H.B. Fuller Company (FUL) 2018 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the H.B. Fuller First Quarter 2018 Investor Conference Call. This event has been scheduled for 1 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 your host, Director of Investor Relations and International Finance, Mr. Maximillian Marcy. Please go ahead, sir.

Good morning, and welcome to our fiscal year 2018 first quarter earnings call. We have 2 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'll have plenty of time to take your questions. Let me also remind you that comments made by me or by others representing H.B. Fuller may contain forward-looking statements, which are subject to risks and 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 comments may include references to non-GAAP financial measures. These results should not be confused with the GAAP numbers in yesterday's earnings release or the GAAP numbers we will report in our Form 10-Q. We believe that the discussion of these measures is useful to investors because it assists in understanding our operating performance and our operating segments as well as the comparability of results. A reconciliation of these non-GAAP measures to the nearest GAAP measure is provided in the earnings release our company issued last night.

With that, I'll turn the call over to Jim.

Thanks, Max, and thank you, everyone, for joining us today. Our Royal integration is off to a great start and our underlying business performance remains strong. Net revenue grew 42% year-on-year, and consolidated EBITDA was $84 million at the high end of our expectations. In addition to our earnings release, which was distributed last night, we also filed an 8-K earlier this week that included pro forma 2017 results illustrating what our consolidated and segment-level financial performance would have looked like last year had we owned Royal. We chose to file this 8-K to provide you a baseline when comparing year-over-year performance as we deliver growth and margin expansion on a combined basis this year.

It also underscores the solid financial results of this combination. During our call today, we will make some references to our growth in 2018 versus the pro forma results, including in that -- included in that filing.

So in line with that statement, pro forma for Royal, net revenue growth grew 11%, led by Engineering Adhesives, which again delivered double-digit growth, and both Americas and EIMEA growing above their long-term targets. Pricing continues to improve, contributing to our solid revenue performance and is expected to get stronger throughout the year. As we move through the remainder of the year, we expect to deliver performance consistent with our 2018 guidance, and the goals in our 2020 plan as we expand margins, integrate Royal and meet our free cash flow targets.

We have 3 areas of focus as we enter the second quarter. First will be to realize over $50 million in annualized pricing to offset last year's raw material inflation. Next, we continue our Royal integration, which will deliver $15 million of cost synergies this year, and set the stage for revenue synergies of $50 million by 2020. Lastly, we will generate free cash flow of $200 million and reduce outstanding debt balances.

Delivering on these initiatives will drive significant value and position us to deliver our 2020 target of $600 million in EBITDA.

I will first walk through the segment performance in the first quarter and also review our expectations for the remainder of the year, and then I'll give you a brief update on the Royal integration before turning things over to John. First, in the Americas segment. Pro forma for Royal, revenue growth versus 2017 was up over 12% with about 8% of that growth from the impact of last year's Wisdom and Adecol acquisitions. Pro forma organic growth was about 4%, which was split evenly between price and volume. For the remainder of the year, we anticipate organic growth to remain consistent as pricing continues to get stronger as a result of our announced price actions.

Raw material cost increases during 2017 had a negative impact on EBITDA margin, which is most visible in the Americas in this year's first quarter. Seasonally, this is our lowest volume quarter and it typically shows a margin decline from Q4. The severity of raw material increases at the end of the year due to Hurricane Harvey and logistics cost increases this quarter exacerbated the effect. We have implemented significant price increases which will take effect April 1, which along with seasonality effects and increase in synergies from Royal, will dramatically improve margins in the second and third quarters. We expect EBITDA margin to be about 15% in the second quarter and back to historical levels of 17% during the second half of this fiscal year.

Our EIMEA segment delivered solid pro forma revenue growth of 15%, 4% of which was organic. This was driven by solid pricing and strong growth in emerging markets. On a pro forma basis, EBITDA dollars were up over 10% and EBITDA margin was flat versus the prior year despite last year's raw material inflation. Our solid pricing actions and operational improvements made during the prior fiscal year contributed to EBITDA performance. We expect the EBITDA margin to improve for the remainder of 2018 driven by positive pricing, manufacturing savings initiatives and synergy realization. Full year EBITDA is expected to improve by nearly 100 basis points on a pro forma basis and finish the year at nearly 14%.

