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On Wednesday, Seaport Global Securities adjusted its stance on HB Fuller (NYSE:FUL), moving from a "Buy" to a "Neutral" rating. The downgrade comes as the stock trades near its 52-week low of $54.82, having declined over 31% in the past six months. Analysts at Seaport Global have expressed concerns that increased tariffs are anticipated to suppress demand and constrain the potential for margin growth. The transportation, new energy, and construction markets, where HB Fuller is significantly involved, are expected to be particularly affected.
The downgrade follows observations of competitive pressures in the company’s Hygiene, Health, and Consumable Adhesives (HHC) segment. Seaport analysts noted that HB Fuller might be losing market share in less-specified markets, which are vulnerable to heightened competition due to lower switching costs. Despite these challenges, InvestingPro data shows the company maintains strong fundamentals with a 30.1% gross profit margin and has raised its dividend for 32 consecutive years. In contrast, the Engineering Adhesives segment, which caters to highly specialized applications, continues to show promise due to longstanding customer relationships and sustained efforts to gain momentum.
The construction sector, according to Seaport Global, presents an unpredictable element, with the prospect of higher tariffs potentially increasing material costs and causing project delays. Despite these concerns, Seaport Global acknowledged the strengths in HB Fuller’s acquisition strategy, which is expected to yield benefits over time.
The analysts also recognized the company’s potential for growth in higher-value market segments and the focus on operational execution as drivers for margin improvement. However, the previously issued financial guidance for fiscal year 2025 by HB Fuller is now seen as overly ambitious, given the additional headwinds from tariffs and policy changes. As a result, Seaport Global’s revised model anticipates a downward revision in the company’s projections.
In other recent news, H.B. Fuller reported its Q4 2024 earnings, revealing an earnings per share (EPS) of $0.92, which was below the forecasted $1.23. The company’s revenue reached $923 million, missing the expected $945.32 million. Despite these results, H.B. Fuller continues to focus on strategic acquisitions, having recently acquired two medical adhesive companies, GEMSRL and MediPhil Limited, to enhance its market position. The company also announced a restructuring plan to reduce its global manufacturing footprint, aiming for significant cost savings over the next five years. Analyst firm Vertical Research Partners noted the company’s ambitious restructuring plan, which is expected to generate $75 million in annualized cost savings. H.B. Fuller has set its adjusted EBITDA guidance for FY 2025 between $600 million and $625 million, with adjusted EPS projected between $3.90 and $4.00. The company’s outlook for FY 2025 includes a net revenue decline of 2-4%, with organic revenue expected to be flat to up 2%. Despite the challenges, CEO Celeste Masten expressed confidence in transforming H.B. Fuller into a "sustainably faster growing, higher margin enterprise."
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