Thank you for standing by. And welcome to the H.B. Fuller Q4 2023 Earnings Conference Call. I would now like to welcome Steven Brazones, Vice President of Investor Relations to begin the call. Steven, over to you.

Thank you, Operator. Welcome to H.B. Fuller’s fourth quarter 2023 investor conference call. Presenting today are Celeste Mastin, President and Chief Executive Officer; and John Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will have a question-and-answer session. Before we begin, let me remind everyone that our comments today will include references to certain non-GAAP financial measures. These measures are supplemental to the results determined in accordance with GAAP. We believe that these measures are useful to investors in understanding our operating performance and comparing our performance with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure are included in our earnings release. Unless otherwise noted, comments about revenue refer to organic revenue and comments about EPS, EBITDA and profit margins refer to adjusted non-GAAP measures. We will also be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from these expectations due to factors covered in our earnings release, comments made during this call and the risk factors detailed in our filings with the Securities and Exchange Commission, all of which are available on our website at investors.hbfuller.com. I will now turn the call over to Celeste.

Thank you, Steven, and welcome, everyone. In the fourth quarter and throughout fiscal 2023, our team members executed exceptionally well to achieve strong profit growth despite a low volume environment, record margins and outstanding cash flow. I am very proud of the team’s response to the significant volume weakness precipitated by unprecedented customer destocking activity over the course of the year. We proactively managed rapidly changing price and raw material dynamics and supplemented those with meaningful restructuring initiatives to deliver these strong results. Overall, organic revenue improved substantially in the fourth quarter with consolidated organic revenue declining only slightly year-on-year versus the high single-digit declines we experienced in preceding quarters due to volume weakness. Pricing was marginally lower year-on-year as expected, following lower raw material costs and also reflecting the impact of product reformulations and was primarily driven by raw material index-based supply agreements. As a highly specialized value-added adhesive sealants and functional coatings expert, with inherent price-to-value power evidenced by the fact that over half of our SKUs are specifically formulated for individual customers, we are strategically well-positioned to maintain pricing discipline. Overall, volume development improved significantly and was flat year-over-year in the fourth quarter. This is a market improvement over the previous four quarters when volume declined approximately 10% on average. From a profitability perspective, we continued to execute well and achieved both record fourth quarter and fiscal year adjusted EBITDA margins. This is a testament to the strong leadership in each of our market segments and the power of collaboration exemplified by all our team members. Through systematic execution across all functions, our team appropriately balanced pricing and raw material movements, proactively took restructuring actions to lower our cost profile and acquired highly synergistic businesses to deliver these record margins. In the fourth quarter, we achieved a 22% increase in adjusted EBITDA year-on-year, up 32% on a comparable 13-week basis, increasing adjusted EBITDA margin 440 basis points year-on-year to 19.1%. And for the fiscal year, we achieved a double-digit increase in adjusted EBITDA, increasing adjusted EBITDA margin 240 basis points year-on-year to 16.5%. This demonstrates how successfully executing our strategy to transform our portfolio and purposefully targeting capital allocation to the highest growth, highest margin opportunities can increase the value we provide our customers and generate higher returns for shareholders, and the great news is, we are not done. The growth and margin expansion opportunities that we have in front of us are readily actionable and we are well underway in our plans to realize these improvements. Now let me move on to review the performance in each of our segments in the fourth quarter. In HHC, organic revenue was down 7.5% year-on-year, driven primarily by margin preserving index-based pricing adjustments with large volume customers and some lingering yet lessening fourth quarter customer destocking activity. HHC has the highest concentration of index-based supply agreements given the nature of its customer base. These agreements are designed to maintain margins throughout the cycle and follow raw material cost movements over time. Adjusted EBITDA for HHC increased 42% year-on-year to $82 million and adjusted EBITDA margin increased 690 basis points to 19.9%, reflecting exceptional execution. The team overcame continued customer destocking headwinds, leveraging favorable price and raw material cost management, synergistic acquisitions and restructuring benefits to achieve record margin performance. In Engineering Adhesives, organic revenue declined 1.4% in the fourth quarter, which represents continued improvement on a sequential basis. Organic revenue declined primarily due to lower volume in solar and construction-related end markets, which offset strong organic growth in the electronics and aerospace market segments. Adjusted EBITDA in EA increased 5% year-on-year, up 13% on a comparable 13-week basis, and adjusted EBITDA margin increased 240 basis points year-on-year to 20.2%. The improvement in profitability for EA was driven by favorable price and raw material cost actions and continued strong cost management. In Construction Adhesives, the organic revenue trend reversed, increasing 5% year-on-year in the fourth quarter. Customer destocking actions began in the fourth quarter of last year and continued through the third quarter of this year. As a result, the organic growth achieved in the fourth quarter now more appropriately reflects current underlying demand for CA and our strong share position, but it is still lower than historical levels. Adjusted EBITDA for CA increased 9% year-on-year, up nearly 18% on a comparable 13-week basis and adjusted EBITDA margin increased 12.6%. The margin improvement in CA during the fourth quarter was a positive development and followed a consistent seasonal pattern sequentially versus the third quarter, while restructuring actions in the roofing and infrastructure business units are already positively impacting the P&L, restructuring actions underway in the flooring business will contribute to profitability improvement in that market segment in 2024. Geographically, Americas organic revenue improved significantly on a sequential basis, reducing the year-on-year decline from 13% in the third quarter to a decline of 6% in the fourth quarter. Volumes were flat year-on-year in North America and improved substantially versus the third quarter. However, volumes remained weak in Latin America. In EIMEA, organic revenue was flat year-on-year as modest organic growth in EA driven by strength in automotive and electronics was offset by modest declines in both HHC and CA. In Asia-Pacific, organic revenue decreased 2% year-on-year influenced by the relatively volatile recovery in China. While organic sales for HHC in Asia were flat year-on-year in the fourth quarter, organic sales declined slightly for EA given its greater exposure to China. The fits and starts we are seeing in the Chinese market are not unexpected and we continue to believe that the overall trend there is positive and improving. From an overall global economic standpoint conditions remain subdued. While real GDP measures have been slightly positive, sentiment, particularly within the manufacturing sector remains weak and cautious. As a result, we continue to plan for a mild manufacturing recession in fiscal 2024 and our expectations for the year ahead reflect this scenario. We expect interest rates to remain high for the first half of the year and decline modestly in the second half, restricting industrial production and construction activity to lower than normal levels for most of the year. From a year-over-year comparison standpoint, constrained manufacturing activity will be more than offset by the absence of the destocking impact that weighed so heavily on 2023 volume. We will also benefit from the restructuring and cost-saving actions that we initiated and the acquisitions that we closed in 2023, all of which will be additive to profit growth in 2024. Now let me turn the call over to John Corkrean to review our fourth quarter results in more detail and our outlook for 2024.