Now turning to the Asia Pacific segment. We grew revenue by 6% in the first quarter, primarily driven by positive foreign currency translation. Volume declined modestly versus the first quarter of 2017 due to the timing of Chinese New Year, which was at the end of our first quarter in 2018 compared to much earlier in the quarter in 2017. Volume will return to our historical averages in the mid-single digits as the year progresses. Adjusted EBITDA was down versus the prior year due to the cumulative impact of raw material escalation during the 2017 fiscal year, offset by pricing. As pricing continues to improve, margins will expand as we anticipated 100 basis point improvement in EBITDA margin for the full year. Our construction adhesives pro forma revenue declined by approximately 1% in the first quarter of 2018, with growth in the roofing business offset by a decline in the flooring business. We expect to deliver revenue growth of approximately 4% on a pro forma basis for the full year, with stronger growth in the back of the year. EBITDA nearly tripled versus the first quarter of 2017, driven by the strong margins in the Royal roofing business. From a margin perspective, there will be a market improvement due to the combination of the 2 businesses as well as the impact of volume leverage, raw material synergies and some operating synergy towards the end of the year. As we continue to improve the underlying performance of the flooring business and realize these raw material and manufacturing cost synergies, we expect to improve EBITDA margin on a pro forma basis in 2018 by about 200 basis points in this segment to a margin of about 18%. Lastly, in Engineering Adhesives, we continue to show strong growth with organic growth in the mid-teens. Strong volume and pricing as well as positive mix all contributed to the revenue growth. As we move through the year, we expect to maintain a similar organic growth cadence. Our Engineering Adhesives adjusted EBITDA dollars increased over 100% and EBITDA margin was up approximately 450 basis points due to the inclusion of the Royal business. As we move through the year, we expect continued year-over-year improvements in EBITDA, finishing the year near 20%.

Overall, it was a solid quarter for H.B. Fuller and in line with our revenue, growth and EBITDA expectations delivering the EPS and cash flow we expected.

Before I turn the call over to John, let me provide some color on the progress of our Royal integration project. Ted Clark, CEO of Royal, and the 5 primary commercial leads who reported to Ted, have all agreed to stay onboard in key commercial roles. This will be a key driver in maintaining continuity and in delivering our growth synergies. Our procurement savings began seeing benefits in January with some major raw material savings of 7% to 8% as we implemented combined RFPs. Other raw materials where volume is small in one of the 2 companies are realizing significant savings due to the disparity of volumes purchased between the 2 companies.

In the first quarter, we realized just short of $2 million in synergy and we're on track to realize $15 million this year. In manufacturing, we announced the closure of 2 small Fuller plants in Texas and California in our flooring business as we combined volumes into Royal's flooring plant in Mansfield, Texas. We also implemented actions to eliminate redundancies in a number of functional areas such as duplication in senior roles and HR, finance, R&D and supply chain. These savings will begin to be realized in the second quarter.

From an offense synergy standpoint, 29 separate opportunities have been identified thus far with over $75 million in revenue potential. Many of these come from leveraging Royal's technologies through H.B. Fuller's extensive international network, particularly in China. Others come from packaging opportunities through Royal's specialty packaging equipment. We will share some specifics on these growth synergies during our Investor Day, which will be scheduled in July.

Overall, it has been a great start to the Royal integration, and the business plans which we envisioned for this combination are now coming to life.

With that, I'll now turn the call over to John.

