H.B. Fuller Company (FUL) 2016 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the HB Fuller third-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, everyone, and welcome to our FY16 third-quarter earnings call. We have two speakers today: Jim Owens, our President and Chief Executive Officer; and John Corkrean, our 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 HB 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 HBFuller.com.

Also please note that our reported results include some non-GAAP financial measures. These results should not be confused with the GAAP numbers in yesterday's earnings release or with the GAAP numbers we will report in our Form 10-Q. We believe that a discussion of these measures is useful to investors because they assist 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 are pleased with the improving financial results we delivered in the third quarter and we remain on track to deliver double-digit growth in the 2016 fiscal year.

Overall business performance remained positive and aligned with our expectations, despite the more challenging macroeconomic environment and the increased impact from raw material price deflation. We are confident that we will continue on a positive path and deliver our 2016 commitments as well as our long-term targets.

Some of the key highlights from the quarter are as follows. We delivered on our commitment in the Americas, driving sequential volume improvements. Year-over-year volume was essentially flat in the third quarter, in line with our commitments. We maintained our solid EBITDA margin, delivering 13.4% in the third quarter, with our European business delivering a 240 basis point year-over-year improvement in EBITDA margin.

The Asia-Pacific and engineering adhesive segments continued on their growth path. Each business showed strong double-digit volume growth, helped by strategic acquisitions that we closed this year. All of this together resulted in over $60 million of operating cash flow in the quarter, a key deliverable of our long-term plan. The cash flow we generated during the third quarter funded the Cyberbond acquisition while maintaining our leverage ratios.

As we enter the final quarter of the year we feel good about our performance. We are on track to meet our operational goals this year and we're on track to deliver 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 I mentioned, the volume trends continued to improve in the Americas segment. The measure we have traditionally called volume, a measure of volume and mix, is essentially flat versus the prior year. When you look at tonnage of adhesive being sold in the Americas, we see an increase across our business segments by an average of 2% versus prior year, an indication of solid market share performance in the Americas. John will share more detail on this later during his remarks.

After six quarters of reported volume declines, we have turned the corner from a volume standpoint in the Americas. Effective management of pricing and raw material cost management drove our solid EBITDA margin performance of 18.3%. We expect the current momentum to drive continued growth and solid margins in the final quarter of the year in the Americas.

In our constructions product segment, volume declined by about 11% versus the prior year and our adjusted EBITDA margin was below the prior year and our long-term target. As we discussed during last quarter's call, this quarter's results were as expected and in line with last quarter's financial performance. The drivers of the results in the third quarter have not changed. Last year was an unusually strong period with year-over-year sales up 30% in the third quarter of 2015 as we ramped up new business with Lowe's.

As we move beyond these tough comparables we expect volumes to be closer to flat in the fourth quarter versus the prior year. Our margins were impacted by lower volume and the excess costs associated with our new facility start up in Aurora, Illinois along with other related network investments. We've grown this business at an average rate of approximately 10% over the past five years. Although we are not satisfied with our performance this year, we are confident that our investments in this business will enable us to deliver the committed growth and profit performance going forward.

Moving now to our EIMEA segment, we again delivered positive volume growth. After a period of revenue declines, we are pleased with the recent revenue performance. The volume growth is especially encouraging, given the impact of consumer confidence in European markets after Brexit and other unusual events, like the attempted coup in Turkey.

The tone of our overall business and the new business pipeline is getting stronger. It is enabled by improved and consistent supply chain performance. We expect modest continued positive volume progression for the final quarter of the year.

From a profitability perspective, we improved adjusted EBITDA margin by 240 basis points versus the prior year's third quarter. The elements of the improvement were broad-based. Raw material cost reductions, price management, better supply chain efficiency and lower manufacturing costs. We expect continued year-over-year improvement in EBITDA margin through the remainder of the 2016 year.

Now turning to our Asia-Pacific segment, we grew volume nearly 11% in the quarter, with growth coming from all markets across all sub regions. Foreign exchange rates have weakened again versus the US dollar, especially the Chinese RMB which now sits at about 6.7 RMB to $1, and have had a negative impact on revenue growth. Adjusted EBITDA margin in this segment was up 60 basis points versus the prior year. Strong management in our core business was offset somewhat by incremental costs as we ramp up the investment in our new manufacturing facility in Indonesia.