Thank you, Celeste. I will begin with some additional financial details on the fourth quarter. For the quarter, revenue was down 5.8% versus the same period last year. On a comparable 13-week basis, revenue was up 1.2%. Currency and acquisitions collectively had a positive impact of 4.7%. Adjusting for those items, organic revenue was down 3.5%, primarily driven by pricing. Volume was flat reflecting slower but improving end market demand in HHC, offset by solid growth in Construction Adhesives. Adjusted gross profit margin was 31.3%, up 510 basis points versus last year as pricing and raw material cost actions, restructuring benefits and general cost reductions drove the margin increase year-on-year. Adjusted selling, general and administrative expense was effectively flat year-on-year, reflecting continued cost management and restructuring savings, as well as the impact of last year’s extra week offset by wage inflation and the impact of acquisitions. Adjusted EBITDA for the quarter of $173 million was up 22% versus last year, up over 30% year-on-year adjusting for the extra week, reflecting pricing and raw material cost actions, the favorable impact of acquisitions and restructuring savings and other cost reduction actions. Adjusted earnings per share of $1.32 was up 27% versus the fourth quarter of 2022, driven by operating income growth, which more than offset higher year-on-year interest expenses, depreciation and amortization expense and a higher tax rate. Cash flow was very strong for both the quarter and the full year. Full year cash flow from operations of $378 million was up $122 million year-on-year, reflecting higher operating profit and improved working capital, driving our end of the year net debt-to-EBITDA ratio down to 2.9 times. With that, let me now turn to our guidance for the 2024 fiscal year. Based on the market assumptions outlined by Celeste earlier, we anticipate full year net revenue to be up 2% to 6% versus 2023 and organic revenue is expected to be flat to up 3%, with volume up low- to mid-single digits and pricing to be down low-single digits. We expect foreign currency translation to negatively impact revenue by about 1% versus fiscal 2023. We expect adjusted EBITDA to be between $610 million and $640 million, representing a 5% to 10% year-on-year increase as volume growth, restructuring savings and the impact of acquisitions more than offset wage and other inflation and bonus and variable compensation rebuild. We expect our 2024 core tax rate to be between 27% and 28%, compared to our 2023 core tax rate of about 27%. We expect full year interest expense to be $115 million to $125 million, reflecting continued strong cash flow and moderating interest rates. We expect depreciation and amortization to be roughly $170 million and the average diluted share count to be about 57 million shares. These assumptions result in full year adjusted earnings per share in the range of $4.15 to $4.45, representing year-on-year growth of 7% to 15% versus fiscal 2023. Finally, we expect full-year operating cash flow to be between $300 million and $350 million before approximately $140 million of capital expenditures. Based on the seasonality of our business and the timing of working capital needs, we expect operating cash flow to be weighted to the second half of the year. Taking into account last year’s destocking activity, as well as the typical seasonality of the business, we expect first quarter revenue to be up low-single digits and for adjusted EBITDA to be between $115 million and $125 million. Now let me turn the call back over to Celeste.

