Maximillian Marcy - Senior Manager, Treasury and IR Jim Owens - President and CEO Jim Giertz - EVP and CFO.

Dmitry Silversteyn - Longbow Research Ram Sivalingam - Deutsche Bank Rosemarie Morbelli - Gabelli & Company Mike Sison - KeyBanc Steve Schwartz - First Analysis Christopher Butler - Sidoti & Company.

Good morning and welcome to the H.B. Fuller First Quarter 2014 Investor Conference Call. This event has been scheduled for one hour. Following today's presentation there will be a formal Question-and-Answer session and instructions will be given at that time, should you wish to ask a question. Management in attendance on today's call includes Mr.

Jim Owens, President and Chief Executive Officer; Mr. Jim Giertz, Executive Vice President and Chief Financial Officer; and Mr. Maximillian Marcy, Senior Manager, Treasury and Investor Relations. At this time, I would like to turn the meeting over to Mr. Maximillian Marcy. Sir, you may begin..

Thank you, Jenifer, and welcome, everyone. Today's conference call is being webcast live and will also be archived on our website for future listening.

Before beginning, I would like to inform everyone that certain matters discussed during this call will include forward-looking statements, as that term is defined under the Private Securities Litigation Reform Act of 1995, since such statements reflect our current expectations, actual results may differ.

In addition, during today's conference call, we will be discussing certain non-GAAP financial measures specifically, adjusted earnings per diluted share; segment operating income; and earnings before interest expense, taxes, depreciation expense and amortization expense or EBITDA.

Adjusted diluted earnings per share are defined in the quarter reported, typically excluding the impact of special charges related to the ongoing business integration project. Segment operating income is defined as gross profit less SG&A expense. And EBITDA is defined as gross profit less SG&A expense plus depreciation and amortization expense.

All of these non-GAAP measures discussed today should not be construed as an alternative to reported results determined in accordance with GAAP. We believe that the discussion of these measures is useful to investors, because it assists in understanding our operating performance and operating segments, as well as the comparability of results.

The non-GAAP information discussed today may not be consistent with methodologies used by other companies. All non-GAAP information is reconciled with reported GAAP results in the last pages of our presentation.

For more information, please refer to our recent press release, and annual report for the year ended November 30, 2013 on Form 10-K filed with the Securities and Exchange Commission. These documents are available on our website at www.hbfuller.com in the Investor Relations section. I will now turn the call over to our President and CEO, Jim Owens..

Thanks, Max, and thank you, everyone, for joining us today. Sorry for the frog here in my voice, I feel great, but it sounds a bit rough. Along a strong 2013, we set an aggressive plan for 2014. I’m happy to report that after one quarter, we're on track to deliver our 2014 commitments and our 2015 strategic plan.

2014 is the fourth year of return of our current transformation of five-year plan. Our key long-term financial objectives have remained unchanged since we launched the plan at the beginning of 2011.

Achieve organic growth between 5% and 8% per annum, increase our EBITDA margin to 15% by 2015, grow EPS by 15% per annum, and increase return on invested capital to 15% by 2015. The primary topic at this conference call is the financial results of the first quarter. We feel it is important to reiterate these goals and our progress on a regular basis.

Delivering these long-term metrics is the key focus of our leadership team and the business decisions we make are focused on achieving these goals. And we’re just striving to do more than just hit our financial metrics for growth and margin expansion.

We are also building a new infrastructure, one that will sustain our growth and our profitability well into the future. For this year we have three primary goals. First, get the revenue growth momentum back on track across all geographies and segments of our business.

Second, successfully complete the business integration project and deliver the key milestones within project one. And third, maintain our discipline in managing our contribution margins and operating expenses to support our margin improvement initiatives. In the first quarter, we largely achieved our goals with strong performance in most areas.

I will take a few minutes now to provide a bit more detail on each of these three focussed areas. On the revenue front we grew volume by 2%, a bit below our internal plans for the quarter. We had several notable areas of strength.

Our construction products business posted organic growth of about 17% driven by launching new business through the large channels and momentum carried forward from last year. Our Asia-Pacific region posted organic growth of about 11%, again, driven by strong results in China and improving performance on Australia.

In our EIMEA segment organic revenue declined by about 3% in line with our internal plans. The region continues to be hampered by generally flat end market conditions and supply chain inefficiencies due to the business integration project.