The integration of the Advanced Adhesive acquisition is progressing as planned. We've quickly improved the margin profile through efficient synergy realization. We are very pleased with the new team and our progress together thus far.

In engineering adhesives we continue to show strong growth, with volume up 12% versus last year's third quarter, with good growth in our electronics and our automotive businesses. The Cyberbond business has performed in line with expectations and the teams are executing our global strategy to sell Cyberbond products in China and Tonsan products in Europe and North America.

Our adjusted EBITDA margin in the third quarter was 12.6% and our year-to-date adjusted EBITDA margin is over 10%. The best way to look at margin performance in this growth segment is over a longer period time. Our operating margins will fluctuate quarter by quarter as we increase our investment in product and market development to support future growth. But we do expect overall margins to steadily improve each year in this segment. With that, I'll turn the call over to John.

Thanks, Jim. Jim provided a few highlights of the third quarter results so I will just provide some additional financial details. Volume grew about 1% versus last year's third quarter. Volume grew in the EIMEA, Asia-Pacific, and engineering adhesives with year-over-year volume in the Americas flat, based on traditional measures and up year on year when looking at kilos sold, with both measures improving sequentially from the first half of the year.

As Jim mentioned, the measure we have traditionally called volume is a measure of both volume and mix. We can look at volume and mix separately by measuring the kilos sold by sub-segment in each region, which shows that volumes or kilos sold in the Americas was up 2% year on year in the third quarter, reflecting market share performance.

Mix had a negative 2% impact reflecting product substitutions with customers, where we move a customer to a new SKU with a lower price point but a similar margin. We have included this info for the Americas on the slides.

The impact of product pricing and product substitution continues to be a significant factor in our results. It is normal to see some price erosion during periods of prolonged raw material cost deflation. That said, we believe that we are effectively handling this normal process of managing pricing with our customers. Going forward, we expect the raw material cost environment to stabilize and further incremental benefits from lower input costs should be minimal with pricing stabilizing as well.

Constant currency revenue growth was slightly lower than expected and fell 1.2% compared to last year. Exchange also had an unfavorable impact on sales versus last year, as well as mid-year expectations. The weaker Chinese renminbi was the biggest driver of the unfavorable exchange impact on sales year on year, while the slightly weaker euro, weaker Chinese renminbi and weaker pound are the biggest drivers of the unfavorable exchange impact on sales since midyear.

Gross profit margin improved by 50 basis points versus last year, reflecting good pricing and raw material management, offset by higher year-on-year manufacturing costs, driven in part by the excess costs associated with the new construction products facility startup and the incremental costs associated with the ramp-up of the new facility in Indonesia.

Selling, general and administrative expenses were back down to a more normal level in the third quarter. There were a few drivers in this quarter's results. First, we have kept a watchful eye on discretionary expenses to ensure we are able to continue investing strategically in higher growth market segments. Second, foreign currency rates have retreated against the US dollar, resulting in a favorable impact on expenses. And third, variable compensation has been reduced in part, reflecting slightly lower than expected revenue progression.

Our tax rate was lower than trend in the third quarter. The tax rate improvement was twofold. First, we recovered some positive discrete items in the second quarter due to the realization of the R&D tax credits in the United States and the resolution of potential risks regarding open tax audits. Second, our mix of earnings was skewed towards lower tax jurisdictions which lowered our core rate for the full year to about 31.5%. The low rate in the third quarter includes a catch-up to record the benefit from the higher rate previously recorded in the first half of the year.

All-in adjusted diluted earnings per share were $0.64. The third-quarter results included continued negative foreign currency impacts that lowered EPS by about $0.03 per share relative to our prior expectations.

With that, let me now turn to our guidance for the remainder of the year. Foreign currency continues to be volatile. Based on correct foreign exchange rates, we now expect FX to negatively impact revenue growth by about 200 basis points. We now expect constant-currency growth of approximately 2% to 3% for the year.

As a reminder, our fourth quarter does include an extra week this year which will contribute to a higher than normal revenue performance in the fourth quarter. EBITDA margin is expected to improve in final quarter of the year and we expect full-year EBITDA margin to be approximately 13.5%. This is down slightly from our prior expectations, primarily reflecting modestly slower constant-currency growth and temporarily higher manufacturing expenses.

