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Why Did H.B. Fuller Miss 3Q16 Revenue Estimates?

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H.B. Fuller’s 3Q16 revenue

H.B. Fuller (FUL) not only missed analysts’ earnings estimate but also analysts’ revenue estimate. Analysts had estimated that the company’s 3Q16 revenue would be $534.8 million, but revenue came in at $512.9 million. On a year-over-year basis, revenue fell 2.2% from 3Q15. The company’s fiscal year is from December 1 to November 30.

H.B. Fuller’s peer Valspar (VAL) announced its 3Q16 earnings on September 7, 2016, and reported revenue of $1.1 billion. For a detailed report on Valspar’s 3Q16 earnings, read Valspar’s 3Q16 Earnings: The Details. Other peers such as Sherwin-Williams (SHW), RPM International (RPM), and PPG Industries haven’t announced their 3Q16 revenues yet.

H.B. Fuller’s fall in revenue can mainly be attributed to the following:

  • Lower average product prices negatively impacted its overall revenue 2.1%.
  • The foreign currency translation had a 1% negative impact on sales.
  • Higher volumes had a positive impact on sales of 0.9%.
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Net profit margins

H.B. Fuller reported a net profit margin of 6.5% in 3Q16 compared to 6.0% in 3Q15. This implies an increase in the net profit margin of 0.50 percentage points. Its net profit margin increased mainly due to the lower cost of sales, lower variable incentives, and lower SG&A (selling, general, and administrative) expenses.

During 3Q16, H.B. Fuller reported its cost of sales at $366.7 million compared to $377.3 million in 3Q15. The cost of sales as a percentage of sales also fell from 72.0% to 71.5%. Similarly, SG&A expenses for 3Q16 were $97.7 million compared to $98.3 million in 3Q15, a fall of 0.6% on a year-over-year basis. However, SG&A expenses as a percentage of sales rose marginally to 19% in 3Q16 from 18.8% in 3Q15.

As of September 23, 2016, the iShares S&P Small-Cap 60o Value ETF (IJS) had 0.8% of its total holdings in H.B.Fuller.

In the next part, we’ll take a look at the earnings for H.B. Fuller’s segments.

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