Add
FUL to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| FUL > SEC Filings for FUL > Form 10-Q on 3-Apr-2009 | All Recent SEC Filings |
3-Apr-2009
Quarterly Report
Overview
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 29, 2008 for important background information related to the business.
The depressed global economic conditions had a significant impact on the first quarter financial results. Net revenue decreased 13.7 percent and net income decreased 66.4 percent in the first quarter of 2009 as compared to the first quarter of 2008. Net revenue declines exceeded 10 percent in three of our four operating segments; Latin America was the exception with a decline of 2.8 percent. Raw material costs began to decrease in the first quarter however they remained above the levels of the first quarter of 2008. The gross profit margin of 26.9 percent in the first quarter of 2009 was 1.5 percentage points below the first quarter of 2008. Sequentially, the gross profit margin did improve from the 24.9 percent recorded in the fourth quarter of 2008.
Net income in the first quarter of 2009 of $6.1 million was $12.1 million or 66.4 percent less than the first quarter of 2008. The decline in net income was driven primarily by the reduced net revenue level as compared to the first quarter of 2008. The diluted earnings per share (EPS) in the first quarter of 2009 was $0.13 as compared to $0.32 in the first quarter of 2008. The 2009 figure was aided by a 14.9 percent reduction in the weighted average number of diluted shares resulting from our share repurchase programs that began in the third quarter of 2007 and ended in the second quarter of 2008.
Certain changes as described below were made to the components of our operating segments during the first quarter of 2009. Prior year amounts were also reclassified to conform to the current year organization structure.
• The packaging solutions reporting unit that previously was reported entirely in the North America segment has been broken out into all four operating segments. The reporting unit has historically had international revenue and expenses however it was managed centrally in North America. The reporting unit is now managed on a regional basis and incorporated into the adhesives reporting units of each of the segments
• In the North America operating segment, in addition to the packaging solutions changes discussed above, the adhesives reporting unit also includes the insulating glass business activities that were previously reported as a separate reporting unit. The insulating glass activities are now integrated into the adhesives management structure and managed as a product line within the adhesives group. Therefore, the North America operating segment now consists of two components: adhesives and specialty construction.
• The Europe operating segment has been renamed to EMEA (Europe, Middle East and Africa). We believe this name is more representative of the business activities of the segment, especially after the 2008 Egymelt acquisition. No other changes to this segment other than the addition of the packaging solutions activities related to Europe.
• In Asia Pacific, the consumer reporting unit has been integrated into the adhesives management structure resulting in the Asia Pacific operating segment having only one reporting unit.
Net Revenue:
We review variances in net revenue in terms of changes related to product pricing, sales volume, acquisitions/divestitures and changes in foreign currency exchange rates. The following table shows the net revenue variance analysis for the first quarter of 2009 compared to the first quarter of 2008:
13 Weeks Ended
February 28,
( ) = Decrease 2009
Product pricing 5.7 %
Sales volume (14.7 )%
Currency (5.1 )%
Acquisitions/Divestitures 0.4 %
Total (13.7 )%
|
Organic sales growth, which we define as the combined variances from product pricing and sales volume, was a negative 9.0 percent (negative 14.7 percent from sales volume and positive 5.7 percent from selling prices) in the first quarter of 2009 as compared to the same period last year. The slow economy continued to have a negative impact on sales volume in the first quarter. The negative currency effects resulted from the strengthening of the dollar against most major foreign currencies as compared to the first quarter of 2008. The largest currency effects resulted primarily from the Euro, Australian dollar and Canadian dollar. The 0.4 percent impact on the net revenue variances from acquisitions was entirely due to the Egymelt acquisition that closed in the fourth quarter of 2008.
Cost of Sales:
13 Weeks Ended
February 28, March 1, 2009 vs
($ in millions) 2009 2008 2008
Cost of sales $ 203.6 $ 231.1 (11.9 )%
Percent of net revenue 73.1 % 71.6 %
|
The cost of sales decreased 11.9 percent from the first quarter of 2008. The decrease was driven primarily by the 14.7 percent decline in sales volume. The stronger U.S. dollar in the first quarter of 2009 as compared to the first quarter of 2008 also contributed to the decrease in the cost of sales. Offsetting these decreases was the overall higher cost of raw materials in the first quarter of 2009 as compared to last year. Although the costs began to decrease in the first quarter of 2009, they were still above the cost levels of the first quarter of 2008. There was approximately $1.0 million of severance and other related costs recorded in the first quarter of 2009 related to initiatives to adjust manufacturing cost levels to the lower production volumes.
