Ladies and gentlemen, thank you for standing by and welcome to the H.B. Fuller Q4 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Barbara Doyle, Vice President of Investor Relations. Thank you, please go ahead.

Good morning, and welcome to H.B. Fuller's fourth quarter fiscal 2020 earnings call for the fiscal quarter ended November 28, 2020. Our speakers are Jim Owens, H.B. Fuller President and Chief Executive Officer; and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will take questions. Please let me cover a few items before I turn the call over to Jim. First, a reminder that our comments today will include references to non-GAAP financial measures and references to organic revenue, which excludes the impact of foreign currency fluctuation and the impact of acquisitions and divestitures. On this call, unless otherwise specified, discussions of sales and revenue refer to organic revenues, and discussions of EPS, margins, or EBITDA refer to adjusted non-GAAP measures. These measures are in addition to the GAAP results in our earnings release and in our Forms 10-Q and 10-K. We believe that discussion of these measures is useful to investors to assist the understanding of our operating performance and the comparability of results with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release. Also, we will be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Many of these risks and uncertainties are and will be exacerbated by the COVID-19 pandemic, and any worsening of the global business and economic environment as a result. Actual results could differ materially from these expectations due to factors discussed in our earnings release, comments made during this call, or risk factors in our Forms 10-K and 10-Q filed with the SEC and available on our website at investors.hbfuller.com. Now, let me turn the call over to Jim Owens.