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

Cash flow from operations was strong in the third quarter, coming in at $63 million, driven by solid net income and good working capital management. Our year-to-date operating cash flow was $145 million and we expect strong free cash flow generation performance for the final quarter of the year.

All these factors considered, we are narrowing our EPS guidance range to between $2.45 and $2.50 from the previous range of $2.45 to $2.60 or $0.71 to $0.76 per diluted share in the fourth quarter. Both transactional and translational foreign exchange losses will drive a negative $0.05 impact versus our previous guidance. With that, I will turn the call back over to Jim Owens to wrap us up.

Thanks, John. We're continuing to drive better business performance in 2016. This year is about capitalizing on our strong foundation and delivering results based on the investments we have already made.

Our third-quarter results are in line with our strategic direction and momentum is building throughout our business. Global market conditions continue to be volatile and raw material declines are both an opportunity and a challenge. But our teams are reacting quickly to deliver for our customers and our shareholders in a cost-efficient manner. Our EBITDA margin of 13.4% is evidence of our effective price and raw material management strategy.

We are now 3 quarters into a 20-quarter plan, a plan that has us driving sizable improvement in margins, modest growth and significant free cash flow. The plan revolves around two key elements, driving continued growth in our engineering adhesive business in emerging economies while optimizing margin performance in our other segments, particularly EIMEA. We delivered solid performance in both of these elements this quarter.

Our 2020 plan is a solid continuation of what has gone well in our business, with a clear vision of what will improve going forward. We remain confident in our plan and our ability to deliver and we are pleased with the progress that we've made thus far in 2016.

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

(Operator Instructions)

David Begleiter, Deutsche Bank.

Thank you, good morning. Jim, on the increased pricing pressure decline, are you seeing any competitive pressures, abnormal competitive pressures? Or more normal, given the deflation you are seeing in the overall commodity basket?

I don't think we see anything unusual in terms of competitive activity. I think when you are in these deflationary times we do everything we can to drive raw material costs in our favor and we also introduce new raw materials and new products in the market so that we can maintain our margins as we gain new business and compete in the market.

So I would say this is a normal period in this kind of a deflationary environment. I am pretty pleased with how we're managing it.

Very good. And on Americas adhesives, volume growth, or volumes in Q4 and even towards next year, should we see solid positive volume growth next year or in Q4 1% to 2%? Or more modest than that, do you think?

I think we said our strategic plan is 1% to 2% in the Americas while maintaining these margins. So I think, while we're not doing any projections on next year, I think the thing you should expect out of this business is continued modest growth in the years ahead, with very strong margin performance. That's the strategic pillar in the Americas and the growth comes from what we're delivering in some of the other segments, like engineering adhesives in Asia.

Thank you, very much.

Mike Harrison, Seaport Global Securities.

Hi, good morning. Jim, I was wondering if you could provide a little bit of color on what you saw in terms of overall volume trends as you look at June, July and August. Is it a case where we saw some July and August weakness or timing issues that may be resolving here in September that give you a little more confidence going forward?

I wouldn't say that we had a particularly big variation throughout the quarter. I think we saw very strong performance in engineering in Asia throughout the quarter. I think what we saw in construction products was very much in line with what we expected.

And the Americas business is, as I said right in the beginning of the year, we saw it progressing as the year came through and we saw it throughout this quarter. So we are pleased with the progress in the Americas which was one of the big question marks people had coming into the year and I think we answered that well.

Likewise in Europe it was a good quarter. Certainly, if you look at businesses in places like Turkey, they took a hit after the turmoil there. But overall, we didn't see big trends throughout the quarter.

As I'm looking at the engineering adhesives business, it seemed to show a pretty significant slowing in the volume growth rate from the 15% you showed in Q2 if I could strip out the Cyberbond contribution. Is that just some timing of sales or a tough comp? Can you talk a little bit about what you're seeing in terms of the volume trends in engineering adhesives?

We had a really solid quarter from an electronics and automotive standpoint and most of the core TONSAN business. The solar business within TONSAN had a weaker quarter. That has to do with some timing on some subsidies that were going on in China.