Gross Profit Margin:
13 Weeks Ended
February 28, March 1, 2009 vs
($ in millions) 2009 2008 2008
Gross profit $ 75.0 $ 91.5 (18.0 )%
Percent of net revenue 26.9 % 28.4 %
|
The reduced gross profit margin in 2009 was driven primarily by the higher raw material costs in the first quarter of 2009 as compared to 2008. Reduced production and sales volumes also contributed to the decline as fixed manufacturing overhead costs were a higher percentage of net revenue in 2009 as compared to last year. The $1.0 million of severance and other related costs referred to above reduced the gross profit margin in the first quarter of 2009 by 0.4 percentage points.
Selling, General and Administrative (SG&A) Expenses:
13 Weeks Ended
February 28, March 1, 2009 vs
($ in millions) 2009 2008 2008
SG&A $ 62.6 $ 65.0 (3.7 )%
Percent of net revenue 22.5 % 20.1 %
|
SG&A expenses decreased $2.4 million from the first quarter of 2008. Reduced headcount, strict spending controls and the effects of currency exchange rates all contributed to the decrease in SG&A expenses.
Goodwill impairment charges
13 Weeks Ended February 28, March 1, 2009 vs ($ in millions) 2009 2008 2008 Goodwill and other impairment charges $ 0.8 $ 0.0 NMP
NMP = Non-meaningful percentage
In the fourth quarter of 2008 an $85.0 million impairment charge was taken as a reduction of the goodwill balance of the specialty construction reporting unit. This amount was considered an estimate as of November 29, 2008 with final valuation work to be completed in the first quarter of 2009. The additional charge of $0.8 million in the first quarter of 2009 was the result of the final valuation work.
Other Income (expense), net:
NMP = Non-meaningful percentage
Interest income was $0.3 million in the first quarter of 2009 and $1.9 million in the first quarter of 2008. The lower average cash balance in the first quarter of 2009 as compared to 2008 was the primary reason for the lower interest income however lower interest rates also contributed to the decrease. Currency transaction and re-measurement losses in the first quarter 2009 were $1.0 million as compared to losses of $0.3 million in the first quarter of 2008. Fluctuations in currency exchange rates during the first quarter of 2009 combined with changes in foreign currency exposures were the main reasons for the higher net expense in 2009.
Interest Expense:
The year-over-year decrease in the first quarter interest expense was primarily due to lower interest rates in 2009 as compared to 2008 on variable-rate debt.
Income Taxes:
13 Weeks Ended
February 28, March 1, 2009 vs
($ in millions) 2009 2008 2008
Income taxes $ 3.0 $ 7.2 (58.3 )%
Effective tax rate 36.9 % 29.0 %
|
The higher effective tax rate in the first quarter of 2009 as compared to the same period in 2008 was primarily due to an unfavorable geographic mix of pretax earnings.
Minority Interests in Loss of Subsidiaries:
Minority interests in the loss in our 80 percent owned China entities were not significant in the first quarter of either 2009 or 2008.
Income from Equity Investments:
The income from equity investments relates to our 50 percent ownership of the Sekisui-Fuller joint venture in Japan. The first quarter result reflected the higher net income recorded by the joint venture in the quarter due primarily to stronger gross profit margins.
Net Income:
13 Weeks Ended
February 28, March 1, 2009 vs
($ in millions) 2009 2008 2008
Net Income $ 6.1 $ 18.2 (66.4 )%
Percent of net revenue 2.2 % 5.6 %
|
The decrease in net income in the first quarter of 2009 as compared to 2008 was driven by lower sales volume and higher raw material costs. The diluted earnings per share were $0.13 for the thirteen weeks ended February 28, 2009 and $0.32 for the thirteen weeks ended March 1, 2008. The number of diluted shares as of February 28, 2009 was 14.9 percent lower than March 1, 2008 due to the stock repurchase programs that ended in the second quarter of 2008.
Operating Segment Results
Our operations are managed through the four primary geographic regions: North America, EMEA, Latin America and Asia Pacific. Region Vice Presidents report directly to the Chief Executive Officer and are accountable for the financial results of their entire region. See the Overview section of this report for changes made in the first quarter of 2009 related to the reporting units within the operating segments.
