ST. PAUL, MN -- H.B. Fuller Co. has reported financial results for the third quarter that ended August 29, 2009. Net income for the third quarter of 2009 was $35.4 million, or $0.72 per diluted share, versus $21.7 million, or $0.44 per diluted share, in last year’s third quarter. This year’s third quarter net income included a significant one-time gain related to the settlement of a lawsuit filed against the former owners of the Roanoke Companies Group, a business acquired by the company in 2006. The settlement totaled $18.8 million on a pre-tax basis and $11.8 million after taxes, or $0.24 per diluted share. Excluding this settlement, net income would have been $0.48 per diluted share versus the reported results of $0.72 per diluted share.
During the third quarter, the North America region announced a restructuring of one of its manufacturing facilities. This realignment of production capacity will result in charges of approximately $3.3 million, of which $1.1 million was expensed during the third quarter. The balance will be expensed in the fourth quarter of 2009 and is largely related to accelerated depreciation. In addition, a discrete tax benefit of $1.3 million was recognized in the third quarter. This discrete tax item reduced the effective tax rate for the quarter by 2.7 percentage points. The company expects its effective tax rate for the fourth quarter to be approximately 34.5 percent, excluding any significant discrete items. Last year’s third quarter included a discrete tax benefit of $4.3 million related to the valuation of deferred tax assets in Brazil.
Net revenue for the third quarter of 2009 was $315.3 million, down 12.9 percent versus the third quarter of 2008. Higher average selling prices and acquisitions positively impacted net revenue growth by 2.8 and 0.9 percentage points, respectively. Lower volume and unfavorable foreign currency translation adversely impacted net revenue growth by 12.4 and 4.2 percentage points, respectively.
Weak end-market demand continued throughout the third quarter, but the year-over-year decline in volume in the third quarter – down 12.4 percent – was less than the year-over-year decline in the second quarter of 15.1 percent. Gross margin recovery was maintained as efforts to reformulate product lines and actions to reduce raw material costs offset the negative impact of significantly lower volumes year-over-year. SG&A expenses were up versus the prior year due to the timing and magnitude of variable compensation costs, the addition of operating expenses related to businesses acquired in the past year, and the costs associated with investments made in the past several quarters to support future growth.
On a sequential basis, net revenue increased 5 percent as additional wins with customers led to easing volume declines. Improved volume, benefits from product reformulations and slightly lower raw material costs led to an expansion in gross margin of 190 basis points. SG&A expenses increased significantly in the quarter. About two thirds of this increase is due to the timing and magnitude of compensation costs and foreign currency translation rates. The balance of the increase relates to the costs of adding personnel to support growth initiatives and a variety of other factors.
“We are very pleased with our third-quarter performance. We achieved a sequential increase in net revenue and boosted both operating profit margin and dollars despite the significant end-market challenges that continued during the quarter,” said Michele Volpi, H.B. Fuller President and Chief Executive Officer. “As the global economy continues its recovery, we are gaining momentum on the top line, and we expect this to continue as we further invest in the business.”
“Despite the headwinds we have faced during this economic downturn, H.B. Fuller has been able to deliver solid financial performance while at the same time positioning the company for the future. We are building top line momentum through new business wins and a keen focus on our customers. We expect fourth-quarter net revenue to be approximately $330 million and, if achieved, this will mark another sequential improvement in net revenue as we close out this fiscal year,” commented Volpi.