So, yes, you are absolutely right. Overall it was a little slower than last quarter but fundamentally the business is unchanged in terms of our expectations going forward.

All right. And last question for me is in terms of the lower raw materials. You mentioned that it is both an opportunity and a challenge.

Can you talk about what you are seeing in terms of customer inventory levels? Are you seeing the lower raws lead customers to some strategic delays in purchases right now that might be weighing on volumes?

Generally speaking, we don't see a lot of that in our business. People reducing their inventories of adhesives isn't a big driver of their strategic thinking in terms of how they manage things. There's an argument that there is a little bit of that in our numbers but we don't see it in any big major way in any of the regions within the [business].

All right, thanks very much.

Curt Siegmeyer, KeyBanc Capital Markets.

Good morning, guys. On gross margins, obviously they moderated a little bit sequentially this quarter, not too surprisingly. But how should we think about gross margins and price costs going forward? Should we expect it to be neutral heading into 2017? And maybe even like further into 2017, would you expect it to stay at that level? Or how should we think about that?

I think generally, if you look at our strategic plan, it involves gross margins getting above 30%, if you look at our 17% EBITDA target. I think we have done a really nice job of managing the price raw material cost component of the margins and the opportunity we have in our business is to drive better savings in manufacturing costs.

I think as we go forward, we will probably see less benefits from the price margin combination and more benefits from manufacturing. But the net net, particularly when you look at the mix of our businesses, our engineering adhesive business grows will be overall long-term positive improvement from where we are today on gross margin.

I think it's also, you also have to factor in, in Europe it is the lowest volume quarter. So there is some absorption, unfavorable absorption, that we see at gross margins.

The overall manufacturing costs in Europe are headed in the right direction but you've got some fixed cost absorption issue that you deal with in the third quarter. It's a lower data point, but like Jim says, our target is to move it up over 30%.

Got it. Then just a follow-up on the outlook. You mentioned in the press release $0.05 related to the currency moves that were unexpected in the quarter. It looks like you trimmed your volume outlook just a little bit from 3% to 2% to 3% on a constant-currency basis -- or a top-line outlook, I should say.

Could you maybe parse that out and talk about what you saw in your end markets in the current quarter? Anything noticeably stronger or weaker or what that compensation looks like? And then going forward, what was responsible for the small reduction there?

I'll comment on the volume and then I'll let John comment on currency.

I think overall we see the underlying volumes in line with our expectations overall. The level of deflation as we manage price raw materials is what pulls back that 0.5% you see in the overall constant-currency growth rate. So that's the way I would look at that.

But overall we are pretty pleased with the growth rates in engineering adhesives, Asia-Pacific, stabilization in Americas in a positive ground and our continued positive positioning in Europe. So we feel pretty good about the underlying volume. Deflation we are managing by managing our raw materials so well. So that's how we're managing that.

You want to give a little more detail on currency?

Sure, yes. The currency, obviously it's a handful but there is a slight weakening in the euro and renminbi, a bit little more pronounced weaker pound. And we have some exposure to the Turkish lira. So that's having an impact both in terms of the top line as well as operating income and EPS.

To build on what Jim said, related to the slightly lower constant currency, it is really the price deflation impact we are seeing. But we are holding contribution margin very well, so that is really not a driver, per se.

We do have a little bit of headwind from manufacturing costs, as we talked about, that are primarily temporary items that will dissipate as we get through the year. If you look at the way we've thought about guidance, it is really more on the currency and the headwinds from manufacturing than a price deflation impact following through. We're managing that pretty well.

Got it. Thanks a lot.

Rosemarie Morbelli, Gabelli & Company.

Good morning, everyone. Following up on the manufacturing expenses, could you give us a better feel as to how much more it is the start up is costing you in this year? And how much of the recovery do you expect in 2017?

I will let John answer the details here. I'd say there's three buckets, Rosemarie. The biggest one is the CP piece which is related to the startup of our Aurora plant. And then what we have had to do in terms of supporting our business from a service standpoint by leveraging the overall network.

The second piece is this Indonesia plant start up which is really going well but we are making certain that we take the necessary steps, so to really make certain that is a big driver for our business. And it is showing up with growth in that region.

And then the third one is some delay in some of the savings initiatives we have in the Americas. So those would be the three broad buckets. I guess John can maybe quantify it at a high level.

