US HB Fuller sees rebound in Asia, slowdown in Europe

Al Greenwood

22-Sep-2022

HOUSON (ICIS)–HB Fuller began to see a rebound in Asian demand during its fiscal third quarter because China is reopening from its COVID-19 lockdowns, the US-based adhesives producer said on Thursday, a trend that other chemical producers have yet to see.

“We saw significant uptick in Asia. I think we had our first double-digit organic growth quarter in a long time,” said Jim Owens, CEO. He made his comments during an earnings conference call.

The company’s fiscal year begins a month earlier than most chemical producers, so it is the first major US-based company to report its earnings.

Other Q3 trends noted by HB Fuller resembled those discussed by other chemical producers during investor presentations and guidance announcements for earnings.

HB Fuller said demand in Europe slowed down during the third quarter because of the war in Ukraine and rising natural-gas prices. That slowdown should continue in the fourth quarter.

In the Americas, customer demand remained strong and stable. In North America, there was a downturn in construction, Owens said.

HB FULLER PRICING OUTPACES INFLATION
As an adhesives producer, HB Fuller’s raw materials include tackifying resins, polymers, synthetic rubber, plasticizers and vinyl acetate monomer (VAM).

Despite inflation, HB Fuller was able to increase its margins during its fiscal third quarter, and prices outpaced costs, Owens said.

Inflation peaked in the second quarter, and it slowed down significantly in the third quarter, he said. For the fourth quarter, inflation could be flat.

The company expects the supply and the costs of its raw materials to start to stabilise, he said.

SUPPLY CHAINS
If supply chains for feedstocks improve, HB Fuller will gain access to a greater variety of raw materials, allowing it to design adhesives that cost less while maintain or improving the company’s margins.

For HB Fuller’s customers, supply chains are improving but they remain fragile and the market has not returned to normal conditions, he said. The weaker economic outlook has caused some customers to destock, but that has not been a significant trend.

GROWING END MARKETS IN Q3
Within HB Fuller’s business segments during the third quarter, the company saw particular strength in automobiles, aerospace and new energy within its Engineered Adhesives segment. New energy includes end markets such as solar panels and wind turbines.

Within automobiles, HB Fuller is gaining market share in electric vehicles (EVs).

For automobiles in general, supplies of semiconductor chips are improving, which is allowing companies to produce more vehicles after cutbacks in the months following the pandemic.

Construction markets suffered the most from the slowdown in the global economy in the third quarter, with roofing and flooring lagging the most, Owens said.

For roofing, Owens attributed the sluggish demand in part to roofing companies lacked other materials to complete projects.

HB Fuller’s roofing business is mostly commercial and not residential, he said.

Other construction end markets fared better, such as utilities and infrastructure.

For the company’s Hygiene, Health and Consumable Adhesives segment, third-quarter growth was particularly strong in packaging, hygiene, tissue and towel and health and beauty.

The segment stands out because pricing for some of the products is indexed to raw-material costs. Owens said about 20-30% is indexed within the segment and less than 15% for the company as a whole.

HIGHER GUIDANCE
HB Fuller raised its 2022 earnings guidance even as other chemical producers issued warnings.

Chemours lowered its 2022 outlook because of lower demand for titanium dioxide (TiO2) in Europe and Asia. The material is a white pigment used in paints and coatings, which exposes it to the construction market.

Specialty chemicals producer Eastman lowered its Q3 earnings guidance because of weaker demand, higher prices for natural gas, a stronger dollar and logistical constraints. Eastman also noted weaker construction.

Huntsman lowered its Q3 guidance because of higher energy costs in Europe, lower-than-expected demand and weakness in China.

Olin, an epoxy-resin and chlor-alkali producer, lowered its Q3 guidance because the global economy deteriorated faster than expected.

Focus article by Al Greenwood

Thumbnail shows an adhesive. Image by Shutterstock.

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