In addition, several of the emerging markets that’d had in prior quarters generated significant growth, have slowed a bit due to various economic and political events in the region. We expect our revenue performance in EIMEA to improve quarter-by-quarter as we progress through the year.

In the Americas region, organic growth was less than 2%, falling short of our internal plans. Our first quarter was always difficult to evaluate since it includes the months of December, January and February; a period of extended holidays, customer year ends, and unpredictable weather in North America.

Though the results in the Americas were disappointed, our revenue performance improved as the quarter progressed. And we have a strong pipeline of new business to support better performance in the second quarter and beyond.

So, with respect to our growth objectives, overall we delivered a mix performance in the first quarter, strong expected performance in three of our segments with a bit of weakness in our Americas segment. We have a clear path toward better results as the year goes along.

Our second area of focus delivery is delivering on two key projects, the business integration and Project ONE. The business integration project moved ahead according to the revised schedule and is still on track to be substantially completed by the end of the third quarter this year.

Starting with North America, the final planned production facility closure is now complete and the Americas portion of the business integration is now finished. Moving onto China, we are in full swing with our integration plans.

We anticipate the capital projects to be done in the summer and all products transitioned and two facilities effectively closed by the end of the third quarter. The benefits of this integration should be fully evident in our fourth quarter results.

Last is our European transformation plan, our work streams continue to progress although the project has been delayed into the summer, we made a great progress this quarter, about 60% of total product volume has been transitioned to the receiving facility, nearly 40% of pre-integration SKUs have been eliminated.

Recall that the original goal was a 45% reduction in SKUs, so we are nearly complete. Also we have maintained the cost synergies achieved from our sourcing initiatives despite challenging market conditions for few key raw materials and this allowed us to achieve our contribution margin goals for the project.

The final push for this project is to complete the production facility investment programs on a revised timeline and complete the closure of three large facilities, one each in Austria, Italy and Germany.

Completing this phase of the project will eliminate a significant amount of manufacturing expense and drive our gross margin towards the target level for the region.

We still expect to exit the year at a 14% EBITDA margin in the EIMEA operating segment and feel confident that the results we committed to back in 2011 are achievable and now in close view.

Now just a few words about Project ONE, there was a great deal of activity in this quarter as we completed the build phase, progressed through most of the integration testing plans, have launched intensive training programs to support our first go live event which will occur before we have our next quarterly conference call.

Overall, we are very pleased with the simple and standard configuration we have designed and built and we are confident in our ability to implement this system in North America with minimal business disruption. Three months from now, we should have some more tangible results to share with you. Our third area of focus is margin and cost discipline.

With respect to price, raw material and contribution margin management, we are delivering our expected results and maintaining synergies at the level we have targeted to deliver for our long-term profitability goals. The raw material cost environment remains subdued overall but we have experienced some price escalation for certain materials.

Our teams are managing these issues effectively and delivering the margin expectations embedded in our plan. Our operating expenses are also well controlled. Our spending actually declined about 1% versus last year and also declined as a percentage of net revenue.

Our ability to effectively manage our margins and our discretionary spending has been demonstrated effectively over the past several years and we expect to maintain this discipline going forward.

Although growth was slower than expected, strong cost management led to a growth in adjusted operating earnings of 5% and an uptick in our adjusted EBITDA margins versus the prior year. We are very pleased with our ability to adapt and deliver in the quarter as we deal with major internal projects and numerous external factors.

We deliver the expected level of performance in the first quarter and we expect another strong year in 2014. Our track record of meeting commitments gives us confidence that the 2014 plan will be achieved. With that I will now turn the call over to Jim Giertz..

Okay. Thanks, Jim. I will start by providing a bit more color on the first quarter results. Jim Owens already provided good summary of our revenue performance in the quarter, so I will skip over that. Our adjusted gross profit margin in the first quarter was essentially flat versus the results in a prior year’s first quarter.

As we have mentioned numerous times in the past, we don’t anticipate any significant change in our gross profit margin until we complete the business integration project in Europe.

Similar to our experience in the fourth quarter, we had some manufacturing cost in the quarter related to inefficiencies in the European plants scheduled for closure that could not be classified as special charges. We isolated the total of $1.3 million of these costs and eliminated them from our adjusted EPS numbers for the quarter.

