, Engineered and Construction Adhesives have been negatively impacted by lockdowns and weak industrial demand.
• However, trends are improving sequentially, and economic activity in China is close to its pre-Covid level.
• Cash flow is strong, there are no covenant issues, and management is successfully reducing debt.
• The organization is making dramatic changes in the way it operates. Going forward, the emphasis on customers’ relationship will be stronger and speed of execution even more important. We believe that Fuller will be a stronger company post Covid as it pursues growth, operational efficiencies, costs reduction, and share gain via new products and applications.
• Based on our current projections we calculate 2021 and 2022 PMVs of $49 and $58, respectively, and recommend purchase of FUL.
