H.B. Fuller Leans on Margins in 2026 Earnings Pivot

H.B. Fuller Company ((FUL)) has held its Q4 earnings call. Read on for the main highlights of the call.

H.B. Fuller Trades Near-Term Growth for Stronger Margins in 2026 Push

H.B. Fuller’s latest earnings call struck a confident but measured tone, as management emphasized a clear shift toward profitability and structural improvement over headline revenue growth. The quarter delivered a sharp jump in adjusted EPS and EBITDA, underpinned by margin expansion, cost actions, and successful acquisitions. At the same time, executives were candid about weak volumes, soft construction and packaging markets, and a deliberate wind-down of the solar business that will weigh on the top line. Overall, the company is consciously sacrificing some near-term growth to build a higher-margin, more resilient earnings base heading into 2026.

EPS and Profitability Expansion

H.B. Fuller’s Q4 results underscored the core message of profit improvement. Adjusted EPS climbed 39% year over year to $1.28, while adjusted EBITDA rose roughly 15% to $170 million. Margin performance was particularly strong: adjusted EBITDA margin reached 19%, up 290 basis points, and gross profit margin also improved by 290 basis points to 32.5%. These gains reflect better pricing discipline, lower raw material costs, and structural cost savings rather than top-line strength, signaling a business increasingly focused on quality of earnings rather than sheer volume.

Strong Segment Margin Performance in Engineering Adhesives and HHC

The company’s margin story was driven by standout performance in Engineering Adhesives (EA) and H.B. Fuller Consumer (HHC). EA delivered a 17% year-over-year increase in adjusted EBITDA, with margins expanding 260 basis points to 23.5%. Organic revenue in EA was up 2.2% in Q4, but closer to 7% when excluding the solar business that is being de-emphasized, highlighting the strength of the underlying portfolio. HHC saw EBITDA jump nearly 30%, with margins improving 380 basis points to 17.5% thanks to pricing, raw material savings, and the contribution from recent acquisitions. These segments are emerging as the primary engines of profitability as the company rotates away from lower-margin or more volatile exposures.

M&A Execution and Accretive Contribution

Management highlighted that its acquisition strategy is paying off. The eight deals completed across 2023–2024 delivered $73 million of EBITDA in 2025, up from $41 million pre-acquisition, implying a post-synergy purchase price multiple of about 6.7x—an attractive outcome by industry standards. GEM/Medifill, a key acquisition, saw revenue increase about 15% and EBITDA rise around 30% versus pre-acquisition 2024 levels, showing strong integration and synergy capture. The company also executed smaller bolt-on acquisitions in fastener coatings ($17 million of spend) that are expected to generate roughly $3 million of EBITDA in 2026. Management reiterated that the M&A pipeline remains robust but will be pursued with discipline and an eye on leverage.

Pricing, Raw Materials and Quantum Leap Cost Savings

A key driver of margin expansion has been a powerful combination of pricing, lower input costs, and internal efficiency initiatives. In 2025, H.B. Fuller realized about $30 million of benefit from pricing and raw materials, and it expects a carryover plus incremental actions to deliver roughly $35 million more in 2026. Project Quantum Leap—a broad manufacturing and warehouse consolidation effort—is driving structural cost reductions. The company expects about $10 million of incremental Quantum Leap savings in 2026, on top of long-term benefits from more efficient plants, leaner inventory, and lower maintenance capital requirements. These actions give management confidence in continued margin improvement even in a modest revenue environment.

Cash Flow and Balance Sheet Progress

Despite investment-heavy transformation programs, H.B. Fuller is making progress on cash generation and leverage. Q4 cash flow from operations reached $107 million, up 25% year over year. Net debt to adjusted EBITDA improved sequentially to 3.1x, edging closer to the company’s 2.5–3.0x target range. The company also returned capital to shareholders, repurchasing about 1 million shares in fiscal 2025, which supported EPS growth. For 2026, management is guiding to operating cash flow of $275–$300 million, though it noted that cash generation will be weighted to the back half of the year as transformation-related spending and seasonal factors normalize.

Geographic and Product Wins Signal Select Growth Pockets

While overall volumes remain under pressure, management pointed to pockets of strength that could underpin future growth. Asia Pacific organic revenue grew 3% in Q4, and excluding solar, APAC rose around 10%, reflecting solid demand in the region. China, in particular, is described as a “green shoot” with clear signs of recovery. The company notched wins in LNG and data-center projects, important high-spec markets that typically support high-margin, long-duration business. Its flagship glass product, 4SG, delivered 18% growth in 2025 despite a 6% decline in housing starts, signaling continued share gains and resilience in key specialty product lines.

Corporate Recognition and Culture as Strategic Assets

Beyond the financials, H.B. Fuller emphasized its corporate culture and external recognition as competitive strengths. Newsweek named the company one of America’s Most Admired Workplaces for 2026, and Forbes recognized it as one of America’s Best Employers for engineers. While these accolades do not directly feed into the numbers, they support management’s narrative that the company can attract and retain high-caliber technical talent—an important factor in driving innovation, executing complex integrations, and sustaining differentiated solutions in specialty adhesives.

Top-Line Pressure and Volume Weakness

The main counterweight to the strong margin story is weak top-line momentum. In Q4, consolidated net revenue declined 3.1% year over year, with organic revenue down 1.3%. Volumes fell 2.5%, partially offset by a 1.2% benefit from pricing. Even after accounting for the divested flooring business, net revenue was up only about 1%. Management framed this as a tradeoff: protecting price and margins in a lackluster demand environment rather than chasing volume at lower profitability. For investors, this means the near-term growth profile is subdued even as earnings quality improves.

