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

Mike Sison - KeyBanc David Begleiter - Deutsche Bank Jeff Zekauskas - JPMorgan Rosemarie Morbelli - Gabelli & Company Mike Harrison - Global Hunter Dmitry Silversteyn - Longbow Research Mike Ritzenthaler - Piper Jaffray.

Good day ladies and gentlemen and thank you for standing by. Welcome to the H.B. Fuller Third Quarter 2015 Investor Conference Call. This event has been scheduled for one hour. Today's conference call is being webcast live and will also be archived on the Company's website for future listening.

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

Good morning and welcome to our fiscal year 2015 third quarter earnings call. We have two speakers today, Jim Owens, our President and Chief Executive Officer; and Jim Giertz, our Executive Vice President and Chief Financial Officer. As always after prepared remarks, we will have plenty of time to take your questions.

Let me also remind you that comments made by me or by others representing H.B. Fuller may contain forward-looking statements which are subject to risks and uncertainty. Our SEC filings contain additional information about factors that could cause actual results to differ from managements' expectations.

These filings can be found in the Investor Relations section of our corporate website at hbfuller.com. Also please note that our reported results include non-GAAP financial measures. These results should not be confused with the GAAP numbers in yesterday's earnings release or with the GAAP numbers we will report in our Form 10-Q.

We believe that the discussions of these measures is useful to investors because it assists in understanding our operating performance and our operating segments as well as the comparability of results. A reconciliation of these non-GAAP measures to the nearest GAAP measure is provided in the earnings release our company issued last night.

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

Thanks Max and thank you everyone for joining us today. Our third quarter financial performance was strong on nearly all operating profits and cash generation metrics and very much in line with our strategic commitments. This is despite disappointing Americas revenue and non-operating metrics, which were below our guided expectations.

Before providing some color on the performance of the operating segments individually, I want to talk to the numbers for the quarter relative to prior year and also relative to the earnings guidance we provided most recently.

Compared to the same period last year, this year's third quarter financial performance was very positive across many dimensions. Adjusted EPS at $0.61 was up 45% from last year. Reported EPS was up over 500%. Our adjusted EBITDA margin in the quarter was nearly 14%, up over 300 basis points from last year.

On essentially the same revenue with last year, adjusted gross margin was up nearly 400 basis points. This margin increase was mainly driven by effective raw material and price management, especially in the Americas and Asia Pacifica operating segment.

In addition, we're beginning to see our manufacturing cost come down as we recover from the supply chain disruptions experienced last year, following the implementation of SAP in North America and the business transformation project delays in Europe. For example delivery expense as a percent of revenue declined by 50 basis points year-over-year.

Profit margin improvements were broad based across our operating segment. The Americas construction products and Asia Pacific segments posted adjusted EBITDA margins in the third quarter at historically high levels.

Relative to last year, adjusted EBITDA was up 21% in the Americas, up 47% in construction products and up nearly 300% in Asia Pacific and the profit growth in Asia came from both our legacy business and Tonsan.

EBITDA margin in the EMEA segment did not increase year-over-year, but the third quarter showed solid improvement relative to prior quarters this year and further improvement is expected in the fourth quarter.

The significant improvements in our financial metrics versus last year and versus prior quarters is strong evidence that the process of rebuilding our margin toward our long-term goals has solid check traction. With that said, the third quarter financial performance fell short of our internal projections as expressed in our earnings guidance.

The primary driver of the shortfall and adjusted EPS relative to our guidance was lower than expected revenue in the Americas segment. In addition, our expected full year tax rate edged up due to the change in expected geographic mix of revenue and profit knocking about $0.02 of EPS off our adjusted results relative to our earlier projections.

Across almost every other dimension of the forecast, our actual results were better than planned. For example, raw material and price management, manufacturing cost, quality cost and discretionary spending, all came in at or better than our plan.

With respect to our revenue forecast, the Americas segment posted constant currency revenue below the prior year in the first half of this year. Our forecast anticipated that this trend would move to positive comparisons in the second half of this year. This trend change has not yet occurred. I'll provide more insight on this topic in a few minutes.

In summary, the financial performance in the third quarter reflects a dramatic improvement from one year ago across almost every dimension of our business and this improvement has been achieved in the context of a generally soft end market demand conditions across most of our global businesses and severe margin pressure from the strength of the U.S.

dollar. We still have work to do to achieve our profitability and growth objectives, but we're clearly on the right track. Now I'll provide some more color on each of our four operating segments. The performance of our Americas segment was mixed.