Thank you, Barbara, and welcome to everyone on the call. Last evening, we reported strong fourth quarter results with organic revenue up 5%, EBITDA up 9%, and EPS up 21%. These results exceeded our expectations and each of our segments delivered positive organic growth and strong margin performance in the quarter. This performance is especially strong given its comparison against a pre-COVID environment and as a result of the work we've done to gain market share and reduce our cost structure. During today's call and in the months ahead, we will explain and demonstrate why you should continue to expect differentiated performance from H.B. Fuller. Throughout the year, our portfolio of innovative adhesive solutions in hygiene, health, and packaging has enabled H.B. Fuller to continuously meet high levels of demand for essential consumer products. We outperformed the market in meeting these needs. During this time, we also worked with customers in other markets to accelerate our product qualification processes for electronics and durable goods, and as demand around the world strengthened and global industrial production improved, we capitalized on share gains across our diverse markets to deliver fourth quarter results ahead of our expectations. We also realized significant operational benefits from the business realignment completed earlier in the year, which generated $30 million of annualized SG&A savings in 2020, including $10 million realized in the fourth quarter, resulting in strong profit growth and operating leverage. Our work in 2019, in advance of the pandemic to reorganize into three GBUs instead of five, has enabled us to grow faster while reducing costs. Our strong cash flow performance continued in the fourth quarter. Cash flow from operations increased 27% year-over-year and enabled us to pay down a total of $205 million of debt for the year above our original $200 million target. Our results in the fourth quarter and throughout the year reinforced the resiliency of H.B. Fuller strategy. Our culture of collaboration, our broad adhesive technology portfolio, our applications expertise, and our global operational agility proved to be differentiators in this current environment. H.B. Fuller seamlessly supported the dynamic needs of our customers in a world transformed by the COVID-19 pandemic. Throughout the pandemic, several priorities have remained constant for us, ensuring the health and safety of our employees, leveraging our technology investments to find new ways of working, and utilizing our vast global capabilities to ensure business continuity for our customers. All companies have had to learn how to work differently in 2020, but I can honestly say that the H.B. Fuller team has truly excelled in this environment. I can't emphasize strongly enough how proud I am of our employees around the globe for their unwavering focus on delivering our priorities throughout 2020. Our teams effectively collaborated with each other and with our customers to develop new products and solve supply issues, and they did it faster than ever. We leveraged our digital technology in new ways to remotely qualify new applications and troubleshoot complex issues. The result was an increase in the speed of our decision making, shortened sales cycles, and improved customer support. Our new organizational structure enabled greater collaboration across our global teams, faster decision making, and better flexibility. H.B. Fuller's dedicated focus on adhesive technologies and our global capabilities have positioned us to move first and fastest with a clear vision and mission, no distractions from other divisions, other priorities, or regional issues. These have proven to be critical competitive advantages resulting in increased share with existing customers and business wins with new customers. With that as perspective, I'll move on to our segment results in the fourth quarter. Strong performance continued in our hygiene, health, and consumables segment where organic revenues increased by 5%, including solid organic growth in most geographic regions. We continue to meet high levels of demand for essential goods in the quarter, and our portfolio of adhesive solutions that enable more sustainable consumer products drove strong growth in packaging, tissue, and tapes and labels. HHC segment EBITDA margins were strong at 15.3%, up 270 basis points year-over-year reflecting volume leverage, favorable mix, savings from our business restructuring, and good overall cost control. Construction adhesives organic revenue increased 1% versus the prior year, with improvements in year-on-year performance for all markets when compared with the second and third quarters of the year. Both the commercial flooring and roofing end markets improved in the quarter, albeit at a slower pace than residential construction markets. Construction adhesives EBITDA margin was solid at 12.4%, down 80 basis points versus last year, reflecting unfavorable mix and an increase in variable compensation accruals as a result of the stronger top-line results in the fourth quarter. For the full year, EBITDA margin was roughly flat to 2019. New product introductions and improved product mix related to last year's portfolio repositioning, as well as operational improvements from the GBU restructuring offset the impact of lower volume. These operational improvements position this business for strong margins as construction activity increases in 2021. Engineering adhesives continued to show strong improvement with organic revenue up 5.6% year-on-year in the quarter led by double-digit growth in electronics, recreational vehicles, woodworking and panels, and solid results in insulating glass and automotive. Engineering adhesives EBITDA margin remained strong at nearly 17%, down 80 basis points versus last year, reflecting an increase in variable compensation as a result of the stronger top-line results in the fourth quarter. Looking ahead to 2021, we will pursue growth opportunities and share gains in a business environment that is expected to continue to improve, but remain below normal levels. Our planning assumptions at this time are that COVID related shutdown impacts will continue to lessen as vaccines are rolled out around the world, although recessionary forces will continue to weigh on global economies throughout the year. We anticipate continued improvement in underlying demand, especially for electronics, durable goods, and consumer goods driving volume growth in 2021 versus 2020. Growth in some end markets such as commercial construction and aerospace will improve at a slower pace and may not yet return to 2019 levels of activity. Elevated demand for hygiene and health products, packaging, paper tissues, and towels will likely continue into 2021 as consumers continue to spend more time in their homes. The spikes in demand that we saw in the second quarter, however, are unlikely to repeat. We anticipate construction adhesives end markets to continue to show steady improvement throughout 2021, with commercial activity improving throughout the year and residential activity remaining solid. Engineering adhesive end market demand will likely remain at elevated levels in early 2021, reflecting increased production activity to meet some pent-up demand, returning to more typical activity levels in the second half of the year. In total, our base planning assumptions are for low to mid-single-digit organic revenue growth in 2021 with stronger growth from engineering and construction adhesives versus 2020. We expect volume leverage and savings from our restructuring and operational improvement programs to drive solid year-on-year EBITDA margin improvement in 2021. Sales growth, improving margins, and continued working capital efficiency will enable us to continue to drive strong cash flow and deliver another year of strong debt pay down with a target of paying down another $200 million of debt in 2021. Against a challenging economic backdrop, our performance in 2020 demonstrates that our business is diverse and resilient. Our operations are nimble, and we are executing our strategy well, and we expect to continue to outperform our markets again in 2021. Now let me turn the call over to John Corkrean to review our financial results and our expectations for 2021 in more detail based on these planning assumptions.