Thanks, Jim. Jim provided a few highlights of the first quarter results, so I'll provide some additional financial details. Net revenue grew by over 40% versus the first quarter of 2017, the vast majority of the growth came from the addition of the Royal business. On a pro forma basis for Royal, revenue growth was 11%, which included approximately a 4% positive impact from foreign currency translation, primarily related to the stronger euro. Pricing continues to be more positive -- a core positive revenue contributor as we realized the impact of pricing actions to offset last year's raw material inflation. Adjusted gross profit margin declined versus last year reflecting the cumulative impact of raw material inflation during the 2017 fiscal year offset somewhat by pricing actions.

Adjusted selling and general administrative expenses increased 36% in the first quarter versus the prior year, primarily reflecting the addition of Royal. On a pro forma 2017 basis, SG&A grew about 5%, but declined as a percentage of revenue versus the prior year by about 100 basis points due to the restructuring actions we implemented at the beginning of 2017 fiscal year, volume leverage and overall cost controls. The net of this resulted in adjusted EBITDA of $84 million, up 43% (sic) [42%] versus the first quarter of 2017, and in line with our guidance. On a pro forma basis, for Royal, EBITDA was essentially flat year-over-year reflecting volume and pricing offset by the cumulative impact of raw material inflation during the 2017 fiscal year. Adjusted earnings per share for the quarter were slightly above our expectations at $0.35, down year-over-year as a result of higher interest expense and additional amortization related to the Royal acquisition, which impacted our lowest volume quarter of the year. With that, let me now turn to our guidance for the 2018 fiscal year. Net revenue is expected to grow more than 30% as a result of adding the Royal business. On a pro forma basis for Royal, we expect revenue to grow between 6% and 7% for the remainder of the year.

Revenue growth will come from good volume growth across all segments, with incremental pricing to offset the raw material cost increases we experienced during the 2017 fiscal year. Foreign currency continues to be volatile, but based on current rates should have about a 2% positive contribution to sales growth for the remainder of the year. Positive pricing, underlying operational improvements and the addition of the Royal business, including synergies, will contribute to an adjusted EBITDA of approximately $465 million. This represents an increase of 60% versus 2017, or an increase of about 13% on a pro forma combined basis. EBITDA will continue to improve over the remaining 3 quarters as we continue to realize synergies. We expect approximately $120 million in EBITDA in the second quarter based on normal revenue patterns and the impact of the -- of recently implemented price increases. We still expect depreciation and amortization to be about $150 million for the full year, with about $60 million of new depreciation and amortization related to Royal. We also expect full year interest expense of about $100 million, with about $65 million related to financing of Royal acquisition. During the first quarter, we increased the proportion of fixed interest rate debt to 70% of the total. Based on current market rates, our weighted average interest rate on total outstanding debt is about 4.25%. Depreciation, amortization and interest expense are expected to be incurred ratably over the year. We still expect our 2018 core tax rate to be between 25% and 27% based on U.S. tax reform. Capital expenditures are expected to be approximately $90 million in the 2018 fiscal year, which represents 2.5% of revenue plus approximately $15 million of investments for the Royal integration. Cash flow from operations is expected to be approximately $290 million for the year as a result of bringing the other 2 companies that both have strong cash flows. The cash generation profile with the combined businesses, plus the incremental synergies we expect to generate as a result of the transaction will allow us to generate approximately $200 million of free cash flow after investing in CapEx, of which, we expect to devote $170 million to repayment of debt in 2018 fiscal year. The adjusted full year EPS guidance range of between $3.10 and $3.40 remains the same. This range represents growth of approximately 30% versus the 2017 fiscal year. Free cash flow is expected to increase from $140 million in 2017 to $200 million in 2018, an increase of over 40%. With that, I will turn the call back over to Jim Owens to wrap this up.