On the positive side, the operational problems that we experienced following the implementation of SAP software in North America are behind us. The operating margin of this segment overall continues to improve now at 18.5%, 440 basis points above the prior year and well above our target EBITDA margin of 16%.

We expect our margins to remain at this level through the remainder of the year as we effectively manage pricing and raw material costs and continue to streamline our manufacturing costs. Our revenue in the Americas was down 7.9%. This decrease was a result of a strong U.S.

dollar, weaker demand, a difficult comparable versus the third quarter of 2014 and reduced sales activity due to our SAP issues. Currency reduced revenue by about 1% and the tough year-over-year comparable drove about half of the negative volume impact.

The result is a year-over-year underlying decline, essentially in line with our performance in the first half of the year. The decline is a result of weak end market demand combined with the SAP related service issues, which resulted in a diminished growth pipeline as we began this year.

We expect our revenue in the fourth quarter to be slightly up versus the third quarter in line with normal seasonal patterns. Our business is running smoother and business trends are stabilized. The pipeline of new wins is materializing.

Based on the current level of revenue combined with a well performing operation and strong pipeline of new business, the result in 2016 will be normalized growth rates in the low single-digits.

While the revenue was disappointing, the strength and resilience of our Americas business shine through in the third quarter, as they reached record profit margin levels despite the reduced top line. We expect this high-level of operating performance to continue into the fourth quarter and the 2016 fiscal year.

Our construction product segment continued its solid performance. With constant currency revenue growth of 30%, the growth is strong across all distribution channels. The adjusted EBITDA margin in the third quarter was 13.6%, 150 basis points above the same period last year.

Additional volume coming on this year are investments in new manufacturing process, the integration benefits of the Prospect acquisition, and discipline around product costs and pricing, all combined to generate the strong margins in this segment.

We see opportunity for continuous improvement in operating margins and sustained organic growth as we move through the fourth quarter and into 2016. Our Asia Pacific segment continued to grow with constant currency growth of 57% inclusive of Tonsan. Constant currency growth was positive across all sub regions including 10% growth in Australia.

Despite the macro economic challenges in the region especially in China, we remain optimistic about our future potential in this segment. The Tonsan business has already provided growth opportunities with multinational customers as we expected.

And in addition to the revenue contribution, Tonsan continues to complement the mix of our legacy business and has helped to drive adjusted EBITDA margins higher 13.2% in the third quarter nearly triple the prior year's result of 5.1%.

This margin improvement was delivered despite adverse foreign currency movements most notably the weakness of the Australian dollar. Overall, our Asia business is a good story but many new opportunities ahead to grow and expand our market participation and our market share. Lastly, our European business.

I'm happy to report that the operating segment delivered positive constant currency revenue growth in the third quarter. We have turned the corner and expect the positive growth trend to continue. The stabilization phase of the transformation is complete and the optimization phase is progressing well.

All of our internal metrics for customer service such as percentage of order shipped in phone on time, lead times et cetera have returned to acceptable levels.

The work ahead for the fourth quarter and through our next year is to sustain these customer service levels, while at the same time reducing the cost of our manufacturing and supply chain network. Adjusted EBITDA margin in EIMEA again improved sequentially and is now flat versus the prior year.

Our reported adjusted EBITDA margin in the third quarter improved by 150 basis points versus the prior year. Indicating that the non-recurring costs associated with the transformation project away are being eliminated, as our supply chain stabilizes.

In addition to special charges related to the EIMEA transformation project formerly $1.3 million this year compared to $11 million last year. Again a clear indication that the transformation project is essentially complete. As a final note on this segment, we have recently made a change to our leadership.

Steve Kenny, has done a great job for us over the past six years since he drove a great deal of structural improvements in the region. Steve has now taken our new role to lead our strategy in future development in the emerging markets, a key component of our long range growth strategy.

Leadership of our EIMEA operating segment is now handed to Patrick Trippel, who is most recently Corporate Vice President and General Manager at Henkel in North and South America. Patrick is European citizen, has more than 20 years experience in major global adhesives and chemical businesses.

We’re highly confident in his abilities given his long-term track record and we’re excited about the impact his growth perspective we’ll have on the entire region.

With that summary of regional performance, I’ll turn the call over to Jim Giertz, to add some commentary on the third quarter and discuss our outlook for the fourth quarter Jim?.

Okay thanks. So Jim Owens already provided an overview of the income statements results in the third quarter. So I’ll just add some commentary on cash flow and the balance sheet. Operating cash flow was strong in the quarter at $37 million.

For the year-to-date operating cash flow was over $150 million compared to slightly negative operating cash flow over the same period last year.

