What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-03-27 compared with 2024-09-26 · 115 added, 208 removed, 183 unchanged (64% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended December 2, 2023 for important background information related to our business.

Net revenue in the third quarter of 2024 increased 1.9 percent from the third quarter of 2023.

Net revenue increased 3.0 percent due to acquisitions and 3.0 percent due to sales volume, partially offset by a 2.6 percent decrease in pricing and a 1.5 percent decrease due to negative currency effect compared to the third quarter of 2023.

The negative currency effects were primarily driven by aweaker Egyptian pound, Turkish lira and Brazilian real compared to the U.S.

Gross profit margin increased 70 basis points primarily due to lower raw material costs and higher sales volume partially offset by lower product pricing.

Net revenue in the first nine months of 2024 increased 1.4 percent from the first nine months of 2023.

Net revenue increased 3.9 percent due to acquisitions and 1.9 percent due to sales volume, partially offset by a 3.1 percent decrease in pricing and a 1.3 percent decrease due to negative currency effect compared to the first nine months of 2023.

The negative currency effects were primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger British pound sterling and Mexican peso compared to the U.S.

Gross profit margin increased 190 basis points primarily due to lower raw material costs and higher sales volume partially offset by lower product pricing.

Net income attributable to H.B.

Fuller in the third quarter of 2024 was $55.4 million compared to $37.6 million in the third quarter of 2023.

Diluted earnings per share for the third quarter of 2024 was $0.98 per share compared to $0.67 per share for the third quarter of 2023.

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the MD&A included in our Annual Report on Form 10-K for the year ended November 30, 2024, for important background information related to our business.

Net revenue in the first quarter of 2025 decreased 2.7 percent from the first quarter of 2024.

Net revenue increased 1.7 percent due to sales volume and 0.2 percent due to pricing but was offset by a 1.2 percent decrease due to acquisitions/divestitures and a 3.4 percent decrease due to negative currency effect compared to the first quarter of 2024.

The negative currency effect was primarily driven by a weaker Euro, Egyptian pound, Brazilian real, and Mexican peso compared to the U.S.

Gross profit margin decreased 70 basis points primarily due to lower revenue, and higher raw material and manufacturing costs.

Net income attributable to H.B.

Fuller in the first nine months of 2024 was $137.6 million compared to $99.9 million in the first nine months of 2023.

Diluted earnings per share for the first nine months of 2024 was $2.43 per share compared to $1.79 per share for the first nine months of 2023.

Fuller in the first quarter of 2025 was $13.2 million compared to $31.0 million in the first quarter of 2024.

Diluted earnings per share for the first quarter of 2025 was $0.24 per share compared to $0.55 per share for the first quarter of 2024.

Restructuring Plans

1 unchanged sentence

In implementing the Plans, the Company currently expects to incur costs of approximately $60.0 million to $65.0 million ($40.9 million to $44.3 million after-tax), which include (i) cash expenditures of approximately $38.0 million to $39.0 million ($25.9 million to $26.6 million after tax) for severance and related employee costs globally and (ii) other restructuring costs related to the streamlining of processes and the payment of anticipated income taxes in certain jurisdictions related to the Plans.

We have incurred costs of $43.0 million under the Plans as of August 31, 2024.

We have incurred costs of $61.7 million under the Plans as of March 1, 2025.

The Plans were implemented in the second quarter of fiscal year 2023 and are currently expected to be completed during fiscal year 2026.

The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented with the majority of the charges recognized and cash payments occurring in fiscal 2023 and 2024.

The restructuring costs will be spread across the next several fiscal quarters as the measures are implemented.

Results of Operations

Three Months Ended

Nine Months Ended

($ in millions)

We review variances in net revenue in terms of changes related to sales volume, product pricing, business acquisitions and divestitures (“M&A”) and changes in foreign currency exchange rates.

The following table shows the net revenue variance analysis for the third quarter and first nine months of 2024 compared to the three and nine months ended September 2, 2023:

We review variances in net revenue in terms of changes related to sales volume and product pricing (referred to as organic revenue growth), business acquisitions and divestitures (“M&A”) and changes in foreign currency exchange rates.

The following table shows the net revenue variance analysis for the first quarter of 2025 compared to the first quarter of 2024:

Three Months Ended

Nine Months Ended

August 31, 2024 vs.

September 2, 2023

August 31, 2024 vs.

September 2, 2023

March 1, 2025 vs.