Thanks, John. 2018 is off to a good start. The key priority this year is to successfully integrate the Royal business, and this integration is already having a positive impact. We have already secured a significant percentage of the raw material synergy savings that we outlined. We also recently announced actions that will rationalize some of our manufacturing footprint and drive efficiencies and cost savings. And in the first quarter of this year, we received our first orders related to our commitment to deliver $50 million in revenue synergy by 2020. In addition to the Royal integration, we are seeing positive volume growth in both the legacy and Royal businesses, and we're are delivering positive pricing across all of our businesses. The pricing actions will ramp up significantly in the second quarter. The results of these actions will generate EBITDA of approximately $465 million this year and free cash flow of approximately $200 million this year. The cash flow will be used to pay down debt. With each passing quarter, we gain confidence in our 2020 targets of $600 million in EBITDA and $600 million in cumulative debt paydown by 2020. We are gaining momentum in the business as we continue to grow our top line and improve our operational performance. This is the end of our prepared remarks, so now we look forward to answering your questions.

(Operator Instructions) We'll move to the first caller in the queue. We'll hear from Dmitry Silversteyn from Longbow Research.

Just wanted to clarify -- actually, since I get one call, let me clarify one thing. The $50 million in annual price realization that you're hoping to get, and I'm assuming that's for 2018. That represents about maybe a 1.5% or so in your revenue, that's a little bit lower than I think certainly I expected. So can you clarify if that's the sort of the total price realization? And what the -- what that implies for the run rate of pricing for 2019? In other words, should we expect something more than $50 million even if you don't increase prices again just on the basis of which you've already done?

Yes. That's additional increase in Q2. And so would add about 1.5% to 2% of pricing starting in Q2 of this year. And that would extend into 2019, so you'd have 2 quarters of benefit.

So this is actually incremental to the price that you already got, not sort of ultimately so that you -- okay.

That's correct. That's additional increases that are going into place right now. And this doesn't include anything we need to do in Q3 or Q4 if we see further inflation. And this is increases announced that are in the market and either implemented March 1 or effective April 1 and agreed with customers.

Got you. And if I can ask a quick follow-up on -- when you started the year, when you provided guidance for the year, you made it very clear that you're going to be pursuing pricing to restore your margins, and you sort of cautioned that it may impact your volumes. In your pricing initiatives that you've seen so far, was the volume attrition better than you expected, in other words less? Or was it greater than you expected? Or pretty much in line with expectations? And how does that change your thinking about additional price increases in the back end of the year?

Yes. So far it's a little better than expected, Dmitry, I mean, we'll see what happens here in the Q2, but we're seeing better competitive activity as well, which is what we really needed to help mitigate some of that. So I would say, we plan for the worst and, I mean, things are a little better at this point.

We'll hear next from Mike Harrison with Seaport Global Securities.

This is Jacob, on for Mike. In your comments, you expect to end the year in your 20% EBITDA margins in Engineering Adhesives. And then it appears the Royal Engineering Adhesives portfolio was running closer to the mid-20s. So given your 2020 targets, do you feel that with the added scale you can get up into the mid-20s by 2020?

Yes. I think -- so the short answer is, yes. We'll be higher than 20% in 2020. One of the things we'll do in our Investor Day in July is layout more specific by segment what we expect these segments to be in 2020. But I think given the accretive effect of Royal plus the underlying plans we have in our business, the legacy business to improve Engineering Adhesives, we expect margins to be north of 20% by 2020 in Engineering Adhesives.

Got it. And then one follow-up. It looks like the Royal business in EIMEA grew 19% year-over-year based on the 8-K information. So maybe a little more color on what the drivers are there? I assume a good portion of that was FX, but it still seems pretty strong.

Yes. I'm not sure that we show Royal growth quarter-over-quarter. We showed Royal pro forma 2017. And then this year we showed the combined segments. And I don't think there's a separate. So you might be looking at one of your model numbers, but we haven't separated out for 2018 Royal and Fuller numbers. Those are combined.

Yes, that was -- yes, the growth rates are similar to the H.B. Fuller growth rates, which is low double digits, and it's -- some of that's exchange and then there's some good volume growth.

We'll move on to Ghansham Panjabi from Baird.

This is actually Matt Krueger, sitting in for Ghansham. With a particular emphasis on your interest rate sensitive end markets, have you seen any shift in momentum on a macro basis across any of these various businesses? Like I said, particularly in the context of the interest rate momentum that we've seen recently?