The tables below set forth certain information regarding the net revenue and operating income of each of our operating segments. Operating income is defined as gross profit less SG&A expenses.
Net Revenue by Segment:
13 Weeks Ended
February 28, 2009 March 1, 2008
Net % of Net % of
(In millions) Revenue Total Revenue Total
North America $ 119.2 43 % $ 134.3 42 %
EMEA 78.9 28 % 102.5 32 %
Latin America 55.4 20 % 56.9 17 %
Asia Pacific 25.1 9 % 28.9 9 %
Total $ 278.6 100 % $ 322.6 100 %
|
Operating Income by Segment:
13 Weeks Ended
February 28, 2009 March 1, 2008
Operating % of Operating % of
(In millions) Income Total Income Total
North America $ 9.8 79 % $ 13.9 52 %
EMEA 1.9 15 % 9.2 35 %
Latin America 0.8 7 % 1.7 7 %
Asia Pacific (0.1 ) (1 )% 1.7 6 %
Total $ 12.4 100 % $ 26.5 100 %
|
The following table provides a reconciliation of operating income to income before income taxes, minority interests and income from equity investments, as reported on the Consolidated Statements of Income.
13 Weeks Ended
February 28, March 1,
(In millions) 2009 2008
Operating income $ 12.4 $ 26.5
Goodwill and other impairment charges (0.8 ) -
Other income (expense), net (1.0 ) 1.3
Interest expense (2.4 ) (2.9 )
Income before income taxes, minority interests,
and income from equity investments $ 8.2 $ 24.9
|
North America:
The following table shows the net revenue generated from the key components of
the North America segment.
13 Weeks Ended
February 28, March 1, 2009 vs
(In millions) 2009 2008 2008
Adhesives $ 93.0 $ 103.1 (9.8 )%
Specialty Construction 26.2 31.2 (16.0 )%
Total North America $ 119.2 $ 134.3 (11.2 )%
|
13 Weeks Ended February 28, 2009 vs
13 Weeks Ended March 1, 2008
Specialty
( ) = Decrease Adhesives Construction Total
Pricing/Sales volume (8.0 )% (16.0 )% (9.9 )%
Currency (1.8 )% - (1.3 )%
Total (9.8 )% (16.0 )% (11.2 )%
|
The following table reflects the operating income by component of the North America operating segment:
13 Weeks Ended
February 28, March 1, 2009 vs
(In millions) 2009 2008 2008
Adhesives $ 11.9 $ 13.9 (14.9 )%
Specialty Construction (2.1 ) - NMP
Total North America $ 9.8 $ 13.9 (29.7 )%
Segment profit margin % 8.2 % 10.4 %
|
NMP = Non-meaningful percentage
Note: Individual component results are subject to numerous allocations of segment-wide costs that may or may not have been focused on that particular component for a particular reporting period. The costs of these allocated resources are not tracked on a "where-used" basis as financial performance is managed to maximize the total operating segment performance. Therefore, the above financial information should only be used for directional indications of performance.
Total North America: The continued slowdown in the U.S. economy was the primary driver for net revenue declining 11.2 percent in the first quarter of 2009 as compared to prior year. Sales volume decreased 16.7 percent while average selling prices were 6.8 percent above last year. The selling price increases resulted from pricing actions taken in the second half of 2008 in response to the escalation in raw material costs. Raw material costs began to decrease in the first quarter of 2009 but remained at levels above the first quarter of 2008. The resulting lower gross profit margin in 2009 and the decrease in sales volume were the primary drivers of the reduced operating income in the first quarter of 2009 as compared to last year.
Adhesives: Net revenue in the Adhesives component declined 9.8 percent in the first quarter of 2009 as compared to last year. Increases in average selling prices of 8.5 percent as compared to the first quarter of 2008 partially offset the 16.5 percent decrease in sales volume. The adhesives sales volumes were down across most major product lines and industries as a result of the slow U.S. economy. SG&A expenses were controlled through the elimination of certain positions, not filling open positions and overall strict spending controls. The decrease in first quarter operating income as compared to 2008 was a direct result of the reduced sales volume.