Thank you, John. As we enter fiscal year 2024, we are confident in our outlook for positive organic growth, achieving further EBITDA margin expansion and delivering strong cash flow. As the largest pure-play adhesive company in the world and the market leader in innovation, focused on providing highly tailored solutions for our customers, we have successfully transformed our portfolio over the past 15 years into one that is concentrated within the highly specified portions of our market segments. We are executing well in that portfolio as evidenced by our strong EBITDA margin expansion, and we are ready to institutionalize the disciplined choices we are making. As such, we have begun to take portfolio management to the next level by being more proactive and explicit about how we are allocating capital and investing in the highest margin growth segments of the portfolio. As I have spoken about repeatedly since becoming CEO a little more than a year ago, all of our investment decisions, both organic capital expenditures and M&A, are rooted in transforming H.B. Fuller into a higher growth, higher margin and higher ROIC business. Over the course of my tenure with H.B. Fuller, I have conducted annual market segment reviews with each of our 31 market segment leaders to identify the top 25 growth and profit improvement opportunities for the company. This process has become the basis for generating and evaluating all of our growth and investment opportunities and it has evolved to the point where we have created a growth pipeline full of compelling opportunities that can unlock additional market expansion and augment our margin profile. As a result of the success we have demonstrated in transforming our portfolio, a more robust pipeline of step-change opportunities, and our track record of executing with speed, we are increasing our long-term adjusted EBITDA margin target for the enterprise from the high-teens to greater than 20% within the next three to five years. To better enable our investors to follow our progress, we have divided our market segments into two categories, growth and leverage. This replaces our previous categories of high, medium and low specification, because we have successfully migrated to a strongly specified portfolio in each of the markets we serve. About half of our market segments are in the growth category spanning all three GBUs including but not limited to medical in HHC, electronics, new energy and the newly created ePower in EA and infrastructure and roofing in CA. Growth segments share a few key common characteristics. First, they are large and fast-growing markets, which benefit from global megatrends and technological disruption, such as clean energy, sustainable packaging and labor shortages, as well as rapidly evolving product designs and the need to innovate. As a result, there is ample room for H.B. Fuller to capture share and unlock additional growth by bringing differentiated technologies to market, capitalizing on underlying market trends and supplementing with M&A. Second, in these growth markets, we have broad and relevant technology, innovation speed and the ability to create solutions for demanding applications reliably, rapidly and accurately. From a financial perspective, growth segments are expected to realize outsized revenue growth, deliver double-digit adjusted EBITDA growth, and generate greater than 25% adjusted EBITDA margins. The leverage category consists of 16 market segments, where we are focused on maximizing operating efficiency and cash flow. Leverage segments share a few key common characteristics. First, they require a highly selective go-to-market approach, one in which we are rigorous and disciplined about where we choose to play in terms of regions, product applications, and customer selection, focusing on applications where we bring meaningful price-to-value performance for our customers. Second, in leveraged segments, H.B. Fuller is a disproportionate buyer of raw materials at scale, which helps create a margin uplift in these markets. Financially, leverage segments are expected to generate greater than 15% EBITDA margin through benefits of production efficiency, raw material scale and selective pursuit of applications, where we improve our customer’s productivity. It’s important to mention that this new structure captures the intuitive decisions we have been making over the past year. With this next level approach to portfolio management, we are sharpening our focus on ensuring investment activities are directed to our highest value opportunities to profitably grow the business over the near- and long-term. As mentioned previously, we maintain an up-to-date list of the top 25 opportunities to grow our business and leverage our operating structure, either organically or through value-added M&A. While our primary focus for M&A has been and will continue to be in growth segments, this new structure does not preclude opportunistic investments in leverage segments. In fact, we recently executed several deals in leverage segments, where we are benefiting from superior buying power and efficiencies in our existing plant network as a result of market consolidation. Acquisitions in leverage segments generally have high synergies and strong return on investment given our speed to integrate, resulting in a very meaningful difference between pre- and post-synergy acquisition multiples. I have complete confidence in our team, our strategy and our ability to execute to make this happen. As we continue to focus our high touch, highly customized portfolio on accelerating innovation and executing efficiently, we are confident in our ability to achieve our new EBITDA margin target. We look forward to keeping you updated on our progress using this new portfolio segmentation. To wrap up, I am extremely pleased with our strong performance in 2023 and very excited about the opportunities we have in 2024 to continue to drive value creation. We are successfully executing our strategy to deploy capital to the highest returning opportunities, innovating with speed to deliver solutions for our customers, driving efficiencies throughout our manufacturing footprint and achieving meaningful synergies from our collections of acquisitions. We are performing very well and we are entering 2024 with confidence, optimism, and strong momentum. That concludes our prepared remarks for today. Operator, please open the line for questions.