March 2, 2024

Organic growth

Organic revenue increased 0.4 percent in the third quarter of 2024 compared to the third quarter of 2023 and consisted of a 10.2 percent increase in Construction Adhesives, partially offset by a 2.0 percent decrease in Engineering Adhesives and a 0.5 percent decrease in Hygiene, Health and Consumable Adhesives.

The increase was driven by a 3.0 percent increase in sales volume, partially offset by a 2.6 percent decrease in product pricing.

The 3.0 percent increase from M&A was due to our acquisitions that occurred in the last twelve months.

The negative 1.5 percent foreign currency impact was primarily driven by a weaker Egyptian pound, Turkish lira and Brazilian real compared to the U.S.

dollar compared to the U.S.

Organic revenue decreased 1.2 percent in the first nine months of 2024 compared to the first nine months of 2023 and consisted of an 9.0 percent increase in Construction Adhesives, offset by a 4.8 percent decrease in Hygiene, Health and Consumable Adhesives and a 0.7 percent decrease in Engineering Adhesives.

The decrease was driven by a 3.1 percent decrease in product pricing, partially offset by a 1.9 percent increase in sales volume.

The 3.9 percent increase from M&A was due to our acquisitions that occurred in the last twelve months.

The negative 1.3 percent foreign currency impact was primarily driven by a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger British pound sterling and Mexican peso compared to the U.S.

Organic revenue increased 1.9 percent in the first quarter of 2025 compared to the first quarter of 2024 and consisted of a 4.2 percent increase in Hygiene, Health and Consumable Adhesives and a 2.2 percent increase in Building Adhesive Solutions, partially offset by a 1.9 percent decrease in Engineering Adhesives.

The increase was driven by a 1.7 percent increase in sales volume and a 0.2 percent increase in product pricing.

The 1.2 percent decrease from M&A was due to the sale of our North American Flooring business ("NA Flooring"), discussed further in Operating Segment Results below, net of our acquisitions that occurred in the last twelve months.

The negative 3.4 percent foreign currency impact was primarily driven by a weaker Euro, Egyptian pound, Brazilian real and Mexican peso compared to the U.S.

Cost of sales:

Three Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Percent of net revenue

Cost of sales in the third quarter of 2024 compared to the third quarter of 2023 decreased 70 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue decreased 170 basis points in 2024 compared to 2023 due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 100 basis points in 2024 compared to 2023 due to a decrease in product pricing partially offset by higher sales volume .

Cost of sales in the first nine months of2024 compared to the first nine months of2023 decreased 190 basis points as a percentage of net revenue.

Raw material cost as a percentage of net revenue decreased 300 basis points in 2024 compared to 2023 due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 110 basis points in 2024 compared to 2023 primarily due to a decrease in product pricing partially offset by higher sales volume .

Cost of sales as a percentage of net revenue in the first quarter of 2025 compared to the first quarter of 2024 increased 70 basis points.

Raw material cost as a percentage of net revenue increased 50 basis points in 2025 compared to 2024 and other manufacturing cost as a percentage of net revenue increased 20 basis points in 2025 compared to 2024.

Gross profit:

Three Months Ended

Nine Months Ended

($ in millions)

Percent of net revenue

Gross profit in the third quarter of 2024 increased 4.6 percent and gross profit margin increased 70 basis points compared to the third quarter of 2023.

The increase in gross profit margin was due to a 170 basis point decrease in raw materials offset by a 100 basis point increase in other manufacturing costs .

Gross profit in the first nine months of 2024 increased 8.4 percent and gross profit margin increased 190 basis points compared to the first nine months of 2023.

The increase in gross profit margin was due to a 300 basis point decrease in raw materials offset by a 110 basis point increase in other manufacturing costs .

Gross profit in the first quarter of 2025 decreased 5.1 percent and gross profit margin decreased 70 basis points compared to the first quarter of 2024.

The decrease in gross profit margin was due to higher raw material and other manufacturing costs .

Selling, general and administrative (SG&A) expenses:

Three Months Ended

Nine Months Ended

($ in millions)

Percent of net revenue

SG&A expenses for the third quarter of 2024 compared to the third quarter of 2023 decreased 40 basis points as a percentage of net revenue.

The decrease was due to a gain on insurance claims, partially offset by the impact of acquisitions.

SG&A expenses for the first nine months of 2024 compared to the first nine months of 2023 increased 100 basis points as a percentage of net revenue.

The increase was du e to the impact of acquisitions and higher compensation costs, partially offset by a gain on insurance claims.

SG&A expenses for the first quarter of 2025 compared to the first quarter of 2024 increased 160 basis points as a percentage of net reve nue.