The primary driver of the improved cash flow performance is the increase in reported earnings and the fact that networking capital items and other net current assets were significant use of cash last year while a neutral faster this year.

We've significant opportunity to reduce working capital specifically inventory in the ensuing quarters as we optimize core supply chain processes both in North America and Europe.

Net debt was reduced by $16 million in the quarter and our key leverage ratio of EBITDA to total debt declined to just over three times at the end of the third quarter and should fall below three times at the end of the fourth quarter.

Our strong operating cash flow this year and reduced capital spending levels have allowed us to quickly reduce our leverage ratios following the acquisition of Tonsan early this year. Capital expenditures came in at $10 million in the third quarter and $49 million for the year-to-date in line with our plans for the year.

We have not repurchased any shares in this fiscal year. We expect to restart our base share repurchase plan now given our strong cash flows and success that do leveraging following the Tonsan acquisition. So now let me turn to our guidance for the remainder of the year.

We still expect a year-over-year revenue growth will be negatively impacted by about 600 basis points in 2015 due to foreign exchange rate movements, reducing revenue by about $115 million.

We are revising down our constant currency growth largely due to the lower than expected revenue development in the Americas operating segment in the second half this year. The Tonsan business is expected to add about 400 basis points of growth in 2015 or about $80 million.

In total, we now expect our net revenue for the full year to be just under $2.1 billion slightly below the prior year result. Our core tax rate before the impact of discrete items is expected to be higher than our previous forecast due to changing geographic mix of earnings for the full year.

We now expect the full year core tax rate to be just slightly below 35% versus our previous guidance of 34% and last year's comparable rate of 32%.

It is too early for us to indicate a target of core tax rate for next year but for now we can just say that our expectations are that our core rate will be reduced next year largely dependent on the profit improvements in Europe and growth in the Asia-Pacific region.

From an EBITDA perspective, we expect to deliver approximately $270 million for the full fiscal year. This estimate is only slightly lower than our guidance at the beginning of the year $280 million. We expect EBITDA margins to improve sequentially and to exit the year near the 15% level that we’ve been targeting in our multi-year plans.

Our expectations for capital expenditures for the full year remains at $70 million that we may undershoot this forecast as some spending on current projects may get pushed into early next year. And that's all I have for today. So now back to Jim Owens for summary comments..

Thanks Jim. We continue to move the business in the right direction. While revenue growth was a challenge in Americas adhesives, our operational improvements and margin management propelled our overall adjusted EBITDA margin to 13.8%, the highest level achieved in the past five years.

Our organic revenue outside of the Americas when you exclude acquisitions and currency was 6%. On the revenue side, we fully expect the growth trends in Asia-Pacific and construction products to continue and to open up future opportunities for H.B. Fuller.

Our European and North American businesses are now stable and our sales and marketing teams are focused on growth in these businesses. We will move back to growth in the quarters ahead. Our primary commitment to our shareholders was to drive this business to 15% EBITDA margin and deliver sustainable growth.

We will exit 2015 with EBITDA margins near 15% and be in a position to deliver our targeted plans for EBITDA margin and organic growth in 2016 and beyond. This is the end of our prepared remarks, so now I would like to open the call up for your questions..

[Operator Instructions] And we'll go ahead and take our first question from Mike Sison with KeyBanc. Please go ahead. Your line is open..

Good morning guys. I want to just to help bridge the gap here. You started the year, I think guidance was $280 million in EBITDA and it is $270 million now. Which, given the tough environments, it is pretty impressive that it is only down $10 million.

Can you sort of walk us through - in that - what did better, what did a little bit worse? And then bridge the gap with the EPS guidance, which seems a little bit wider.

I would imagine it's just all tax, I guess?.

So I’ll try and take it at a high level and you can get into the Jim on the details. Yes, if you go back to our original guidance, the tax rate was supposed to be a lot lower because we were going to get a bigger improved profitability in Europe.

So, when we started the year, we expected the margin improvements to come quicker in Europe than they would come. They would come in now and we see it going into next year, but that was a big mixed issue. We also have some other mix issues that Jim could explain related to the strong U.S. dollar. The strong U.S.

dollar had an impact dramatically on our revenue and also had some impacts in other aspects of our business. We have more cost base in U.S. dollars than we have - as a percentage than we have revenue. So the dollar move had all kinds of knock-on effects that we had to deal with.

We spun our attention to make certain that we maximized our contribution margins essentially managing price and raw materials. We did a very nice job of managing that. Our Asia team did a very nice job of managing their growth trajectory, as well as their margins and our construction products business delivered a little bit above expectations.