Our first question comes from Ghansham Panjabi with Baird. Please go ahead.

Thank you, Operator. Good morning, everyone.

Good morning, Ghansham. How are you?

Good morning, Celeste. Happy New Year to you. I guess, first of all, on the base assumptions for the first quarter that gets you to your EBITDA guidance, I think, $115 million to $125 million. What are you anticipating in terms of volumes and price, you are still being impacted by destocking across any of the operating segments? And then also for fiscal year 2024, is the EBITDA guidance sort of weighted more so towards the second half versus historical seasonality?

Yeah. So let’s start with volume. So, for 2024, we are anticipating volume growth of, call it, kind of mid-single digits. On the pricing side we are experiencing the opposite. So, as we go into 2024, there are a few things happening. So when you look at it from a pricing perspective, we have got a number of index-based pricing arrangements with large customers that are rolling into 2024. We will see the impact of that on the topline. Also, we are reformulating our products for many of our customers so that we can offer them a product at a lower cost to them and also at a lower cost to us. So you will see that on the pricing side. On the volume side, we are projecting volume growth that’s really more consistent with what consumer buying is expected to be. In fact, we have taken a look and analyzed our shipped volume over the past several years. And when you look at 2023, our shipped volume, our shipped tonnage was down 5% or 6% versus 2019. So we are anticipating a year that we would consider more normal in 2024.

Yeah. Ghansham, I will give you a little color on kind of Q1 versus the rest of the year guidance. So if you look at the assumptions for revenue that kind of underline this, Celeste laid them up for the full year. For the first quarter, we would expect organic revenue to be flat to down low-single digits, offset by a positive impact of 4% to 5% from acquisitions. As it relates to EBITDA guidance, if you look at the midpoint of our EBITDA guidance for Q1 that would represent about a 9% growth year-on-year and then that would — based on the midpoint of our full year guidance that would represent about a 6% growth year-on-year for Q2 through Q4. Of course, there is seasonality in the business as you know, so the numbers in the second half of the year for EBITDA will be higher than the first half of the year. But I’d say, as it relates to year-on-year performance, I don’t think it’s more weighted to the second half of the year.

Got you. Helpful. And then on the reformulation dynamic, can you just sort of expand on that? Is that sort of typical at this point in the raw material cycle, which segments are you seeing that at currently? And then also going back to your 20% EBITDA margin threshold over the next three to five years. Why outline that now? I mean, the world is complex, there’s a lot going on, and so on and so forth, with inflation and growth, et cetera. What should we take away in terms of your confidence and outlining that as part of your yesterday’s release?

