Maximillian Marcy – Senior Manager, Treasury and Investor Relations Jim Owens – President and Chief Executive Officer Jim Giertz – Executive Vice President and Chief Financial Officer.

Mike Sison – KeyBanc Christopher Butler – Sidoti and Company Ram Sivalingam – Deutsche Bank Dmitry Silversteyn – Longbow Research Mike Ritzenthaler – Piper Jaffray Steven Schwartz – First Analysis.

Good morning and welcome to the H.B. Fuller First Quarter 2015 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 is 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’ll turn the meeting over to Mr. Maximillian Marcy. Please begin..

Thanks Greem and welcome everyone. Today's conference call is being webcast live and will also be archived on our Web site 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. 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 the 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 our operating segments, as well as comparability of results.

The non-GAAP information discussed today may not be consistent with the methodologies used by other companies. A reconciliation of these non-GAAP measures to the nearest GAAP measure is provided in the earnings release we issued last night.

For more information, please refer to our recent press release and Annual Report for the year ended November 29, 2014 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’ll now turn the call over to our President and CEO, Jim Owens..

Thanks Max. Thank you everyone for joining us today. It has been a dynamic first quarter with the completion of our Tonsan acquisition in China, dramatic shifts and currency exchange rates relative to the U.S. dollar and movements in raw material costs.

Many good things are happening in our core business and we feel good to be able to confirm our commitment to deliver adjusted EPS this year of $2.60. We expect our operating metrics to improve each quarter this year, setting us up for a strong 2016 and achievement of our EBITDA margin target of 15%.

So the commitment is unchanged, but due to the dynamic conditions in the global economy, the plan to get there has been modified and this is what I want to focus on today. Let me start by talking a couple – a couple of our growth initiatives that are in the plan for the year and are moving ahead on schedule.

First, we completed the acquisition of Tonsan Adhesives in early February and our integration plan is in full swing. Unlike some of our recent acquisitions, the focus of the Tonsan integration is centered on accelerating revenue growth, both on our legacy business in China and the new adjacent markets served by Tonsan.

We are working some very exciting opportunities for growth and we’re confident that we will see a positive impact in the short-term. Another area of our business that is moving ahead according to plan is the construction product segment. We laid out a big plan for this business for 2015 and we’re on track.

The team has completed most of the integration of the ProSpec business that we acquired last fall, begun the launch of a significant piece of new business with Lowe’s and manage the large capital spending project to improve our supply chain capabilities. I’ll talk more about this later in my prepared remarks.

The most significant new dynamic for us is the accelerating strength of U.S. dollar and this is having an adverse effect on our operations and a significant negative impact on our reported financial results. There are two major impacts from the U.S. dollar strength.

The most evident is that the financial results of our international operations translate into fewer revenue and profit dollars on our consolidated income statement. The second impact is a bit below the surface, but has a meaningful negative impact on our profit margins in the short-term. In short, we have a disproportionate level of U.S.

dollar based cost across our organization relative to our mix of revenue. Two cost areas generate most of the mismatch. Our top level corporate costs support the entire company, but our most – almost entirely U.S. dollar base. And a portion of our raw material costs within our international operations are effectively U.S. dollar base.

When foreign currencies fluctuate over narrow bands, the effects of currency on our profit margin is less evident and generally managed as part of our overall margin management process. The large rate changes, we have experienced in the last few months, great margin pressure that is difficult to offset in the short-term.

Fortunately, there is another emerging trend that is favorable to our business, namely the reduction in costs of certain raw material category. This trend is due to the drop in global oil prices and the improvement in the overall supply and demand situation within the upstream industries.

When we laid out our plans for the year, we noted that some benefit from raw material cost reduction was possible, but this impact was not fully incorporated into the plan. It represented some upside to the plan that required more time and effort to evaluate. The picture is becoming clear now.

In fact, we began to see some benefits of lower raw material costs already at the end of the first quarter. In effect, our revised game plans for the year looks to offset the increasing negative impact of the strong U.S. dollar with increased benefits from raw material cost savings.

And to complete the picture, we’re modifying our organic growth expectations a bit due to the slow start we got in December in the Americas and in the EIMEA operating segments. The addition of Tonsan in our plan will more than offset this lower revenue outlook in our core business.

Jim Giertz will provide a bit more detailed information regarding our earnings guidance. As a summary, we remain committed to our original earnings and cash flow plan for the year, so the path to achieve our goals is being changed as we adapt to market conditions.

Foreign exchange rates will hurt us and we plan to offset this with raw material cost reductions. With that overview, I’ll now walk through the performance of each of the operating segments. The performance of our Americas segment was a bit mixed in the quarter.

On the positive side, the operational problems that we experienced following the implementation of SAP software in North America are now behind us. The strength of the U.S. dollar resulted in some margin pressure due to foreign currency movement in geographic areas where U.S. dollar based cost matched against foreign currency revenue.

