Maximillian Marcy – Senior Manager, Treasury and IR Jim Owens – President and CEO John Corkrean – EVP and CFO.

David Begleiter – Deutsche Bank Mike Harrison – Seaport Global Securities Rosemarie Morbelli - Gabelli & Company Unidentified Analyst - JP Morgan Curt Siegmeyer - KeyBanc Capital Markets Christopher Perrella - Bloomberg Intelligence Dmitry Silversteyn – Longbow Research Bruce Zessar – Advisory Research Inc..

Presentation:.

Please standby. Ladies and gentlemen, thank you for standing by, and welcome to the H.B. Fuller Second Quarter 2016 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 2016 second quarter earnings call. We have two speakers today, Jim Owens, our President and Chief Executive Officer; and John Corkrean, our newly appointed Executive Vice President and Chief Financial Officer. As always after our prepared remarks, we will have plenty of time to take your questions.

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

These filings can be found in the Investor Relations section of our corporate website at www.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 the GAAP numbers that 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. We posted a very good result in the second quarter and with half of the year behind us, we remain on track to deliver the financial plan for the fiscal year. Some parts of our business are running ahead of our expectations for the year and others are trailing a bit behind.

Overall our current position is strong and we carry momentum into the second half. Here are the important highlights from the second quarter. The most significant development in the quarter is the continued improvement of our profit margins. Gross margin improved 220 basis points versus the prior year.

Our gross margin improved sequentially as well, up about 70 basis points versus the first quarter results. At about 30%, our adjusted gross margin now stands at the highest level achieved in recent history and on track to reach our long-term targets.

Our global efforts to reduce raw material costs, improved supply chain efficiency, and increased productivity in our manufacturing operations is showing up in the financial results. The gross margin improvement drove adjusted EBITDA margins up to nearly 14% which is our target for the year.

Our strong cash flow is enabling us to reinvest in our core business bringing our balance sheet leverage into our target range and fund strategic acquisitions.

Strong operating margins, improving revenue growth trends, and the elimination of almost all of our one off cost associated with business transformation and restructuring should support stronger cash flow generation during the second half of the year.

Realizing the returns and cash flow performance resulting from the large investments made over the past several years is a key deliverable in our 2020 plan and we are off to a good start. The breadth and pace of the operating performance improvement within our EIMEA segment continues to exceed our internal expectations.

One of the most significant aspects of the EIMEA operating performance is that we see improvement across almost every aspect of the business, our return to volume growth, a better raw material cost structure, lower manufacturing costs, and streamlined operating expenses.

We’ve had a good start to the year, in short we are on track to meet our goals this year and create a solid foundation for delivering the 2020 strategic plan we reviewed with you in February. With that overview I will now discuss the performance of each operating segment in more detail.

As expected in the Americas segment the overall trends we saw in the first quarter were extended into the second quarter. Margins were very strong but revenue growth remained a challenge.

In the second quarter volume was down as expected by about 2% versus last year which was an improvement in trend versus the previous quarter but not at the levels we expect the business in the future. Several different dynamics are impacting our growth.

First, it is important to point out that we have certain business lines that are consistently showing solid revenue growth in the Americas particularly within doable assembly. Second, the end markets across Latin America are not conducive to growth.

About half of the year-over-year decline in volumes for the Americas can be attributed to the difficult end market condition in parts of South America.

Third, although our global hygiene business remain strong and is posting solid growth this year, due to timing and other customer specific issues our hygiene business in the Americas segment is down slightly compared to the prior year.

This temporary soft spot in our business will reverse over the second half of the year and we expect to post solid growth again in 2017. And finally our packaging business is restoring its momentum. Our pipeline of new business wins in packaging indicates that we will return to growth in the second half of this year.

At our last conference call three months ago we said that the Americas would return to positive volume growth in the second half of this year and this remains our outlook. Margin management continues to be good new story in the Americas segment. In the second quarter adjusted EBITDA margin was 20%.

Primarily due to pricing management and raw material cost management overall an improving revenue performance in the second half of the year combined with strong ongoing margin management should generate a solid result in the Americas in 2016.

In our construction product segment constant currency revenue declined over 10% versus the prior year and our adjusted EBITDA margins was below the prior year and our long-term target range. In short we had a tough second quarter in CP.

The explanation for this starts with recognizing that this segment is more volatile than other businesses and the second quarter of last year was an unusually strong period both in terms of volume growth and operating margins. This peak in performance last year was primarily driven by the ramp up of additional market share at our key customer lows.

