H.B. Fuller's (FUL) CEO Jim Owens on Q1 2016 Results - Earnings Call Transcript

| About: H.B. Fuller (FUL)

H.B. Fuller Co. (NYSE:FUL)

Q1 2016 Earnings Conference Call

March 24, 2016 10:30 AM ET

Executives

Maximillian Marcy – Senior Manager, Treasury and Investor Relations

Jim Owens – President and Chief Executive Officer

Jim Giertz – Executive Vice President and Chief Financial Officer

Analysts

David Begleiter – Deutsche Bank

Dmitry Silversteyn – Longbow Research

Mike Harrison – Global Hunter Securities

Bruce Zessar – Advisory Research Inc.

Operator

Ladies and gentlemen and thank you for standing by, and welcome to the H.B. Fuller First Quarter 2016 Investor Conference Call. This event has been scheduled for one hour. Today’s conference call is being webcast live and will also be archived on the company’s website for future listening.

At this time, I will turn the meeting over to our host Senior Manager, Treasury and Investor Relations, Mr. Maximillian Marcy. Sir, you may begin.

Maximillian Marcy

Thank you, Tanisha. Good morning and welcome to our fiscal year 2016 first quarter earnings call. We have two speakers today, Jim Owens, our President and Chief Executive Officer; and Jim Giertz, our Executive Vice President and Chief Financial Officer.

As always after our prepared remarks, we will have plenty of time to take your questions. Let me also remind you that comments made by me or by others representing H.B. Fuller may contain forward-looking statements which are subject to risks and uncertainties. Our SEC filings contain additional information about factors that could cause actual results to differ from management’s expectations. These filings can be found in the Investor Relations section of our corporate website at www.hbfuller.com.

Also please note that our reported results include non-GAAP financial measures. These results should not be confused with the GAAP numbers in yesterday’s earnings release or the GAAP numbers that we will report in Form 10-Q. We believe that the discussions of these measures is useful to investors because it assists in understanding our operating performance and our operating segments as well as the comparability of results. A reconciliation of these non-GAAP measures to the nearest GAAP measure is provided in the earnings release our company issued last night.

With that, I will turn the call over to Jim Owens.

Jim Owens

Thanks, Max, and thank you everyone for joining us today. We are off to a good start to our year. We delivered solid revenue growth and margin improvement. And we stayed on track to track to deliver the full year results that we envisioned in our earnings guidance.

Here are the important highlights from this first quarter. First, our margins improved significantly in the quarter compared to last year as we expected. Relative to last year, our adjusted gross margin was up 400 basis points and our EBITDA margin was up 320 basis points. Our gross margin also improved sequentially, up about 70 basis points versus the fourth quarter results. It is very unusual for gross margin to increase in first quarter of the year, due to seasonal patterns in our business. Our first quarter performance shows that our global efforts to reduce raw material costs, and improved supply chain efficiency, and increased productivity in our manufacturing operations is taking hold.

The second highlight is the introduction of our new Engineering Adhesives operating segment. Last month, we marked the one-year anniversary of our acquisition of the TONSAN business. And we can say without reservation that it has been a very good year. The integration has gone smoothly and business has hit the financial targets that we laid out at the time of the acquisition. It is evident from the Engineering Adhesives segment results that TONSAN has a positive impact on the quality of our portfolio and profit profile since it became part of H.B. Fuller.

The third and final highlight I would note is the performance of our business in Europe. For several quarters now we have been saying that our internal metrics were turning positive, which we viewed as a leading indicator of better future results. And in the first quarter, the EIMEA segment in fact posted solid improvement in overall financial performance. Constant currency revenue was up about 2.6%. This revenue growth was enabled by improved internal supply chain.

Margins were driven higher by raw material cost reductions, supply chain efficiencies, and better productivity in our manufacturing facilities. And the business is poised to make further improvements as the year goes forward. We are well positioned to achieve all financial targets that we set for this business for the 2016 fiscal year.

So a good start to the year with many highlights to point to. Some significant opportunities are ahead of us and a few challenges still to sort out. In short, we’re on track to meet our goals this year and create a solid foundation for delivering the 2020 strategic plan we reviewed with you in February.

With that, overview I will now walk through the performance of each new operating segment. In the Americas segment, our very positive performance with respect to margin management continues, while our efforts to return to growth have taken longer than expected. In the first quarter volume was down about 3% versus last year, which is about the same performance we saw in the previous quarter. Within the Americas segment we have certain business lines that are now consistently showing solid revenue growth.