There were other manufacturing inefficiencies related to the business integration that were not eliminated from our adjusted results.

Eliminating these costs and also eliminating the excess manufacturing overhead associated with the surplus production facilities will generate the anticipated gross margin boost when the business integration project is complete.

Our contribution margin in the quarter was essentially flat relative to previous quarter and in line with our internal expectation. Selling, general and administrative expense declined 1% in the first quarter or 40 basis points as a percentage of net revenue versus the prior year.

We continue to manage our discretionary spending to ensure we deliver our expected profitability. Now a couple of other points relative to our operating margins in the first quarter. Our Construction Products segment generated significant volume growth but operating income declined year-over-year.

This result was driven primarily by the start-up cost associated with the newly initiated program with Menards and to a lesser extent contemporary margin compression in our base business as product price reductions were offered in advance of cost reduction initiatives which are currently in process to restore margins.

Both of these negative factors should be neutralized in the second quarter and beyond. Also our Asia Pacific operating segment posted significant volume increase without a corresponding increase in operating profit.

This margin compression is expected to do improve as the year progresses as our mix of business tilts towards better margin segments and margin management initiatives take full effect.

The region was also hampered by business integration cost and higher manufacturing cost related to the start-up of new production facilities to support growth in the electronic segment.

Adjusted operating profit in the first quarter increased 5% compared to last year, adjusted earnings per share were flat year-over-year primarily due to higher foreign exchange translation losses in the current year and also a higher tax rate compared to the unusually lower rate experienced in the first quarter of last year.

The rate was low last year due to positive discreet items primarily driven by the retroactive enactment of the R&D tax credit in the United States. On a sequential basis, net debt increased by about $80 million due to normal seasonal cash flow requirements and also to support capital spending related to the business integration project.

Our inventory build was higher this year versus the prior year as it build safety stock ahead of scheduled product transfers in facility closers.

All in cash flow from operations was negative $17 million in the quarter in line with normal seasonal pattern and slightly worse than last year primarily as a result of higher special charges in the quarter. Now, I’ll turn briefly to our guidance for 2014. We are maintaining our diluted EPS guidance range of between $3 and $3.15 per share.

Revenue growth should trend higher over the four quarters of the year as the inefficiency is related to the business integration project to reduce and major phases of the project are completed. Our margins will improve in the second half of the year as more that benefits for the business integration are realized.

Our total capital expenditures will remain in a relatively high level in 2014. Our estimate remains at about a $105 million.

Our core tax rate excluding the impact of discreet items is still expected to be around 30% but there may be a slight upside to that number as was the case in the first quarter depending on the mix of the business as the year progresses. And with that I’ll turn the call back to Jim Owens to wrap this up..

Thanks Jim, sorry for the mic problem. We’re at the first quarter now in the books and we feel good about our performance and meeting our profitability expectations despite slightly lower revenue during the winter months December, January and February.

Organic growth will improve as the year progress, double digit growth in two of our operating segments were strong indicators of our growth capability. This is an important year for H.B. Fuller as we finalize the business integration activities and are refocusing our assets on long term organic growth development.

Our teams continue to deliver profit growth while implementing important fundamental improvements in our business. It has been a fruitful yet busy two years as we will continually improve business performance while navigating the complex business integration. And today, we’re nearly to the end of the line on that effort.

We remain committed to delivering the benefits we communicated in conjunction with the business transformation.

We still expect to deliver 14% EBITDA margin at EIMEA during the fourth quarter which will be a solid indication that we are garnering the promised results and our five year strategic plan to deliver 15% EBITDA margin is now within our sites. I’m proud of our current results and very excited about the future we are creating with this Company.

Thank you for your interest in H.B. Fuller and for joining us on today’s call. Now, I’d like to open the call up for your questions..

(Operator Instructions). And our first question comes from Mike [indiscernible]..

Hi good morning, it’s actually Mike [indiscernible]..

Jim Owens:.

Hi Mike, welcome..

Thanks. So construction products saw some solid top line growth in the quarter.

Did weather impact you at all and if so, to what extend do you expect to recoup some lost sales in upcoming quarters?.

I would say the big driver of course was the new business win, so that drove it. We expect to actually have little more revenue this quarter in construction products and weather certainly was a factor and I think it was all across lot of the North American economy. People honking down a little bit and deliveries to stores were a little difficult.