After adjusting for the tough comparison from last year our performance in the CP business in the second quarter was a bit below our expectations. Revenue was generally soft due to lower export sales to countries with declining end markets and some inventory rebalancing actions taken this year as well.

Our margins were impacted by lower volume and the excess cost associated with our new facility which is starting up in Aurora, Illinois and our related network investments. We expect our volume growth trends to improve over the balance of the year.

Operating margins are also expected to improve supported by additional volume and the elimination of excess costs associated with the current manufacturing investment product.

In contrast the best story for the second quarter came from our EIMEA segment where the recent efforts to improve our operating performance continued to show in the financial results. For the segment overall volume growth was 3% versus the prior year. We saw solid revenue performance across most of our market segments and geographies.

The most significant growth came from our hygiene business line and continued steady growth across business lines in India. The tone of our business and the new business pipeline is getting stronger enabled by an improved and consistent supply chain performance. We expect continued positive volume progression for the remainder of the year.

From a profitability perspective we improved adjusted EBITDA margin by 490 basis points versus the prior year's second quarter. The elements of the improvement were broad based, material cost reductions, price management, better supply chain efficiency, and lower manufacturing cost.

We expect continued year-over-year improvement in EBITDA margin throughout the remainder of the 2016 year. At this point we are confident that we have turned the corner and are on a steady pace to achieve our long-term strategic financial objectives in the region by the end of 2017.

Now turning to the Asia Pacific segment, we grew constant currency revenue over 9% in the second quarter with growth coming from all segments across all sub regions. Our core markets are weighted to consumer driven end markets where demand is still is fairly strong in Asia Pacific.

Adjusted EBITDA margin in the segment was essentially flat versus the prior year. Strong margin management in our core business was offset somewhat by incremental costs as we ramp up investments in our new manufacturing facility in Indonesia. And I will wrap up with a short discussion of our engineering adhesive segment.

We continued our strong growth with volume up 15% versus last year's second quarter. The Tonsan business continues to deliver its targeted growth and our electronics and automotive businesses have shown solid year-over-year growth as well. Our adjusted EBITDA margin in the second quarter was relatively low at just 7.4%.

For the year -- for the year-to-date adjusted EBITDA margin is about 8.5%. For the full year we expect our adjusted EBITDA margin to be about 10%. Our operating margins will fluctuate quarter by quarter as we steadily increase our investment and product and market development to support future growth.

And of course the acquisition of Cyberbond contains the trajectory of this business based on the synergy potential with our existing business. Speaking of Cyberbond let me spend a few minutes talking about our recently announced acquisition.

Cyberbond sells high end cyanoacrylates, anaerobics, and UV-curable adhesive technology for electronics, medical, audio equipment, automotive, and structural applications. The addition of this business will enable us to strengthen our position in high margin, high growth engineering adhesive markets.

The Cyberbond business is intended to accelerate the global synergy of plans we laid out at the time of the Tonsan acquisition which we completed a little over one year ago.

You will recall that the synergy opportunities available through Tonsan include expanding our market coverage in China as well as moving the Tonsan platform out of China to Europe, North America, and other key emerging markets. Cyberbond will support both elements of this synergy plan.

Within China Cyberbond provides to Tonsan a more robust cyanoacrylate product portfolio, an extensive market application knowledge. This is not an area of strength for Tonsan today. In addition Cyberbond provides an excellent existing commercial channel to sell Tonsan products into Europe and North America.

So the acquisition of Cyberbond expands our capability in China and accelerates our business development efforts outside of China at the same time. Cyberbond has about $15 million of revenues split about evenly between Europe and the U.S. The purchase agreement was signed on June 6th and we closed the transaction on June 8th.

The purchase price for the company was slightly over $40 million representing an EBITDA multiple on the existing business of about 12 times.

The valuation of this transaction is appropriate given the margin profile of the Cyberbond business, excellent growth prospects on a standalone basis, and the dynamic engineering adhesive market space, and the opportunity to leverage the much larger Tonsan acquisition through the Cyberbond platform.

We are very pleased to welcome the Cyberbond team to H.B. Fuller and look forward to joining with them to achieve our vision for the engineering adhesive segment. Before I turn the call over I want to quickly introduce you to our new Executive Vice President and Chief Financial Officer, John Corkrean.

John is a seasoned financial executive who had a long career at Ecolab in a number of financial leadership positions. John has gotten up to speed on our business quickly and I am anxious for you to spend some time with him soon. And now I’ll turn the call over to John. .

Thanks Jim. Jim provided a few highlights of the second quarter results so I'll just provide some additional details. Constant currency revenue growth was slightly lower than expected and fell 0.4% compared to last year.