Thanks, Jim. I will begin on Slide 4 with some additional financial details on the fourth quarter. For the quarter, revenue was up 5.2% versus the same period last year. Currency had a positive impact of 0.5%. Adjusting for currency, organic revenue was up 4.7% with volume up 5% and pricing having a negative 0.3% impact year-on-year in the quarter. Year-on-year adjusted gross profit margin was 27.5%, down 10 basis points versus last year as higher volume was offset by higher variable compensation and unfavorable absorption due to a reduction in inventory. Adjusted selling, general, and administrative expense as a percentage of revenue was down a full percentage point versus last year, reflecting savings associated with the business realignment and lower travel, which was partially offset primarily by higher variable compensation associated with strong fourth quarter results. Adjusted EBITDA for the quarter of $123 million was up 9.4% versus last year and above the high end of our planning assumptions, reflecting strong top-line performance, particularly in engineering adhesives. Adjusted earnings per share were $1.06, up 21% versus the same period last year, a strong volume growth, lower SG&A, and lower interest expense associated with our debt reduction actions grew higher earnings per share than last year. For the quarter, cash flow from operations of $139 million is up by 27% versus the same period last year, reflecting continued improvement in working capital performance. This allowed us to continue to reduce debt, paying off $205 million for the full year ahead of our $200 million debt pay down plan. With that, let me now turn to our guidance for the 2021 fiscal year. Based on what we know today and the planning assumptions that Jim laid out earlier, we anticipate full-year organic revenue growth to be in the low to mid-single-digits and EBITDA to increase by approximately 10% as volume leverage, pricing, manufacturing and supply chain savings, and carryover of the restructuring-related savings for SG&A offset higher raw material costs, variable compensation rebuild, and higher travel expense. We expect our 2021 core tax rate to be between 26% and 28% compared to our 2020 core tax rate of about 25%. The higher tax rate is a result of forecasted income by region and the tax impact related to the global cash management. Capital expenditures are expected to be approximately $95 million in the 2021 fiscal year, and we expect to devote approximately $200 million of our cash flow after CAPEX investments and dividends to the repayment of debt. Now, let me turn the call back over to Jim to wrap this up.

Thanks, John. In 2020, we proved our ability to consistently and effectively execute our strategy in the toughest of times, and we reinforce the business resiliency that comes from our broad portfolio of adhesive applications and diverse end market exposure. Most importantly, we have created momentum as we head into 2021. Revenues increased and margins improved sequentially throughout the year and in the fourth quarter we delivered 5% organic revenue growth with positive organic growth in each of our segments. The momentum we have created is enabling us to outperform our markets and is a direct result of actions we've taken over the past few years to realign our organizational structure and strengthen our ability to grow. Our business realignment accelerated our market-focused innovation and enhanced our collaborative capabilities, enabling us to consistently meet customers' needs and capture growth opportunities. The business realignment also enabled us to do this through a simpler, lower-cost structure. Looking ahead, we are only just beginning to see the benefits from these actions. Our customer wins continue to grow and we are still in the process of implementing changes to optimize the business with a focus now on driving $20 million to $30 million of efficiencies across our manufacturing network by the end of 2022. We are encouraged by share gains and new customer business we have won in 2020 that helped drive revenue growth as we exited the year. Our focus on innovation to drive new business continues in 2021 and our new product pipeline is stronger than it has ever been. We continue to expand our portfolio of adhesive applications that enable more economical and environmentally sustainable buildings and products. Some examples include our single ply membrane spreadable roofing adhesive, our fast 2K pole and post setting material, advanced adhesive for solar panels and insulating glass, and formaldehyde-free, low monomer emission adhesives to support low VOC structural wood products and panels, and a growing portfolio of adhesives for electronics, including applications used in smartphones and wearables. In December, we announced our Advantra hot melt adhesive technology for extreme cold storage of vaccines and medical packaging, which provides a secure bond at minus 70 degrees Celsius. Demand also remained strong for sustainable packaging solutions, such as H.B. Fuller's closed Sesame tapes that support easily returnable packaging systems, compostable adhesives for paper and hygiene products, and our microscopic adhesive technology for removable signs and labels. This high level of demand reinforces the importance of our HHC solution in today's world. These are just a few examples of the innovation we are bringing to market. With our strong product pipeline and the continued optimization of our operations, we are confident in our ability to build on our success, driving further share gains and continued margin improvement. We exit an unprecedented year in 2020 as a much stronger company. And as the world's largest dedicated provider of adhesives, we are uniquely positioned to capture future growth opportunities and deliver for our shareholders strong, sustainable results in the months and years ahead. This concludes our prepared remarks today. Please open up the call so we can take some questions.