Our growth challenge is isolated to several consumer-oriented market segments in North America and in some geographies in Latin America. We have a won significant new business in recent months, which is now converted to revenue. We feel confident that the volume development will improve as we move through the balance of this year.

Margin management continues to be the good news story in the Americas segment. In the first quarter EBITDA margin was up by 310 basis points relative to the same period last year, primarily due to raw material and price cost management and to a lesser extent, better supply chain productivity and lower manufacturing costs. We expect to continue leveraging both of these favorable cost trends through the balance of this year.

Raw material costs improved in the first quarter and some additional reductions are projected for the second quarter. In addition, further productivity gains are expected in our internal operations. Overall, an improving revenue performance in the second half of the year combined with strong cost management to support margins, should generate a solid result in the Americas in 2016.

Our Construction Products segments got off to a slower than expected start in the first quarter, with constant currency revenue growth of about 4%. We saw good growth in certain channels and sluggish performance in others. This is related to the facing of customer orders and inventory adjustments in the channel. Order patterns at the end of the first quarter and into the most recent weeks indicate that revenue growth will improve as we progress throughout the year.

We’re in the final stages of our facility upgrade and expansion capital investment project across the Construction Products North America manufacturing network. One of the key elements of this project is the consolidation of production facilities in Illinois. Once this portion of the project is completed in the third quarter, we expect manufacturing and supply chain costs will decline steadily, helping to improve overall margin performance in the segment.

Our goal for the 2016 fiscal year is to take a step towards our 2020 commitments for EBITDA margin improvement. The best story of the first quarter came from our EIMEA segment, where the recent efforts to improve our operating performance really started showing up in the financial results. For the segment overall, volume growth was 3% up versus the prior year. We saw solid revenue performance across most of our market segments and geographies. The most significant growth came from our hygiene business line and our commercial team in India. The tone of our business and the new business pipeline is improving, supported by an improved internal supply chain. We expect modest positive volume progression for the remainder of the year. From a profitability perspective, we improved EBITDA margin by 560 basis points versus the prior year’s first quarter.

The elements of the improvement were broad-based, raw material cost reductions, price management, better supply chain efficiency and lower manufacturing costs. We expect continued year-over-year improvement in EBITDA margin through the remainder of the 2016 year. Overall, we feel like things are truly coming together in our European business. Making this business stronger is a key element of our strategic plan and the current trends give us confidence that we will achieve our goals.

Now, turning to the Asia-Pacific segment, it is important to note up front that we made the decision to modify our operating segment structure – when we made that decision the most significant change occurred within our legacy Asia-Pacific segment. We moved out the entire TONSAN business and legacy automotive and electronic materials businesses to the newly created Engineering Adhesives segment. In addition, we transferred a small portion of our Australian business to the Construction Products segment. Those businesses that were shifted accounted for over 35% of legacy Asia-Pacific revenue.

So the Asia-Pacific segment we discuss today and in the future is quite different and is pursuing a new set of strategic goals. And we’re off to a good start, with constant currency revenue growth of 4% in the fourth quarter, with growth coming from all segments, across all sub-regions. Our core markets are weighted to consumer-driven end markets where demand is still fairly strong in Asia-Pacific. EBITDA margin in the segment was up about 100 basis points, primarily due to the benefits of lower raw material costs and some supply chain efficiencies.

I’ll wrap up with a short discussion of our newly created Engineering Adhesives segment. We have started the year strong with revenue growth of 84%. The primary driver of the very strong growth is a full quarter of the TONSAN business versus only a single month in last year’s first quarter. On a comparable basis, the system has constant revenue growth of about 10%. Our adjusted EBITDA margin in the first quarter was 10%, which is in line with expectations. We indicated during our recent Investor Day that this business delivered 12% EBITDA margin last year on a pro forma basis and we expect to slightly improve that result this year.

Year-over-year profitability improved dramatically in the first quarter because we had a full quarter of TONSAN revenue. And the heavy investment we made last year in SG&A costs is resulting in higher revenue in our existing business streams. We’re excited about the profit and growth potential of this business going forward.

So that’s a quick summary of each operating segment in the first quarter. Now I’ll turn the call over to Jim Giertz.

Jim Giertz

Okay. Thanks, Jim. So Jim already provided an overview of our operating results, so I want to spend just a few minutes discussing a couple of unusual items from the quarter. We had an unusually large loss on the other income loss line of the P&L of about $6 million in the first quarter. This was almost exclusively driven by the devaluation of the Argentina peso versus the U.S. dollar that began in December of last year.