However volume growth was strong in three of our five segments and year-on-year volume growth in the quarter for Americas improved versus the first quarter. As Jim mentioned we had a tough quarter in our CP business but we expect this segment to show improvement in the second half based on a couple of key factors.

First, our loads business did get back on good footing following the recent period when some temporary inventory repositioning impacted our results. In addition we expect our export sales to improve marginally from a very weak period in the second quarter.

Finally, we have a series of specific initiatives that have launched that should support additional improvement across all of our distribution channels. The impact of product pricing became a more significant factor in our results in the second quarter.

You will see some price erosion during periods of prolonged raw material cost deflation, that said we believe we are effectively handling this normal process of managing pricing with our customers. Best evidence of this is the sequential improvement in gross margin that we’ve delivered.

Going forward we expect the raw material cost environment to stabilize and further incremental benefits from lower input cost should be minimal with pricing stabilizing as well. Selling, general, and administrative expenses were a little bit higher in the second quarter. A couple of factors are at play here.

First, incentive compensation costs are higher in 2016 relative to last year based on the improved performance of the business. In the second quarter over half of the year-on-year increase in adjusted SG&A is accounted for by this factor alone.

Second, we have increased spending this quarter growth in the engineering adhesives business as mentioned earlier by Jim.

One note on our tax rate, given the improved geographic mix of earnings, in this case more favorable results coming from our European operations which operate on a lower tax rate environment, our core tax rate assumption for the fiscal year dropped to about 32% from our previous expectation of 33%.

A lower tax rate in the second quarter includes a catch up recorded the benefit from the higher rate previously recorded in the first quarter. All in adjusted diluted earnings per share were $0.67 in line with our expectations.

The second quarter results included relatively high foreign currency losses primarily related to exposures in Latin America and other emerging markets that shaved about $0.02 per share off our adjusted EPS relative to the prior year’s results.

For the year-to-date these unusually high foreign currency losses have negatively impacted our adjusted EPS by about $0.09 per share relative to the prior year. We believe the risk of additional significant foreign currency losses in the second half of the year has been substantially mitigated.

With that now let me turn to our guidance for the remainder of the year. Foreign currency has been less of an impact on revenue this year than initially planned. We now expect FX to negatively impact revenue growth by about 100 basis points.

Also due to lower pricing levels and the slow progression of revenue in the Americas in construction products we now expect to deliver constant currency growth of around 3% versus our previous expectation of 4%. EBITDA margin is still expected to improve and average around 14% for the full year.

Capital expenditures are still expected to be around $60 million for the year. The most significant capital projects this year are supporting expansion and productivity enhancements for our constructions products operating segment and completing our Greenfield investment in Indonesia.

Cash flow from operations was strong in the second quarter driven by solid net income. We expect strong free cash flow generation performance for the remainder of the year as we reduced one off costs, reduced working capital, and improved profitability steadily through the year.

All of these factors considered we are narrowing our EPS guidance range to between $2.45 and $2.60 from the previous range of $2.40 to $2.60 with year-on-year growth improving as we move from Q3 to Q4. With that I'll turn the call back over to Jim Owens to wrap us up. .

Thanks John. We are growing the business in our focus areas and improving the overall cost structure which is driving our margins higher. This is what we said we would do when we laid out our strategic plans. This year is about capitalizing on our strong foundation and delivering results based on the investments we have made.

It is the first year of our 2020 strategic plan. The plan revolves around driving continued growth in our engineering adhesive business along with growth in emerging economies while optimizing margin performance in our other segments.

Our 2020 plan is a solid continuation of what is going well in our business with a clear vision of what will improve going forward. Our second quarter results are in line with our strategic direction and momentum is building throughout our business. Our EBITDA margin of 13.9% was the highest achieved in the second quarter at H.B.

Fuller and puts us on pace to hit our 2016 and long-term plans. I have confidence in continued success for the remainder of this year which we will then leverage into the coming years. We have built a strong foundation at H.B. Fuller.

We have a clear vision of where we are headed and we have an outstanding team of people that are experts in our business and they are executing our plans effectively around the globe. We had a solid second quarter but more importantly we have strong momentum and a solid path forward into our future.

This is the end of our prepared remarks, so now I look forward to answering your questions. .

[Operator Instructions]. We will take our first question from David Begleiter from Deutsche Bank. Go ahead David. .

Thank you, good morning.

Just on Americas adhesives, in terms of volume growth in the back half of the year, what level are you expecting in the second half of this year?.