Yes. No, I don't think we get -- first of all, I don't know if we have interest rate sensitive markets. If there was one, it would be tied to our construction adhesives. But the amount of momentum we have there is more. So we really don't have what I would call interest sensitive. But overall, construction looks positive, I think the construction positive -- markets are positive. We are anticipating a pretty good year in our construction adhesives business this year.

(Operator Instructions) We'll hear next from David Begleiter from Deutsche Bank.

Jim, just in Engineering Adhesives, volume growth did slow versus the prior few quarters. Can you address that? And is that 6% growth what you think you'll see for the rest of the year in Engineering Adhesives?

Yes, there's a couple of things going on there, right? So I would say, organically it was about 12%, right? So I think you're right, the volume was a little less than that. But now it's a combined business, so I would say what we expect going forward is the legacy businesses had a very nice and continue to have a very nice profile of 15-ish percent organic growth. And the Royal pieces of that are more in the 5% to 7% growth. So we'll nudge down to the mid-digits, but closer to the 12% to 15%. We also have an interesting effect that happened this quarter and it was predominant in engineering and Asia Pacific in the way Chinese New Year fell, right? For most people, Chinese New Year is always in the middle of their first quarter. For us, it can fluctuate a little bit. It was right at the end of our first quarter. So the pickup that happens after Chinese New Year, didn't happen in our business until the first month of -- so there's a couple of percent of volume related to that, that will come back in the numbers actually in Q2.

Understood. And just on Royal versus pricing, will you be fully caught up by the end of Q2 with these $50 million of annualized price increases?

Pretty much by the end of Q2 from last year. So I think we feel really good about -- we feel very good about what's happened with these increases here going into the quarter. And I think, we see further inflation. So there's very much a potential for further price increases. But this is a nice catch-up quarter, if you will, on the margin.

We'll move next to Rosemarie Morbelli from Gabelli & Company.

Jim, I was wondering if you could give us a better feel of what is happening in the construction side. You said, roofing was strong, flooring was weak. Can you give us a little more detail on what we should expect?

Yes. So in terms of Q1, it's a very tricky quarter both on the roofing and the flooring side, because of you've got Christmas and you've got normal seasonality of less construction in the U.S., which most of this business is U.S., and then you got weather always in construction-related businesses. But overall for the rest of the year, we feel pretty positive about what's happening in construction. Certainly, we think in the roofing business, we're going to have a hurricane rebuild affect. That should be positive for that business. And they have more seasonality in their business than flooring, obviously, because a lot of their work goes on outside. So there's a big seasonality effect in that business that you'll see flowing through as well as positive growth. And then the flooring business will be definitely positive in growth this year. We've started the year looking for 5-ish percent, and we're still targeting that as our growth. But I think the big story in construction will be the continued expansion of margins. So underlying in our flooring business, we have good margin expansion some of the actions that have been taken in the roofing business are going to improve margins, and we have a nice synergy program there. So it's a very nice margin expansion story in Construction Products.

Were they effected more than other businesses by the higher cost of raw materials? And on this subject, did you see those -- have you seen additional increases in the raw materials in the first quarter? And are there signs that you will get additional cost in the second as well?

Yes. Yes, actually broadly speaking, petrochemicals are going up. A Couple of areas are hit a little harder. Certainly, anything related to MDI. So if you think about that from a construction context, there's more roofing business than there was in our legacy businesses. So it's more of an effect of raw materials than there have been in the past in our new construction versus what would have been construction adhesives in the past. And -- so, yes, so I think silicons and MDI-related materials are going up more than others, but there's broad and a modest inflation here going on in 2018 that we need to recover as well.

Jeff Zekauskas from JPMorgan.

The -- your interest expense expectation I think is $100 million, but if you annualize the first quarter, you get about $110 million. And can you explain how that works?

So as part of the financing, we swapped some of our debt into fixed rate. So what you're seeing on an interest expense line is gross of the swaps, so there's actually -- part of that offset is sitting in the other income line, Jeff. So it'll be around $100 million, but you have to kind of net those 2 lines.