And of course the big hole, overall was that the Americas revenue was a lot lower than we thought. So I think when you net it out, there are lot of moving parts that counteract to each other, but this Americas revenue, the currency impact, and the tax rate were the three big chunks that were bigger than we thought.

And I’ll let Jim add may be a little more detail on that..

Yes, then Mike just everything Jim said is accurate and then the additional item if you were just bridging the difference between our guidance and EBITDA versus EPS, the other big factor is that in the original guidance Tonsan was not included and in the new it is and Tonsan gives a lot of EBITDA, but it does not give us very much EPS because of interest expense and amortization, which depletes EPS, but not EBITDA..

Got it. Thanks. And then, Jim, you continue to be fairly positive on the ability to hit the 15% EBIDTA margins for 2016.

Is there a certain sales level you think you need to get to, particularly the Americas, to hit that goal as you look to next year? And I know it's maybe early to give guidance, but just maybe give us a little bit of thought of why you feel good about getting to that level next year?.

The plan for 2016 - and you are right, it's early to give guidance but let me just give some perspective. The plan for next year is not to build on a huge revenue uptick.

As I mentioned in the opening comments, outside of the Americas, we are delivering 6% organic growth, currency hides all that and we have these acquisitions we have to dig through but we delivered an average of 6% of everything else and if you've got Americas up into the very low single digits, you have a 3% or 4% growth.

If we were in that mid-low-ish single digits, 15% as deliverable and there's a lot of manufacturing improvements to be had and still some contribution margin improvements. Our mix of growth is positive right now. So the places where winning and Tonsan in some of the electronic businesses, CP, these are positive from a mix standpoint.

So all that together is what gets you the 15% but the net growth is low single digits, to answer your question, to get there..

Okay. Great. Thank you..

And we’ll go ahead and take our next question from David Begleiter with Deutsche Bank. Please go ahead. Your line is open..

Thank you.

Jim, on America's adhesives, when you give guidance in late June and you were somewhat positive on back half topline growth, a month into the quarter, what really changed in July, August, in America as to result in the 8% volume you posted?.

Yes, well, it's clearly -- as we go back and look at the quarter, the same customer revenue, which had been positive was negative. So there is a big swing there in just all of our same customer orders, un-lost, unchanged and gained. So that was the biggest factor I think that's changed versus last quarter -- versus where we were in June.

So the market demand both a combination of destocking and just lower demand is a change. The other piece is I think if you -- if you go back at my commentary at the end of second quarter, our pipeline is filled up in terms of opportunities.

So one of the things that happened last year is the business really got distracted in focusing of the SAP implementation and needed to refill the pipeline. That pipeline continues to fill. The closes didn't happen at the right that we expected. So the number of gains that we expected this quarter have been delayed.

So those were the two biggest factors today relative to where we were three months ago..

And you don't think you're losing any market share in the Americas?.

I think the losses that we had were all embedded in the first half of this year. So we don't have more losses this quarter than last quarter. I think we lost some business through the SAP transformation that's in our numbers. If you look at our biggest competitor, they announced their results and they're a couple months behind us.

They indicated negative growth in the Americas last quarter. So no, I don't think outside of the SAP issues we had that impacted our results, we have a significant decrease in share..

Very good.

And for Jim Giertz, Jim, maybe the Q4 tax rate because I am getting a little bit different on a full year, what's your view on the Q4 tax rate just that?.

It should be just under -- just under 35%..

Perfect. Thank you..

Thanks Dave..

And our next question comes from Jeff Zekauskas with JPMorgan. Please go ahead. Your line is open..

Thanks very much.

Jim, can you talk about why the adhesives market isn’t growing at GDP in the United States? Is it a particular sector that's especially weak? Why is the overall adhesives market in North America so sluggish?.

Yeah, there is a mix effect Jeff. So you really have to dig into segment by segment. So some of the more mature segments in more paper converted products, they have a long-term decline.

Some of the new emerging growing areas that we've had in durable assembled goods where we were involved in some new innovative technologies are growing very nicely, although we saw a little bit of slowdown just because of the nature of the U.S. economy. And then the packaging business has a mixed view of how it goes.

So if I were to look at it in those chunks that would be what I would see. So some areas are growing nicely. Some of them are growing GDP-ish and some of them have a bit of a decline and its how that mix plays out that drives -- that drives our numbers. So it's not -- if you think about our business, it's very diverse.

So it's about how the mix plays out that really drives the overall Americas business..

And so with the U.S.

adhesives business normally a 1% grower there or 1.5% on an industry-wide basis?.