Your first question comes from Jeff Zekauskas with J.P. Morgan. Your line is open.

Thanks very much. In your remarks, you said that if raw materials go up you should be able to offset it with price increases. How much price do you need to offset your raw material inflation?

Raw materials are beginning to fluctuate as we start the year. Currently, we are seeing changes in commodity materials like propylene and ethylene, which make up only about 13% of our purchases. The majority, 87%, consists of specialty materials that usually follow the trends of commodity materials. We are expecting and observing a gradual increase, which will likely be more pronounced in the second half of the year. We initiated some price increases in February and March and anticipate an overall increase of about 1% to 2% for the year, although that will likely rise to around 3% or 4% in the second half.

Right. So, shouldn't your organic growth for 2021 be higher than low to mid-single-digits if you're going to get a couple of percent from price alone? If you grew at a low-single-digit rate, that would imply no volume growth or not much volume growth, but surely you should do much better than that, no?

Yeah, let me let John give you a little more color on it, but I think, Jeff, it's a fluid environment out there. So I think there's a lot of reasons to be optimistic, certainly given how the year end and the comps were up against. And certainly, there will be some price impact of 1% or 2%. But I think it's a fluid world, so we're not going to anticipate exactly where it's going to head until things play out here a little bit going into the start of the year. But yeah, I think there's a case that organic growth could be a little higher depending on where the world goes. John, you want to add to that?

Regarding pricing, we anticipate that if we experience 1.5% to 2% inflation in raw materials, we might achieve around 1% in pricing, which would fully counterbalance the dollar impact. A 1% increase in pricing would roughly offset a 2% rise in raw material costs. Ultimately, we aim to return to a full 2% pricing increase to restore our margins, though this process can take some time. Therefore, in a scenario of 1% to 2% raw material inflation, we are probably looking at around 1% pricing, possibly slightly less.

Okay. Just lastly, the margins in engineering and construction in the fourth quarter were down year-over-year and even though the revenue growth in engineering was really pretty strong and you talked about taking out $10 million in costs. So, it didn't look like the $10 million in costs really came out of those two segments. Did it come out of HHC, and were you satisfied with your margins in engineering?

I think broadly speaking, I'll let John provide more detail. It's really about the accrual of variable compensation that was necessary because we exceeded expectations in the fourth quarter. We needed to increase some accruals, which significantly affected the last few quarters. This is fundamentally why our margin improved more than expected. We were pleased to see a 21% EPS and double-digit growth, but as you pointed out, with that organic growth, we would usually anticipate even better results. This situation was primarily due to building up variable compensation. John, would you like to add anything?

Yeah, no, that's exactly right. I mean, it is really the variable comp impact which was probably $6 million to $8 million in the quarter versus kind of a typical run rate because there was a catch-up impact was all in engineering adhesives and construction adhesives, which had been harder hit by the COVID impact and performed much better in Q4. So that was a little bit of a catch-up impact in Q4.

Okay, great. Thank you so much.

Thank you, Jeff.

Your next question comes from Mike Harrison with Seaport Global Securities. Your line is open.

Hi, good morning. Congratulations on the nice end to the year here.

Good morning, Mike, and thank you.

I have a question about the guidance. Could you explain your anticipated EBITDA growth within the 10% target, and share your macro assumptions, including any considerations regarding COVID or vaccines? You describe this guidance as your base case, so I’m curious if it might be slightly conservative. Additionally, can you elaborate on how you differentiate between the base case and potential best or worst-case scenarios related to that 10% figure?

Okay. There's a lot of questions built in there, Mike, but I'll try and give a high level…

Sorry about that.