Specialty Construction: The construction-related industries in the U.S continued to be sluggish in the first quarter of 2009, especially residential market conditions. This was the primary factor in the specialty construction net revenue declining 16.0 percent in the first quarter of 2009 as compared to the first quarter of 2008. Raw material costs declined in the first quarter of 2009 as compared to year-end 2008, however the costs were still above the first quarter of 2008. The reduced sales volume along with the higher raw material costs resulted in a lower gross profit margin in the first quarter of 2009. The first quarter of 2009 also included $0.6 million of severance and other related charges for an initiative to adjust manufacturing costs to the reduced production volume levels.
EMEA:
13 Weeks Ended
February 28, March 1, 2009 vs
(In millions) 2009 2008 2008
Net revenue $ 78.9 $ 102.5 (23.0 )%
Operating income $ 1.9 $ 9.2 (79.5 )%
Segment profit margin % 2.4 % 9.0 %
|
13 Weeks Ended
February 28, 2009
( ) = Decrease vs March 1, 2008
Pricing/Sales volume (13.7 )%
Currency (10.7 )%
Acquisition/Divesture 1.4 %
Total (23.0 )%
|
Total EMEA: The slowdown in the European economy continued in the first quarter of 2009 resulting in sales volume declines of 16.6 percent as compared to the first quarter of 2008. The sales volumes were down across all major industries, with construction-related markets such as insulating glass recording the largest shortfalls to last year. Raw material costs decreased from year-end 2008 levels however the gross profit margin was still below the first quarter of 2008 due to the lower sales volumes. The SG&A expenses in the first quarter of 2009 decreased from the first quarter of 2008 due mainly to currency effects of the stronger U.S. dollar versus the Euro. The resulting operating income of $1.9 million was nearly 80 percent below the first quarter of 2008. The estimated currency effects on first quarter 2009 operating income were a negative $0.8 million as compared to the first quarter of 2008.
Latin America:
The following table shows the net revenue generated from the key components of
the Latin America segment.
13 Weeks Ended
February 28, March 1, 2009 vs
(In millions) 2009 2008 2008
Adhesives $ 27.8 $ 27.2 2.0 %
Paints 27.6 29.7 (7.3 )%
Total Latin America $ 55.4 $ 56.9 (2.8 )%
|
The following table provides details of Latin America net revenue variances by segment component. The Pricing/Sales Volume variance is viewed as organic growth.
13 Weeks Ended February 28, 2009 vs March 1, 2008 ( ) = Decrease Adhesives Paints Total Pricing/Sales volume 2.0 % (7.3 )% (2.8 )%
The following table reflects the operating income by component of the Latin America operating segment:
13 Weeks Ended
February 28, March 1, 2009 vs
(In millions) 2009 2008 2008
Adhesives $ 0.6 $ 1.6 (59.5 )%
Paints 0.2 0.1 73.6 %
Total Latin America $ 0.8 $ 1.7 (50.4 )%
Segment profit margin % 1.6 % 3.1 %
|
Note: Individual component results are subject to numerous allocations of segment-wide costs that may or may not have been focused on that particular component for a particular reporting period. The costs of these allocated resources are not tracked on a "where-used" basis as financial performance is managed to maximize the total operating segment performance. Therefore, the above financial information should only be used for directional indications of performance.
Adhesives: The increase in net revenue in the adhesives component consisted of increases in average selling prices of 7.9 percent and decreases in sales volume of 5.9 percent. Higher raw material costs in the quarter as compared to the first quarter of 2008 resulted in a lower gross profit margin in 2009. The shortfall in operating income as compared to last year was a direct result of the reduced gross profit margin.
Paints: The paints component is a more consumer-driven market than adhesives in Latin America and therefore, was impacted more negatively by the slow economy. Sales volumes declined 15.1 percent in the first quarter of 2009 as compared to 2008. The volume decline was partially offset by increases of 7.8 percent in average selling prices. The selling price increases resulted in an increase in the gross profit margin and operating income. The SG&A expenses in the first quarter of 2009 included severance and other related costs of $0.5 million as a result of a reorganization within the sales organization.
Asia Pacific:
13 Weeks Ended
February 28, March 1, 2009 vs
(In millions) 2009 2008 2008
Net revenue $ 25.1 $ 28.9 (13.1 )%
Operating income $ (0.1 ) $ 1.7 NMP
Segment profit margin % (0.5 )% 5.8 %
|
NMP = Non-meaningful percentage
The following table provides details of Asia Pacific net revenue. The Pricing/Sales Volume variance is viewed as organic growth.
13 Weeks Ended
February 28, 2009
( ) = Decrease vs March 1, 2008
. . .
|
|
|