Yeah. So let’s start with your question about the reformulation dynamic. So, yeah, that is typical at this point in the cycle. And maybe if I just kind of speak to our product portfolio and our pricing, the realities of our pricing strategy, it will help explain this. So when you look at — and I mentioned in the script, so over half of our customers or over half of our SKU base is unique to a customer. So if you look at our SKU count, over half of those SKUs are sold to a single customer. So we are working closely with these customers day-in and day-out, and we identify — we understand their needs, as you point out in this part of the cycle, cost matters to our customers. And our ability to reformulate our products not only impacts their cost, but more importantly our ability to reformulate our products enables them to often use lower cost substrates. So that reformulation work is ever-occurring. And as a consequence, there’s not only innovation that we are bringing into this customer base, but as you really — as you look at it, it’s an amazing dynamic, because the amount of adhesives that is used in our end products is just so small relative to the total that whatever we can do to reduce the overall system cost for the customer matters a lot more than the cost of our adhesives. So, in fact, if you look at our customer base, 97% of our customers spend less than $500,000 on adhesive. So on any given adhesive, they are spending about $25,000 per SKU or less. So one of the things that is woven into this business model is that we have a lot of pricing resilience as a consequence.

Yeah. And…

The second question, I apologize.

Yeah. Yeah.

I will stop there just to make sure there is, if you had any follow-on question to the pricing piece before I talk about the margin.

No. That’s perfect. Thank you.

Our recent gross margins demonstrate our progress. Regarding EBITDA margin, I believe now is the right time to focus on this. I am confident in the potential of our portfolio. We have carefully analyzed and structured our investments, targeting high EBITDA margin and high growth areas. Our team identified these opportunities from over 220 prospects, which we narrowed down to the top 20 or 25. The $70 billion adhesive industry offers numerous growth possibilities, and our organizational structure emphasizes 31 different market segments, allowing us to identify where we can expand. The growth segment presents a strong pipeline of opportunities. In terms of leverage segments, our teams are excelling by concentrating on what matters to our customers, which enhances our margins. Our results from the past year and the last quarter reflect this success, and HHC serves as a prime example, with a higher concentration of leveraged segments leading to strong business performance.

Fantastic. Thank you.

Our next question comes from the line of Patrick Cunningham with Citi. Please go ahead.

Hi. Good morning. Thanks for taking my question.

Hi, Patrick.

Maybe just on the portfolio construct and how you have laid it out here. How should we think about the balance of inorganic investment in the growth category versus the leverage category? I would think that there is based on some of the recent deals you have done, there is maybe more of an outsized opportunity to go after these low-risk consolidation plays with significant synergies versus the growth markets, which may have more execution risk and less tangible commercial synergies. So how are you thinking about the pipeline from an inorganic perspective relative to the construct you have laid out?

I will begin with the leverage category. You are correct that there are numerous opportunities for industry consolidation in this area. Our mergers and acquisitions strategy in the leverage segment is primarily opportunistic, and we carefully evaluate those deals based on cost-saving synergies. We have experienced success in this area, with Beardow Adams being a notable example of a consolidation acquisition in the leverage segment that is exceeding our projections by about 40%. Moving on to the growth category, I wouldn’t characterize it as having significant execution risk regarding inorganic opportunities. In fact, we are focusing on selective opportunities in this area, often looking to acquire smaller companies that specialize in specific technologies or regions. The technologies we consider typically align well with our broader portfolio and market expertise. M&A serves as a valuable tool in the growth category, especially since many of these products require considerable time to develop from an organic standpoint. By entering these markets through acquisitions, we gain immediate access to qualified products. A good example of this is our acquisition of Adhezion in the growth category. We had strong capabilities in cyanoacrylates, but we needed octyl-based cyanoacrylate technology, which we obtained through this acquisition. The integration process has been managed very effectively, and as a result, we have already launched our SecurePortIV product from Adhezion in 514 hospitals across the United States. Additionally, we have secured a GPO contract for our tissue bonding adhesive from Adhezion, covering 40% of the hospitals in the U.S. Hence, I do not perceive significant execution risk here; rather, I see the potential to enter these selective high-margin niches and grow more effectively than the previous owners of those businesses.

I appreciate that. It’s very helpful. I would like to understand more about pricing. Could you specify what portion of the portfolio is using index mechanisms? I'm interested in how much is impacted by the reformulation pressures you mentioned. Additionally, how should we consider more normalized structural pricing when we return to a more stable raw material environment and an improved demand situation?

Let me start by mentioning that in 2023, less than 25% of our customers experienced a price decrease. This includes both index-based customers and those who are not. Approximately half of the price decreases came from index customers. For our non-index customers who do receive price decreases, the reduction is typically less significant than for the index customers. This gives a glimpse into our pricing performance in what has been a very challenging market. Our volume declined by 8%, highlighting the resilience in our pricing strategy. In more normalized conditions, the effect of indexes serves primarily as a margin preservation tool. You can expect these indexes to align with movements in the raw material market, albeit with a time lag. Generally, throughout the year, regardless of volume fluctuations, we are continuously innovating with our customers. Sometimes this innovation involves providing advanced technology that allows them to introduce new designs, with prices reflecting that added value. Other times, we are reformulating to meet their cost needs or making adjustments due to changes in their operations or material choices. There is a considerable amount of new pricing driven by these innovations and ongoing pricing resilience during the year.