That's okay. In terms of timing, we are anticipating double-digit EBITDA growth in the first quarter. We also expect it to be above 10% in the third quarter, and perhaps slightly below that in the fourth quarter. This outlines the expected trajectory of our EBITDA growth. Admittedly, we aren't trying to predict a significant global demand recovery. There are certainly many positive indicators, and our results have been encouraging. Additionally, we've gained market share, which provides grounds for increased optimism. However, we know that global events can be unpredictable. Therefore, like last year, we base our planning assumptions on a realistic perspective, acknowledging that recessionary impacts could influence our business. I can’t specify where these impacts might occur or when, so our planning does not rely on an overly optimistic scenario where everything improves rapidly. John, would you like to add anything to that?

I think that is exactly right. In a best-case scenario, if the world improves significantly, we would see an increase in demand for our business. With strong leverage, especially in EA and CA from a margin perspective, we expect some cost increases, such as bonus accruals, as last year our bonuses fell short of targets. We are also expecting higher travel costs, but we will benefit from great leverage if we experience more volume growth. However, we will also face increased raw material inflation if the world becomes more active. We have a plan to navigate these challenges, but generally, if the conditions improve, we're well positioned to capitalize on the opportunities.

Alright, appreciate the color there. And then we're hearing that a lot of manufacturers and industrial and automotive, and maybe some other markets are running at pretty low inventory levels. Can you talk a little bit about the potential restocking opportunity that you see across some of your key businesses?

Yeah, I couldn't give you a full color on everything, we're very diverse in our end markets. I think we're feeling a little of that in Europe. I think Europe really destocked and you saw a lot of inactivity from a manufacturing standpoint over the summer. So, markets like auto and insulating glass in Europe are definitely in a mode of restocking. I mentioned RVs, RVs the demand is very high, but they've depleted all their inventories. I think you're going to see a poll to fill pipelines there for a long time just to catch up. So, there are definitely some market segments that need especially a more industrial goods, durable goods. I think you see some inventories depleted in certain markets.

Alright, thanks very much.

Okay Mike, thanks.

Your next question comes from Eric Petrie with Citi. Your line is open.

Hey, good morning Jim and John.

Good morning Eric.

A question on the noted semiconductor chip shortage going on globally and the impact on your electronics business and auto, you posting double-digit gains this quarter, last quarter, so how do you see that growth momentum for both those end markets into 2021?

In terms of our products, we mainly use local raw materials for our production around the world. This means we aren't heavily reliant on global shipping for raw materials, as we have local alternatives. We're effectively managing our supply chain to deliver products to customers. Your question relates more to our end customers. Our successes in electronics are primarily due to gaining market share, which can make it challenging to distinguish between market trends and our wins. The shipping lane issues are a concern for many industries, and while some of our customers are navigating these challenges, we haven't observed any significant impact on our overall business based on customer feedback. However, there are definitely indications that some companies are facing supply issues due to shipping problems. Nonetheless, most of our customers appear to be managing these challenges, with some exceptions. John, do you have any additional insights on this?

No, I think that is right.

Helpful. And for my follow-up question, how do you see working capital in 2021 versus the source of cash this year in 2020 and then what is your target leverage by year-end 2021 compared to four times currently and the target that you gave when acquiring Royal of less than three by 2020, how does that stack up now?

I’ll provide a high-level overview, and then John can give more details. Over the past few years, we have successfully reduced working capital by approximately 300 to 400 basis points. John will provide the exact figure, but we have focused heavily on this area, and the team has effectively managed working capital. We anticipate further improvements of 50 to 100 basis points this year. Although we will experience increased capital demand as we grow from 2020, we expect the percentage of capital demand to decrease by another 50 to 100 basis points, reinforcing it as a strength of the company. As I’ve mentioned to our investors, we aim to bring debt below 3.0. We set a three-year goal to reduce debt by $600 million and have actually reduced it by over $670 million, exceeding our target each year. I plan to surpass our goal again this year, and as you noted, we should be near three by the end of this year and definitely below that in 2022. John, would you like to add any more details, especially regarding working capital?