Our business in Canada is one example. Despite this negative trend, the operating margin in this segment overall have started to improve. Now moving back toward our long-term EBITDA margin target of over 16%.

We expect continued margin improvement throughout the reminder of the year as we streamline our manufacturing costs following the SAP implementation and take advantage of raw material cost. Constant currency revenue growth actually a year-over-year decline of about 2% was a disappointment.

We have aggressive plans for revenue growth in the Americas, which we still feel confident in achieving. Last year, we posted several consecutive quarters of solid organic growth, but December was down significantly, which we attribute to customer order patterns in our consumer goods business and other seasonal factors.

Sales picked up for the remainder of the quarter, but didn’t overcome the December weakness. Our quarterly organic growth last year averaged 2% and we expect organic growth to increase to between 3% and 4% for the remainder of this year.

All this taken together, we feel confident in our ability to deliver on our largest and most profitable operating segment. Our construction product segment is off to a very strong start with volume growth of over 20%. The recently acquired ProSpec business has solidly contributed to our financial results.

Our business with Lowe’s is moving forward in a very exciting way. We are introducing tintable grout to the market, launched exclusively with Lowe’s. Think about it like this, when you buy paint, you choose from custom colors mixed on site. Tintable grout works the same way.

You pick your custom color, buy that tint in a cup and mix it when preparing the grout. This new concept for grout has many benefits. Most importantly, Lowe’s is only required to stop one standard based grout. This reduces the supply chain cost for stores and cuts down on slower moving inventory.

In addition, customers can choose from a wider array of custom colors not previously available. This type of innovation is a key reason why we continue to win business with our retail distribution partners. In April, we ramp up our volume with Lowe’s as we capture additional share of the national network and introduce the new grout platform.

While we’re focused on the volume growth in our construction product segments, the operating margins are improving as well. The adjusted EBITDA margin in the first quarter was 11.7%, over 250 basis points above the same period last year. Additional volume is coming on stream this year.

Our investments in new manufacturing process will improve efficiency. The integration benefits of the ProSpec acquisition will be realized and discipline around product cost and pricing will all produce steadily increasing margins in this segment as we progressed throughout the year.

Our Asia-Pacific segment continued to grow with volume up more than 10%. Constant currency growth was positive across all sub-segments. The Tonsan acquisition, which we completed in early February contribute about 5 points of volume growth in the quarter.

As everyone is aware, there is a great deal of attention being paid to the current and expected business conditions in China. From our perspective, it’s clear that the business conditions have softened in recent months. That said we are still optimistic about our future potential for a couple of reasons.

First, we primarily served consumer product oriented markets in China, most notably the hygiene segment, where we anticipate ongoing strong growth. Second, we continue to build up our electronics business in China and we have a strong pipeline of opportunities that we’ll convert to revenue throughout the year.

And finally, the Tonsan business provides us many opportunities for growth, based on the synergies of aligned sales organizations. We’re also seeing positive trends in the operating margins in the Asia-Pacific segment. Our adjusted EBITDA margin in the first quarter was up more than 250 basis points compared to the prior year.

The margin improvement is based on a variety of factors including better pricing and overall customer margin management, richer mix of revenue, ongoing tight cost controls, somewhat offset by margin pressure derived from foreign currency rates. Overall, our Asia business is a good story with many new opportunities in front of us.

We grow and expand our market participation and market share. Lastly, our European business. Mostly as expected, our EIMEA segment had a tough first quarter. There are several broad external and internal forces across our European business, which provide the context for our relatively weak operating performance in the first quarter.

The key external forces, which continue to impact our business, are sluggish end market demand in core Europe, end market demand in the emerging markets around core Europe not increasing the previous rates, and the massive and rapid shift in the value of the Euro relative to the U.S. dollar.

It is putting pressure on operating margins for our EIMEA segment as some U.S. dollar cost in the region are matched with Euro denominated revenue. Our European performance plan is based on internal factors, namely restructuring and business transformation effort.

The project has now completed and we’re now working through the cost and inefficiencies of the operations. We expect to see significant improvements in our yields, logistic costs, and manufacturing costs as the year progresses. We see steady improvement in the internal operating metrics, which indicate the health of our manufacturing network.

Metrics such as schedule attainment and right first time are moving in the right direction. Our customer service metrics such as on time and full are improving steadily and for most business segments within the region, we are at target levels required to support ongoing and new business opportunities.

Excess costs are beginning to be eliminated across the network. One clear piece of evidence of this can be seen in the magnitude of special charges associated with the European transformations, $2 million in the first quarter compared to $14 million last quarter and $12 million in the first quarter of last year. Progress is definitely happening.

Our issue is that all of this is not happening fast enough relative to what we think is possible. Our ability to accelerate the ongoing improvements in the Europe will be an important factor in achieving our financial plan for the year and our focus on this is intense. So that’s a quick summary of each operating segments in the first quarter.