The increase was due to the impact of acquisitions, net of the sale of NA Flooring, and higher compensation costs.

Other income, net:

Three Months Ended

Nine Months Ended

($ in millions)

Other income, net

Other income, net in the third quarter of 2024 included $4.0 million of net defined benefit pension benefits, and $0.3 million of currency transaction gains, partially offset by a $2.0 million loss on equity investment and $0.2 million of other expense.

Other income, net in the third quarter of 2023 included $5.1 million of net defined benefit pension benefits and $0.3 million of other income, partially offset by $3.2 million of currency transaction losses.

Other income, net in the first nine months of 2024 included $11.9 million of net defined benefit pension benefits, partially offset by $2.0 million of currency transaction losses, a $2.0 million loss on equity investment and $0.6 million of other expense.

Other income, net in the first nine months of 2023 included $15.2 million of net defined benefit pension benefits and $0.4 million of other income, partially offset by $10.8 million of currency transaction losses.

Other income, net in the first quarter of 2025 included $5.7 million of net defined benefit pension benefits and $0.6 million of currency transaction gains, partially offset by a $1.5 million loss on the sale of our North American Flooring business ("NA Flooring") and $1.6 million of other expense.

Other income, net in the first quarter of 2024 included $4.0 million of net defined benefit pension benefits, partially offset by $2.1 million of currency transaction losses and a $0.4 million loss from the write-off a cost method investment.

Interest expense:

Three Months Ended

Nine Months Ended

($ in millions)

Interest expense

Interest expense in the third quarter of 2024 was $35.3 million compared to $35.1 million in the third quarter of 2023 and was higher primarily due to higher debt balances, partially offset by lower interest rates.

Interest expense in the first nine months of2024 was $99.5 million compared to $101.3 million in the first nine months of2023 and was lower primarily due to lower interest rates, partially offset by higher debt balances.

Interest expense in the first quarter of 2025 was $32.0 million compared to $31.9 million in the first quarter of 2024 .

Interest income:

Three Months Ended

Nine Months Ended

($ in millions)

Interest income

Interest income in the third quarter of 2024 and 2023 was $1.1 million and $1.1 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the first nine months of 2024 and 2023 was $3.6 million and $2.7 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Interest income in the first quarter of 2025 and 2024 was $1.1 million and $1.3 million, respectively, consisting primarily of interest on cross-currency swap activity and other miscellaneous interest income.

Income taxes:

Three Months Ended

Nine Months Ended

($ in millions)

Effective tax rate

Income tax expense of $18.3 million in the third quarter of 2024 includes $2.9 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 29.3 percent.

The discrete tax benefit relates to an excess tax benefit on U.S.

stock compensation, as well as other various U.S.

and foreign tax matters.

Income tax expense of $22.2 million in the third quarter of 2023 includes $6.2 million of discrete tax expense.

Income tax expense of $5.9 million in the first quarter of 2025 includes $0.9 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 26.5 percent.

The discrete tax expense related to various U.S.

The discrete tax expense relates to various U.S.

and foreign tax matters.

Income tax expense of $48.5 million in the first nine months of 2024 includes $4.1 million of discrete tax benefit.

Income tax expense of $7.8 million in the first quarter of 2024 includes $2.5 million of discrete tax benefit.

Excluding the discrete tax benefit, the overall effective tax rate was 27.4 percent.

The discrete tax benefit relates to an excess tax benefit on U.S.

stock compensation, as well as other various U.S.

and foreign tax matters.

Income tax expense of $51.3 million in the first nine months of 2023 includes $9.1 million of discrete tax expense.

Excluding the discrete tax expense, the overall effective tax rate was 28.5 percent.

The discrete tax expense related to various U.S.

and foreign tax matters offset by an excess tax benefit related to U.S.

The discrete tax benefit related to various foreign tax matters, as well an excess tax benefit related to U.S.

stock compensation.

1 unchanged sentence

Three Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

The income from equity method investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan.

The higher income for the third quarter of 2024 compared to the third quarter of 2023 is due to higher net income in our joint venture during the quarter compared to the prior year, partially offset by the impact of the weakening of the Japanese yen compared to the U.S.

The lower income for the first nine months of 2024compared to the first nine months of 2023 is due to the impact of the weakening of the Japanese yen compared to the U.S.

The lower income for the first quarter of 2025 compared to the first quarter of 2024 is due to lower net income in our joint venture during the quarter compared to the prior year and the impact of the weakening of the Japanese yen compared to the U.S.

Net income attributable to H.B.