Yeah, I think if you look at the industry data, this business grows as you said, roughly in terms of how manufacturing growth maybe a little stronger than manufacturing growth in North America. So that would be a way to look at it overall and then within that, there are segments that manage in different ways..

So the company as a whole, if you exclude the Tonsan acquisition, were your volumes down 1% or 2%, is that the way to think about it?.

No, I don't -- I think it's down 1%. I don't have that number in front of me Jeff. I think it's down 1%..

Okay. I think you see it up dramatically and in construction products up very nicely and Asia without Tonsan posted double-digits flat in -- flat in Europe and then down in the Americas is the way I look at it..

And what….

And the Americas overwhelms that number, Jeff..

Sure, yes.

And raw materials for the company as a whole are I guess down mid single digits in rough terms or for the industry, how you review or express it?.

Yes Jeff, I can give you some information on that. It's actually raw material cost, for the total company, our raw material cost is something that we actually disclose in our Q and that will come out on Friday.

And what I'll show you just at a high level is that our -- on about flat revenue year-over-year in the third quarter, our raw material cost were down about $20 million..

All right.

And then lastly your SG&A expenses maybe grew 3% for the first three quarters of the year and your revenues are kind of flat and does that mean that SG&A should really moderate in the fourth quarter or why is SG&A growing faster than itself?.

Yes, so Jeff, SG&A, well actually if you take the SG&A, basically Tonsan added about $7 million or $8 million of SG&A per quarter for us. So you take that out and just look at the legacy business prior to Tonsan, actually our SG&A numbers are down year-over-year slightly.

I think that's just a combination of tight spending controls or slight increase in core spending rate offset by a favorable currency effects is basically how that works out..

And that's following along with our commitment on SG&A. We're managing SG&A in a way that will be at or below what the revenue growth is in the business..

And then lastly, are prices in general for the whole company moving up or down sequentially into the fourth quarter or do you see us going into a positive price environment, negative or flat?.

Yes, I would say overall it's neutral. There are certain parts of the business where prices are moving down as others where the value that we created and the nature of some of the materials is moving them up. So I think flattish is the way to look at it Jeff..

Okay. Great. Thank you so much..

And we'll go ahead and take our next question from Rosemarie Morbelli with Gabelli & Company. Please go ahead. Your line is open..

Thank you. Good morning, everyone..

Good morning, Rosemarie..

I was wondering if you could talk a little bit about the level of demand in Europe looking at different industries and with the flu of resurges coming in, is that going to have an impact with some money going towards helping them as opposed to investments?.

Okay. So I can't comment on whether the refugee is going to really impact things. I can say though that we see a relatively positive environment in Europe. Now when I say relatively, I think it's relative to what's typically a very weak environment in Europe.

So generally a positive environment in Europe in our Africa business is with the exception of course of Russia and Ukraine where I think things are pretty weak. So I wouldn't call it robust, but relatively positive..

Are there any particular markets, industries, which are stronger than others and you see that particular trend continuing?.

Yes, I would say nothing that stands out exceptional, but I would say our consumer good businesses are solid. So whether that's hygiene or packaging, they're in solid underlying position and back to an earlier question, certainly we're seeing better environment with our core customers in Europe than we do with our core customers in the Americas..

Are then looking at your construction margin, it is down almost half sequentially.

What is behind that because we're still in the strong construction seasonality? And so could you talk about that and what are you expectations for the fourth quarter?.

Yes, so it's up broadly. Maybe be Jim can add some color. I think our margins year-to-date are about 15% in that business, maybe 14.5% and that's about the margin flow we expect to see. That business does have a little more volatility related to product mix and volumes. So the business is typically stronger in Q2 and Q3.

So -- and I would look at that business as a business that today is around 14.5% and depending on the volumes in the quarter, we'll move around that. And then some of the wins we have should move that forward in the longer term. We see this as a high teens business in the long-term.

But we'll add our targeted levels and we'll move sometimes up and down off of that 14.5% is the way I consider it.

Tim, anything to add there?.

No..

I was looking at the EBIT margin, the operating margin, I mean, your operating income was $16.6 million unless I have the wrong numbers in the second quarter and the operating income is $3.5 million in the third quarter?.

Yes. That business has a high level of depreciation associated with it. So….

Amortization..

Amortization associated with that, I'm sorry. And so I think especially in that business, looking at the EBITDA margins gives you a better view of the volatility, because it had that big chunk of amortization..

Okay. And then If I may squeeze one more question. When you look at all of the changes that you have made in the Americas, you expected volume growth in the second half and we have a decline of 7.8%. So – and that decline is worse than in previous quarter, even though you had said that the SAP issue was behind.