We operate our Latin American region with the U.S. dollar as the functional currency. In Argentina we had accumulated a large trap cash balance position over the past several years due to various government restrictions on the remittance of funds. And these cash balances were denominated in pesos. In December the government loosened its foreign exchange regulations to allow for a more open market structure, allowing us to begin remitting our cash balances, which is a positive development.

And unfortunately, in conjunction with this regulatory change the Argentina peso devalued significantly versus the U.S. dollar, creating the losses recognized in our first quarter results. We view this as a one-time event and the underlying exposure has now been essentially eliminated.

Now just a few words about the tax rate in the first quarter. The tax rate on our adjusted earnings was about 31%, slightly lower than our guidance for 2016 of 33%. The difference was a one-time positive discrete tax item related to the renewal of the U.S. federal R&D tax credit that occurred late last year. The tax benefit that relates to last year’s net income is treated as a discrete item and the tax benefit related to the current year is incorporated in our core effective tax rate. The core tax rate, excluding the impact of discrete items, was about 33%, as we expected.

With that, let me now turn to our guidance for the remainder of the year. Foreign currency is still expected to negatively impact revenue growth by about 300 basis points. FX is a larger impact in the first quarter but is expected to become smaller as the year progresses. We still expect to deliver constant currency growth of about 4%, which again, was higher in the first quarter due to the inclusion of a full quarter of TONSAN that will be slightly lower than 4% for the remainder of the year.

EBITDA margin should improve sequentially, as is our normal seasonal pattern. We expect to be over 15% in the final quarter of the year and average around 14% for the full year result. Capital expenditures are still expected to be $60 million for the year. The most significant capital projects this year are supporting expansion and productivity enhancements for our Construction Products operating segment and completing our Greenfield investment in Indonesia.

Cash flow from operations was strong in the first quarter, driven by solid net income and reflecting normal seasonal patterns. We expect strong free cash generation performance through the remainder of the year as we reduce one-off costs, reduce working capital and improve profitability steadily through the year. We are maintaining our EPS guidance range of between $2.40 and $2.60.

With that, I’ll turn the call back to Jim Owens to wrap this up.

Jim Owens

Thanks, Jim. Our fiscal year is off to a great start. We’re growing the business in our focus areas and improving the overall cost structure which is driving our margins higher. This year is about capitalizing on our strong foundation and delivering results based on the investments we’ve made. It’s the first year of our 2020 strategic plan. The plan revolves around driving continued growth in our Engineering Adhesives, hygiene and Construction Products business and emerging economies, while at the same time, optimizing margin performance in our other end market segments.

Our plan is a solid continuation of what has gone well in our business, with a clear vision of what will improve going forward. During our February Investor Day we highlighted key elements which have changed in our long-term plan. A 3% to 5% growth target which reflects a slower global economy, a higher EBITDA margin goal of 17% as we drive portfolio enhancements and operational excellence and higher levels of cash flow generation which will be used to maximize shareholder value.

Our first quarter results are in line with our strategic direction and momentum is building throughout our business. This start gives me great confidence in continued success for the remainder of this year which we will leverage into the coming years. We have built a strong foundation at H.B. Fuller. We have a clear vision of where we are headed and we have an outstanding team of people that are experts in our business and executing our plans effectively around the globe. We had a solid quarter but more importantly, we have strong momentum and a solid path forward into our future.

This is the end of our prepared remarks, so now I look forward to answering your questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we will go ahead and take our first question from David Begleiter. Please go ahead. Your line is open.

David Begleiter

Hi, good morning.

Jim Owens

Good morning, David.

David Begleiter

Jim, Americas’ adhesives volumes, they actually look like they got worse in Q1 versus Q4. Can you give any more color as to what’s happening here and the confidence that this will turn, in the next few quarters?

Jim Owens

Yes. The year-on-year is about negative 3%, I’m pretty certain that’s what they were last year, right. So it’s minus 3% in both years actually, I think 2.7% is what were this quarter. It’s the fifth quarter, right, since we went live on SAP and moved though those issues, it’s a fifth quarter of negative performance. It’s much better than we saw in Q2 and Q3 of last year, but similar to Q4.

I think we have a pretty good view of the future based on our pipeline. Q2 we expect to still be negative, but not as negative, and Q1 we expect to see positive growth, I mean Q3, I’m sorry, Q3 we expect to see positive growth. I think you’ll see it turn positive in Q3. If you take before this SAP issue, that’s the last five quarters, the six quarters before that averaged about 3.6% volume growth. So this is a business that fundamentally has that kind of growth in a normal economic environment and I expect to see us get back to those kinds of numbers here in the starting with the second half of this year.