Three Months Ended

Nine Months Ended

($ in millions)

2 unchanged sentences

The net income attributable to H.B.

Fuller for the third quarter of 2024 was $55.4 million compared to $37.6 million for the third quarter of 2023.

The diluted earnings per share for the third quarter of 2024 was $0.98 per share as compared to $0.67 per share for the third quarter of 2023.

The net income attributable to H.B.

Fuller for the first nine months of 2024 was $137.6 million compared to $99.9 million for the first nine months of 2023.

The diluted earnings per share for the first nine months of 2024 was $2.43 per share as compared to $1.79 per share for the first nine months of 2023.

Fuller for the first quarter of 2025 was $13.2 million compared to $31.0 million for the first quarter of 2024.

The diluted earnings per share for the first quarter of 2025 was $0.24 per share as compared to $0.55 per share for the first quarter of 2024.

Operating Segment Results

We have three reportable segments:

Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives.

Operating results of each of these segments are regularly reviewed by our chief operating decision maker to make decisions about resources to be allocated to the segments and assess their performance.

As of November 30, 2024, our three operating segments consisted of Hygiene, Health and Consumable Adhesives, Engineering Adhesives and Construction Adhesives.

As of the beginning of fiscal 2025, we reorganized our operating segments by selling our NA Flooring, previously part of the Construction Adhesives operating segment, and combining our Insulated Glass, Woodworking and Composite businesses, previously part of the Engineering Adhesives operating segment, with Construction Adhesives Roofing and Building Envelope and Infrastructure businesses to form the newly named Building Adhesive Solutions operating segment.

All financial results related to NA Flooring have been moved to our Corporate Unallocated segment.

Prior period segment information has been recast retrospectively to reflect the realignment.

The tables below provide certain information regarding the net revenue and operating income of each of our operating segments.

Corporate Unallocated amounts include business acquisition and integration costs, organizational restructuring charges and project costs associated with implementing a global Enterprise Resource Planning (“ERP”) system that we refer to as Project ONE.

As a result of the change in operating segments and the sale of our NA Flooring business, we have retrospectively moved the results of our Flooring business to Corporate Unallocated for prior periods.

Net Revenue by Segment:

Three Months Ended

Nine Months Ended

August 31, 2024

September 2, 2023

August 31, 2024

September 2, 2023

March 1, 2025

March 2, 2024

($ in millions)

1 unchanged sentence

Engineering Adhesives

Construction Adhesives

Building Adhesive Solutions

Segment total

2 unchanged sentences

Three Months Ended

Nine Months Ended

August 31, 2024

September 2, 2023

August 31, 2024

September 2, 2023

March 1, 2025

March 2, 2024

($ in millions)

1 unchanged sentence

Engineering Adhesives

Construction Adhesives

Building Adhesive Solutions

Segment total

2 unchanged sentences

Three Months Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

Three Months Ended

Nine Months Ended

August 31, 2024 vs.

September 2, 2023

August 31, 2024 vs.

September 2, 2023

March 1, 2025 vs.

March 2, 2024

Organic growth

Net revenue decreased 3.1 percent in the third quarter of 2024 compared to the third quarter of 2023.

The decrease in organic growth was attri butable to a decrease in product pricing, partially offset by an increase in sales volume.

The negative currency effect was due to a weaker primarily driven by a weaker Egyptian pound, Turkish lira and Brazilian real compared to the U.S.

As a percentage of net revenue, raw material costs decreased 20 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 70 basis points due to lower product pricing, partially offset by an increase in sales volume.

SG&A expenses as a percentage of net revenue decreased 20 basis points due to lower SG&A expense, partially offset by lower net revenue.

Segment operating income decreased 5.5 percent and segment operating margin as a percentage of net revenue decreased 30 basis points compared to the third quarter of 2023 .

Net revenue decr eased 3.3 percent in the first nine months of 2024 compared to the first nine months of 2023.

The decrease in organic growth was attri butable to a decrease in product pricing, partially offset by a slight increase in sales volume.

The 3.2 percent increase in net revenue from M&A was due to the acquisitions o f Beardow Adams in the second quart er of 2023 and Adhezion in the third quarter of 2023.

The negative currency effect was due to a weaker Turkish lira, Chinese renminbi and Egyptian pound offset by a stronger Mexican peso and Colombian peso compared to the U.S.

As a percentage of net revenue, raw material costs decreased 270 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 100 basis points due to lower product pricing.

SG&A expenses as a percentage of net revenue increased 150 basis points due to the impact of acquisitions, lower net revenue and higher compensation costs.