Before I turn the call over to Jim Giertz, I just want to touch on raw material costs. Our savings related to reduce petrochemical feed streams are generally delayed by 6 months to 9 months, since most of our raw materials are specialty materials, whose prices are based on supply and demand dynamic.

More commoditized raw materials such as vinyl acetate monomer, ethylene, certain oils and waxes are beginning to see decreases, which will provide benefits throughout the rest of this year. More downstream materials have seen less decrease thus far and in some cases increases due to supply and demand dynamics.

We are intensely working with suppliers, who are getting feed stream reductions to pass on these savings to us. And where there is insufficient action, we are working to replace these materials with alternative. The magnitude of savings will be reduced in Europe and geographies, where there is sizable currency deflation versus the U.S. dollar.

With that summary of the regional performance, I’ll turn the call over to Jim Giertz to share more specifics on the financials and to update our guidance for the remainder of the year..

Okay, thanks Jim. Our guidance for the first quarter adjusted EPS was $0.35 per share and the actual result was $0.30 for the quarter. We estimate that about $0.03 of the negative variance is attributable to negative impacts of foreign exchange rate movement. So the constant currency results fell short of our guidance by about $0.02 per share.

Operating performance in our construction products in Asia-Pacific segments was slightly ahead of our plan, while the Americas and EIMEA segments fell a bit short of our plan in the first quarter. Overall, the revenue development was soft in the quarter with constant currency revenue growth of just 1.4%.

ProSpec and Tonsan together contributed less than 2% constant currency growth. The Americas segments experienced a slow start in December and order patterns have generally improved in subsequent months. Our EIMEA business continues to suffer the negative effects of the sluggish end market and constraints created by the business integration project.

Foreign currency translation lowered revenue by 4.6% in the first quarter. Our adjusted gross margin in the first quarter was down over 200 basis points versus last year’s first quarter.

The large majority of the variance, both relative to prior year and our plan, was driven by excess manufacturing costs in our EIMEA segment and to a lesser extent the Americas segment. On a positive note, adjusted gross margin was up 60 basis points sequentially as we made progress returning to target operating levels in North America and Europe.

And as many of you know, our gross margin percentage normally dips down in our first quarter due to seasonal factors, so the sequential increase this year is an encouraging sign. Adjusted SG&A spending was down 3% versus last year’s first quarter. The strength of the U.S.

dollar tends to reduce our nominal expense level, but because of disproportionate amount of our operating expenses are U.S. dollar denominated. Our SG&A expenses as a percentage of revenue remained essentially flat year-over-year at 20%. Operating cash flow was very strong in the quarter, primarily driven by reduced working capital requirements.

Net debt increased by only $195 million in the quarter, despite completing the acquisition of Tonsan with $225 million paid at the closing. Capital expenditures came in at $28 million in the first quarter in line with our plan for the year. Let me now turn to our guidance for the remainder of the year.

Foreign currency rates globally have continued to weaken versus the U.S. dollar and present a much larger challenge than we initially planned for.

We now expect that year-over-year revenue growth will be negatively impacted by about 600 basis points in 2015, due to foreign exchange rate movements and this compares to our original estimates of only 300 basis points of negative impact.

In total, we now expect our net revenue for the full year to be about $2.15 billion, up about 2% from the prior year. Organic revenue is now expected to increase by about 4% year-over-year which is revised down from our original plan of about 6%, largely due to the slow start we experienced in the first quarter.

The Tonsan business is expected to add about $80 million in revenue in 2015 or about 400 basis points of growth. We currently estimate the net income contribution of Tanson to be approximately $3 million in 2015, or about $0.05 per diluted share.

Our core tax rate before the impact of discrete items is expected to be slightly higher than anticipated due to our current estimate of the mix of earnings for the full year. We now expect the full year core tax rate to be 31% versus our previous guidance of 30% and last year’s comparable rate of 32%.

Capital expenditures are still expected to be $70 million for the year. The most significant capital project this year is supporting expansion and productivity enhancements for our construction products operating segment.

As I mentioned earlier, cash flow from operations were strong in the first quarter, primarily due to the benefits of reduced working capital.

We expect strong free cash flow generation performance for the remainder of the year, as we mostly eliminate special charges related to the business integration project, reduce other one off costs, improve profitability steadily through the year and implement a reduced capital spending plan relative to prior years.

We will use the bulk of any excess cash flow to reduce our debt levels back to levels consistent with our target leverage ratio. And with that, I’ll turn the call back to Jim Owens to wrap this up..

We’re off to a solid start to the 2015 year and we continue to transform HB Fuller. Our plans are moving in the direction we committed it and our goals are sound. We expect to deliver double-digit growth in adjusted earnings per share despite currency challenges as we take advantage of market opportunities for growth and margin expansion.

