H.B. Fuller Pricing Spineometer: 5 of 5 Vertebrae

H.B. Fuller, a global adhesive supplier, had a positive Q3 2024. Revenue rose 1.9% to $918 million billion and earnings before interest and taxes rose 14% to $105 million over the same period last year.

A review of H.B. Fuller’s 26 September earnings call and associated financial reports provided insight regarding the importance of pricing on performance.

H.B. Fuller operates with business units aligned to Health, Hygiene, and Consumable Adhesives (HHC), Engineering and Automotive Adhesives (EA), and Construction Adhesives (CA). The demand for their adhesives is derived demand, meaning the demand for adhesives used in making cars, homes, or used in packaging is derived from the primary demand for the cars, homes, and consumer goods, not for the demand of having adhesives for the sake of having an adhesive.

H.B. Fuller has operations in the Americas, Asia Pacific (APAC), Europe India Middle East Africa (EIMEA). The global nature of their business increases complexity. Commercial policy, competitive dynamics, and currency fluctuations all vary with each country served.

Celeste Mastin, CEO of H.B. Fuller, reported lower than expected volume growth in EA related to a glut in solar panels and a slowdown in solar production, but strong growth in CA related to home building. Overall, volume increased 3% year-on-year while pricing declined 2.6% related to index-based pricing adjustments moderating sequentially as expected.

Index-based pricing is common with products made largely from the oil and gas industry which would include adhesives. They benefit both supplier and customer by enabling long-term contracting, thus more predictable supply and production processes, at lower prices than what would have been required to cover the uncertainty in production input costs or managed via financial instruments.

With surging oil production in the U.S. and moderating impacts of oil constraints placed on Russia and Iran, the price of Bent crude dropped in 2024 compared to 2022. As such, pricing adhesives with indices naturally lead to lower prices in 2024.

On pricing and price management, CEO Mastin stated, “So a big part of achieving our 20% EBITDA margin target is to continue to grow those gross margins into mid 30s. And so that’s a major emphasis for the company. … We’ve really enhanced our pricing process and continue to be successful there. And as you look at how we’re thinking about growing the business and acquiring, we have focused on selectively targeting our top 20 opportunities, which are higher margin, faster-growing spaces.”

As for the broader industry and price management, CEO Mastin stated, “As far as the competitors go, we have very responsible sophisticated, two very large — two or three very large, sophisticated, large competitors. They have good pricing acumen and they will price responsibly.”

Clearly, pricing is important to management at H.B. Fuller and the industry. H.B. Fuller uses advanced pricing strategies and acknowledges their pricing power in certain markets.

Industry benchmarks suggest H.B. Fuller should have 7 to 35 professionals dedicated to pricing.

1. Finance and operations would work with pricing professionals to identify appropriate indices for pricing.
2. Marketing and product managers would work with pricing for setting prices on new products and changing prices on existing products of which H.B. Fuller has many with a high SKU count.
3. Sales and commercial managers would work with pricing for price capture and defining commercial policy.
4. H.B. Fuller also sells through distributors where rebates can be used to improve channel coordination. Pricing professionals would be able to contribute meaningfully to help align goals in the supply chain.
5. With many geographies and market segments, pricing presents a high challenge. Heavy analytics coupled with strong team management is necessary for capturing pricing opportunities.

Research into the investment by H.B. Fuller in pricing yielded encouraging results.

1. The pricing team is on the low end of industry norms. It is appropriately distributed globally. Many executives in other roles, such as finance and product management, also report pricing as part of their responsibility.
2. Pricing professionals range in title from coordinator, supervisor, analyst, and manager, to director. No vice president of pricing was identified.
3. Pricing professionals are working with analytics, business strategy, and sales processes.

Given the importance and capability of pricing at H.B. Fuller as indicated in financial reports, management statements, and our pricing team research, and given their performance, we have come to the following conclusion as of October 2024.

H.B. Fuller Pricing Spineometer: 5 out of 5 Vertebrae. While I suspect H.B. Fuller would benefit from more people in pricing and pricing professionals working with other business functions more closely, and I would have liked to see a VP of pricing, the pricing team is performing well and delivering strong results as noted by the CEO herself.

FUL (H.B. Fuller Company) fell from 80.4 the day prior to their earnings call to 77.0 one week later. FY 2023 revenue of $3.5 with a 10% operating margin and P/E ratio near 29.

For FY 2023, a 1% improvement in price would yield a 9.9% improvement in operating profits holding all else constant at H.B. Fuller.