Yes, I will let John try and give you sort of a specific but it would be positive single, low single-digit for the second half of the year would be the way I would think about it. So, we are turning from negative to positive here and that will be in the single-digits. .

I think that is right Dave and I think you are going to see that more in the back half of the third quarter and fourth quarter. So we will sort of make that turn as we get through -- get into the second half of last half of the year. .

So, you are talking 1% to 2% in Q3 probably in that range or…?.

It is something like that. I would say single-digits, zero too. .

Got it and just in terms of the margins given the recent or somewhat recent increase in oil prices, are you expecting some of these tailwinds -- become headwinds at some point either late this year or early next year, does that mean that margins they have peaked here?.

Yes, I certainly would -- as you know oil price we had a lag, a sizeable lag off of oil prices. So I think oil prices will have to move up significantly and sustainably for us to have any real pressure on our raw materials.

So, I think what we are looking at is if oil prices and featuring prices stay where they are, our raw material cost will stay relatively stable for the rest of this year and into next year. If you see a significant uptick from where they are now it would probably be a nine month lag before we saw any pressure. So, we really don’t see that as a risk.

But that would be my view of this year and next year. .

And last Jim, some of the pricing pressure is still on Q2 especially our market of adhesives, is that via little less of headwind or is that what you would expect going forward at least this year?.

Yes, I think roughly about the same for the rest of this year. I mean I think what we are doing when you think about our business and price, we have to manage both ends of it.

We have to certainly manage things with our suppliers and then when suppliers are moving prices up there are lot of alternate raw materials that we can bring into the market in order to help our customers.

So you will see both on the way up and on the way down us working with customers to introduce new technologies, introduce new raw materials that allow us to manage this price and we have gotten very good at that.

If you look back a couple of years as raw materials were going up we managed our gross margins pretty effectively and as they’ve gone down we’ve managed them effectively and that’s because of the way we collaborate with customers in both of those situations.

So, -- and I think this positive and dampened effect that you see in our business is one that I expect to continue. .

Thank you very much. .

Thanks Dave..

[Operator Instructions]. We’ll take our next question from Mike Harrison from Seaport Global securities. Go ahead Mike. .

Hi, good morning. .

Good morning Mike. .

Jim, as I look at the pricing components of your growth it looks like that was under the most pressure in the Americas and I would think that within Latin America you’re seeing an inflationary environment and the pricing is actually up which suggests to me that North America is actually under even more pressure.

Is that just a function of the lower raw material cost or can you maybe talk about how much might be related to any discounting or other efforts around regaining some loss share in North America?.

Yeah, I would say predominantly this is -- I would say first off we don’t sell businesses based on our raw material cost. We provide a value added product which meets a set of needs and then we manage ourselves through the market dynamics that exist out there in the market.

We have some customers less than 10% that we move their prices up and down at a certain margin with raw materials. Most of our business is negotiated pricing and I wouldn’t say the pressures are any different in Latin America than North America so I don’t think there is an inflationary pressure down there in our business.

It is pretty much a situation where as oil prices have now stayed down for a couple of years there are some raw materials release that’s happening and we are appropriately giving that to customers as we negotiate prices with them and maintain their business while continuing to improve our margins.

So that’s the balance we’re trying to make in the businesses. Find ways to appropriately be competitive but also to improve our margins. And I wouldn’t say there is a big discounting effect going on in our Americas business.

I think you’d see that we have had the same kind of effect in our Asia Pacific business and in our Latin America business in Asia. John, did you want to add anything to that. .

No, I think that’s exactly right Jim. It is definitely a function of the raw material market as opposed to discounting. I would say also important for Latin America business it’s a significant part of our business is denominated in local currency as far as revenue goes there. So that would mitigate any inflationary opportunity..

Does that answer your question Mike? Is that good. .

The engineering adhesives business I understand that you are adding some sales resources and investing for the longer term there, did I understand correctly though you’re your expectation is that margin is significantly better as we get into the second half and getting us to a full year of around 10% EBITDA margin.

Is that just a step higher from Q2 to Q3 to Q4 or what did the trajectory look like there?.

Yes, so I think at the highest level right, we are focused on generating the growth there. If you think about this last quarter it's probably got about $3 million more expense than it had in the prior year. Most of that is selling and R&D cost. So those are investments that we’ve made to help drive the technology and the overall performance.

And I’d say going forward, based on the numbers we have in the our business we expect those margins to expand. But again that business will be a little lumpy quarter-to-quarter as we make the investments we need to in various parts of the segment. But yes, the short answer is we see a step up here in the second half in the margins of that business..