Sure, you are exactly right. We've taken our working capital as a percentage of sales from about 18% in 2017 to below 17% at the end of 2020. It's about 100 basis points a year. And that's in the range of improvement we would expect to see in 2021. So based on that math, it would be a source of cash maybe not quite as big a source of cash as this year when we also had the impact to lower sales. But yeah, and then from a leverage standpoint, based on those numbers we would expect to be at around 3.5 times debt to EBITDA or slightly below by the end of 2021.

Great. Thank you.

Your next question comes from Ghansham Panjabi with Baird. Your line is open.

Hey guys, good morning.

Good morning Ghansham.

Yeah, so going back to the EBITDA margins specific for HHC, did the margins there come in in line with the original plan, was it better? It was higher than our model. Just curious as to what drove the upside, if there was any relative to your initial plan and just also more broadly, as the lockdown started to expand during the quarter during your calendar year 4Q how did that impact some of the exit run rates if you will, from volumes for each of the segments, especially EA?

Okay, so as far as HHC is concerned and the margin, Q3 was a little slower than we expected, Q4 was about what we expected, probably a little better. Andy and the team have done a great job all year. You know, I think they've met a lot of demand, they've generated the growth, and then they've improved the margins in that business. So we're very pleased with it. I wouldn't say it's dramatically less than we thought in the quarter, probably a little better, as they have done all year or so. Really good quarter and year for our HHC business. And part of that is growth, right. The share gains that they're getting in addition to meeting all the demands out there in this environment has been really, really positive. And the second question was…

Exit rate to volumes?

Yeah, so John, do you want to comment on it?

Yeah, I can for sure. So, I don't really think we saw a significant impact from any lockdowns in the fourth quarter, either positive or negative. I think the trends in HHC and EA both moved in a positive direction as we ended the year. So, I would say it's hard to say for sure, Ghansham, but I don't really feel like we saw an impact.

Got it, and then in terms of back to the raw material question also, I mean, there's a big concern about margin pressure for a lot of the companies in our coverage, including yours. As costs have risen, as the economy has bounced back, et cetera, globally. You mentioned reformulation and some select pricing, but how would you kind of give us comfort that we're not going to go through a sequential margin compression phase as your volumes come back and then also some of the commodity, just the tightness in the commodity markets start to roll through your cost structure?

Yeah, so I think one of the differences between us and a lot of other companies, Ghansham, is we're not a purchaser of commodity materials. So we definitely see that lag as raws come in. So with only 13% of our raws being things like VAM, and acrylate, and ethylene, we're not seeing that big uptick that a lot of people will see here early in the first half of the year. And also, I'd say it's a little more muted. I mean, if you look at what's happened to propylene and ethylene, it's really taken off. I mean, VAM, which is our number one raw material is only 4% of our purchases. So that's one thing that's different about us than others. But I think we've shown over the years, Ghansham, and you can look back at other inflationary environments that we've gotten very good at anticipating where the world's going and then taking those bold steps on increases. And I mentioned briefly in Jeff's question, we've got price increases that are going to effect in February and March in certain market segments. We've got a whole plan built around Q2 increases. And right now we're sifting through exactly how big and the exact timing of those. But certainly price increases will be a big part of the strategy as we look into the second half of the year. But we don't get that big shock to our system that other companies have. So we have a little time to plan for it and it's pretty clear it's coming. So we're taking the steps. John, anything else to add there?

No. I think that summarizes.

And Jim, if I could just get your exposure to freight, how big is that for you and the question I asked about raw materials wasn't just specific to your pure raw material basket but also some of the logistics costs including freight?

Yeah. Again, if you think about it, especially as our portfolio has changed over the years, our business is not as bulk as a lot of companies. So overall, freight is about 2% to 3% of revenues. So, if you think about a 10% or 20% increase in freight, that's a 0.3% or 0.6%. So it's something for us to manage just as labor is and I think we're going to see a little bit of labor pressure here, but it's not the big driver. Raw materials are the big driver for us.

Okay, very clear. Thanks so much.

Okay, thank you Ghansham.

Your next question comes from Vincent Anderson with Stifel. Your line is open.