So, what gives you confidence that in these operations which will actually grow in 2016, other than the easier comparison that we are going to be facing?.

Right. Yes, so I think that the 7.8% includes a very tough comparable, right. If you looked at Q3 of last year, we had volume growth of nearly 4% right in the middle of our SAP issue. So the numbers are a little inflated, in terms of thinking it in that term.

So I think when you strip to the data, what you'll see is Q3 is similar in terms of negative growth as Q2 and Q1. So – but there's still a question of why is it going to get positive. Fundamentally, Rosemary, we have a very strong team that has a long track record in this business and knows how to win market share.

In the core areas that we have, they took a hit in the gut last year with this SAP problem. They found their way through those problems, made certainly stabilize things with our customers, did a great job of managing through those problems.

They started this year rebuilding our pipeline and also the open margins of the business in a [strengthening] [ph] business. So we have an experienced team of people that understand the business. They are back on the track of winning with customers and growing business.

There is innovation opportunities and there is effective plans in terms of winning with large customers that are all in the pipeline. So – and my confidence is very high in this business. It is the nature of the business and the nature of the people in the business that it will move back to positive growth.

Not that we are growing 5% to 6% next year, but I do expect to see positive growth after the challenges they've been through..

Okay. Thank you very much..

Thanks..

And we'll go ahead and take our next question from Mike Harrison with Global Hunter. Please go ahead. Your line is open..

Hi, good morning. Jim, I was wondering if you could discuss where you are seeing overall demand here in September? I think maybe, particularly and the durable assembly markets which might be the most macro sensitive pieces. So typically, we'd see a return to stronger production rates in those markets after a slower July and August period.

So as you sit right now, are you seeing that typical improvement in September or has the pick up been a little bit weaker than expected?.

Yes. I guess, it would be tough for me to dig too deep into durable assembly here in terms of the numbers.

But I would say, overall, the Americas - and I think you are talking about North America or you talking about globally?.

I was thinking, overall.

But if you could walk us through the regions, that would be great?.

Yes. So I would say in durable assembly around the world things are relatively normal and I would say the one exception is the weakness we saw in North America through Q3 hasn't abated in Q4. I wouldn’t say it's got worse.

But, I would say this lower level of demand that we saw on same customer situations is continuing here throughout the last few months. But not and other parts of the world and our durable assembly business in Asia and in EIMEA underlying is at expected levels.

And we don't see extended shutdowns from customers for instance, in Europe which we've seen in the past after when there is weak demand. We don't see those sort of things at this point..

And then on the Tonsan business, I'm under the impression that that business usually shows a pretty strong Q4.

Can you maybe talk in a little more detail about the seasonality of the Tonsan business? And how that might be affected by any potential weakening in the macro environment in China?.

Yes. I would say, overall, our Asia business has an uptick in fourth quarter, given the nature of how certain parts of the hygiene business operate, how Australia operates as they enter into their summer. And also some of our electronics business builds.

So overall, for Asia, Tonsan, itself, I don't think has a particular seasonality other than Chinese New Year FX all of our Chinese businesses. But, there's no big uptick in Q4..

And then for Jim Giertz, you mentioned the tax rate for Q4.

But, as we look out to fiscal '16, what's the best number to be using there?.

Mike, I can't really give you a number. As I said in our remarks, I can tell you it's going to be lower, which I don't think is very much overreach because it is pretty high right now. But it depends on where our profit lift comes from.

Our profitability in the Americas, right now, is at historically high levels and we are paying a big tax rate on the revenue earned in the United States. That's coming from the Americas segment, plus TV. To get our tax rate down, we need our European business to perform at the right level and growth in Asia helps us, as well.

It's just how that plans comes together for '16 will dictate our core tax rate..

Both of those things will happen. So we know Asia will grow disproportionately and Europe's margins will improve. It's just a quantification that's difficult to get to..

I think I have been using 32%.

Is that too low? More like 33% or 34%?.

I don't really no. I'm going to say that I would guess it between 32% and 33%. Somewhere in there is probably the right number..

Okay. All right. Thank you very much..

And we’ll go ahead and take our next question from Dmitry Silversteyn with Longbow Research. Please go ahead. Your line is open..

Good morning, guys. I just wanted to get a couple of bookkeeping questions out of the way. The Tonsan business in the third quarter, I'm using about $30 million contribution to revenue.

Is that in the ballpark?.

I think but we said overall, was about 25% a quarter and [45] [ph] in Q2. So we did a little better than that but I think 30 is too high. Closer to $25 million is the way I would look at it in each of the second, third and fourth quarters..