Segment operating income decreased 1.5 percent and segment operating margin as a percentage of net revenue increased 20 basis points compared to the first nine months of2023 .

Net revenue was flat in the first quarter of 2025 compared to the first quarter of 2024.

Organic growth increased due to an increase in both sales volume and in product pricing.

The negative currency effect was due to a weaker Egyptian pound, Brazilian real, Euro and Mexican peso compared to the U.S.

As a percentage of net revenue, raw material costs increased 330 basis points due to higher raw material costs.

Other manufacturing costs as a percentage of net revenue increased 80 basis points due to higher compensation and delivery costs.

SG&A expenses as a percentage of net revenue increased 70 basis points due to higher compensation costs.

Segment operating income decreased 36.9 percent and segment operating margin as a percentage of net revenue decreased 480 basis points compared to the first quarter of 2024 .

Engineering Adhesives

Three Months Ended

Nine Months Ended

($ in millions)

3 unchanged sentences

Three Months Ended

Nine Months Ended

August 31, 2024 vs.

September 2, 2023

August 31, 2024 vs.

September 2, 2023

March 1, 2025 vs.

March 2, 2024

Organic growth

Net revenue increased 2.5 percent in the third quarter of 2024 compared to the third quarter of 2023 .

The decrease in organic growth was attributable to a decrease in product pricing and sales volume.

The 5.3 percent increase in net revenue from M&A was due to the acquisition of ND Industries in the second quarter of 2024.

The negative currency effect was due to a weaker Brazilian real and Turkish lira co mpared to the U.S.

A s a percentage of net revenue, raw material costs decreased 350 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 230 basis points.

SG&A expenses as a percentage of net revenue increased 160 basis points primarily due to the acquisition of ND Industries and higher compensation costs.

Segment operating income was flat and segment operating margin decreased 40 basis points compared to the third quarter of 2023 .

Net revenue increased 1.3 percent in the first nine months of2024 compared to the first nine months of2023 .

The decrease in organic growth was attributable to a decrease in product pricing, partially offset by an increase in sales volume.

Net revenue increased 4.7 percent in the first quarter of 2025 compared to the first quarter of 2024 .

Organic growth decreased due to a decrease in both sales volume and in product pricing.

The 8.7 percent increase in net revenue from M&A was due to the acquisition of ND Industries in the second quarter of 2024.

The negative currency effect was due to a weaker Chinese renminbi and Turkish lira compared to the U.S.

As a percentage of net revenue, raw material costs decreased 340 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue increased 130 basis points due to the impact of lower product pricing, partially offset by increased sales volume.

SG&A expenses as a percentage of net revenue increased by 130 basis points primarily due to the acquisition of ND Industries and higher compensation costs.

Segment operating income increased 7.5 percent and segment operating margin increased 80 basis points compared to the first nine months of2023 .

Construction Adhesives

The negative currency effect was due to a weaker Euro and Chinese renminbi co mpared to the U.S.

A s a percentage of net revenue, raw material costs decreased 360 basis points due to lower raw material costs and the impact of acquisitions.

Other manufacturing costs as a percentage of net revenue increased 110 basis points due to the impact of lower product pricing and sales volume as well as the impact of acquisitions.

SG&A expenses as a percentage of net revenue increased 210 basis points primarily due to higher compensation.

Segment operating income increased 8.5 percent and segment operating margin increased 40 basis points compared to the first quarter of 2024 .

Building Adhesive Solutions

Three Months Ended

Nine Months Ended

($ in millions)

1 unchanged sentence

Segment operating margin

The following tables provide details of the Construction Adhesives net revenue variances:

The following tables provide details of the Building Adhesive Solutions net revenue variances:

Three Months Ended

Nine Months Ended

August 31, 2024 vs.

September 2, 2023

August 31, 2024 vs.

September 2, 2023

March 1, 2025 vs.

March 2, 2024

Organic growth

Net revenue increased 15.7 percent in the third quarter of 2024 compared to the third quarter of 2023.

The increase in organic growth was attributable t o an increase in sales volume, partially offset by decrease in product pricing.

The 5.6 percent increase in net revenue from M&A was due to the acquisitions of XChem in the third quarter of 2023, Sanglier in the fourth quarter of 2023 and HS Butyl in the third quarter of 2024.

As a percentage of net revenue, raw material costs decreased 30 basis points due to lower raw material costs.

O ther manufacturing costs as a percentage of net revenue decreased 90 basis points due to higher sales volume, partially offset by lower product pricing.

SG&A expenses as a percentage of net revenue decreased 250 basis points due to increased net revenue and the impact of acquisitions.