Thank you so much. I will pass it on.

Thanks, Patrick.

Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please go ahead.

Hi, Mike.

Hi. Good morning. Happy New Year to you. I was hoping that maybe we could dig in a little bit on the HHC segment. I am really trying to get a sense of what the margin cadence there could look like versus this very strong 20%-ish level you achieved in Q4. Can you maybe give us a sense of whether there were some one-time positives in there in terms of reduced incentive comp, lower discretionary spend, or maybe some of this price-cost that was positive in Q4, but is starting to roll over into next year? And then, I guess, as we see maybe some better volume performance in that segment going forward, what kind of incremental margin contribution could we expect from that HHC segment?

So, Mike, I will try to provide a little color on that. I would say, there were no real unusual one-time favorable items in the fourth quarter. Variable comp was lower across the company so that benefited HHC. Looking forward, they delivered these margins in a year where volume was a real challenge. So, I think, we are really confident that they can maintain margins in this zip code, maybe not 19% every quarter, but I think we have shifted our focus from maybe three years or four years ago when we viewed HHC as sort of a mid-teens type of EBITDA margin to upper-teens and I think that we should be able to maintain that particularly when volume starts to return.

Yeah. I mean, there the HHC team is just doing an excellent job executing. They have continued to win business throughout 2023 and the wins just keep piling up coming into 2024. They have done really a nice job in their growth segments, bringing innovation like in the beverage labeling space. They have introduced a beverage labeling adhesive that allows labels to come off bottles more quickly in the washing process, more quickly and at lower temperatures. So they have got some growth segments that are really bringing solid innovation to customers. And then they also have just really managed how they run their leverage segments. Good example is tape and label. I mean, we never used to sit here and talk about tape. So tape and label, we have a new market segment leader there and he’s just very successfully choosing what parts of tape and label we really want to play in and that’s part of us succeeding in these leverage segments, picking where we truly add value and we can generate better margins and better profitability for our products, as well as continuing to leverage effectively our plant network and our raw material network. So they did a nice job demonstrating the power of leverage, and you are going to continue to see that with that HHC team.

All right. Thank you for that. And then, maybe a broader question just on what you guys are seeing in terms of destocking activity. I am well aware that you guys have a December month that is going to be contributing probably to some weakness at least starting your fiscal first quarter. But just curious what you are seeing across some of your key market areas, like, packaging, and maybe some other consumer-related areas where you had been seeing destocking, as well as what you are seeing in Construction. Are you encouraged that as we start the calendar year that we are getting order patterns more back to normal or is that going to take a few more months still?

Let me discuss how we are observing our three businesses emerging from the recent destocking phase. In the fourth quarter, it was noteworthy that the CA businesses recorded positive volume each month. Our EA business showed positive results in two out of the three months. Additionally, our HHC business was positive in the last month of Q4. We have seen the destocking trend reversing. I am confident that it has completely finished in CA. We didn't notice a significant impact in our EA business, as it's not characteristic of that sector. However, we definitely experienced it significantly in HHC and feel assured in concluding that.

All right…

Does that answer your question, Mike? Yeah.

Yes. Appreciate the additional color there. Thanks very much.

Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please go ahead.

Good morning, Jeff.

Good morning. Thank you very much. I have a question about the guidance. The adjusted earnings per share is projected to be between $4.15 and $4.45. What is the guidance for GAAP earnings per share? Additionally, you mentioned that the interest expense for next year will be between $115 million and $125 million. In the fourth quarter, it was $33 million, which seems like it would put you above that range. I understand there may be net interest considerations, but this year's net interest is around $130 million. Why do you expect the interest expense to decrease to $115 million to $125 million? Also, you mentioned indexed pricing. Does that imply that your raw materials are continuing to decline, and as a result, you're passing some savings back? Or did you perhaps earn a bit more than expected in 2023 and now need to account for that? Let's start with those questions.