BAS Segment Underperformance

The company’s BAS segment was a weak spot in the quarter. BAS organic sales fell 4.8% year over year, and segment EBITDA was down roughly 7%. Construction-related end markets, a core exposure for BAS, remained muted, and the segment also faced difficult comparisons against a strong Q4 2024. The combination of soft demand and tough comps created a drag on consolidated results. Management did not flag any structural issues in BAS but acknowledged that a broader construction rebound may be needed before the segment can contribute meaningfully to growth.

Packaging and HHC Volume Softness

Even within the otherwise strong HHC segment, volume softness was evident. Organic revenue in HHC declined 1.8% in Q4, driven by lower volumes with packaging and consumer packaged goods customers, particularly in North America. Competitive intensity and affordability pressures weighed on demand, as customers and end consumers remain cautious. That HHC still managed a near-30% increase in EBITDA and a 380-basis-point margin expansion underscores how much of the current earnings story is coming from mix, pricing, and cost actions rather than volume growth.

Solar Business De-Emphasis Creates Near-Term Headwind

The company is deliberately shrinking its exposure to the solar market, which generated about $80 million in revenue in 2025 but is expected to be closer to $50 million in 2026. This implied $30 million revenue headwind is part of a strategic exit from a business that management clearly views as less attractive on a risk-adjusted basis. While this will weigh on reported growth in the near term, H.B. Fuller is positioning the move as a portfolio upgrade, allowing capital and management attention to be redeployed into higher-return, more stable specialty markets.

Working Capital and Free Cash Flow Pressure from Transformation

The downside of the company’s aggressive transformation agenda is near-term working-capital and free-cash-flow pressure. Net working capital increased to 15.8% of annualized net revenue, up 130 basis points year over year, and free cash flow conversion remains subdued. Project Quantum Leap and the ongoing SAP implementation are requiring higher inventory levels and elevated CapEx—about $50 million of 2026 capital will be tied to Quantum Leap alone. Management cautioned that working capital is likely to remain above target into 2026–2027, even though these projects should pay off via structurally lower costs and better asset efficiency over the longer term.

Legal Reserve Related to Divested Flooring Business

One notable item in the quarter was a legal development tied to a business H.B. Fuller no longer owns. The company recorded a $35 million pretax reserve (roughly $25 million after tax) for a product liability claim associated with its divested flooring business. While the charge is non-cash in the current period and management expects insurance to cover a substantial portion, it introduces additional volatility to the P&L and is a reminder that legacy exposures can still surprise even after a divestiture.

Leverage and Interest Expense Still a Watch Item

Although leverage is improving, it remains at the upper end of management’s preferred range. Net debt to adjusted EBITDA stands at 3.1x, just above the 2.5–3.0x target band. For 2026, H.B. Fuller expects net interest expense of about $120 million and depreciation and amortization around $185 million—meaning interest and non-cash charges will continue to be meaningful claims on cash flow and reported earnings. Management indicated that its M&A cadence will be “normalized” as leverage allows, signaling that deleveraging remains an active capital allocation priority.

Near-Term Seasonality and Q1 2026 Timing Effects

Investors will need to look past a softer first quarter of 2026, which management says will be affected by timing rather than demand fundamentals. Q1 revenue is expected to be down low single digits year over year, with adjusted EBITDA guided to $110–$120 million. The late timing of Chinese New Year is shifting about $15–$20 million of revenue and $6–$8 million of EBITDA from Q1 into Q2. Management framed this as a temporary calendar issue, not a signal of deteriorating underlying demand, but it will likely compress reported growth early in the fiscal year.

Guidance and Outlook for 2026

Looking ahead, H.B. Fuller’s 2026 guidance reinforces its “margin over volume” stance. The company expects full-year net revenue to be flat to up 2%, with organic revenue roughly flat and a modest tailwind from foreign exchange. Adjusted EBITDA is projected between $630 million and $660 million, pushing the company closer to its long-term goal of an EBITDA margin above 20%. Adjusted EPS is guided to $4.35–$4.70, supported by a core tax rate of 26–27%, net interest around $120 million, and diluted share count of 55–56 million. Operating cash flow is expected at $275–$300 million against approximately $160 million of capital expenditures, about $50 million of which will fund Project Quantum Leap. The guide assumes around $35 million in net price/raw-material benefits, pricing gains of roughly 0.5–1%, about $10 million of incremental Quantum Leap savings, and offsets from wage inflation and higher variable compensation. Leverage finished 2025 at 3.1x, and management expects M&A to continue at a disciplined pace as balance-sheet capacity improves.

H.B. Fuller’s earnings call painted the picture of a company in deliberate transition: tamped-down revenue ambitions, but a clear path to higher margins, stronger earnings, and a more focused portfolio. Investors will have to tolerate soft volumes, end-market weakness in construction and packaging, and near-term cash drag from transformation projects and seasonality. In exchange, they gain a business that is increasingly built on accretive M&A, disciplined pricing, and structural cost efficiencies. If management delivers on its 2026 roadmap, H.B. Fuller could emerge with a stronger earnings profile and a more attractive valuation foundation, even without a robust top-line recovery.