I’m very excited to welcome the Tanson team to the HB Fuller family. Together, we will create a profitable growth vehicle in China that will be leveraged around the world. We have been working on this acquisition over a year and are poised to take advantage of the depth of knowledge they bring to us in the high margin engineering adhesive market.

We fully expect this business to drive margin enhancement and organic growth for many years to come. As we discussed in January, this year has a number of moving parts and the financial delivery is heavily weighted to the second half of the year.

We’re confident in delivering our target as some of the growth and profit drivers have begun, such as new product shipments at Lowe’s, Project ONE cost reductions in North America, efficiency optimization in Europe and Tonsan adding to the strength of our Asia-Pacific business.

We will exit 2015 with EBITDA margins near 15% and we’re positioned to deliver our targeted plans for EBITDA margin and organic growth in 2016 and beyond. This is the end of our prepared remarks and now I’d like to open the call up for your questions..

[Operator Instruction] We’ll take our first question from Mike Sison with KeyBanc..

Hi, good morning guys..

Good morning, Mike..

In terms of the FX headwind, I think the math is pretty simple, maybe minus $0.05 to $0.10 incremental and you’re going to offset that by raw materials of the same degree kind of a $0.10 benefit this year?.

Yes, I know that we laid out the details on an EPS, but it is significant headwind on the….

Yes..

And as I mentioned in the script, it’s not just the translational issue because you have cost that are misaligned with revenue. So, overall, it’s 6% for the year I think from a revenue standpoint the impact. And I think as you look at the year, we had almost 5% first quarter, probably over 7% in the next two, and 5% again at the end of the year.

So it’s a sizable number that we’ll offset with the – with what we’re able to do with Lowe’s..

And then when you gave us the new outlook for organic sales growth of 4%, does that assume that your pricing will still be positive or flat or is it come down and then the volume growth actually even better than the 4%?.

Yes, I think we have a combination of price increases and decreases in the business that are going to net out roughly flat. I think pricing pressure will come in the second half of the year, but I think the net impact overall will be roughly flat on price..

Okay..

We have had some – some price increases as we had to deal with some increased raw materials early on at the beginning of the year..

Okay.

Jim, do you want to add anything?.

No..

And then a quick follow-up, when you think about Europe improving in 2Q and beyond, it sounds like maybe or not exactly where you wanted to be, but you’re sort of heading in the right direction.

What do you think – where do you think you’re at and how should we see the improvement in profitability as the year unfolds?.

Yes, so where we’re at is the project work is complete and we’re now optimized.

I think what you’d find if you look on a plant by plant operation that – that the problem now is where we’re really putting a lot of effort and energy around is one maybe two plants where we really need to stabilize things, but across the whole system, their savings opportunities that we’re attacking. Freight is unoptimized.

We have a new network and freights unoptimized. We have a specific project on that. Warehousing is unoptimized. So, we have warehousing cost that we can pullout of the business. Each one of the new plants that are now running pretty well can run a lot better than they’re running.

And as I said, this one facility is the one where we have cost well above where we want. There is also a yield issue in the business. So all of these plans aren’t running at the yield levels we had prior to the transformation and which are just industry standards we know we can hit. So all of those costs will work their away through.

I think – I wouldn’t count a lot of those benefits in Europe in Q2, but I would expect to see from a margin standpoint things improve sizably in Q3 and certainly in Q4 as we finish out the year. So that sort of a picture I think it’s a Q3, Q4 uptick..

Great, thank you..

Okay, thank you Mike..

We’ll take your next question from Christopher Butler with Sidoti and Company..

Hi, good morning everyone..

Good morning, Chris..

As we look at this last couple of plants, what exactly is different with these plants than the other plants that you’ve had success with this transformation? Could you give us a little detail on what’s kind of dragging this out at this point?.

Yes, I’m just trying to think about the detail without going into too much detail because I have a lot of it, Chris. Well, first off these are the later ones to transform. So it’s a matter – the whole project a bit behind the curve. One of the plants involved the consolidation of three different manufacturing processes.

So it’s not just three different plants but three different manufacturing processes that we put in a highly automated process. So, I would say the complexity, the technical complexity of that project was probably higher and is probably why it was last in line than the other project.

So it’s really related to – and when I say technical complexity, it’s both the capital, but also the chemistry associated with those products. So, you’re running the business while you’re fixing problems product-by-product or issue-by-issue in the system and the operating system.

So, it’s a very impressive facility that’s not running nearly at the rates that we’ve designed, but we have a path on each one of the issue. So – but it’s a – the complexity of that versus the others technical..

And if we look at the quarter from where we missed your guidance excluding the $0.03 of FX it comes to about $1.5 million by my calculation.

It sounds like the demand side that might have been a lot in December on the recovery plan side was that throughout the whole quarter or did we see improvement as the quarter progress?.

Yes, so the revenue piece in December was mostly an Americas issue, the Americas started December weak and if I take the next two months, they were back to normal levels, but that weakness couldn’t be overcome.