Sure. Thanks, Jeff. I will try to handle the first two and I will let Celeste comment on the pricing question. So adjusted EPS, yes, so we don’t really guide on GAAP EPS, but I would say, if you are looking at kind of non-GAAP items or items that are adjusted. I think we expect it to be in the $35 million to $45 million range next year pre-tax, so I didn’t do the calculation and what that means from an EPS standpoint. So lower than this year, but we do still have some of the integration-related costs and some of the restructuring that will happen in 2024. So interest expense, we are projecting it to be lower. Two dynamics there. One is the strong cash flow that we had in the year, particularly in the second half has reduced our debt balances going into 2024. We are projecting interest rates to decline in 2024, not in the first half, but we have baked in a 25-basis-point decline in borrowing rates in Q3 and 25 basis points in Q4. So that’s what drives the difference, right? This doesn’t reflect any potential acquisitions in 2024. We don’t reflect those in our guidance. But assuming that we continue to show strong cash flow and continue to pay down debt, it kind of results in this type of interest expense profile.

Yeah.

Celeste, do you want to talk about index pricing?

Absolutely. As I mentioned earlier, for our outlook in 2024, we expect a mid-single-digit price increase, which is linked to our anticipated index pricing changes and some product reformulations. This is reflected in our guidance. These adjustments primarily serve as a margin preservation strategy, but there is a slight lag effect, so while they aren't inconsistent, you will notice the influence of raw materials decreasing in the previous year affecting prices in the upcoming year. Regarding raw materials, we currently monitor 4,000 different materials, nearly half of which are still experiencing a decline when comparing Q4 to Q3. Thus, we expect to continue benefiting from lower raw material costs as we move into 2024, since it takes time for these changes to filter through production and impact our financial statements.

Okay. And then my second question…

Still a deflationary raw material environment.

Sure. Then for my second question, if you look at your three major segments, this year HHC had a very strong year, Engineering Adhesives was pretty good and Construction was pretty tough. In 2024, which segment do you think will do the best, which the worst, what’s the one in between? And when you look at your acquisition environment, you have spent a couple of hundred million dollars this year on acquisitions. What do you think you are going to spend next year? What’s the outlook for opportunities as best as you can tell?

Yeah. So when I look at these three segments, HHC, EA and CA. I think both EA and CA will do well in 2024. I’d call it, kind of mid-single-digit organic growth in both of them. CA being a little higher than EA. HHC, we will probably still see them down low-single digits as we kind of work through a lot of this index pricing. And as you know, they solidly get their feet underneath them coming out of the destocking phase. Relative to M&A, I think you will see a very similar M&A performance and focus from us and spending in 2024 as you did in 2023.

Okay. Great. Thank you so much.

Our next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.

Good morning, David.

Good morning, Celeste. Thank you. Celeste, can you talk to the Q1 guidance, sequentially implies a pretty dramatic severe decline in detrimental margins, why is that?

David, I'll address that and then Celeste can add her insights. It's really about the seasonal nature of our business. If you look at the first quarter, it runs from early December to the end of February, which includes the Christmas and New Year's holidays as well as Chinese New Year. As a result, this quarter always sees the lowest revenue and margin for us. There are no changes to the dynamics of the profit and loss statement; it's simply our quarter with lower volume.

Understood. Thanks.

And this year Chinese New Year is about three weeks closer to the end of our quarter. And so China’s recovery has been very inconsistent. It’s bouncing around a lot. We are anticipating we might see some impact from that.

Understood. And to be clear just on raw materials. What do you expect them to be down on a percentage basis in 2024 versus 2023?

So my reference to raw material cost reduction in 2024 is largely related to carryover. So that’s one impact. When I was speaking to our 4,000 different raw materials that we track, I was speaking about Q4 versus Q3. That’s where we saw the biggest bulk of our raw materials, not quite half were still declining. Now interestingly enough, right? A third of them are still increasing as well. So it’s really a mixed bag as it relates to raw materials, but hopefully that clarifies my comments.

David, I can provide you with a bit more detail. Our guidance reflects that the effects of raw materials on the profit and loss statement year-over-year and the effect of pricing should balance each other out. As Celeste mentioned, the impact from raw materials is mainly a carryover and won’t provide as significant a benefit this year. Initially, we projected that the combination of raw materials and pricing would yield a benefit of $130 million to $150 million, but it turned out to be higher. However, for next year, raw materials and pricing are expected to offset each other, and pricing is anticipated to decline in the low single digits. You can calculate what that may mean for the profit and loss statement.

Very helpful. Thank you.