So certainly was a factor that results probably would have been better if it wasn’t as severe in North America..

And looking over to Europe now, to what extent are you able to offset some of the headwinds you’re seeing there to drive margin expansion or is that solely tied to the elimination of some of the supply chain efficiencies?.

Yes, Mike, our plan in Europe on margin improvement is really around this transformation projects. So a lot of the work that -- so we’re investing a lot today and we have a lot of duplicate cost as we’re running all the new plant and the old plants at the same time.

So we have a whole set of inefficiencies that are in our system and then we have a whole set of fixed costs that will go away as we go through the second half of the year. So the drive on our margin improvement is driven mostly around gross margin and I think when you look at the results, our team has delivered in Europe.

It’s pretty remarkable considering the drag they have had on revenue. We do expect revenue to go positive in the second half of the year and that’s going to be -- that’s going to of course enhance and help the work they are doing. But they’re doing nice margin improvement even with that headwind.

Does that answer your question Mike?.

Yes, it did. I guess if I can just squeeze one more in there, just to follow up on that.

Are you still confident you can achieve your target margins without much volume improvement?.

Yes, I think we’re very clear, I think the benchmark that we laid out last year was fourth quarter EBITDA margin in Europe. This year we’re doing the same because I think we want people to understand what they can expect. And 14% EBITDA margin in Q4 is a clear expectation.

And in terms of what’s going to happen to volume that we’ll have less negative in Q2 and it’ll go positive in Q3 and Q4 because we won’t have this project here hampering our ability to grow.

But European success is going to be driven by the transformation project and some increase in volume in the second half of the year but it’s mostly the transformation that’s going to drive it..

Thank you and our next caller is Dmitry Silversteyn from Longbow Research..

Good morning guys, couple of questions if I may, first of all to follow up on the previous question on the construction side of the business you could have very good growth in the backend of 2013 and obviously another step up in 2014 with this Menards.

How much of the first quarter volumes should we be thinking about for the balance of the year versus perhaps some channel fill or store fill that you’re referring to that took place.

Is the business win big enough to sort of sustain double-digit volume growth for the year or was there some channel fill involved and we should see this business moderate especially as we get into the second half of the year and going against very strong comps there as well..

We don’t give specific guidance on each segment, but I would say stronger than the full year number in Q1 but double-digit growth for the year is what I would expect based on our plans today.

And I’ve got Jim checking on that, anything you want to add on that Jim?.

No I think that we’ve said that we expect our construction products business for the full year to be up something just short of 20%. So I think there were some offsets in the first quarter, we loaded up Menards but we also had the weather issue. So I think you’ll see a pretty steady performance across the balance of the year..

So the first quarter volume was not sort of outsized in terms of the improvement versus what you expect for the rest of the year it sounds like..

Again I think….

If you’re looking for 20% upside?.

Yes, so again I don’t think it was significant, the channel loading and then also the channel filling. And then also as I said I think it was offset somewhat by the weather..

Very good, and then secondly on the European part of the business, what are you seeing now that sort of we got into 2014 and there has been some expectations that things are going to get a little bit better.

From the market perspective sort of distancing yourself if you will, from your own integration and SKU reduction issues, but if you look at the overall market dynamics, are they a getting a little bit stronger for you? Is this going to be a tailwind that’s going to get stronger for the rest of the year or are you still fairly cautious on Europe?.

And it is tough, because you know we’re making a lot of changes in the business I mentioned the 45% SKU reductions, some other things, to really get good visibility but my view when I dig through to that is Europe is certainly not a tailwind but maybe less of a headwind than in the past.

But the factor we have of course is that you have got a little bit of a risk and slowdown in places like Turkey and potentially in the Ukraine and Russia.

So I think the benefits from a market standpoint we’re going to see with Europe not being quite as bad for Europe we do have less positive environment in the Middle East and potentially in Ukraine and Russia..

And our next caller comes from David Begleiter from Deutsche Bank..

Hi. Good morning. This is Ram Sivalingam sitting in for Dave..

Jim Owens:.

Good morning Ram..

Hi good morning. Quick question on volumes, I mean I understand Q1 encompasses December, Jan, and Feb, that’s impacted by holidays and weather potentially, but this deceleration from 5.7% to 2.1% in Americas Adhesives.