Exactly right. I think the biggest is that construction products, the integration we're doing there with the plant in the Chicagoland area. And that's probably ramped up as we have gone through the year and it's probably providing $1 million to $2 million headwind per quarter.

That piece will -- and that one has been delayed so that is providing a little bit more of the unanticipated piece. That is work that should be completed by the year end and we will have that behind us.

Indonesia will probably also be a little bit lingering into 2017, but not much. That project's on pace.

So if we look at $1 million to $2 million costs a quarter in terms of the ramp up in the US, can we eliminate the entire amount next year and see that kind of a gross profit improvement, everything being equal?

I think that is the unfavorability we probably face in the back half of the year and a little less than that in the front half of the year. So figure $1.5 million per quarter in Q3 and Q4 and a little less than $1 million in Q1 and Q2, as far as the favorable impact we should see next year.

Okay, thanks. And I wonder if you could touch also on the price decline. Is it more than you previously anticipated? Or is it more or less in line?

And at this stage if raw material stabilized, do you expect to have pricing? I think you said it would stabilize, but oil seems to be fluctuating, raw material costs seem to be fluctuating. So could you actually see some price increases if this is the case?

I would say if you look at our business, Rosemarie, as you know it's delayed a long time off of the oil decline. Oil has come down a long way, almost two years ago now. And then it finds its way through our business 18 months later. That's what we've been managing this last year. We're managing it really well.

It affects our business in two ways. One is where we give price discounts to customers as part of a sharing aspect, whether that's through an index or through a negotiated deal.

The other way is we introduce new raw materials. If we have a customer that has a whole set of needs, we will introduce a new product with a new set of raw materials to that customer. And that product will have a same, or maybe sometimes better margin for us, but a lower price for our customer.

The uptake on that has probably been a little stronger than we had anticipated in the mid year. That's a good thing, I think. I think it keeps us competitive, it allows us to introduce new raw material suppliers into the market. So we are pleased with what has happened there but it does put a little drag on the revenue.

Will that continue? Yes, I think we will see a little bit of that continue, certainly the rest of this year and early into next year.

Our mantra here is to manage that well and we've shown a really good capacity over the last five years to manage up and down these raw material situations and drive our margins forward on the bottom line. And that is what I expect we will continue to do with whatever happens.

If things tick up and raw material prices go up, we will certainly be in a position to raise prices. So I would say, from a HB Fuller standpoint, it is about being flexible and taking the issues and managing them well. Hopefully that gives you a perspective and the detailed answer you're looking for.

Yes, it is helpful, thank you. If I may ask one last question, when we look at the volume growth in Asia-Pacific and in engineering adhesives, could you touch on what legacy Fuller did versus the full result which includes acquisitions?

I think I would look at the acquisitions as between $3 million and $4 million per quarter for each of those businesses.

Okay, thank you.

(Operator Instructions)

Jeff Zekauskas, JPMorgan.

Hi, thanks very much. Your SG&A costs moved down about $7 million sequentially. Why was that and why is SG&A so volatile?

SG&A is a number of things. I think we touched on them when we were making our general comments. You have got the impact of, I would say, overall managing discretionary spending better, which we did in the quarter.

I think you have to also remember that Q2 is historically our highest quarter in terms of SG&A. We tend to have the most discretionary spending. Part of it is the natural move of SG&A from Q2 to Q3. Q3 always tends to be lower because of the Europe affect when you've got half the continent on vacation.

Exchange had somewhat of a downward impact on SG&A and then we adjusted variable comp in the quarter to reflect sales and profit performance. All three of those (multiple speakers).

I would say, Jeff, importantly, as we have looked at this deflationary impact, we have also put a specific emphasis on making certain that we control our SG&A to manage our business effectively.

Okay. You made some comments about price and mix. If you exclude mix, did prices decrease sequentially in a meaningful way?

If you look at the business overall, I would say there is a slight decline Q2 to Q3 from a price-only standpoint, Jeff.

The price of ethylene is now, spot price in the United States is $0.42 and it used to be in the mid $0.20s a couple months ago. Propylene is up, VAM is up. It is not touching your business at this second, but it looks like there is a meaningful raw material movement upward.

What are you going to do about that? Or do you see raw materials differently?

