JPMorgan Downgrades HB Fuller On Volume Headwinds Due To Global Economic Slowdown

With the global economy slowing, volume growth at HB Fuller Co (NYSE: FUL) has decelerated and could remain sluggish through the rest of 2019, according to JPMorgan.

The Analyst

JPMorgan’s Jeffrey Zekauskas downgraded HB Fuller from Overweight to Neutral and maintained a $51 price target. 

The Thesis

The adhesives manufacturer is witnessing volume headwinds from a slowing global economy, particularly in China, Europe and the U.S., Zekauskas said in the Tuesday downgrade note. 

HB Fuller reported first-quarter adjusted EBITDA and EPS of $83 million and 34 cents, respectively, missing the consensus expectations of $84 million and 35 cents. The miss was mainly due to lower-than-expected volumes, the analyst said. 

The company faced sluggish demand in the U.S. housing market and for durable assembly products in Europe as well as parts of Asia, Zekauskas said. Automotive end-market demand for engineering adhesives has also slowed, he said. 

Despite the volume headwinds, HB Fuller achieved 90bps expansion in margins to 27% due to price hikes and and a mix shift toward higher-margin businesses, the analyst said. 

JPMorgan reduced the EBITDA and EPS estimates for 2019 from $471 million to $465 million and from $3.35 to $3.20, respectively.

Zekauskas said there is “better opportunity” in semi-commodity peers like Eastman Chemical Company (NYSE: EMN) and small-to-mid-cap peers such as Cabot Corp (NYSE: CBT) or Ashland Global Holdings Inc (NYSE: ASH), as these offer “a higher free cash flow yield, lower leverage or lower EV/EBITDA multiples.”

Price Action

HB Fuller shares were down 2.17 percent at $49.69 at the time of publication Tuesday. 

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