And then last question I had is for John. I was hoping maybe you could comment on what attracted you to the opportunity at Fuller aside from a change in scenery on the commute and maybe how do you plan to implement some of the approaches that you've learnt at Ecolab now that you are at H.B.

Fuller?.

Well the commute with my last role at Ecolab was in Houston and commuting there was not an easy effort. So this is much better, nicely back in Minnesota. Well, what attracted me is really the person sitting across the table I would say for the most part.

It is really getting to know Jim and getting to understand his vision for the company and what he thought we were capable of doing and how he planned to get there was really exciting to me. Ecolab is a great company.

I hopefully can bring a lot of things that I have learned there and I think one of the things we have talked about is getting more consistent and I think this business is one that with some of the operational challenges that they have had over the last couple of years I think you are starting to see more consistency now.

And I think that is something that we are going to put a high premium on and I think I can help in that regard. .

John, good. Thanks very much. .

Thanks Mike. .

We will take our next question from Rosemarie Morbelli from Gabelli & Company. .

Thank you. Good morning everyone..

Good morning Rosemarie. .

And welcome John. .

Thanks..

I was just, when we look at EIMEA, the 7.9% margin, did you say that it was going to continue to improve in the second half or was that comment thoroughly referring to engineering adhesive?.

I think it is going to improve relative to prior years, it is the commitment we have for the second half Rosemarie. So -- and I think we are seeing a -- I think we started the year saying it would be a couple of hundred basis point quarter on quarter versus the prior year and we have exceeded that over the last two quarters.

I think we will do at least that good going forward. So, the expectation you have is 200 basis points versus Q3 and 200 basis points versus Q4 will hold better. .

Okay, and then you also mentioned that most markets were -- showed some improvement in EIMEA and I was wondering if you could give us a feel for the market, which ones are doing better and why and then which ones are lagging or maybe worsening?.

Part of the markets that did particularly well in the quarter were our hygiene business, our India business continues to be a really strong performing business for us in our EIMEA business. Everything else did well Rosemarie.

I think when I say -- the only things that were a little bit of a laggard I think I want to say there were certain parts of our Russia business that were down this quarter but again it is a smaller business for us. So, generally positive performance on the volume growth across the board in the quarter. .

And looking at that hygiene business in the Americas, volume was down which is kind of surprising. Everyone seems to be popping babies.

So, I was wondering if you have lost some share or if there was other reasons for that decline?.

Yeah, the biggest reason for the decline is tied to the Latin America story. So, I think there is some changes in the dynamics of Latin America that are really tough right now for the people of Latin America and also for people who are supplying to that region broadly. So, that is the biggest driver.

We also had a specific customer that made some design changes that resulted in our business having less adhesive volume. Not great loss of share but a change in design. So, I think that's as I said is improving each quarter going forward and we will be back on track as we have always been in the hygiene business. .

Okay, that is helpful. Thank you.

And lastly on the construction products, any other reason why the decline other than loads adjusting its margin, I mean the environment is still quite strong on both new construction and remodeling, can you help us with that?.

No, I think you are right. The market overall is very strong. And last year in Q2 we were up 33%. And part of that was pipeline filling and I think that is the biggest driver. We also had Q2 of this year some destocking on the part of loads. Those were the two biggest drivers.

I think I mentioned briefly in the script, we had this export business that was down, that was in effect but really the two lows, how strong they were last year in the destocking were the volume drivers. And in the margins we had these two plants running right now. So we have invested in a new facility but right now we have double operating cost.

So those all came together in Q2 and we’ll see some of that same effect in Q3 but the business overall is very strong and that’s got a -- our business has been growing at double-digits on a consistent basis over the last five years, margins have improved, innovations have been introduced, so it is a lump in the business related to pipeline stocking predominantly.

.

And where were you exporting Jim?.

It’s a very specific business that’s part of that exports actually into the Middle East for liquid natural gas construction, tied in with that business and that’s some of those infrastructure projects that happened this time last year didn’t happen this time this year. So it’s a few million dollars in revenue that added to the impact..

Thank you..

We will take our next question from Jeff Zukakauss [ph] with JP Morgan. .

Hi, thanks very much.

In construction your revenues were down 8.2 million year-over-year and your EBIT was down 6 million, why such a large drop in EBIT relative to the revenues?.

So I would say if I were to take it, it is mostly volume, right as you might imagine. These are relatively high margin businesses on a contribution margin business. So our rate goes if you think about it in terms of pricing versus raw contribution margin was inline.

But we did have extra manufacturing cost associated with these dual plants so that was the second factor. And then OPEX was up in that business in line with what we expected in terms of some growth and that can be graduated down going forward.