Is it possible to quantify the impact weather had there either on a percentage basis or a dollar basis?.

Jim Owens:.

Yes, it’s very difficult to quantify, there is certain variability I think as you pointed out we had 5.7% volume growth. That was a nice uptick from where we were in Q3. So when we look forward to the rest of the year and what we see in our business, we see more normal levels of volume growth.

So I really -- a combination of things that happen in North American have us looking at Q1 as the exception here and a sizeable uptick here in Q2.

But to quantify exactly how that works, I mean certain customers were down because they couldn’t get product from a delivery standpoint, certain customers shutdown their factories for various days in certain parts of the country and then in some of these fast moving and durable assembly areas people are hunkered down in American and not buying things, not buying physical goods.

So few of those factors that are out there are definitely were impacting it, quantifying, it’s tough. We don’t have a number, do we? Yes, that would be my summary around..

Okay, perfect. That’s helpful. Just another quick one, can you provide any sort of nuance on pricing by region Europe, North American, Asia. I know there was some variability last quarter..

Jim Owens:.

Yes, we have the PBM in the chart. What you’ll see is that our and I’d mentioned this in last quarter’s call pricing would uptick. I think Asia was actually negative last quarter and positive this quarter so we had -- we've indicated that there was some raw material moves and we needed to get on top of those from a pricing standpoint.

We probably have to step behind where we need to be there but that’s where you see the positive pricing move there. EIMEA is still some repositioning work as we change SKUs and do some work there.

Jim mentioned the construction product story where we’ve done some readjusting on certain product lines and then the Americas Adhesives, that’s a very slight variation we had a year in 2013 where raw materials slightly downtick so the fact that we were down 0.6 in price is modest.

So I would say generally a benign environment with the exception of Asia where we’ve had to make some sizeable moves because of certain raw materials..

Got it, thank you very much..

And next we have Rosemarie Morbelli with Gabelli & Company..

Good morning, all..

Jim Owens:.

Good morning Rosemarie..

I was wondering if you could give us a little more on what you did on construction. If I understood properly you lowered your price in order to get volume and you did that because you think that you can lower your cost.

Could you give us about a feel as to what you actually did there and what we should expect in terms of margin, just the relationship between cost versus pricing?.

Jim Owens:.

And so I’ll give a go and I’ll let Jim add more color as we need to. I think the big story in construction products is growth.

So I think when you -- we've got growth in the underlying market, we’re winning share with customers with new product improvements that are gaining momentum and of course we said some success in this launch channel is a driver here in the quarter. So those are the three factors there.

And I think the question around price is simply a matter of on certain parts of our product line we’re adjusting both the cost basis and the price basis and that’s really not a volume driven initiative, it’s part of the normal course of business that you see in the numbers this quarter.

But not a sizeable change in our historic margins, the changes you see this quarter in our margins are all that start-up costs in our in the large channel business..

Okay, that’s what I was wondering why has the margin declined so much..

Jim Owens:.

Yes. And there is a sizeable start-up cost both in terms of how we have to deliver the product, other things we need to do in terms of restocking and the cost associated with filling that pipeline. So that’s a one quarter event in the margins..

Okay, and if I may ask you a second question, in EIMEA what is the percentage of those revenues going into Russia, Ukraine, Turkey where the political situation is affecting them?.

Jim Owens:.

Russia is less than -- Russia, Ukraine is less than 5% of our sales..

Of total sales or EIMEA sales?.

Jim Owens:.

Of regional sales, less than 5% of our regional sales, so one of the things geopolitically interestingly we’ve actually talked strategically our investments as you've seen we’ve made some in Latin American, we have a bullish view of Indonesia and parts of China and for strategic reasons we opted to hold back on Russian investment.

So we saw potential area for the long term but we’re glad we’re not more invested in Russia and Ukraine right now..

Okay. And just lastly if I may, a very quick one.

Are you still making products in Finland and shipping them to mainland Europe? And if yes, when is this going to be over?.

Jim Owens:.

Are we still making product where we are? I didn’t hear the question..

In Finland, last quarter, you had higher manufacturing costs because you were producing in Finland and then shipping to mainland Europe.

Is that still going on? And if it is not, are there any other similar issues?.

Jim Owens:.

Yes, we’re still doing a lot than efficiencies in Europe, is glad you point that point, we didn’t talk about it at all here but I know we’re shipping a lot of -- we’re marking product in plants we shouldn’t be making out, shipping it across the region.