Why was it weak, we don’t – we can’t say exactly why, but certainly we think there was some customer ordering as we had issues with SAP last year, so there is a little bit of destocking and may have been some destocking in the consumers goods business in general.

And then there is also a little difference in the timing of when our year ended – we have that November and that may have actually shifted a little bit of revenue, but a few things happened there in the Americas revenue.

But yes, I think in terms of the overall performance, there was over delivery and as Jim said in Asia and construction products and then the short fall split between Americas and Europe..

And on the recovery plan side of that story, did you sort of catch up over the course of the quarter or was this sort of an ongoing issue that’s going to sort of linger into 2Q as well?.

Well, I would say on the Americas, the margin improvements we expected to see operations happened as planned and they are continuing to happen. So all this work to improve our margins and when I say margins, I mean our gross margins. The plans we have in place happened and the numbers came through as we expected.

And even going forward, we have two plans that we put on seven days last summer to meet some of the issues we had on SAP, and these are two of our larger plants, one of them is going to five days effective March 1, and other one is going to five days effective April 1. So all this is on track with what we expected in North America.

Europe is again a little bit behind in terms of some of those savings that we expected. We expected to see some of them. When I think about what we wanted to do in terms of reducing our freight rates, which have gotten higher, we didn’t hit the number that we expect at this quarter.

Some of those projects are weak sort of a month or two behind, not way behind where we started the year..

I appreciate your time..

Thank you, Chris..

We’ll move on to our next question from Jeff Zekauskas with JP Morgan..

Hi, good morning. This is [indiscernible] in for Jeff..

Hi….

So if I look at your organic guidance of growth rates guidance of 4% for 2015 and also your organic growth rate is maybe even weaker than that in the first quarter.

And I think about your like longer-term organic growth target is something around like high single-digit, there seems to be some mismatch between what you look for the year and what you look for the longer-term.

So why is that?.

Well, I think what we look for the year is 4% overall, which would mean that the – for the next three quarters, you will see something between 4% and 6%. So you know I don’t think it’s widely mismatched for the second half – for the last three quarters of the year.

And the growth we’re seeing is – I mentioned the Lowe’s when I mentioned then there some of the good work we’re doing in electronics. We do see some extra growth coming from the Tonsan acquisition.

And really fundamentally one thing that drags down our number is Europe that with this transformation project, Europe prior transformation was a solid positive deliver and now it’s a negative drag on organic growth.

So just getting Europe up into the low single-digits with everything else we have construction product plus 20, the things we’re doing in Asia will bring our numbers up into that mid 5% to 6%, 7% organic growth.

So that’s why I’d look at it from if you change the dynamic in Europe, which we’re confident we’ll do then you’ll see a very different net number..

So for Europe, – so is it the industry in general, the marketing in general or do you also see some maybe shift in market share?.

I think for us in the last year in Europe, we’ve had a decrease in our market share as we’ve been distracted with a lot of the issues. So if you take our European business overall included in there is the Middle East Africa, India, we have really solid growth rates in Turkey, very nice growth in India, a good business.

We made an investment in the Middle East that’s helping us to grow. We just made that small acquisition in Africa. So there’s a lot of positive dynamics geographically in our European business, but these issues in core Europe – core Europe is never going to be a growth engine but it shouldn’t be a drag to us.

So that’s the dynamics is happening in Europe. That we’re working our way out of it today I would say we have four businesses in Europe, as we segment our business, three of them are in a position to go and win business and one of them is – as we solve this issues in the last five will be able to go out and grow..

Maybe just one follow-up..

Yes. Okay..

Right, may be just – thank you for the one follow-up is what do you expect the working capital contribution is for your cash flow for the year as your raw material cost step down?.

Okay, so, yes I would say, generally working capital is going to be positive for a couple of reasons. One we had extra staff related to SAP and the European transformation, we mention currency, but let me let Jim try and give you some more specifics on that area..

Well, I don’t have that – I don’t have that number on the top of my head. So I can’t really answer it specifically, but I think if I was draw some rough numbers over a period of time, I think, our working capital was running at about 20% of sales, as we exited last year. We think that’s high, by at least a 100 basis points, structurally.

So I think you can – obviously our working capital numbers bounce around quite a big quarter-to-quarter, but so if I try to translate into longer-term trends, I think moving down the 19% and then ultimately lower than that would be the way if I want to think about it..

Okay, thank you very much..

You’re welcome..

We’ll move on to David Begleiter with Deutsche Bank..

Hi guys, it’s Ram Sivalingam sitting in for David.

How are you?.

Hi, Ram..

Quick question obviously going to be backend loaded year, I was just looking at some of the historic seasonality in your businesses, I think, first half is usually 45% back half 35% if you can do staff for this year, is it something like 40, 60 or 35, 65, I think that would helpful just give us a [indiscernible].