Yeah, thanks. And just wanted to echo the congratulations on an impressive year. So just to nitpick 2021 guidance a little longer, how much of the 10% EBITDA increase is accounting for the cost savings that you've achieved, net of whatever kind of cost inflation normalizing out of COVID?

Yeah. So, I think if I were to think about it at a very high level, the growth in currency impact is about $40 million of the increase. Our project grows our restructuring savings that we talked about generate about $15 million to $20 million in benefit, and then we have a lot of cost up, we've got to rebalance our bonuses, which were below targets, merit travel, and that's about a $20 million drag. And then you have this net raw material pricing and positive mix, which ultimately that nets out to zero. So those are the main elements of this. And that's how you get to the number.

Okay, that's helpful. And then, not to get ahead of ourselves but, maybe this is the year where the dollar isn't just a constant headwind. If we see the dollar weaken further, is it all translation for HP4 or can we actually see some kind of impact to margins from a weaker dollar?

Yeah, so it is always interesting. In theory, it is mostly translation but there have been in the past benefits when we see weakening dollar and we had the pain. And feels like most of my term as CEO we have had the other effect. So it should be a positive force and we have factored some of that into this year, but we can go is generally good for us.

Thanks. If I could ask one more question, are there any specific new product developments that you are excited about as we return to a more normal customer environment? Also, you had some recent success in aerospace earlier in 2020; will that translate into significant sales in 2021?

Well, I'm excited about all of our innovations, so it's tough for me to pick a couple. I would say, and we haven't talked a lot about it on this. This restructuring is a 3GB use and then really the 28 segments below that is really driving a lot of our growth and our wins. So, if you think about a business like ours and those are roughly $100 million businesses, then getting $2 million, $5 million, and $10 million wins is what this is about. So I can't point to one $20 million, $30 million win that's really driving the number. It's a lot of things, but what I really love is each one of our segments has one or two very sizable wins where they're gaining some share. So our work in solar, I'm very pleased with what we're doing there and some of the innovations there because that's such an emerging trend. I work in electric vehicles and the electronics around vehicles. So we've targeted in the auto space anything to do with electronics. There's some really exciting wins there and we're positioning ourselves as a leader there. And then just the electronics in general, that team continues to get stronger and stronger. And then finally, under Andy's leadership, the part of why we set up HHC was to get a better handle on what some of the sustainability benefits were. And we got a couple of nice wins there. So those are some of the ones I'm most excited about. In terms of we're ahead of the trends and they have momentum that's going to build on itself as far as the world evolves.

Alright, thank you.

Your next question comes from David Begleiter with Deutsche Bank. Your line is open.

Thank you. Good morning. Question for John, how is organic growth tracking Q1?

I'd say December was positive so, I think more of what we saw in Q4. So it's December, though I'm always cautious not to overreact to December, but I would say more positive than that is what we saw in the first month of the quarter.

And if you read on January, do you get weekly sales that give you an insight into...?

We do. Again, I'm really hesitant to talk about our average daily sales. But, I don't think we see any big trend changes. You know, we think it's going be a positive quarter.

Got it, and if you see higher volumes than you are currently forecasting and planning assumptions, what types of incremental margins you will see in those higher volumes?

Yeah, we typically say that our incremental margins are around 30% when we consider all the costs associated with. So it's somewhere in that range, David.

Very helpful. Thank you.

Thank you.

Your next question comes from Rosemarie Morbelli with G Research. Your line is open.

Thank you. Good morning, everyone and my congratulations. So if we look at the growth rate in HHC and the engineering adhesives, how much do you feel was from pent-up demand or inventory build versus normal type of demand level?

We believe the growth in HHC was not primarily due to inventory rebuilding. Instead, we are seeing positive growth and notable successes without significant inventory changes or pent-up demand. The performance was strong throughout the year. In the engineering adhesives sector, the situation is more varied. For instance, in electronics, we had several successful outcomes driven by RVs, but demand has not fully resumed to earlier levels. In Europe, there is some pent-up demand in the automotive sector, while other areas like aerospace are not experiencing similar growth. Overall, it's a mixed situation across different markets. The advantage of our organizational structure is that we have dedicated teams for aerospace, electronics, RVs, and auto electronics. Each team is focused on identifying needs and ensuring we seize opportunities as they arise, but it remains a mixed scenario.

