Executive Summary / Key Takeaways

• H.B. Fuller is executing a profound portfolio transformation and operational streamlining, aiming for a greater than 20% adjusted EBITDA margin through strategic acquisitions, divestitures, and a significant manufacturing footprint optimization.
• Despite a globally subdued economic backdrop and volume challenges, the company delivered strong Q3 2025 results, including a 3% year-on-year increase in adjusted EBITDA to $171 million and a 110 basis point expansion in adjusted EBITDA margin to 19.1%.
• Technological differentiation in high-growth segments like medical adhesives, automotive, and data centers is a key competitive advantage, driving market share gains and superior profitability, exemplified by medical adhesives doubling EBITDA and achieving over 40% EBITDA margins.
• The company has tightened its FY2025 adjusted EBITDA guidance to $615 million to $625 million and projects adjusted diluted EPS of $4.10 to $4.25, reflecting confidence in its self-help initiatives despite flat to low organic revenue growth expectations.
• While liquidity remains sound, operating cash flow guidance was adjusted downwards due to temporary inventory build-up for manufacturing optimization, and leverage reduction remains a priority, temporarily slowing M&A activity.

A Century of Adhesion: H.B. Fuller's Strategic Evolution

H.B. Fuller Company, founded in Saint Paul, Minnesota, in 1887, has evolved from its historical roots to become a global leader in specialty adhesives, sealants, coatings, and polymers. With a legacy spanning over a century, including a remarkable 57 consecutive years of quarterly cash dividends, the company has demonstrated resilience and adaptability. Today, H.B. Fuller is undergoing a significant strategic transformation, actively reshaping its portfolio and operations to focus on higher-margin, faster-growing market segments within the $80 billion global adhesive industry. This strategic pivot is designed to structurally reposition the company for sustained growth and to achieve an ambitious target of greater than 20% adjusted EBITDA margin.

The adhesives and specialty chemicals industry is characterized by intense competition and a constant demand for innovative solutions. H.B. Fuller competes directly with multinational giants such as Henkel AG & Co. KGaA (HENKY), 3M Company (MMM), Dow Inc. (DOW), and Avery Dennison Corporation (AVY). While larger competitors like Henkel and 3M often boast more established global brand recognition and extensive R&D investments, H.B. Fuller carves out its niche through specialized expertise, customer-centric innovation, and a robust global distribution network. The company's strategy to produce and source within the same region where it sells, with approximately 97% regional self-sufficiency, provides a natural hedge against currency fluctuations and significantly reduces exposure to global trade tensions and tariffs. This localized approach enhances customer service and supply chain resilience, a notable advantage over competitors who might face greater supply chain dependencies.

Technological Edge: The Glue of Future Growth

H.B. Fuller's core differentiated technology lies in its ability to develop highly specialized adhesive solutions that address complex industrial and consumer challenges. This technological prowess is not merely about creating sticky substances; it's about engineering performance-critical materials that enable new product designs, enhance manufacturing efficiency, and meet stringent regulatory and sustainability requirements.

For instance, in the rapidly expanding medical adhesives market, H.B. Fuller's offerings provide tangible benefits. Its medical adhesive technologies business has seen remarkable growth, with EBITDA doubling and revenues increasing by 60% in the current year, achieving impressive EBITDA margins exceeding 40%. This success is driven by innovative products like the SecurePortIV, which has gained approval for a broad range of IV catheter applications in leading children's hospitals, demonstrating superior performance and reliability in critical healthcare settings.

In the automotive sector, H.B. Fuller is expanding its leadership beyond interior trim applications. The company has introduced highly thermally conductive silicone products for electric vehicle (EV) powertrains and acrylic-based structural adhesives for exterior trim applications like bonding spoilers. These solutions offer fast curing, high stress resistance, and humidity resistance, enabling manufacturers to meet evolving design and performance demands. This technological edge allows H.B. Fuller to gain market share despite broader automotive industry fluctuations.