I would say there's two perspectives here. If you look at our business at a broad basket, most of our raw materials, 87% of them, are not tied to commodity raw materials. Those are materials that have a downward pressure on them over a period of years, so there is an 18-month delay.

The parts of our business that are directly connected to ethylene or VAM, we have seen price increases this quarter. So the numbers used are net. And you're right, ethylene and VAM have moved positively. And those specific segments, tied to some old-time liquid polymer businesses, have seen upticks in the quarter.

Right. So are you preparing to do something about that? Or you will wait it out to see whether it is a temporary fluctuation? Or what is your strategy?

What you would see in those businesses, Jeff, beneath the business in the Americas, is those businesses that are directly polymer-related, related to ethylene and VAM, had a price increase in Q3 versus Q2. So while the overall net number is negative, you would have seen those segments having -- and those were a small part of our business. But they do move -- when I talk about that 10% of business that is indexed, a big chunk of that is in this water-based polymer space and that is the piece that would move pretty closely, about a quarter lag, to what happens to ethylene and VAM.

Okay. Just as a last question, a lot of the earnings growth that you have got this year, a lot of the EBITDA growth, comes from a very weak performance in the first quarter of 2015 and a much better performance in the first quarter of 2016. But since that time your EBITDA has flattened out.

Can you do anything about that? Or you really can't do much because you're in a pretty slow growth environment right now?

I think our strategic plan is pretty clear in terms of how we're going to get to the 17% EBITDA over the next few years. Right now we are 90 basis points ahead of last year. We will probably end up a little short of 90 basis points for the full year.

I think the way to look at our businesses is each one of our segments has its specific challenges. We've talked a lot about Europe and the challenges we had there. We've made some really nice progress to move that segment forward.

Construction products, we have a very specific plan on how we're going to move that forward. Engineering adhesive business, we said very clearly that we are investing for growth there. That business is very high gross margins there.

So each one is looked upon separately. But we think this 17% EBITDA target is very achievable; and what you should expect as an investor in the Company is progression toward that 17%.

Mostly within our control; we are not expecting a lot of growth in this plan. We are expecting good growth in Asia. We're expecting it in engineering adhesives. But they margin improvement are things that we're driving within the business.

Great, thanks so much.

Rosemarie Morbelli, Gabelli & Company.

Just quickly, thank you, I was wondering if you could touch on the demand trends you are seeing in Europe since the end of the summer vacation? I know it is still kind of early in September, but can you give us a feel for what you are seeing?

I can't say I see a specific trend change after summer vacation, but maybe John has better (multiple speakers).

I'll be honest, it is so early, but I don't think we're seeing a change in trend in general in Europe, other than what we talked about with some of the turmoil, I'm talking broadly now, EIMEA in Turkey. Q3 is looking like Q2 right now in the very, very early stages.

Broad business, that means broadly muted but positive for Europe. Weaker in Turkey right now, we certainly see everything being weaker within that Turkey sphere. And continued strength in India. We're very pleased with our business in India.

And while our Africa business is small, we're real pleased with the progress we're making there. So that's the net net for Fuller.

Just looking at it a different way, did the plants shut down for a longer period of time during the summer? Or more of a normalized type of downturn?

That's a good way to look at it, Rosemarie. I would say it was more normalized than you see in some years where you have these very long shutdowns.

Okay, thank you.

(Operator Instructions)

Mike Harrison, Seaport Global Securities.

Thank you. Just one other question on the Americas. You pulled out the volume growth, and I appreciate that. The volume was up but the mix is negative. But can you break out a little bit what you are seeing in some of the different markets across the Americas?

Particularly Latin America, I assume is still weak. Packaging, what were you seeing there? And can you give us an update on the hygiene business, where I think you lost some business last quarter?

So I would say thanks for that question, Mike. And each one of those were areas that we highlighted as areas of weakness, and each one of those got stronger this quarter. So I'd say we are pleased with the performance in our hygiene business and our packaging business and Latin America got better.

We're still dealing with a year-over-year impact because of the Venezuela situation. But our teams are doing a nice job gaining share and managing through the business there. But thanks for the question.

Thank you.

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

Thank you, ladies and gentlemen, this concludes today's HB Fuller third-quarter 2016 investor conference call. You may now disconnect.