David Begleiter

Have there been any changes to the sales force or the management team here over the last couple of quarters to drive the improvement?

Jim Owens

Yes. So what we’ve done – I’ll give you a little more color in terms of some of the things we’ve done. As I said, fundamentally the issues we’ve had related to service issues and that really put our sales pros off of the game of offensively growing the business. But a couple of the changes we’ve made have been around getting re-focused on winning some key strategic accounts, and changing some of the incentive programs we have around some of the teams there to get really people back on the offensive of part of the game.

When we looked underneath the covers, three of our four businesses are actually showing the kind of growth we would expect. The one that’s still behind the curve a bit is a little more consumer goods oriented. So packaging and those types of businesses have been the ones that have been slower to rebound and get back on the offense. But again, based on the wins we have in the pipeline I see that coming forward here.

Operator

Thank you. And we’ll go ahead and take our next question from Dmitry Silversteyn. Please go ahead your line is open.

Dmitry Silversteyn

Good morning. Just want to confirm a couple of things: On the TONSAN contribution, it looks to be about $22 million, $23 million in the quarter. Is that correct, in terms of revenue incremental to last year, having it for one month?

Jim Owens

Again, we don’t report the details of the pro forma last year and the specifics of TONSAN. But I think the rule of thumb is, prior quarters, I would look at the pro forma of the business we bought about $25 million a quarter, Dmitry.

Dmitry Silversteyn

Right, okay. So, I guess what I’m getting at is the growth that you are seeing in Construction and EIMEA and the businesses is basically being offset by the weakness in Americas this quarter. And we’re probably going to see similar in the second quarter, but then we should see a ramp up in the second half of the year. Is that your view on the volume progression for the company overall?

Jim Owens

Yes, real good growth in Engineering Adhesives, solid growth in each one of the other segments, and negative growth in Americas. As I said, Americas will be less negative next quarter and then positive going forward, and we expect all of the segments to be growing by Q3 including the Americas.

Dmitry Silversteyn

Okay. And then just as a follow-up on pricing, you’re still sort of maintaining very, very low-single digit sort of 1% price declines, actually less than that on the corporate level, about 0.5%. Is pricing environment still fairly disciplined? We’re starting to see some basic commodity pricing starting to tick up, or is there going to be sort of an extended tail, if you will, to your price concessions even if raw materials stabilize here? Can you talk a little bit about the pricing environment, and what you see for the next couple of quarters?

Jim Owens

Yes. I think this low single-digit number is what you should expect overall from us. Now our business is different than a lot of other chemical businesses. About 13% of our raws are commodity oriented and every other one of our raws are supply demand managed in terms of the price. So when we have price movements with customers, either up or down, it often involves replacing raw material A with raw material B, and reformulating a new product that allows them to meet their needs. So I would say you’ll see some slight price erosion, but as you point out, Dmitry, in our business, low single digits is what you should expect.

Dmitry Silversteyn

Okay, thank you very much. I’ll get back in to queue.

Jim Owens

Thanks, Dmitry.

Operator

Thank you. [Operator Instructions] We’ll take our next question from Mike Harrison. Please go ahead. Your line is open.

Mike Harrison

Hi, good morning.

Jim Owens

Good morning, Mike.

Mike Harrison

Looking at the strong margin improvement in the Europe segment, it is really interesting to me that this happened in the seasonally weakest quarter. Is there a situation going on there where it’s easier to get manufacturing efficiencies and supply chain efficiencies when you’re running at lower volumes or lower utilization rates? And then, as we have to run the plants harder, we may run into some issues with throughput or with quality? Or have we truly turned a corner in that segment?

Jim Owens

Yes. I think the short answer is we’ve truly turned the corner, I mean, I think you bring up a good point. If you look at last year, Q2, Q3, Q4 all improved sequentially. So we saw a nice progression on the EBITDA margins, but typically in Q1 in our business, there’s a big dip because of the amount of volume given December. So the fact that it was this strong in Q1 is a very good sign and it speaks, as I mentioned in my prepared remarks, it speaks to the work that’s going on all up and down the P&L.

We’re growing, we’re doing good work on raw materials, manufacturing efficiencies are up. We did do this restructuring that we announced in November, so those SG&A savings are coming through. So all of those things together are driving it, and it bodes well for the rest of the year for our European business that our first quarter was this strong. So it’s good momentum, and no, to your other question, is there something new in our business that says that when we are producing more it’s going to be not as good. No, I’d say it’s going to strong throughout the year.