Our next question comes from the line of Vincent Anderson with Stifel. Please go ahead.

Yeah. Thanks. Good morning. I was hoping maybe you could just highlight a few areas where you have a very high degree of confidence in your organic volume outlook. Just given your otherwise conservative macro view and maybe just separating between products that have been growing consistently over the years. And just for overshadowed in 2023 versus products where your customer feedback is what gives you a high degree of confidence?

Good morning, Vincent. Let me share some of our recent successes, as they illustrate my confidence and the growth of our portfolio. In the electronic sector, we've seen significant progress, particularly with the emerging foldable phones. These devices present bonding challenges due to their flexible screens and small hinge bond lines, but we've successfully secured new applications in this space, which is on the rise. In the automotive sector, we've experienced strong growth in 2023, consistent with industry trends, particularly in Europe where we've maintained double-digit growth. This increase can be attributed to new product introductions. While we noticed a slowdown in the U.S. during Q4, I believe this is mostly due to the recent strike and not indicative of a larger trend. Our accomplishments in automotive also extend to the integration of advanced technology in vehicles, especially with the introduction of large glass dashboards. We've recently won a significant project with an OEM in this area, leveraging our expertise in bonding touchscreens derived from our work in electronics. Additionally, we're optimistic about our new ePower category, which focuses on sealing, bonding, and thermal management for power storage and batteries. We've onboarded 17 customers for our EV protect product, which aids in thermal management. Regarding our Construction and Agriculture (CA) business, we anticipate a rebound in roofing for 2024 and are seeing success in the infrastructure segment. Our acquisition of GSSI, which produces Beutel-based tape for metal bonding, and XCHEM in the Middle East, has enabled us to tailor our popular Foster’s brand for major infrastructure projects. We've already won a Phase 1 application in Qatar for an LNG project using our rebranded products. In our Health and Hygiene (HHC) division, our team has been performing exceptionally well. We've launched an adhesive for pad fastening that adheres to challenging substrates, and we continue to secure significant contracts in packaging driven by our sustainability focus. Additionally, we've seen success with our new adhesion products for topical skin bonding and the SecurePortIV product in hospitals nationwide. Overall, we have considerable momentum and I'm optimistic about our outlook.

Well, all right. That’s excellent. Then my follow-up was on Fosters anyway.

Good.

I will just leave it there. Thank you.

Okay. Thanks. Thanks, Vincent.

Our final question comes from the line of Rosemarie Morbelli with Gabelli Funds. Please go ahead.

Good morning, Rosemarie.

Good morning, everyone, and happy New Year to all. Many of my questions have been answered, but I would like to know the size of your growth categories for each of the HHC, including CA and others. Additionally, regarding your gross margin and EBITDA margin targets with growth aimed at 25% and leverage at 20% to 15%, could you provide some insights on their current status?

Let me provide a little more information here. So, when you look at our growth and leverage categories, Rosemarie. What you see is that about 50% of our sales and about 50% of our EBITDA plus or minus 5% resides in each category. And I didn’t mean it to turn out that way. It just turned out that way. So it’s a pretty balanced portfolio. And when you look at those, what’s in this space today? We say that our growth target is 25% EBITDA margins. We are definitely at the high-teens. They are already and starting to push forward and that will be the category where we really direct more of our investment. So I am confident we can increase that toward that 25% fairly quickly. In our leverage category, they are pretty close already to that 15% collectively and can easily exceed that. So that’s about where we are today.

Thank you. That is helpful. I was wondering about the margin progression. Are there any product lines that you believe should be removed from the portfolio to help improve the margin and achieve the overall target of 20% plus in the next three to five years, as you mentioned? And while I understand you cannot provide specific dollar amounts, I would appreciate any general insights you can share.

Yes. Since I joined, we've been thoroughly analyzing various market segments. We've already conducted a couple of in-depth reviews of these segments. My main focus is to understand the industry structure in each area, why we believe we can succeed, and how effectively we are meeting the needs within those markets. We continue to assess each market segment in detail, and any decision regarding divestment is taken very seriously. The new portfolio management structure provides an additional perspective for our evaluation.

Thank you very much. I appreciate it and congratulations on the great quarter.

Well, thanks very much, Rosemarie.

I would now like to turn the call over to Celeste Mastin for closing remarks.

Thanks everyone for joining us this quarter. We look forward to hearing from you again at the end of Q1. Have a great day.

This concludes today’s call. You may now disconnect.