Yes. So I think we said call, was going to be 40, 60, but it actually may be a little less I’ll let Jim he is got a view on that, he will give you sense of it..

Okay..

Yes, so I think, I think in our last - when we gave our original guidance for the year, we say we’re going to have an abnormal split this year, back weighted to the second half of the year and I think we said 40% first half, 60% second half, roughly inline there, but I think now, maybe is really technically we’re probably a couple of points less than the first half and a couple of points higher in the second half..

Okay, that’s helpful, and if I can have one quick follow-up.

You mentioned extra or excess business integration cost in Q1, is there anyway to quantify that number on an earnings basis?.

Its become such a part of our operational cost so we pull out the special charges but I wouldn’t say we can pull those out but I would say at each line of our P&L relative to historic standards whether its our yield rates, its our freight rates, the amount of temporary labor, each of those adds up to a sizable number I would say that the way to look at this overall is we were going to from where we started improve our margins 200 basis points out of this operational improvements and that’s what we look to do..

Okay thanks very much guys..

Thank you..

Next question will come from Dmitry Silversteyn with Longbow Research..

Good morning, just a couple of follow-ups if I can on the raw material discussion, if you talked about working aggressively with your suppliers to get pricing down quick or to benefit from lower oil prices quicker.

Are you seeing your customers engaged with you in similar types of discussions and if so is there any particularly region or product line that seems to be more susceptible to sort of quicker pass through mechanics on lower raw material costs?.

Yes. I would say the ones where there is a faster movement or in the order bonds [ph] those are the ones we’re seeing earlier and those are the ones where there is a little more expectation sooner.

There is really a broad range of dynamics where some materials are going up, our customers understand those and we’re working with them jointly to try and manage the situation.

But, yes that would be a view of the customers and in terms of the savings as I said it’s those commoditized material that we’re seeing already come through in the P&L at the end of the quarter..

All right.

If you sort of expect the raw material benefit to hit you if second quarter progresses but more so in the second half of the year at which time do you think you’re going to start seeing your pricing started to come down in the road some of that benefit would that be sort of fourth quarter or do we have to look to 2016 for those price adjustments to happen?.

Yes. Its very different by segment right some of our segments are completely unrelated to what happens to raw materials some of them have pass-throughs that we would see a quarter or a six week lag and then others would be negotiated. So but I think when it nets out in the numbers as you will see some impact in Q4..

Okay, okay. And then looking at Tonsan, you got about if I did – let me [indiscernible] a little bit over $3 million in revenues for owning the business for about three weeks or so. So, let’s say a million a year, I mean a million a week.

You need to obviously accelerate that growth meaningfully to get to your $80 million guide that you’ve given for the year.

So is that going to be all sort of internal execution and getting Tonsan products outside of the region and perhaps using Tonsan platforms for some of your own products inside China or is there going to be sort of a seasonal step up whilst February not a good month to look at given that there is a Chinese Holiday and things like that happening there?.

Yes, I’ll let Jim answer it in detail, but, yes, the Tonsan business is moving right on plan and is very solid and strong, but let me let him give you the numbers..

Great, yes, so I think the revenue contribution from Tonsan in the quarter which is basically the month of February was pretty much what you said about $4 million, which is obviously not the run rate that we’re anticipating. We said full year guidance is for $80 million.

And there were variety of factors in February; one, which you mentioned is Chinese New Year, some conversion of their revenue recognition policies from their ways to U.S. GAAP revenue recognition and some of the normal kind of pull forward of revenue that you get when you switch from prior owners to new owners in an acquisition.

So, we’re still viewing that it’s – we’ve always said it’s about a $100 million a year business. The $80 million full year guidance is $25 a quarter for the last three quarters and a weak February.

That was right inline with our original guidance – it’s about $100 million of revenue for the full year and that’s what we’re seeing at the operating level of the company..

Got it..

Those numbers don’t bake in synergy growth….

Got it..

That’s just the business..

Okay. So there is a chance that you can do better than that if – from the second half of the year you’ll start getting some traction with some of your programs..

Correct..

Okay. Thank you..

We’ll take our next question from Mike Ritzenthaler with Piper Jaffray..

Good morning..

Good morning, Mike..

If we set aside some of the new business from the Lowe’s and the inorganic growth from ProSpec. I’m curious about Fuller’s construction end markets and their growth. I mean obviously the volumes have been extremely good. But just kind of the health of the end markets there U.S.

non-resi, resi comments around that would be useful?.

Yes. So I would say probably we have such an impact from what we’re doing with customers that it’s tough to shift all the way down to that, but when we do that work, I would say, it’s generally positive.

So keep in mind we’re a little lag on housing starts and residential work, but we see generally positive dynamic, clearly not these kinds of numbers, most of the volume growth we’re seeing this year and last is related to our market share wins..

Right. A longer-term question than on cost structure, over the next couple of years I guess strategically how do you think about reinvesting in growth and innovation looking out to kind of fiscal 2016, 2017 once Project ONE the various integration projects and so forth are sort of behind us.