Okay. Why is it that Engineering Adhesives would reach 20% EBITDA margin by the end of the year? That is, why there a very, very large lift from where we are now?

Yes. So that's one of those segments that has a pretty significant seasonality impact, now especially with the combined businesses because of Chinese New Year, so you'll margins pickup a lot because of that. And then some of the seasonality from a growth standpoint are actually in some of our higher-margin businesses. So it's in a wide range of businesses in there.

Okay. So sort of what's the -- what was your normalized margin going into the year in Engineering Adhesives on a pro forma basis? And how much do you expect that to change in 2018?

Do you have -- it's there? John's got that number for you.

So the information that we provided on a pro forma combined basis shows that Engineering Adhesives was approximately 16%, EBITDA margin last year, if you were to have the 2 businesses combined. And we are expecting, I think we said in the script, roughly 100 basis point lift in that EBITDA margin during the course of the year.

Okay, great.

So the full year improvement is about 100 basis points, driven by growth of a high-margin business.

We'll move next to Eric Petrie from Citi.

What gives you more confidence that you'll be able to continue to implement pricing actions compared to 2017?

Well, I would say, the level of activity that we have going on. So I guess, there's a few things that are happening. One, deeper and better analytics. One is a broader price increase leveraging our software tools. And very importantly, is more competitive activity. So I think, Henkel has been, especially in North America and in Asia, active both publicly but also with customers. And we've seen a lot more activity in North America from all of the other competitors. So I think those things, they have a very different approach to the price increase internally and a different dynamic externally.

Okay. And as a follow-up, you seem pretty bullish on the sequential margin expansion in most of your segments, so why not raise guidance for the full year or what are the risks that you see going into second half?

I think some that's built into our guidance. I think there's a seasonality that always existed in our business that is bigger now with Royal, because of -- mostly because of the construction adhesives piece, but a couple of other factors that are in their business. So there's going to be a natural not only lower revenue, but lower margin in our Q1, and the pricing in the synergies add up to it. So we feel very good about that $465 million, but I'd like to deliver more than $465 million. We're certainly not stopping there. But I think it's a very firm, very deliverable commitment at $465 million EBITDA. And we're a really working toward our long-term goal of $600 million EBITDA. So we've committed by combining these companies to build a company that's going to get that. This year is going to be a very nice step in that. Will we do more than $465 million? Possibly. But I can assure you, $465 million is going to happen, and our commitment to $600 million is very high in 2020. Does that help, I mean, we'll know more after...

(Operator Instructions) We'll move next to Curt Siegmeyer from KeyBanc Capital Markets.

I was wondering if you are able to quantify the transportation and logistics costs that you had mentioned. And is the $50 million in pricing action that you expect to take, is that -- does that include what you would implement to offset some of those costs?

Yes, I'll give you -- while John looks up for the numbers, and makes sure he gives you as specific a number as he can. Yes, I think logistics cost, especially in the U.S. are up significantly I think every business is seeing that right now. So it was probably a little more than we anticipated when we started the year, and it's definitely built into our pricing expectations going forward. But it is a -- it's a small percentage of our costs, but with sizable increases, it becomes something that we definitely factored into our price increases during Q2. So John, you want to give a little more color?

Yes, so just as a -- to kind of quantify it it's less than 5% of sales, it's around 3% or 4% of sales. But it's up pretty significantly. And it would be kind of up mid-teens, obviously driven apart by sales, but also driven by underlying cost increases.

Okay, that's helpful. And then with the -- I'm sorry, on the revenue synergy opportunity across the construction business, could you provide a little more detail what may be you would expect with the combined Royal business? With what that brings to the table, would you anticipate the long-term growth opportunity to improve at all in that business with the Royal roofing business now part of the portfolio?