Got you.

On the prospect of $6 million in revenue contribution about right in the quarter?.

That's correct..

Okay. You've done a very good job maintaining pricing, overall.

I understand your driving the value proposition and some of your products that helping to offset, perhaps, some of the past to pricing and some of them are commodity products that are lower material cost with oil beating what it is in the economy globally being what it is, we're probably in a period of longer-term benign raw material environment, perhaps more potential for downside raw materials as we get into 2016.

Given the lack of topline growth, not just for yourself but for the market in general, from what it sounds like, is there an increase pressure building up to maybe pass through raw material cost a little bit quicker in terms of pricing? How should we think about pricing going into 2016 and how much of this $20 million a quarter and raw material benefit you think you'll be able to keep in 2016 or perhaps even expand?.

Again it varies a lot by market segment and you touched on that Dmitry. We have certain customers and certain segments where the pass through is pretty confident and that's been happening this year and the - that would continue, whichever way raw materials go. That's one segment of our business.

The biggest portion of our businesses is value-based pricing that's based on what we are delivering to customers and competitive dynamics.

So I would say that generally in this environment, we expect margins to be positive and I think the mix in the company's business over the last few years has moved to a positive situation, where what we do is work closely with customers on value-based solutions either way of raw materials go so that we can find a way to help them win and help us win.

So, whether that's the raw material substitutions, introducing new materials.

In the P&L it shows up as one number that Jim talks about but there's a lot of work we're doing with customers to introduce new products, introduced new suppliers, to enable those numbers to happen and it's those changes in products that we offer to the market that allows our customers to win and allows us to win.

So, the short answer there is I don't expect margin deterioration and I think given the mix that we have, if anything, it should be positive as we look at 2016..

Got you. Jim, thanks for the color. One question around construction, in general.

First of all on the construction adhesive business or construction products business division that you have, the sequential decline in the EBIT margin, I think in answer to Rosemary's question that you were talking about, the stability on the EBIDTA margin but just a big amortization expense.

I'm still a little bit mystified by margins going from low teens last quarter to 5.7% this quarter on the EBIT line.

Is one of these two quarters an outlier? How should we think about profitability in construction business?.

We went from an EBIDTA version, right, because we have this fixed amortization number. We went from 17 and change to around 14. It's a three-point difference and that difference is really driven off of the changes that we have in volume and mix and I think the right number to look at is the year-to-date number.

So that number hasn't changed and I’d say if you look forward to Q4 it's going to be very similar to where it is and that is about 14.5%. So that's the right way to think about it and we will see this kind of quarter-to-quarter volatility as small changes in volume impact and mix impact.

But if you look at this business as today, running at 14.5%, that is right way to look at it..

Got you. A couple follow-ups on the construction period. First of all, this year you are benefiting from some channel fill at Lowe's.

How should we think about the magnitude of the channel fill and the impact it can have on the second and third quarters of next year? Out of the mid-teens volume growth that you seen this year for that business, is it half of that Lowe's business, I'm just trying to understand because usually a year after a channel fill companies come around and tell us they've got not tough comp from a year ago so the revenues are in a strong on a growth basis.

Is that something we should be concerned about for 2016?.

I would say we are not going to grow 30% next year. I think that from a comp basis, we'll move back to more normal growth rates. We're still winning business in the market across all of our channels, including Lowe's. It's too hard for us to give you number in 2016 but it won't be 30%, it will be at a lower number.

We don't have this huge channel fill and then sucking sound in the way we manage the transition with Lowe's. It will have an impact and we will try to spell that out as we go into Q4 but I'd expect, today, if I was sitting here today, I'd say I'd expect positive growth throughout the year every quarter of 2016.

Again, we haven't work through all those numbers, yet. So it's still early..

And then just final question on construction in general in North America.

Again because your business is experiencing some specific drivers in this period, if you look at the overall construction market, are you seeing signs - is there any change to the growth cadence of the market, either better or worse? Is the season coming to an end? And as you look back on the construction season was it about in line with your expectations or better or worse?.

We saw growth in all of our channels and I would say, overall, it was in line, maybe a little better than we expected. We don't see dramatic changes one way or the other. So good, solid, overall underlying market growth..

Construction for you overall even beyond sort of the channel wins and if you just look at the market overall, do you still seeing it as a contributor?.

Yes..

Thank you very much, Jim..

Thanks Dmitry..

[Operator Instructions] We’ll go ahead and take our next question from Mike Ritzenthaler with Piper Jaffray. Please go ahead. Your line is open..

Hi, good morning.