Okay, thank you. And following up on your laundry list, if I can use that term, also innovations, new products, while you cannot really give us a dollar number, because it is a combination of a lot of multiple small wins. If you look out two or three years, how much do you think on aggregate all of those new products could generate in terms of revenues?

Well, we have to go through the list and go through them one by one, Rosemarie, which I'm not going to do. But yeah, I think sizable wins in our space, the kind that I would mention on a call like this are $10 million. Sometimes they're a little bigger, sometimes they are a little smaller but it's a good average number of how much adhesive, which is a lot of adhesive, $10 million of adhesives. So sometimes they're bigger, depending on the market segment and the nature of the innovation. But in aggregate they add up to a big number when you do that across 28 segments.

The main factor driving EBITDA growth in 2021. Additionally, what is your exposure to any potential infrastructure bill? Would it significantly affect your businesses or not?

Not a direct impact, Rosemarie. We have within our construction adhesive businesses, we have three businesses: a roofing business, a flooring business, and utilities and infrastructure. So there's some opportunities in that business. So think about a third of our CA business is affected by that. So not a huge impact from the infrastructure bill on direct adhesive purchases from H.B. Fuller.

Okay, thank you.

Okay, thank you.

Your next question comes from Paretosh Misra with Berenberg. Your line is open.

Thank you. Good morning, Jim, John, and Barbara. So in your 3A business units, do they operate in a similar fashion in terms of how price hikes are announced or implemented, just trying to get a sense of what percentage of your business may require you to push through these price hikes if raw materials go up this year?

We will manage pricing differently across our 28 segments. All our businesses have low volume and specialty products that will see price increases early on, which is already occurring in February. There are also products in certain market segments linked to commodity materials that are moving quickly. So, the approach varies by market segment and customer buying behavior, resulting in a mix.

Got it. Thanks for that. And then for engineering adhesives, what would it take for the margins to get to 20%, which I believe is the high end of your long-term target? Is that just more volumes or any specific end markets need to go back to where they were?

Yeah, I think 20% is the target in that business and we've built a great infrastructure for growth. We've seen it over before 2020 in terms of the double-digit growth and our ability to gain share there. And given the margins in that business, the incremental margin of that business are higher even than our other businesses. Growth will drive a lot of value to the bottom line and margin expansion. So that's the biggest driver.

Got it, and last one quick, on the CAPEX this year, is there any major project that's worth flagging or is it just regular, small project?

You know, we always have a number of expansion projects going on, so in the Middle East we've got a project in Egypt. We had a very old plant there. That's a growing area for our hygiene business. Our electronics business has a pretty sizable expansion going on in China and in the business that supports our solar business has an expansion project going on. So those are three of the bigger ones. But most of our investment is smaller, $5 million, $10 million, $2 million investments within facilities to drive growth or productivity.

Thanks, Jim. And all the best for 2021.

Thank you very much.

I think we have one more question.

Your final question comes from Rosemarie Morbelli with G Research. Your line is open.

Thank you for taking my follow up. You have a target of three times net leverage. Should we expect that you will not have any M&A until you have reached that level or do you think that the market is such that you could still add bolt-on new technologies to your product lines?

Yeah, I think we've been pretty clear, Rosemarie, our goal is to get to that 3.0 leverage. We've committed that to our investors and we're well on our way to do that. And there's two ways to do that, pay down more debt faster or improve the EBITDA and we're working on both of those.

Okay, thanks. And lastly, just following up on the margin target, you had a 22% margin target for construction. We are now at about 12.4%. Have you changed that particular level?

I'm not sure where the 22% comes from, Rosemarie, but yeah, we see a lot of margin expansion for that business. So we did some good repositioning of our portfolio. If you look at the margins throughout the year, especially given what happened in construction this year, they were very solid overall, and we expect good expansion into next year.

Alright, thank you, good luck.

Thank you.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.