And there is other inefficiencies in the system, so those are costs that that we're incurring ongoing in our P&L this quarter and we’ll some again next quarter.

Jim, do you want to give any more view on that?.

Jim Giertz :.

So definitely Rosemarie, those things we talked about last quarter happening this quarter and we’ll continue into second, but not third..

Okay, not the third. Okay, thank you..

And our next question comes from Mike Sison from KeyBanc..

In terms of America adhesives, I suspect that the commentary that we will be back at more normal volumes would be kind of like that low-to-mid single digits for the rest of the year.

And if so, can you maybe bifurcate between the different pockets in adhesives there, packaging, hygiene, durable assembly, where you expect to see the growth from?.

Jim Owens:.

So even in this quarter we’re doing well in our hygiene business and we expect that to continue going forward. Durable assembly is positive. Our automotive business is positive in the Americas. Packaging is the one we expect to see an uptick as we go forward.

It’s been a bit of a drag year this first quarter and a combination of some customer wins and some change in the market dynamics.

So I would say those are the areas we see some change in packaging from negative to slightly positive, and then strength and durable assembly, some automotive wins on our small automotive business and good progress in our hygiene business..

Okay. So, I know March isn’t over.

So you're actually seeing the growth now in terms of relative to what you saw in the February quarter?.

Yes, we usually don’t talk about that, but yes. We wouldn’t be as bullish I would say about Q2 and if we want -- we watch orders everyday but I’m not going to predict a quarter based on the first few weeks.

But certainly I think I mentioned as the quarter went on in the Americas, it got better and certainly we’re seeing that continue here in March with strength this quarter..

Great. Jim, you talked about, I think several times, the confidence in hitting the 15% EBITDA margin by 2015.

When you think about getting there from where you’re at now, how much help do you need from the economy, if any, or can you basically get there on what you’re doing on your own?.

We’re not counting on a lot of economic help to get us there, Mike. I think the big driver and you’ve got the models right, the big driver you look it up 2014 exuberated 14% in EIMEA and then the math becomes a small step to get the 15% overall as we deliver what we’re expecting in construction products in North America.

There is a little drag in margins in Asia but we’ve got a few things going on to fix that. So I think it’s all about that 14% EBITDA margin, but this fourth quarter this year and then the 15% is right within your sights beyond that. And then it’s built on some economic model that we’re going to get some tailwind..

Right.

And then finally, Project ONE, any thoughts on maybe what the benefits can be longer-term? I know it’s very early in implementation, but just any update there?.

Yes, so, I just say that we and I think we were asked this question last quarter and I'll let Jim talk a little bit more about it. But our goal is to embed goes on the backend of the project, so ’16, ’17, and ’18 we will have a number on that Mike, but I think any preliminary numbers we pull together it’ll be a little too early to commit to those.

But we definitely see a return on the investment would be my short answer and we expect certainly within the next 12 months probably 12 months from now to come up with some specifics related to project ONE.

Jim, do you want to add something?.

Jim Giertz :.

No, I think that’s well said and then obviously all of our attention right now is on implementing the project in the least disruptive manner possible. So that’s all of our focus right now and so far we’ve been successful with that..

And our next question comes from Steve Schwartz from First Analysis..

Just on the SG&A expense line, so you noted the reduction in absolute dollars relative to sales, though it was consistent with where you typically are.

What can we expect for the rest of the year? Will there be a dollar make-up for the reduction in the first quarter or will you hold it the same relative percentage to sales?.

So I'll say, well first of all I think in Q1 we are 40 basis points below last, same period last year. But let me let Jim give you some feedback on what to expect for the whole year..

Yes, Steve, we’ve consistently said that we try to grow our SG&A at a rate lower than our revenue growth and that’s still the plan for this year. And I think when you model that out we might see some modest increases in our SG&A as we go forward through the year.

But the increase will be less than the revenue increase and so we should overall see a thinning of our SG&A as percentage of sales relative to prior year..

When you were giving your revenue guidance, you have the longer-term range of 5% to 8%. You've said that you expect to be at the lower end of that range. That is all-encompassing, right? That 5% to 8% is not just organic.

Is that correct?.

The guidance we gave for this year was, as you say, the low end, and that was everything but FX for this year..