Just a couple of simple follow-ups I guess from me on - I guess on the Americas being down 8% on volume, what are some of the goals that you outlaid for the Americas sales organization and how long does it typically take for the pipeline to convert into sales? And then I guess in Europe, if the pace of volume growth - you are posting modest volume growth in Europe, is that pace and the ability to achieve manufacturing efficiencies going to be sufficient to produce double-digit EBIDTA margins in Q4?.

Okay. So – and I am sorry, I wasn't paying attention as well as I should, because I was thinking about the first question.

The second was about EIMEA margins?.

Yes..

Okay.

What is the pace of volume growth?.

Yes..

So on the Americas, and it's a great question, right, how are you going to change the trajectory and what Tracy and her team are focusing on are what are the underlying metrics that are driving their performance. So it's a number of new product demo opportunities.

It's the risk factors associated with customers and what issues are there that would mitigate our ability to retain business. It's our [clothes] [ph] rate on accounts. It's our pipeline on accounts, and, its some of the training aspects of specific value propositions that we have and how well trained our team is doing.

So fundamentally what the team is doing is looking at the sales process, what's driving the wins and making sure those metrics are moving in the right direction.

So how many opportunities do we have in the pipeline, what's the rate of closure, what's the rate of retention of business that's closed are all metrics that are moving in the right direction. So those metrics are the ones that we are measuring, that are historically how we've driven the business.

The positive organic growth and that’s what Tracy and the team in fact doing and we're seeing very nice progress in each one of those metrics. And with respect to the EIMEA, may I'll talk broadly and I'll give Jim the number part of the question. It’s a lot of things we're doing in EIMEA to improve the business, right.

We are reducing the cost, moving products to the correct location, optimizing freight, reducing temp labor, reducing weekend work, moving to more bulk raw materials, getting our warehousing expenses in the right spot and then moving project workers into the business and moving those costs out of the business.

So there is a lot of those things that are in the optimization phase. But I think your question might have been more specific, so let me let Jim pick up..

Yes. Mike, I think you asked is therefore the EIMEA EBIDTA margins, the double-digits in the fourth quarter and I would say the answer is, most likely, no. But they will be close to that level..

Okay. And I guess one subtlety as a follow-up to the Americas question, Jim, that you just answered.

On conversion of the pipeline to sales, is it - our sluggish end markets making that more difficult to converge or is it, I guess, in terms of the pace of how those – how that pipeline is converting into revenues?.

Yes. I'm not sure if sluggish end markets make it more difficult to converge necessarily. I think it's about executing on the value proposition to make that happen..

All right. Fair enough. Thanks..

And we'll go ahead and take our next – we'll take our next question from Jeff Zekauskas with JPMorgan. Please go ahead. Your line is open..

Two quick final question's. Your accounts payable, came down to around $170 million from about $192 million in the second quarter and 212 in the year ago.

Do you expect payables to go up in the fourth quarter? So why did it come down so sharply in the third quarter and what might it be in the fourth quarter?.

Yes, Jeff, the changes in our accounts payable balance is really just timing. How our invoices develop over the end of the quarter, especially if nothing has changed in the way we pay our suppliers or the length of our payment terms or anything else. So nothing has changed, it's just simply variations in timing.

By the way, that number includes both our trade payables, plus the payables we have for CapEx and other things that can make….

But I would add that year-over-year, the SAP efficiencies, we were a little more inefficient a year ago, yes..

So, it shouldn't be - it was the use of cash this quarter and it shouldn't be next quarter. I don't have an exact number for you, but no reason why it should be used next quarter..

Okay. And then lastly, I guess, the markets general opinion of basic material company is or chemical companies is that, they are facing a slow in growth whether in Asia or South America.

When you look at the overall tenure of your business in September and you look at your order pattern going forward, does it seem to you the global growth is slowing or is it staying the same or is it doing better than that. How does things look from your point of view..

I would say that when I look at all the macro factors and how they are impacting our business, same customer sales, same customer issues, the impact we have seen was and is only in the America's and we don’t see it is getting worse in Q4, we see at the same levels.

But in China we moved from double digit growth to the mid single digit growth but Australia we're doing really well, but that's because we are winning market shares.

So overall our growth is market shares, but I think that we don’t see an accelerating decline as we go into Q4 in the Americas, but we did see a decline in Q3 in terms of overall underlying demand..

Okay, great. Thank you so much..

Thank you, Jeff..

[Operator Instructions].

Okay, thanks everyone for your time today and your continued support of our business and our strategies..

And thank you ladies and gentlemen. This does conclude today H.B. Fuller third quarter 2015 investor conference call. You may now disconnect..