Mike Harrison

And then, just going back to some of the questions around the Americas’ adhesives volumes, as well as the pricing environment, in terms of winning back some of that lost business, first of all, my understanding is that it’s mostly in the packaging market. Are you needing to provide discounts in winning that back? Or can you maybe give a little bit more detail on how you’re getting back on offense? And what are some of the ways that you’re pursuing that business if you’re indeed not doing it with discounts or with lower pricing?

Jim Owens

Yes. Well, a big piece of that business is as you can imagine our multinational consumer goods company, right. So people can make beverages, food products, and the cycle of which they make their decisions is a multi-year cycle. So they’ll hook up with a supplier for two, three, five years and that’s based on the service package we bring and the products and how we drive the productivity of their business. So the fundamental thing that’s happening now is we’re winning our fair share of those opportunities which we weren’t doing in prior quarters. So, and that starts showing itself up in future steps.

So you’re right, packaging is the area where we have the biggest issue, but we can see very clearly the pipeline of opportunities and what’s happening with our fair share of wins. So that’s the change we see. You can see it in the pipeline, you can see it in the wins that have come through and it will show up in the numbers as we go forward here, the rest of the year. Did I answer your question?

Mike Harrison

Yes, it did. And if I could sneak in one more, just looking at the Construction Products business, if I look at it, the new segment format, which includes I think mostly Australia that moved in, it seems like the growth was slower under the new segment reporting than under the old segment reporting, suggesting that the Australia business or some of the foreign business that you brought in was growing much more slowly. Why is that? And is it something that you can improve as we go through the year?

Jim Owens

So the real change we made, as we said, was the Engineering Adhesives change. But when we did that, we had the opportunity to bring Construction Products together as a global platform. Fundamentally our business in Europe and our business in Australia has shown slower growth and lower margins than our North American business. So the strategic intent in pulling that together is to improve those two businesses. So you can do the math and figure out what the margins are and what the growth rates are, but they’re fundamentally weaker and I think this segment reorganization around Construction Products allows us to really attack both the margin and the growth potential of both of those segments.

And you’re right, one’s in Australia and one’s a small business in Europe. So I look at that is really an opportunity but it is – they are different businesses. We have, under the leader of that business separate P&L in each one of the three regions. And we’re pulling that together to leverage the strengths of each.

Mike Harrison

All right. Thanks very much.

Operator

Thank you. [Operator Instructions] We’ll go ahead and take our next question from Bruce Zessar. Please go ahead. Your line is open.

Bruce Zessar

Hi, thanks. I had a question for Jim Giertz. On the issue of the Argentina devaluation – in the adjusted earnings that you presented in your earnings release, you didn’t add back that loss, right?

Jim Giertz

We did not.

Bruce Zessar

Okay. So, if you add that back, then your adjusted earnings would be higher than $0.43. Do I have that right?

Jim Giertz

If we did that, but we did not. Yes.

Bruce Zessar

Okay. And then on cash flow, I noticed that the first quarter cash flow from operations was about $23 million lower than in the prior first quarter. Could you just give some color on that, since we don’t have any data on cash flow from operations yet?

Jim Giertz

Yes. Well, I think that the – well, first of, I think the first quarter of 2016 our most recent quarter [Audio Gap] (27:35)-(27:39) a normal first quarter for us. Last year, our operating cash flow was I would say, unusually high, for just various reasons. Part of it was related to the currency movements that were going on in the first quarter of last year. But also just some of the other miscellaneous cash flow items were turning positive last year. I think it was an unusually positive quarter last year, so a tough comparison and a really solid first quarter this would characterize it.

Bruce Zessar

Okay. And then, looking at fiscal 2015’s cash flow from operations that came in around $210 million, do you still think for the full year fiscal 2016 you should beat that number?

Jim Giertz

A little bit higher I think is our base plan – our operating cash flow should be just a bit higher than that.

Bruce Zessar

Okay, thank you. I have no further questions. Thanks.

Jim Owens

Thanks, Bruce.

Operator

Thank you. And we’ll go ahead and take a follow-up question from Dmitry Silversteyn. Please go ahead. Your line is open.

Dmitry Silversteyn

Yes. Just wanted to understand a little bit about the Engineer Adhesives, and you talk about this being a high-margin business, but the margin you delivered looks kind of low. Is that just because you sort of got the costs in, but not the revenues as you put this business together? And should we look for margins to ramp up meaningfully through the year? Or is it more of a 2017, 2018 before we see margins in this business really reflect the special nature of the products you’re selling through that division?

