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| Statement |
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| We had an earn-out related to an acquisition we did last year, which is a payment we made because the business is performing better than our deal model reflected, which is a good thing |
| With that said, we know this to be temporary as underlying demand is stronger than our volume reflects, and we've also recently seen distributor buying patterns improve |
| John Corkrean And we feel good about cash flow |
| Incremental volume development has been improving since the second quarter trough and we expect this to continue and meaningfully improve in the fourth quarter |
| Strategically, we are driving this business where we said we would, as evidenced by our gross profit and EBITDA margin performance demonstrating our confidence, and becoming a higher EBITDA margin company |
| The benefits from sustainable pricing discipline, proactive raw material cost management, and restructuring savings realization more than offset the detrimental impact from lower volume and drove the improvement in profitability in the third quarter |
| We also delivered another outstanding quarter from a cash flow perspective with cash flow from operations increasing $50 million year-on-year to $108 million, driven by strong profit growth and improved working capital performance |
| It's -- we had another strong quarter as expected and everything is lining up to be in line with the guidance we gave in Q2 |
| That's going to go on for a couple of quarters, however in EA and CA, I think this destocking is completed, and we are seeing much, much better volumes in P10 for both of those businesses |
| The team has been successful in gaining new business |
| Electronics improved significantly in Q3 |
| And so we are going to -- you'll see strong performance there as well as taking share in a number of packaging applications in HHC |
| So in the aerospace industry, as well as we continue to expand our position in the EV automotive market, a market that's growing very, very fast globally about 22% annually, and some nice wins in Technical Textiles, Harting Cables, PVC Edge Banding |
| Favorable price and raw material cost management and restructuring benefits drove the improvement year-on-year |
| In Engineering Adhesives, organic revenue declined 3.3% in the third quarter much improved versus the 9% decline in the previous quarter led by strength in China |
| Fuller team members around the world for delivering exceptional results in a challenging environment, and for leading the way as we transform our company into a higher growth, higher margin, higher ROIC business |
| The improvement in profitability for EA was driven by favorable price and raw material actions and aggressive cost management |
| The restructuring actions the CA team has executed position this business to deliver sustainably strong adjusted EBITDA margins consistently throughout the cycle |
| In Asia-Pacific, organic revenue increased 7% year-on-year, driven by a rebound in demand in China in both EA and HHC |
| The organic sales trend for the region continued to improve as expected due to particular strength in the automotive, electronics, and hygiene market segments |
| The other thing is the mix was very favorable in Q3 relative to the first two quarters as the performance of electronics and automotive continued -- automotive continues to be very strong |
| So the advantage for us in a market like this is given that we have so much scale in this industry, we have great opportunity to draw -- to leverage our volume and continue to optimize our purchasing positions with those suppliers |
| I am quite pleased that we were able to achieve double-digit growth in adjusted EBITDA in the current environment and without question the actions we are taking will continue to benefit our ability to grow adjusted EBITDA in 2024, and well into the future |
| Operating cash flow in the quarter improved significantly year-over-year as improving margins and lower net working capital requirements more than offset the impacts of lower volume, higher interest expense and unfavorable foreign currency translation |
| Lastly, I would like to inform you that the recent acquisition of Adhezion Biomedical is progressing exceptionally well and is on track for a record sales year |
| We have a well-defined plan for synergy realization and we are very excited about the future growth prospects of our medical adhesives business |
| So HHC, you know, I have really a favorable outlook for that particular business |
| Adjusted gross profit margin was 30%, up 350 basis points versus last year as a net effect of pricing and raw material cost actions together with restructuring benefits, and general cost controls more than offset the impact of lower volume |
| Can you give us some color on the various drivers and buckets how much from price cost? How much from cost savings? How much from volume and normalized operations to drive that ramp? John Corkrean Yes, I think the biggest driver is the momentum we are seeing from raw material savings, and I think we have done a good, really good job managing pricing |
| In the third quarter, we delivered a double-digit increase in adjusted EBITDA year-on-year and successfully drove adjusted EBITDA margin meaningfully higher |
| Statement |
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| In HHC, organic revenue was down 10.5% year-on-year driven by HHC's customer destocking activity, which we estimate accounted for most of the decline in organic growth |
| In EIMEA, organic revenue declined 6% year-on-year, driven mostly by weaker demand in the construction and packaging-related market segments |
| This reflects lower than previously expected volume, due to a more significant destocking impact in HHC in Q3, and slightly weaker overall industrial demand conditions |
| Customer destocking impacts in HHC which were notably outsized in North America relative to the rest of the world, adversely impacted the region's organic revenue development in the third quarter |
| Overall organic revenue declined 7.4% year-on-year in the third quarter with all GBUs experiencing lower volume versus the prior year |
| So in P7, we saw really extreme destocking in our HHC business, but also our EA and CA businesses were down double-digit on volume in that month as well |
| Geographically, Americas organic revenue was down 13% year-on-year |
| Customer destocking actions have been temporarily detrimental to organic growth leading to volume declines in excess of underlying economic demand |
| So RP7 which was the first month of our quarter was much worse than the other two |
| For the quarter, revenue was down 4.3% versus the same period last year |
| Organic revenue declined due primarily to lower volume in construction-related end markets, which more than offset organic growth in the automotive, electronics, and solar market segments |
| That's in the neighborhood of $30 million lower than last year, that will be rebuilt but given those we are projecting that it will be a continued challenged volume environment that's kind of what we are building our plans on |
| However, end-market demand has weakened in construction-related end markets, and we would ascribe most of the organic revenue declines in the third quarter to end-market conditions |
| We achieved this despite weaker-than-expected volumes, driven by a more adverse customer destocking impact in Hygiene, Health, and Consumable Adhesives, and lower market demand in construction-related markets |
| From a global economic standpoint, conditions remain relatively weak |
| So there's a lot of activity, David, right now underway to reformulate and provide savings to customers given the weak volume demand that's out there |
| This has created a very unique situation for channel inventory destocking in 2023 that is unprecedented historically and has led to volume declines for HHC that have never been experienced before |
| Higher interest expense and unfavorable foreign exchange negatively impacted adjusted EPS in the third quarter by approximately $0.17 and $0.05 respectively |
| What we expect is we will progress through the destocking in HHC over the next two or three quarters and then we'll revert to, sort of, more normal demand that may be a couple of percent lower than what we normally would see in any given year |
| The negative we would have is we do have a fairly sizable variable comp benefit this year |
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