Yes, I would say the biggest revenue synergy opportunities are in Engineering Adhesives, and then some in our Americas and EIMEA. We do have some in Royal, but that's mostly around flooring. So in flooring, H.B. Fuller had technologies that Royal didn't have and vice versa. So they had a very nice position for instance with some product technologies in wood flooring. We have a whole bunch of distributors that we sold adhesives to for tile and resilient flooring. So we're going to market their products into our distribution channels and vice versa we had some product technologies like wrappers that they didn't have in their product portfolio. So I would say the -- and again, we'll share more of this in July with a more detailed rundown of the growth synergies by segment. But I would say, it's a -- of the $50 million in revenue, it's a single-digit millions of opportunity in Construction Products and added growth. And as far as across roofing and adhesives, we haven't built any of that and I think those opportunities are more long term as we build a construction adhesives franchise. The channels that we have from a retail standpoint are things that we think that we can leverage, but those aren't built into -- at this point, into 2020 growth synergies.

At this time, we'll move to a follow-up from Dmitry Silversteyn from Longbow Research.

Dmitry, thanks for requeuing. I know we -- you got a lot of questions, so you can ask as many as you'd like.

I just wanted to kind of revisit the volume declines that we've seen in construction and in the APAC businesses in the quarter. And I understand the sort of the cadence of -- or the timing that the New Years fell in -- the Lunar New Year fell in, but you've had issues growing APAC volumes not just in this quarter, it's -- it has not been a particularly strong division for you when it comes to volume growth for the last couple of quarters. So what would it take to get that business to perform maybe not in line with Engineering Adhesives, but maybe more in line with what the Asian markets overall are growing?

Yes. I don't know, I guess, I'd have to -- and maybe John can pull up the numbers, but -- and I think our Asia volume growth last year was good each quarter, and this year was the exceptional. So -- and it was mostly the Lunar New Year. And even without the Lunar New year, it would be a little lower than it's been. But we've been, volume wise, I think high single digits consistently in 2017 and 2016. And I think that's our expectation for that business. So just to net out in that high single, low double-digit range in that business. As you raise prices in Asia, you get a little bit of pressure, so we'll have to manage through that. But that's my expectation of that business stragetically, and I think that's what we've delivered. On construction adhesives, it was a disappointing year in volume growth. And I would say, our flooring business being negative is not acceptable in -- even in Q1, even with the seasonality. So that's the area that I expect to see a turnaround. What's the take in there? I think the service issues that we had, had a hangover effect with some of our distributors. We have a good technology position. We have a good distribution channel. So it's an execution opportunity for our team in Construction Products. But that's the pace -- that's the place where I agree with your premise that, that needs to get to the right levels. And it's execution on our innovation strategy and winning with customers. So maybe John can give you some color. Go ahead, yes.

I just want to follow-up on the Asian market. The -- a lot of the -- we've seen in print and we've seen in some of the company's results sort of the impact both good and bad of the stricter environment laws and what it's doing to the industry capacity in China and there's many markets where you've had significant shutdowns in capacity. So I'm just wondering how this is playing out with respect to your business? Are you sort of benefiting more from getting some of these lower cost, less discipline, less environmentally responsible players out of the market where it's easier for you to get share pricing? Or is reduction in your customer base for the same reasons as their beginning their planned shutdown because of environmental contamination. Is that having a bigger impact on your ability to grow volume? So I'm just trying to understand, if...

How that plays in, yes. That's a great question. Yes, for us it's a little different than most chemical companies, because they're selling to other chemical companies. For us, we sell to end users. So our end markets are still equally as robust and really unchanged by a lot of these environmental impacts. So it effects us from a raw material standpoint, from a availability and pricing standpoint for local raws in China, which we're manage using our global network. And in terms of your question about, is it starting to stop out smaller competitors? Not yet. But we definitely see that pressure on some of these smaller competitors who are operating in nonchemical zones, in manners that are going to create control issues. So we see this as a really positive for the competitive dynamics in China long term. We haven't seen that effect yet on our competitive base. But I think it's a very good thing for China and it's a really good thing for our industry and the disruptions for us are all about raw material availability and cost in China.