S egment operating income increased 111.9 percent and segment operating margin increased 370 basis points compared to the third quarter of 2023 .

Net revenue increased 17.7 percent in the first nine months of 2024 compared to the first nine months of 2023.

The increase in organic growth was attributable t o an increase in sales volume, partially offset by a decrease in product pricing.

The 8.7 percent increase in net revenue from M&A was due to the acquisitions of XChem in the third quarter of 2023, Sanglier in the fourth quarter of 2023 and HS Butyl in the third quarter of 2024.

As a percentage of net revenue, raw material costs decreased 130 basis points due to lower raw material costs.

Other manufacturing costs as a percentage of net revenue decreased 90 basis points due to higher sales volume, partially offset by lower product pricing.

SG&A expenses as a percentage of net revenue decreased by 210 basis points due increased net revenue and the impact of acquisitions, partially offset by higher compensation costs.

Segment operating income increased 822.7 percent and segment operating margin increased 430 basis points compared to the first nine months of2023 .

Net revenue increased 2.2 percent in the first quarter of 2025 compared to the first quarter of 2024.

Organic growth increased due to an increase in sales volume, partially offset by a decrease in product pricing.

The 2.4 percent increase in net revenue from M&A was due to the acquisition of HS Butyl in the third quarter of 2024.

The negative currency effect was due to a weaker Euro co mpared to the U.S.

As a percentage of net revenue, raw material costs decreased 20 basis points.

O ther manufacturing costs as a percentage of net revenue was flat compared to the first quarter of 2024.

SG&A expenses as a percentage of net revenue increased 60 basis points due to higher compensation.

S egment operating income decreased 8.3 percent and segment operating margin decreased 40 basis points compared to the first quarter of 2024 .

Corporate Unallocated

Three Months Ended

Nine Months Ended

($ in millions)

2 unchanged sentences

NMP = Non-meaningful percentage

Corporate Unallocated includes acquisition and integration-related charges, restructuring-related charges, and costs related to the implementation of Project ONE.

Segment operating loss in the third quarter of 2024 decreased 46.0 percent compared to the third quarter of 2023 due to a gain on insurance claims and lower acquisition project costs.

Segment operating loss in the first nine months of 2024 decreased 11.6 percent compared to the first nine months of 2023 due to a gain on insurance claims and lower acquisition project costs.

Segment operating loss in the first quarter of 2025 decreased 34.1 percent compared to the first quarter of 2024 due to due to the inclusion of the NA Flooring business results in 2024.

Financial Condition, Liquidity and Capital Resources

Total cash and cash equivalents as of August 31, 2024 were $131.4 million compared to $179.5 million as of December 2, 2023 and $94.9 million as of September 2, 2023.

The majority of the $131.4 million in cash and cash equivalents as of August 31, 2024 was held outside the United States.

Total long and short-term debt was $2,021.1 million as of August 31, 2024, $1,838.4 million as of December 2, 2023 and $1,885.0 million as of September 2, 2023.

The total debt to total capital ratio as measured by total debt divided by total debt plus total stockholders’ equity was 52.3 percent as of August 31, 2024 as compared to 51.1 percent as of December 2, 2023 and 52.2 percent as of September 2, 2023.

Total cash and cash equivalents as of March 1, 2025 were $105.7 million compared to $169.4 million as of November 30, 2024 and $165.2 million as of March 2, 2024.

The majority of the $105.7 million in cash and cash equivalents as of March 1, 2025 was held outside the United States.

Total long and short-term debt was $2,180.0 million as of March 1, 2025, $2,010.6 million as of November 30, 2024 and $1,830.8 million as of March 2, 2024.

The total debt to total capital ratio as measured by total debt divided by total debt plus total stockholders’ equity was 55.1 percent as of March 1, 2025 as compared to 50.8 percent as of November 30, 2024 and 50.9 percent as of March 2, 2024.

We believe that cash flows from operating activities will be adequate to meet our short-term and long-term liquidity and capital expenditure needs.

7 unchanged sentences

Our credit agreements include restrictive covenants that, if not met, could lead to a renegotiation of our credit lines and a significant increase in our cost of financing.