So the biggest driver is volume but the second is manufacturing cost which were higher and the third, was a marginal increase in OPEX..

Earlier in the call you talked about the business getting better, do you mean that it’s getting less worse or do you mean it is getting better year-over-year in the second half?.

I think the way I'd look at it is sequentially. Right so, I mentioned that last year we were up 33% in Q2, we were also up 30% in Q3. So we have a little bit of this pipeline affected that will affect us in Q3. So, the typical pattern of this business Jeff for us is Q2 is the peak year, Q3 is slightly below Q2.

So I would say, expect that in terms of revenue which would be on the normal pattern and then I expect this to be in a growth versus prior year by the end of the year..

How much is your incentive comp going to be up year-over-year for the year?.

So our incentive comp probably would be up -- it's probably paid out at about 70% last year, that will probably be going to be a million dollars of it say. .

I am sorry how much?.

About $10 million more. .

10 million, yeah..

So because we are below target last year we were 10 million below target, we’ll be at or about target this year for the overall organization. .

Your SG&A as a percentage of sales is, I mean you've done such a nice job on your gross margin but your SG&A as a percentage of sales I think used to be maybe 17.5 and now maybe I don’t know it is almost touching 19 for the year.

Do you think you need to fix that or does it depend on sales that you might deliver in the future, are you satisfied with what's going on the SG&A line?.

I think when you look at what we are saying about business long-term Jeff, our 2020 plan we talk about a gross margin of about 31% and an SG&A of about 17%, right. That’s what gets us to our 17% EBITDA margin and we see that as the long-term target. So if you look at it on a quarter basis it's higher than we would have wanted.

It is because we invested in emerging markets and a little bit because CP was a little higher. But I think you are right to model our business in the long-term tracking down into that 17ish percent range and this is more of a higher peak level. John, do you want to add to that..

That’s exactly right, we have got a couple of our businesses that are getting heavier investments now that are not at scale yet. So I think as you start to see those businesses continue to grow at the level they are growing DA in particular you are going to see that ratio improve..

So it is going to improve because sales are going to grow faster or because the absolute level of SG&A is going to go down?.

It is really volume leverage is the primary leverage. .

It varies by business Jeff. Some of our businesses are going to get better leverage right. I mean we’ve said we want to improve the margins of our Asian and our European businesses, our packaging business so we have SG&A coming out of those businesses as we invest. .

Did you buy back any shares this quarter and what are your share repurchase intentions?.

So we didn’t buyback any shares this quarter Jeff. I think we bought about $4 million of share purchase in the first quarter and we took a pause as we had a couple of acquisitions that we funded in the second and third quarter.

So I expect that we will be probably be sort of back on the pace we were at the end of the last year in the first quarter as we exit this year. .

Okay and then lastly where do you think you are gaining market share and where do you think you are losing market share?.

Well certainly our EA business in each one of their segments is doing very well. So we see a good market share gains in our hygiene business overall so that’s a good positive story for us. Certain geographies, India certainly is a market share gain story.

Right now in Southeast Asia the investments we’ve made in Indonesia are creating sizeable growth there in our Southeast Asia business overall. Those would be some of the areas where we have really sizeable market share gains.

You look just in the quarter right, we had good gains in Europe and decreases in the Americas but I think if you look maybe more broadly we see sustained market share in the Americas. Europe having market share gains overall given the geographic dynamics of our business.

And I would say again different this quarter than what we’ve seen our construction products business has had a very sizeable market share gain over the last few years. So it’s a very positive market share story in our construction product business of North America.

So over the last couple of quarters clearly the biggest issue for us is our biggest most profitable business hasn’t been gaining share and perhaps second half of this year and that’s the Americas business. .

Okay, great, thank you so much. .

Thanks Jeff. .

We will take our next question from Curt Siegmeyer with KeyBanc Capital Markets. .

Hey, good morning guys. .

Good morning Curt. .

Just a couple, one on engineering adhesives obviously you talked about some of the investments that have been going on there.

What's your long term EBITDA margin target of 20%, we’re obviously -- it is obviously a pretty big gap to get there if -- I guess there is a couple of different ways of asking if you excluding the investments maybe what would margins have been and what else needs to happen, do you need volume growth to hit a certain level or what all needs to happen to sort of bridge that gap to achieve your long-term target.

.

To give you an idea right, just this quarter alone I said year-over-year we invested about $3 million in OPEX relative to prior year. If we had we had not invested that extra 3 million [ph] instead of being down a 150 basis points we would have been up 250 basis points. So that alone could make a 400 to 500 basis points difference.