Jim Owens

Yes. We talked a bit about this at Investor Day, Dmitry. We are investing heavily in the space to grow it organically. So I think if you look at the underlying margin performance, it’s very strong. But we’ve got extra SG&A that we’re putting in this business to enable growth and that’s both on the technical side and the commercial side. So gross margins, contribution margins are high with extra SG&A driven around our growth initiatives, and we expected that over time to improve. So we said that pro forma of the business is 12%, and by 2020, this business will be at 20%. And there’s a very clear path on how we’re going to do that.

Dmitry Silversteyn

Okay. And that’s basically going to revolve around volume growth, right, to leverage the SG&A costs that you’ve put in on the business?

Jim Owens

Correct. Yes. It’s a business today that’s about $200 million and we’re going to grow it to be about a $400 million business.

Dmitry Silversteyn

Got it, and there is a high contribution margin. Okay, understand. Secondly, just on EIMEA portion of the business, you started off the year obviously very well with 3% volumetric growth. You expect that to continue, given that it’s driven by hygiene. And I’m not sure what’s going on in India that’s helping you specifically, but I’m assuming it’s something that you guys are doing rather than the economy overall.

Are there any concerns that some of your other markets in Europe may slow down? I mean, we ended 2015 on a high note in terms of expectations, but from what I’m seeing, every data point that comes out of the European market is weaker than the one before. Is there any concern that there’s a slowdown taking place there that may inhibit your ability to continue to grow volumes?

Jim Owens

Most of our growth is self driven. And as you know we struggled here because of some of the issues we’ve had. So there’s a whole energy around regaining business and winning with some of the innovations that we’ve introduced in other parts of the world. Obviously a stronger European economy helps us more than a weaker one, but most of this is within our control, certainly all of the things we’re doing in India and the emerging parts of our European business are in our control. So I’d say even with a potential European slowdown from where they were we’d expect to have positive organic growth this year in Europe.

Dmitry Silversteyn

It looks like you’re winning that business without having to sacrifice pricing because your price performance in EIMEA is actually amongst the leaders in your results here in the quarter, so that’s encouraging. Thank you very much.

Jim Owens

Thanks, Dmitry.

Operator

Thank you. And we’ll go ahead and take our next follow-up question from David Begleiter. Please go ahead. Your line is open.

David Begleiter

Thank you, Jim. What was the size of the Aussie business – of the construction business that was captured from Australia?

Jim Owens

Yes. We don’t spell out the specifics of what gets pulled from which area. We are going to give you a lot of details here over the coming weeks in terms of what’s where but exactly what’s Australia and what’s Europe isn’t something we would split out. But you can see in the numbers that the combination of those, I think was around $40 million. So the combination of Europe and Australia that increased the segment size by about $40 million per year.

David Begleiter

Okay.

Jim Owens

We’ll give you those numbers specifically, how the segment came out.

David Begleiter

Okay, thank you.

Jim Owens

Okay.

Jim Giertz

We have one more question.

Operator

We’ll go ahead and take our next question from Mike Harrison. Please go ahead. Your line is open.

Mike Harrison

Hey, just wanted to sneak in one more. Thanks for taking it. Just in terms of the Q1 earnings number and your guidance, I was wondering if you could tell us where the $0.43 shook out relative to your expectations. Would we be right to conclude that at this point you have line of sight on the upper half of your guidance range? And maybe talk a little bit about what kept you from revising the guidance range higher?

Jim Giertz

Yes. So Mike, this is Jim G. So the results in our first quarter were slightly better than our internal plan. But the difference was less than the street consensus, if that’s what we compare it to. So we were a little bit above our plan and some of the things, some of the unusual items like the FX losses that we had in Argentina, we knew about most of those when we set our guidance for the year and when we communicated, because that happened in December. So a lot of these things have already been incorporated into our guidance. So I think that – I think we just feel like we got a good start to our plan and we’re still working the same plan and that’s why we left the guidance the way it is.

Jim Owens

Yes, it’s one quarter, right? So it’s a good quarter and we’ll look to put four of them in a row.

Mike Harrison

All right. Thanks very much.

Jim Owens

Okay, thanks everyone for your time today and for your continued support of our business and our company and our strategy. Thank you.

Operator

Thank you. Ladies and gentlemen, this does conclude today’s H.B. Fuller first quarter 2016 investor conference call. You may now disconnect.

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