Is 17%, 18% of sales, the right level to be thinking about in terms of total overhead cost or could that be materially lower their levers there that you can flex?.

So I’ll start – this is Jim Giertz, so I’ll start that one out Mike.

So I think we’ve – when we started off with the 2015 plan and driving towards the 15% EBITDA margin, we had a basic construct of what our P&L should look like and that was basically gross margin of 30%, operating expenses around 18% and that gives you 12% at the EBIT line and add 3% for D&A and you’ve got 15%.

So that’s basically the model that we’re still working towards. And as you can see – as we repeat over and over, obviously the short-falls in the gross margin area and that’s where all these – excess manufacturing costs in Europe and to lesser extent U.S. hurting us. Our SG&A levels are actually running pretty close to our target level.

So I think that starts to answer your question anyway..

Yes and I would say going forward we have a richer mix of businesses that you’ll see – talking about the Tonsan business, electronics business, they have higher gross margins, but a little more SG&A associated with R&D and some of the service elements of those businesses.

But netting that out with some savings opportunity and our other businesses, I wouldn’t say we’re going to very widely offer those numbers.

I do think we’re going to have an over time slightly expanding gross margins and slightly declining SG&As as a percentage of sales, but broadly jumping off of that 30% and 18% and then slowly seeing those two numbers move as we do a combination of investing in innovation and growth and saving and managing the leverage we have in scale..

Okay, great. Thank you very much..

Thank you..

[Operator Instructions] We’ll move on to Steve Schwartz with First Analysis..

Hello, good morning guys..

Good morning, Steve..

So in the Americas, is there a way to index the cost of fulfilling orders I mean where you stand relative to prior to starting SAP. I mean are you at 100% or 80% or 120%.

Do you understand where I’m coming from and trying to identify that?.

Yes, I’m going to let Jim to take [indiscernible] come up with an index. I can say that that we saw big improvements throughout this quarter in terms of getting close to what I would call normal levels, but there are still some more work going on in this upcoming quarter.

I mentioned two of them – two of our factories that we’re on seven days, we put them on seven last year are going to five. We still have some yield numbers in some of our plants that are out of work – out of whack. We saw some temporary people that are doing work that needs to be stabilized, overtime levels are still a little higher than pre-level.

So it’s definitely there, but it’s not like we’re wildly off of there. So, I’ll let me Jim try to index it for you or maybe give you a little more color on the numbers..

That’s a tough one. Well, I’m going to try to step back a little bit. So, Steve, I think we’re trying to run on EBITDA margin in Europe or in Americas trying to get to around 16% right. And in the first quarter, we ran just around 13%. Now that’s a 300 basis point gap.

So first thing you have to realize is in the first quarter we always run low, because it’s such a low revenue quarter, but the gap isn’t really 300, it is something less than that, but I think you can start to narrow into it.

There is probably at least 100 basis points of excess costs in the Americas still that we could drive out to get to our target levels, which I think we can see a path forward to..

Yes..

And that’s why we’re optimistic about the Americas region..

Okay, now that’s helpful framing it up that way.

And as my follow-on, if I could ask a little bit longer perspective question around SAP and Project ONE and I realize you’ve stepped back for the year on this, but can you give us an idea when you did the Americas, did any part of that existing system run on SAP? And when we go to Europe at some point, I think you’re currently running on two different systems is either of those two systems SAP and I’m just trying to gauge with what we went through for North America, what are we looking at in 2016 or 2017 when you start to consider Europe?.

Okay, Steve, I’ll start that one again. Well, you’re correct. We’re in a pause on our implementation of SAP around the world, focus this year on stabilizing and enhancing the platform that we’ve put in place in North America.

I think you asked what systems are we running in North America? We had no SAP system running in North America, maybe one site, but it was very minimal. We run our legacy systems in North America.

You also asked in Europe what are we running, it’s a combination of couple of legacy systems and then also all of the businesses that we acquired a couple of years are running on a version of SAP. But the setup of that SAP platform is completely different than the one that we will implement ultimately in Europe. We are replanning the whole project.

We anticipate that we will have at least one go-live of geography on SAP next year in 2016. If I had to guess today it would probably be in Latin America is certainly will not be in Europe.

And I think you can probably imagine that our focus in the replanning of the project is to make sure that we take advantage of all the learnings that we’ve done in North America that we make sure that the platform is running in North America that we’re going to globalize as its stable and efficient and robust.

And we’re going to take much more of a risk – risk adverse – orientation to the implementations that we minimize the risk that happened just as you go live in these particular regions. So, I think that we’re – I think we’re doing the right thing by taking sometime off here.

And I think we’re – by the time we compared to go-live in our next region, we’re going to be supremely confident that that we’re going to be able to execute at a level more of like inline with our own expectations..