And when you look at the underpinnings of this business, the contribution margins and the gross margins of this business are just fundamentally higher than our business.

So the investments we are making are technology for growth in the business for the future and we see this given the technology we have the position of the businesses we bought and where they are at, that there is a lot of market share gains for us to gain in a segment of the market that’s very high margin.

So we see it as a very important thing for us to do for our investors to take some of the profits that we are generating some of these more mature areas and invest them in these areas where we can build a strong long-term growth business though.

And as you know our expectation is this business will be a 20% EBITDA margin by 2020 so that’s the path we’re on. And we’re going to invest here in the short term to make certain we get there in the long term. .

Great and then maybe just a follow up, you lowered your constant currency revenue outlook, is that mostly just CP or is the lower pricing that you saw in the quarter that you expect to kind of remain similar to in the second half, is that a part of that or what are the components of the lower revenue outlook?.

Yes, I think it is primarily a pricing thing but let John give you a little more color on that. .

No, that’s exactly right Curt. Jim’s right, it is more pricing. Pricing is a little more of a headwind both in the second quarter and the full year than we probably at the beginning of the year which is a reflection of the fact raw materials have stayed down longer than anticipated.

That’s for us if you consider the cost of sales impact that’s a net to favorable impact at gross profit. .

Got it and how big is the export business in construction products that you mentioned?.

I would say it is about I should know it off of top of my head. It's less than 15 million so they had a really rough quarter for it to be sizeable. So it’s a small part of the business but they had a couple and its project driven. So normally one of those things is way in the background but its less than 15 million overall..

Okay, got it, thanks. .

We will take our next question from Christopher Perrella with Bloomberg Intelligence. .

Good morning, thank you for taking my call.

Just a quick follow up question, where are you in terms of the SAP implementation and what would have this spend look like on that going forward?.

So the SAP implementation as you know has been delayed for the global rollout so that we could stabilize and strengthen our business in North America. Our operating systems in North America are running very well.

So our business investments we made there while they created some problems in 2014 that affected our results in 2015 today are helping our business improve and run at a much higher level than had historically. We’re pleased with the system.

We’re likely to roll that out starting in 2017, so we’ll kick off the project late this year and then have our first go live sometime late in 2017. We’re going to do it though in a very different fashion than we did North America. We did our biggest business all in one bang on one day.

We’re going to take a smaller business like the Latin America business and do it in three pieces on three different events. So thinking of a very different strategy that will be extended overtime, the cost will be extended overtime but it is an important investment for our business and is going to strengthen our company.

So the short answer is our next go live will probably be late in 2017 with us investing later this year and then most of 2017 to make that a success. .

Okay, thank you very much. .

Thank you..

Our next question comes from Dmitry Silversteyn with Longbow Research. .

Good morning guys and thanks for taking my -– a lot of my questions have been answered but I just like to get a follow up on the question that was asked earlier about the Americas pricing but also the FX number that you have put up or the FX impact in Americas.

I think you said that you really didn’t have a significant price increase in Latin America which is sort of contrary to quoting manufacturers and lot of other related businesses that are trying to offset the deflation and currency with some more aggressive pricing.

So I'd just like to understand what's preventing you or the market for adhesives overall from following a typical path in emerging markets when currencies deflate, you raise pricing to compensate for that? And then secondly again on the foreign exchange you have put up a much lower than I expected.

Three -- it was a 30 basis points decline in foreign exchange year-over-year with second half of the year being -- second half of last year being a pretty significant decline in Real and some other currencies in Latin America as well as in Canada.

Sort of why is your foreign exchange impacts not higher than you have reported?.

The answer to both questions is related and it is because H.B. Fuller has been in Latin America for a long time and we’ve established ourselves in Latin America mostly based on dollar based pricing.

So we have price our products based on dollars, dollar based currency so our pricing underneath of this fluctuates in local terms but when we quote prices with customers there are some exceptions to that and where there are exceptions we’ve raised prices of course and that comes through.

But mostly its dollar based pricing to all of our customers in Latin America and that is why you don’t see the currency effects that you might see with other people who are pricing their products. .

I got it so basically because you are pricing it in dollars but your customers are seeing the higher prices in their local currencies but for you there is no need to translate because you are already priced in dollars. .

Exactly, that is correct. .

Got it, got it, okay. Also, let me follow up on Asia Pacific growth, we are seeing double-digit growth there in the current quarter and you had some mid single-digit growth in the first quarter, what are your expectations for the balance of the year.

I mean your main markets there I believe are kind of electronics and automotive and I am talking about engineering adhesives as well because it is primarily Asian based from what I understand.