As of August 31, 2024, we were in compliance with all covenants of our contractual obligations as shown in the following table:

As of March 1, 2025, we were in compliance with all covenants of our contractual obligations as shown in the following table:

Debt Instrument

Result as of August 31, 2024

Result as of March 1, 2025

Secured Total Indebtedness / TTM 1 EBITDA

5 unchanged sentences

1 TTM = Trailing 12 months

2 The Maximum Secured Leverage Ratio prior to June 1, 2024, was 4.75 to 1.00 and stepped down to 4.50 to 1.0 with respect to quarters ending after June 1, 2024

EBITDA for covenant purposes is defined as consolidated net income, plus (i) interest expense, (ii) expense for taxes paid or accrued, (iii) depreciation and amortization, (iv) certain non-cash impairment losses, (v) extraordinary non-cash losses incurred other than in the ordinary course of business, (vi) nonrecurring extraordinary non-cash restructuring charges and the non-cash impact of purchase accounting, (vii) any non-cash charge for the excess of rent expense over actual cash rent paid due to the use of straight-line rent, non-cash charge pursuant to any management equity plan, stock option plan or any other management or employee benefit, (viii) any non-cash finance charges in respect of any pension liabilities or other provisions and income (loss) attributable to deferred compensation plans, (ix) any non-recurring or unusual cash restructuring charges and operating improvements, (x) cost savings initiative and cost synergies related to acquisitions within 12 months, (xi) non-capitalized charges relating to the Company’s SAP implementation, (xii) fees, costs, expenses and charges incurred in connection with the financing, (xiii) fees, costs, expenses, make-whole or penalty payments and other similar items arising out of acquisitions, investments and dispositions, the incurrence, issuance, repayment or refinancing of indebtedness and any issuance of equity interests;

4 unchanged sentences

Consolidated Interest Expense for covenant purposes is defined as the interest expense (including without limitation to the portion of capital lease obligations that constitutes imputed interest in accordance with GAAP) of the Company and its subsidiaries calculated on a consolidated basis for such period with respect to all outstanding indebtedness allocable to such period in accordance with GAAP, including net costs (or benefits) under Interest Rate Swap Agreements and commissions, discounts and other fees and charges with respect to letters of credit and the interest component of all Attributable Receivables Indebtedness.

We believe we have the ability to meet all of our contractual obligations and commitments in fiscal 2024.

We believe we have the ability to meet all of our contractual obligations and commitments for the next twelve months.

Selected Metrics of Liquidity

11 unchanged sentences

5 Year-to-date net cash provided by operating activities, less purchased property, plant and equipment.

See reconciliation of net cash provided by operating activities to free (negative) cash flow.

See reconciliation of net cash provided by operating activities to free cash flow.

6 Total debt divided by (total debt plus total stockholders’ equity).

3 unchanged sentences

Reconciliation of "Net cash provided by operating activities" to free cash flow

Nine Months Ended

Three Months Ended

($ in millions)

August 31, 2024

September 2, 2023

March 1, 2025

March 2, 2024

Net cash provided by operating activities

3 unchanged sentences

Cash Flows from Operating Activities:

Nine Months Ended

Three Months Ended

($ in millions)

Net cash provided by operating activities

Net income including non-controlling interest was $137.6 million in the first nine months of 2024 compared to $100.0 million in the first nine months of 2023.

Depreciation and amortization expense totaled $128.7 million in the first nine months of 2024 compared to $119.2 million in the first nine months of 2023.

Deferred income taxes was a use of cash of $46.0 million in the first nine months of 2024 compared to $30.1 million in the first nine months of 2023.

Net income including non-controlling interest was $13.3 million in the first three months of 2025 compared to $31.0 million in the first three months of 2024.

Depreciation and amortization expense totaled $42.6 million in the first three months of 2025 compared to $43.5 million in the first three months of 2024.

Deferred income taxes was a source of cash of $5.8 million in the first three months of 2025 compared to a use of cash of $5.7 million in the first three months of 2024.

Accrued compensation was a use of cash of $37.9 million in 2025 compared to $31.9 million in 2024.

Other assets was a use of cash of $39.0 million in the first nine months of 2024 compared to $30.9 million in the first nine months of 2023.

Other liabilities was a source of cash of $0.9 million in the first nine months of 2024 compared to $12.4 million in the first nine months of 2023.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a source of cash of $13.9 million compared to a source of cash of $43.3 million last year.

Other assets was a use of cash of $0.3 million in the first three months of 2025 compared to $9.1 million in the first three months of 2024.

Other liabilities was a use of cash of $0.3 million in the first three months of 2025 compared to $0.4 million in the first three months of 2024.

Changes in net working capital (trade receivables, inventory and trade payables) accounted for a use of cash of $27.5 million compared to a source of cash of $34.3 million last year.