Okay and you are still getting a little bit of contribution from Plexbond, right?.

Yes, two more quarters, that’s a small acquisition..

Okay. And then just as my follow up, can you give us a little more color on the electronics initiative….

Sorry, one more quarter of benefit out of Plex, yes, sorry..

So just into the second quarter here?.

Second quarter, yes..

Okay. And then on the electronics initiative, I think you mentioned there was a small impact to operating margin on your initiatives there.

Can you give us a little more color on what you've got going on?.

Yes, so most of that revenue is in Asia, most of the expenses in Asia, and certainly today we're investing more than we're getting back. But we are seeing some of the revenue and we’re definitely seeing some of the expense come through in our Asia performance. We do have some good success there; we expect that to help us as the year goes on.

We think it’s going to help our margins a bit in our Asian segment as the investments we have made over the last couple of years start gaining some traction..

The Engine acquisition is in -- that was in North American business?.

Yes, that’s in North America. And I thing as we identified that acquisition, it was an enabler. So what we have is we have an ongoing business there, that’s -- it's got some growth in 2014, but really what we purchased there was a lot of confidence in capability, so that we could drive success into the electronics business.

So that business is performing to plan this year, there is some slight growth but the real heavier investment and the heavier revenue growth will come in Asia..

And they are working in similar areas, is that correct?.

So they work together, so they….

They do work together, okay?.

Oh yes, the Engine team is our Centre of applications expertise on certain key technologies and that’s enabling us to qualify and develop technology that’s enabling us to grow around the world..

And our next caller is Christopher Butler, with Sidoti & Company..

Good morning guys. I was hoping you might be able to talk a little bit more about the North American adhesives and the pricing that declined there. You talked about the construction products.

But how do you see prices in raw materials in conjunction as we move into the second and third quarters?.

So that 0.6% reduction in price, that’s a year-over-year number. So throughout 2013, there was slight decline in raw materials and eventually that finds its way through our pricing with our customers, so I would say that’s a combination of these varies market factors throughout the last year.

Going forward, I think we see more upward pressure than downward this year, so, and I could see that number going slightly positive as the year goes on. But you know I think from an overall business standpoint, I don’t see this being a sizable change. And certainly from a margin standpoint, it has not any impact.

Because as we talked about before, Chris, our plan is to certainly manage our contribution margins in line with what happens to raw materials in our core business..

And as we look to the second quarter, the challenges with weather from this non-ending winter don't seem to -- haven't really factored into your conversation and it sounds like the start-up cost from Leonards was a first-quarter issue as well; so nothing lingering into the second quarter from any of those?.

Certainly not from those issues. I think we expect businesses as normal in North America and the momentum be built in our construction products business, which had a good year, last year; should grow going into 2014.

On the construction products we are very bullish, and on Americas business we see certainly positive, a lot of positive progress versus where we were in Q1..

And just finally, what was the impact of FX on operating income out of Asia-Pacific? Do you have that number?.

I will let Jim give you a little bit of that, so because….

I don’t know that number.

The FX impact on operating income in Asia?.

Yes, and for a specific number, I mean the big impact of course was Australia; because Australia and New Zealand, the Australian dollar weakened. And that was the biggest impact on our business, which is a sizable piece. But maybe Jim can give you some more specifics..

Well, again I just have to pass on the question, just as it relates to the operating income and the reason I just don’t know the number on the top of my head, so I will have to pass on that one..

I guess I was just getting at year-over-year margin decline in Asia and at least some of that if not all of that could be attributed to FX year-over-year..

Jim Giertz :.

Okay. Well, qualitatively I mean we still see margin pressure in Australia because of the devaluation of the Australian dollar has increased our cost and we haven’t fully recovered them in price. So, I think that picture, I can’t quantify that, I mean I probably could but I don’t have the numbers in front of me.

So, that’s clearly an issue for us and I think the other issue was in China where some of the raw material cost has gone up and we haven’t fully recovered those in price yet as Jim mentioned earlier. Those are the two major factors I believe..

Thank you. (Operator Instructions) We do have a follow-up question coming from Dmitry Silversteyn from Longbow Research..

Yes, just a couple of follow-ups if I may. Good morning again. On the European pricing component of sales and we have seen the trend down a little bit and right now it’s below 1%, I would have thought that you would still be benefiting from sort of the SKU reduction in the out-mixing of [indiscernible] customers.