Yes, just to add to that, many of our metrics in our business in North America are now above the SAP levels, not all of them, but a lot of them in the performance metrics. By the time we go-live with next one, we’ll mostly be running at higher level. So there is a lot of learning we’re going to capture.

So, this pause is really going to payoff for us going forward..

Okay, thank you guys..

Thank you, Steve..

[Operator Instructions] We will take a follow-up from Dmitry Silversteyn..

Yes, I just want to understand the sort of the decline in profitability we saw in EIMEA region in the quarter where we actually turned negative and even adjusted numbers it looks like we’re still about $1 million loss maybe a little bit less than that.

Can you sort of parcel that out into issues you have internally with costs versus market slowing down or I just – I’m kind of struggling to understand the step down from almost $9 million in November to $1 million loss in February..

So November – November quarter was – we actually had positive organic growth, which was better than we expected in November quarter. This quarter was negative organic growth and that was probably a little bit worse than we expected. We expected to be negative, but it was a little worse than we expected.

But the overall results were inline with our expectations, Dmitry. So, it’s a little worse, but I would say, we understood the challenges we had from a cost standpoint. We continue to invest heavily in Europe to make sure we serve customers.

So the priority here is even though it’s more cost to make certain that we minimize damage in the market, make sure we minimize issues with customers and that’s costly. So, I’d say relative to our expectations, revenue although it was better in Q4 than we expected was a little worse than we expected.

Why was it worse, I’d say one of our business segments related to this plant had some lost revenue. And then the areas around Europe, I mentioned we don’t have a big business in Eastern Europe, but Eastern Europe sales – what we expected Middle East and Africa work what we expected to some of the areas that drive some of growth were a little lower.

And then of course you have the euro impact that I mentioned. So, the negative – the euro was more negative than anticipated in the quarter and that had an impact. So, we’re managing all those things.

We’ve got a very specific plan on how we’re going to drive and tackle each one of them and just see market improvements quarter-by-quarter as the year goes on..

Got you. So if I can follow-up on that, so if your expectations were – let’s say for breakeven profitability or something in a low single-digit in terms of profit dollars in the first quarter.

How do you – sort of what’s the ramp to go from there to high single-digit let’s say profitability in the second quarter and then continue to improve from there to be able to get to your 260 number for the year.

What’s between sort of the May and the February quarters considering that the foreign exchange [indiscernible] year-over-year basis and as well as sequentially they are going to be worse.

Where is that $8 million or so lift going to come from?.

Well, Dmitry, it’s got to come all the way across – all the way from top to bottom on the P&L, right. So better revenue performance, slightly higher contribution margins, all taken together, lower manufacturing costs and probably holding our SG&A in tight control. So it’s going to come across all the elements of the P&L..

Just you finishing up the integration projects on the two plants that are still giving you issues right?.

Correct and all of these factors blend together right, so as we improve our operating performance in our plants, our ability to grow our revenue increases and cost come down.

And so it’s a very integrated situation that we have there, which according to our plan all these things have to improve steadily month by month, quarter-by-quarter to get this to where we want to be at the end of the year..

Got you..

And we have very specific detail plans on each one of those, but I think Jim is right on the integration, think about something like both raw materials which are part of the plan. We’re not leveraging those as well as we like to as we get things moving efficiently. We can do those.

To your point about the plants, there is two elements, there is one or two plants that are behind schedule and those on schedule is right, but the other plants in the system there is a whole optimization efficiency program that’s moving forward. So that’s the whole European project there..

Maybe I can just add one other thing is not completely responsive to your question, but just to put more contexts on it.

If you look at the – if you look what was going on in Europe all of last year’s and also in the fourth quarter and you look at their performance, but – and not exclude special charges and then look at their performance in Q1, I think you’ll see evidence of change there because special charges in fourth quarter were probably – I don’t have that number in front of me, we’re probably in excess of $10 million in fourth quarter and then we’re probably around two in the first quarter.

So you can imagine the amount of effort and initiative that it takes to drive that level of cost out of the system of the P&L. And then in the adjusted numbers, we’re going to be doing the same as we go through the year, so just to frame it a little bit differently and give you some contexts....

Yes, it gives you a sense of the trajectory of the improvement that's happening right now. Good..

All right, thank you..

Thank you..

We’ll take another follow-up from Mike Ritzenthaler..

Thanks, just a quick sort of housekeeping piece on EBITDA for 2015, maintaining the 260 for the year.

Is that – is it correct to imply that 280 is still in the cards for an EBITDA level for 2015?.

Yes, yes, that was our original guidance at the end of Q4 beginning of the year and we’re – we can confirm that’s our target today..

Okay, perfect. Thank you..

It looks like we have no further questions at this time..

Thanks everyone for their time, their support and the detailed questions today and the ongoing support..

Thank you. Ladies and gentlemen, this does conclude today’s HB Fuller first quarter 2015 investor conference call. You may now disconnect..