Furthermore, the company's innovation extends to the Building Adhesive Solutions (BAS) segment, particularly in the burgeoning data center market. H.B. Fuller has developed a static-dissipating flooring adhesive for elevated floors in data centers, a critical solution for protecting sensitive electronic equipment. In roofing, the introduction of the non-fluorinated, low VOC PG-1 EF ECO sprayable adhesive product exemplifies its commitment to sustainable and efficient construction solutions. These innovations provide quantifiable benefits such as improved product performance, enhanced durability, and compliance with environmental standards, contributing directly to H.B. Fuller's competitive moat and enabling higher average selling prices and better margins.

The company's R&D initiatives are strategically aligned with these high-growth, high-margin areas. While specific quantitative targets for all R&D programs are not publicly detailed, the strategic intent is clear: to continuously develop advanced materials that solve customer problems and capture value. This focus on innovation, recognized by its 2025 Customer Innovation Awards, underpins H.B. Fuller's ability to differentiate its offerings and maintain a competitive edge against rivals who may focus more on commodity-grade products or broader industrial applications.

Financial Performance and Strategic Execution

H.B. Fuller's recent financial performance reflects its strategic initiatives and the challenging macroeconomic environment. For the third quarter ended August 30, 2025, the company reported net revenue of $892.04 million, a 2.8% decrease year-on-year. This was primarily influenced by a 2.9% decrease from acquisitions/divestitures and a 1.9% decline in sales volume, partially offset by a 1% increase from positive currency effects and a 1% increase due to pricing. Despite the revenue softness, adjusted gross profit margin expanded by 190 basis points to 32.3%, driven by higher product pricing, lower distribution costs, and the impact of acquisitions/divestitures.

Adjusted EBITDA for Q3 2025 rose 3% year-on-year to $171 million, with the adjusted EBITDA margin expanding by 110 basis points to 19.1%. This margin expansion was a direct result of effective pricing and raw material cost management, as well as diligent cost control, with adjusted selling, general, and administrative (SG&A) expenses remaining flat year-on-year when adjusted for M&A, FX, and variable compensation. For the first nine months of 2025, net income attributable to H.B. Fuller was $122.24 million, resulting in diluted earnings per share of $2.21.

Segment-wise, the Engineering Adhesives (EA) segment demonstrated robust performance, with organic revenue increasing 2.2% in Q3 2025, driven by positive pricing and volumes, particularly in automotive and electronics. EA's adjusted EBITDA increased 14%, and its margin expanded by 190 basis points to 23.3%. This segment continues to lead the portfolio, benefiting from strategic acquisitions like ND Industries, which has outperformed expectations. The Hygiene, Health and Consumable Adhesives (HHC) segment experienced a 3.1% organic revenue decrease in Q3 2025 due to weaker volumes, especially in packaging. However, HHC's adjusted EBITDA increased 2%, and its margin expanded by 50 basis points to 16.9%, supported by positive pricing and the contribution from medical adhesive acquisitions. The Building Adhesive Solutions (BAS) segment reported flat organic sales in Q3 2025, with positive pricing offsetting modest volume declines. BAS's adjusted EBITDA increased 3%, and its margin expanded by 10 basis points to 17.7%.

Looking at the broader financial health, H.B. Fuller's total debt to total capital ratio stood at 51.5% as of August 30, 2025. The company's net debt to adjusted EBITDA decreased sequentially from 3.4x in Q2 2025 to 3.3x in Q3 2025, reflecting solid cash flow from operations and a deliberate slowdown in M&A activity to manage leverage. Free cash flow for the nine months ended August 30, 2025, was $62.2 million, a decrease from $104 million in the prior year, primarily due to higher inventory levels in preparation for manufacturing footprint optimization. Management views this as a temporary impact, positioning the company for future efficiencies.