Those markets looked to have been getting a little bit softer so I am just wondering if the share gains with the Tonsan and a more focused approach to Asia are allowing you to offset what could be slowing end market conditions or general conditions.

And what your expectations for the growth of that business in the second half of the year is?.

It is very important -- so our engineering adhesives, you are right, the overall market condition isn’t as robust as it has been in the past but this is a share gain opportunity where we are bringing people, technology, and opportunities to what was a very strong company.

So, this business has delivered 15% volume growth in what is a less robust China and Asian environments. So, very solid. That includes our investments in electronics where we are winning some nice wins in electronics. So, I think it is very good news in engineering adhesives despite the economy.

Similarly in the rest of our AP business, I agree with you Dmitry, we don’t have that robust underpinnings in Asia Pacific. But two things for us, one, lot of our businesses are tied towards local consumer goods and those parts of the economy are just fine. So, packaging, hygiene, those parts of the business continue to be positive.

Maybe not as positive as before but very positive in terms of how they operate. And we continue to win. We made a big investment in Indonesia that is helping us in Southeast Asia and our team in China is very strong in targeting the areas where we can bring value for customers.

So, will we deliver double-digit volume growth, that is probably a high aspiration but high single-digits in our Asia Pacific business is something I think we can achieve in the second half of this year. .

Okay, that is great to hear.

And then just one final question on Asia Pacific margins to step down sequentially in the second quarter versus the first quarter, sort of what is that driver or what was the driver for that and how do you think about margin progression in your Asia Pacific business for the balance of the year?.

Overall for the first half we are on target to where we expected for the first half and that is what we would expect for the second half of the year. So, I would look at the average of the two as a good target and a good progression. The difference between the quarters was some investment in this Indonesia facility which we are ramping up. .

Okay, got it. .

So, they are on target overall. .

Okay, thanks Jim. .

Thanks Dmitry. .

[Operator Instructions]. We will take our next question from Bruce Zessar with Advisory Research. .

Thank you.

I wanted to come back to the Cyberbond acquisition Jim, how much did you say their sales were, I guess trailing 12 months?.

Okay, about 15 million. .

Oh, 15 million, okay, and then do you have any estimate, that is 15 million, right that is what you said.

Okay, and then in terms of potential synergies and you mentioned the multiple was 12x but and we can back into whatever the EBITDA was, but do you have any estimate of what you think the synergies you may get off of that transaction?.

Yes, I don’t have that in hand Bruce but they are sizeable synergies. What happens is we have a set of synergies we expected out of Tonsan, then we see an acceleration of those synergies mostly as a result of this opportunity.

The Tonsan plant was built essentially on an organic development of an infrastructure in North America and Europe which was moving ahead at pace. But all that work that we have done over the last year now gets on an accelerator in terms of what is possible in driving the revenue growth. So, not on a specific number, it is all on revenue.

I think the earliest, easiest revenue opportunities are in China actually because the Cyberbond technology in the hands of what is a very strong team in China, will generate growth later this year that we weren’t expecting bringing that technology.

And the Cyberbond guys have already been to China meeting with our team there and talking about how to make that happen and then the back half of this year and next year will see the revenue synergies. .

Okay, and then this is a question for John, Jim Giertz on the last call said that he expected cash flow from operations for the current fiscal year to be a little in excess of 210 million, if that is still the expectation?.

Yes, it is Bruce. So, if you look at the kind of net normal profile for the company, cash flows seems to be back half weighted. So, with $80 million of operating cash flow to date, that should put us on target for the number that Jim talked about. .

Okay, thank you. .

Thanks Bruce..

Okay, thank you everyone for your participation and your -- is there another question. .

Yes, we have one more question from Rosemarie Morbelli. .

Thank you for taking it, Jim just quickly, looking at Cyberbond, do they have complementary product lines for -- with Tonsan or they are totally new engineering adhesive going into different markets or different applications?.

Yes, the largest product lines they have is something that Tonsan had but wasn’t as strong at. The other product lines they weren’t as strong at Tonsan as was. So it is complementary in that regard. The market knowledge of the people that were acquired with the business is very strong across all of these spaces.

So lots of market knowledge to share, technologically one piece of technology that Cyberbond had can help us in China and most of what Tonsan has can really accelerate the growth of Cyberbond..

Okay, thank you. .

Thank you Rosemarie. Okay, thank you everyone for your support and your participation in today's call..

Thank you ladies and gentlemen. This does conclude today's H.B. Fuller second quarter 2016 investor conference call. You may now disconnect..