Got you. Okay, Jim, that's very helpful.

Thank you, Dmitry.

Yes, Dmitry, if you're listening, just to clarify that Asia Pacific last year's constant currency growth was double-digit in Q4 and for the full year in volume with double-digit. So I think, Q1 was kind of the outlier.

I mean, I still it's kind of the November results where you had about 3.5% growth in volume mix, which -- and you kind of had a declining rate of growth raw that you were going to turn into a negative growth in the February quarter. So I just wanted to make sure that there was nothing going on that ultimately prevents you from returning to the high single-digit growth you've seen.

Right, right, right.

I think you might be looking at the impact of the extra week in the fourth week.

Yes, we also had that extra week. So it's -- but I think it's a great off-line question to have. Make sure the numbers are clear in terms of that. But yes, we did have an off-line week in Q3. But no doubt, the Q1 number has the balanced effect here in Q2 on volume.

(Operator Instructions) We'll move to another follow-up from Rosemarie Morbelli from Gabelli & Company.

Jim, where do you stand in terms of manufacturing consolidation? Are those 2 particular facilities kind of the end or do you see more coming?

Yes. I think when we announced the closure of those 2 facilities, we said there were 4 other consolidations that we had. Again, they're smaller consolidations, but we have 4 of them that are under study. So that would be 2 sites that are located near each other that we think we can bring together. And those projects are under study. So those are the ones that we have in sight and our plants here over the next 24 months. And long term, there's probably a lot more that can be done Rosemarie, but we see a lot of value to be generated by running this pretty extensive network of plants, driving some of the cost synergies, driving the revenue synergies. But long term, there's probably some more consolidation. But other than those additional 4, we don't see a lot here in the next 24 months. That help?

Yes, it does. 24 months, again translating that into 2 years, so that eliminates my next question about the subject. And when you see you are very comfortable with your $465 million of EBITDA this year, what could cause you to miss that particular number? What would -- would need to happen in the marketplace in order for you to be below that level?

Nothing, Rosemarie. There's no way we'll -- yes, we've tried to anticipate a lot of the things that are happening. We have pretty good visibility. I think we'll have to see what happens with raw material inflation in the second half of the year. So I think there will be some and we'll have to recover that. So -- and I think what we've committed to do is basically with a good view of what we know now in terms of raws and pricing. And versus last year, where we were a step behind here in Q2, we're going to get a step ahead of that. So we feel great about that. We continue to see robust revenue. We're partially through here now our fourth period of the year, and that continues to be in track with what we expect. So generally speaking, there is robust economies, our business is being run well, integration is going as needed, our pricing which is, as I said upfront, critical driver for us is looking really good. So there's nothing that screams at us. One of the great things about Fuller's businesses is, we're very diverse. So there's not one thing that could really get us off track. And I would also say that, thanks to John's leadership, we have very good detailed books in our business, right? Both our existing and our -- the Royal business. So in terms of visibility on what's happening segment by segment, there's a lot of that in our company. So I guess, that's building the confidence as well.

So this sounds great. And just making sure that I have this modeled impact. Every company as small as including you is more or less anticipating raw material cost to stabilize in the second half. So what you are saying is that even if there is no stabilization, you think that you will be able to get enough price to offset additional inflation, which at the moment you are not anticipating in the second half, correct?

That's absolutely, correct. One of the things that happens is, once you get in a positive pricing mode, it's a lot easier. By training up the organization, putting in place the right processes and systems, that all takes a bit of work. Once you have those processes in place, nudging up their price as we need to in the second half of the year will be much easier than it would have been, say, a year ago when we hadn't had inflation for quite a while.

(Operator Instructions)

So I'd to thank, everyone, for your time today and your continued support of our business and our strategy. Thanks today.

At this time, there are no callers in the queue.

Okay. We'll discontinue the call then. Thank you, operator.

You're welcome. Thank you, ladies and gentleman. This does conclude today's H.B. Fuller first quarter 2018 investor call. You may now disconnect.