The table below provides the cash flow impact due to changes in the components of net working capital and an assessment of each of the components:

Nine Months Ended

Three Months Ended

($ in millions)

2 unchanged sentences

Total cash flow impact

Trade receivables, net – Trade receivables, net was a source of cash of $26.4 million and $79.5 million in the first nine months of 2024 and 2023, respectively.

Trade receivables, net – Trade receivables, net was a source of cash of $13.9 million and $56.9 million in the first three months of 2025 and 2024, respectively.

The lower source of cash in 2025 compared to 2024 was due to less cash collected on trade receivables in the current year compared to the prior year.

The DSO were 57 days at August 31, 2024 and 58 days at September 2, 2023.

Inventory – Inventory was a use of cash of $62.2 million and a source of cash of $38.2 million in the first nine months of 2024 and 2023, respectively.

The use of cash in 2024 compared to source of cash in 2023 was due to higher inventory purchases in 2024 compared to 2023.

Inventory days on hand were 75 days as of August 31, 2024 and 70 days as of September 2, 2023.

Trade payables – Trade payables was a source of cash of $49.7 million and a use of cash of $74.4 million in the first nine months of 2024 and 2023, respectively.

The source of cash in 2024 compared to use of cash in 2023 reflects lower payments on trade payables in the current year compared to the prior year.

Days payable outstanding were 70 days as of August 31, 2024 and 56 days as of September 2, 2023.

The DSO were 61 days at March 1, 2025 and 59 days at March 2, 2024.

Inventory – Inventory was a use of cash of $27.1 million and $50.2 million in the first three months of 2025 and 2024, respectively.

The lower use of cash in 2025 compared to 2024 was due to lower inventory purchases in 2025 compared to 2024.

Inventory days on hand were 79 days as of March 1, 2025 and 82 days as of March 2, 2024.

Trade payables – Trade payables was a use of cash of $14.3 million and a source of cash of $27.6 million in the first three months of 2025 and 2024, respectively.

The use of cash in 2025 compared to source of cash in 2024 reflects higher payments on trade payables in the current year compared to the prior year.

Days payable outstanding were 73 days as of March 1, 2025 and March 2, 2024.

Cash Flows from Investing Activities:

Nine Months Ended

Three Months Ended

($ in millions)

Net cash used in investing activities

Purchases of property, plant and equipment were $112.8 million during the first nine months of 2024 compared to $109.5 million for the same period of 2023 .

Purchases of property, plant and equipment were $33.0 million during the first three months of 2025 compared to $43.3 million for the same period of 2024 .

This difference reflects the timing of capital projects and expenditures related to growth initiatives.

During the first nine months of 2024, we paid $274.1 million of cash, net of cash acquired for purchased businesses.

During the first nine months of 2023, we paid $194.2 million, net of cash acquired for purchased businesses.

During the first three months of 2025, we paid $162.0 million of cash for business acquisitions.

Additionally, we received $75.8 million in cash related to the sale of NA Flooring.

Cash Flows from Financing Activities:

Nine Months Ended

Three Months Ended

($ in millions)

Net cash (used in) provided by financing activities

In the first nine months of 2024 , borrowings on our revolving credit facility were $1,732.9 million and repayments on our revolving credit facility and our long-term debt totaled $1,556.1 million.

In the first three months of 2025 , borrowings on our revolving credit facility were $526.3 million and repayments on our revolving credit facility and our long-term debt totaled $359.5 million.

These borrowings are for general working capital purposes and permitted acquisitions.

Borrowings on our long-term debt were $1,333.0 and payments on our revolving credit facility were $1,184.9 million in the first nine months of 2023 .

Payment of debt issue costs were $3.5 million in the first nine months of 2024 and $10.2 million in the first nine months of 2023 .

Net payments of notes payable were a use of cash of $1.0 million in the first nine months of 2024 compared to $18.0 million in the same period of 2023 .

Cash dividends paid were $35.4 million in the first nine months of 2024 compared to $32.3 million in the same period of 2023 .

Repurchases of common stock were $39.4 million in the first nine months of 2024 compared to $2.6 million in the same period of 2023 .

Borrowings on our revolving credit facility were $195.0 and repayments on our revolving credit facility and our long-term debt totaled $203.3 million in the first three months of 2024 .

Net payments of notes payable were a use of cash of $0.2 million in the first three months of 2025 compared to $0.3 million in the same period of 2024 .

Cash dividends paid were $12.2 million in the first three months of 2025 compared to $11.2 million in the same period of 2024 .

Repurchases of common stock were $44.4 million in the first three months of 2025 compared to $6.2 million in the same period of 2024 .

Forward-Looking Statements and Risk Factors

16 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis