H.B. Fuller Is Prepped For A Strong FY2022 We got interested in H.B. Fuller (NYSE: FUL) early in 2021 because it looked like it could be the one stock to rule them all in 2021. The company manufacturers...

The "One Stock" H.B. Fuller Looks Even Better Than Ever

We got interested in H.B. Fuller (NYSE: FUL) early in 2021 because it looked like it could be the one stock to rule them all in 2021. The company manufacturers specialty chemicals and specifically adhesives, glues, and coatings for a wide range of industries including packaging, F&B, OEM automotive, and multitudes of manufacturing processes. The company's business is supported by strong demand across all channels with only one hiccup to speak of. The global supply chain and inflationary issues plaguing the market cut into margins and earnings last year but there is good news, at least for H.B. Fuller and its investors. The company has been able to successfully raise prices across its product line, widen margins, and grow earnings double-digits relative to last year's performance. In our view, there is a risk for the economy in 2022 but H.B. Fuller is well-positioned for whatever comes.

H.B. Fuller Has Mixed Quarter, Earnings Rise

H.B. Fuller had a mixed quarter in regards to the analyst's estimates but that is about the worst thing we can say about the report. The company brought in $897.42 million in net revenue which is only as-expected versus the Marketbeat.com consensus estimate. The good news, the news we view as most important, is that margins widened and earnings came in above the consensus. The revenue strength was driven by double-digit gains in 3 of the 4 operating segments and aided by roughly $100 million worth of pricing increases. On an organic basis, ex-FX, revenue grew 14.9% and is up more than 20% on a two-year stack.

Moving down to the margin and earnings, the company's gross margin improved 340 basis points on revenue leverage and pricing increases to help drive a 9% increase in EBITDA. On the bottom line, the GAAP EPS of $1.18 is up $0.41 from last year or 57% while the adjusted $1.09 grew about 2.5% from last year and beat the Marketbeat.com consensus estimate by a penny.

Looking forward, the company is guiding for strength in 2022 on both the top and bottom lines. The company is looking for revenue growth in the range of 10% to 15% with EPS up 15% to 22%. This will be driven by organic demand and pricing actions that are still underway. This puts revenue near $3.55 billion at the low end of the range compared to the $3.56 Marketbeat.com consensus estimate. The takeaway here is that revenue will most likely exceed consensus and earnings will exceed consensus unless the analysts start upping their targets. We think the analysts will start upping their targets.

A Dividend Increase For H.B. Fuller?

H.B. Fuller is a very safe dividend payer with a yield near 0.9%. The yield isn't all that exciting but it is on top of sustained growth and comes with a high probability for distribution increases. The company has technically only increased for 3 consecutive years but that is because of a single quarter in which no payment was made. Aside from that, the company has a multi-decade history of regular and semi-regular increases to go along with stock splits and share repurchases. In our view, the company's aggressive debt reduction (leverage down to 3.3X vs 4.1X at the end of last year) and strong balance sheet point not only to an increase but to an increase that could be 10% or more. The next increase is expected by the middle of calendar 2022.

The Technical Outlook: H.B. Fuller Is In An Uptrend

Shares of H.B. Fuller have been in an uptrend since the 2020 COVID bottom and will most likely trend higher. The caveat is that in the near term, shares might move lower before they move higher. If the post-release action can not hold support at the $75 level we see this stock moving down to the $70 level and maybe lower. If support holds at or near the $75 level we see the stock consolidating at current levels before extending the rally later in the year.