Strategic Initiatives and Outlook

H.B. Fuller's strategic roadmap is clearly defined by a commitment to portfolio optimization and operational excellence. The company's multi-year plan to reduce its global manufacturing footprint from 82 to 55 facilities by 2030, coupled with a streamlining of its North American logistics and warehousing network from 55 to approximately 10 by 2027, is expected to generate approximately $75 million in annualized cost savings. These initiatives, while requiring an estimated $150 million of incremental capital over five years, are foundational to achieving the greater than 20% adjusted EBITDA margin target.

The company's M&A strategy is equally focused. Recent acquisitions, such as GEM S.r.l. and Medifill Limited in the medical adhesives space and ND Industries Asia, Inc. in Greater Asia, are designed to shift the portfolio towards highly profitable, higher-growth markets. The 2023 collection of six acquisitions has already demonstrated success, delivering $37 million in adjusted EBITDA in 2024, exceeding initial projections by 10%, and expanding their collective EBITDA margin from 8% to 21% post-synergy. This success validates the company's approach to tuck-in acquisitions and synergy realization.

For fiscal year 2025, H.B. Fuller has tightened its adjusted EBITDA guidance to a range of $615 million to $625 million, representing a 4% to 5% year-on-year growth. Adjusted diluted EPS is projected between $4.10 and $4.25, reflecting a 7% to 11% year-on-year growth. This outlook assumes net revenue will be down 2% to 3% year-on-year, with organic revenue expected to be flat to up 1%. Foreign exchange is anticipated to adversely impact revenue by approximately 1%. Management anticipates a favorable net benefit of approximately $55 million from pricing and raw material cost actions for the year, with $15 million realized through Q3 2025 and another $15 million expected in Q4 2025, with the remainder wrapping into early next year. This reflects a cautious stance on volume growth, which is expected to remain elusive, but confidence in the company's ability to control costs and manage pricing.

Risks and Competitive Positioning

The global economic environment presents several risks, including a widespread slowing manufacturing sector, uneven and unpredictable customer demand, and ongoing global trade tensions. The company acknowledges that these factors could constrain volumes. For example, the solar market remains a headwind for the EA segment due to regulatory changes and oversupply. In HHC, market dynamics are expected to remain challenging due to weak consumer demand.

However, H.B. Fuller's competitive positioning and strategic responses mitigate these risks. Its regional production model minimizes direct tariff exposure, and its diversified customer base and geographic footprint enable it to manage potential share shifts. The company's focus on innovation in high-value applications, such as PFAS-free alternatives in electronics, provides a competitive edge against rivals. While direct quantitative comparisons with all competitors are challenging to ascertain, H.B. Fuller's consistent margin expansion and strategic acquisitions in specialized, high-growth areas like medical adhesives demonstrate its ability to outperform the broader market and its peers in specific niches. The company's operational efficiency initiatives, including the manufacturing footprint optimization, are designed to enhance its cost structure, making it more resilient in a low-volume environment.

Legal proceedings, including environmental investigations and asbestos-related lawsuits, are ongoing, but based on currently available information, management does not expect them to have a material adverse effect on financial results.

Conclusion

H.B. Fuller is in the midst of a transformative journey, strategically reshaping its business to thrive in a dynamic global market. The company's unwavering commitment to portfolio optimization, operational efficiency, and technological leadership forms the bedrock of its investment thesis. By divesting lower-margin businesses, acquiring high-growth specialized assets, and aggressively streamlining its manufacturing and logistics, H.B. Fuller is systematically building a more resilient, higher-margin enterprise.

Despite a cautious outlook for global economic growth and volume, the company's strong Q3 2025 performance, marked by significant margin expansion and double-digit EPS growth, underscores the effectiveness of its self-help initiatives. The strategic focus on differentiated technologies in critical applications like medical, automotive, and data centers provides a sustainable competitive advantage, driving market share gains and superior profitability. Investors should recognize H.B. Fuller's proactive approach to managing market challenges and its clear roadmap to achieving its ambitious EBITDA margin targets, positioning it as a compelling investment in the specialty chemicals sector.