Are there some offsets there or are we just simply -- have you guys just gotten to the end of that process and going forward we should see sort of a more normal pricing behaviour in the region?.

Jim Owens:.

Yes, I would say any kind of mix effect doesn’t show up in the price right, it shows up netted out in volume, so this is specific price on products that were existed before and after the transformation. So, the mix effect doesn’t show up there as much but I think you are right Dmitry; we are on the back end of this.

We certainly have another quarter as I said we were going to reduce 45% of our SKUs, 40% are gone other 5% will happen in the next quarter or two.

So, that number and then keep in mind there was also some other slight raw material deflationary environment there, so we have that factor going into the business as well but that number will shrink to, closer to zero I think as the year goes on. But I would say that other factors that happened in the market that may tick it up.

There is a vinyl acetate shortage, temporary shortage right now that’s going to have an uptick on our pricing and that will certainly impact in a positive way our price in EIMEA in this upcoming quarter..

Got it, okay. You mentioned that Plexbond is going to be a benefit for another quarter in terms of your revenue but you didn’t highlight it as a contributor in 2014 first quarter results.

So, am I assuming it was de minimis in the winter months or was that part of your volume?.

Jim Owens:.

:.

:.

Okay..

Pulling out specific data on a deal like that provides all kinds of disclosure and details that we, just as you point out, put in the volume..

Got it, okay. That’s fine..

I would say it is not a huge seasonal element to that business if that’s your question..

Okay, okay..

It’s relatively consistent throughout the year..

Right, right, okay. So, there is no, I mean I know some electronic business have sort of strong second half of the year coming out of the Chinese holiday and getting into the sort of the back to school and the Christmas shopping season that’s not the sort of the behaviour of this business..

Plex is the FlexPak business in Brazil, that’s the number there..

Okay..

And no, there is no seasonal piece to that one..

And we have a follow-up question from Rosemarie Morbelli from Gabelli & Company..

Thanks for taking my question. I am looking at your organic growth, so 2% in the first quarter, you expect to be at about 5% for the full year which really requires quite a bit of growth in the next three quarters.

And that goal of 5% to 8% over the long-term, when we are not in an inflationary environment, has always seem to be a little high to me but I could be wrong, I hope I am wrong. What needs to happen for you to reach that 5% for the full year and eventually the 8% over time, I am assuming that organic also excludes acquisition or maybe it doesn’t.

Can you give us a little more flavour on this?.

Jim Owens:.

Yes, so I think let me comment specifically on this year. Two big things are going to happen that will change the dynamic from the 2%. Europe will go from negative 3% to a slightly negative number to a positive and strong positive in Q3 and Q4.

So, you will see an uptick along the way and then North America will be more in line with the kind of numbers we saw in Q4 in terms of organic growth potential going through the rest of the year. And as Jim mentioned, we expect construction products to stay in that high-teens.

So, those things together will drive the number where we need it to be at around that at around that. And we said the low end, so around that 5% number. Now, we’re little behind, so does that mean we’re going to be little behind the 5% potentially but it's around that number that we still see for the year.

In terms of long term Rosemary, I talk a lot about the investments we’re making in our business and we talk about the ones that are tangible in terms of the infrastructure and new systems. We’re also making a lot of investments in our ability to grow.

I got a question earlier about the investments we’re making in our electronics business, very exciting growth some of that in its early stages, those were happening. The work we’re doing in our hygiene business is exemplary and the team there has really done some nice work with customers.

One of the businesses we bought [indiscernible] was only set in Germany, it was a very nice segment within the automotive business, we’re leveraging that around the world and that’s creating growth for us. So, it’s those types of things.

The work we’re doing in construction products is another example where we continue to develop products that are allowing us to grow.

So, when we look at our business in terms of the long term 5% to 8%, if there is an underlying market, that’s kind of grow low single digits then we’re going to do to kind of work in entering new market segments and innovating that allows us to be in that 5% to 8% range..

Thank you. (Operator Instructions)..

Jim Owens:.

Okay. Thank you operator, thanks everyone for your time and attention on today’s call and for your interest in H.B. Fuller and our strategy..

Thanks you, ladies and gentlemen this does concludes today’s H.B. Fuller first quarter 2014 investor conference call. You may now disconnect..