Good day and thank you for standing by. Welcome to the H. D. Fuller Q1 2021 Earnings Conference Call. At this time, all participants are in a listen only mode.
After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over To your speaker today, Barbara Doyle, Vice President of Investor Relations. Please go ahead.
Thank you, operator, and welcome to H. B. Fuller's Q1 2021 earnings call for the fiscal quarter ended February 27, 2021. Our speakers are Jim Owens, H. B.
Fuller President and Chief Executive Officer and John Corcoran, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will take questions. Please let me cover a few items before I turn the call over to Jim. First, a reminder that our comments today will include references to organic revenue, which excludes the impact of foreign currency translation on our revenues. We will also refer to adjusted non GAAP financial measures during this call.
These measures are in addition to the GAAP results Discussion of these measures is useful to investors to assist their understanding of our operating performance and how our results compare with other companies. Reconciliation of non GAAP measures to the nearest GAAP measure is included in our earnings release. Unless otherwise specified, 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. Many of these risks and uncertainties are and will be exacerbated by COVID-nineteen and resulting deterioration of the global business and economic environment.
Actual results could differ materially from these expectations Due to factors discussed in our earnings release, comments made during this call or risk factors in our Forms 10 ks and 10 Q filed with the SEC and available on our website at investors. Hbfuller.com. Now, I will turn the call over to Jim Owens. Thanks, Barbara, and welcome to everyone on
the call. Last evening, we reported 1st quarter results, which built upon the momentum we saw And adjusted EPS of $0.66 was nearly double last year's Q1. The H. B. Fuller team gained share And reduced operating expense in each of our businesses in 2020, which created the momentum that is delivering exceptional financial performance to begin fiscal 2021.
Market innovation and exceptional service led to the share gains as H. B. Fuller solved As we reported last March, COVID-nineteen impacted our fiscal Q1 of 2020 only in China and by about $15,000,000 in revenue, $4,500,000 in EBITDA and $0.06 of EPS. Excluding this impact, our revenues were up HP Fuller works with our customers to solve their toughest adhesive problems. In today's remote work environment, This means collaborating in new ways and delivering market driven innovation faster than ever.
For example, we proactively developed and qualified new engineering adhesives for mobile devices, automotive electronics, electronic vehicle batteries and solar panels, We created technology and branding opportunities with a new line of Gorilla Pro MRO Adhesives, and there will be more H. B. Fuller marketing innovation We work with hygiene, health and consumable customers to develop innovative applications and to assure to meet high demand for their products. As a result, we substantially grew our sales across the majority of our HHCM markets in the Q1. H.
B. Fuller's revenue growth was also broad based geographically in the quarter, with organic growth in all three of our geographic regions. Importantly, our growth came with positive incremental margins, driven by product mix, reduced expenses and structural resulting from our business realignment last year. EBITDA margin increased 190 basis points year on year. Raw material costs increased from where we exited 2020, but were still relatively neutral on a year over year basis in the Q1 and in line with our expectations.
Raw material costs going forward will increase at a faster rate than originally anticipated due to increased demand, reduced inventories and supply constraints. Winter Storm Yuri in the Gulf Coast in February has created additional tightening in the United States and is impacting global supply. Supply has become tight for commodity materials, which make up a smaller portion of our portfolio. As the year progresses, this will also have an impact on the supply and pricing of the specialty materials, which make up the majority of our purchases. Most suppliers have made good progress in recovering from Yuri.
However, the rate of recovery going forward will mostly depend on the output rates of the impacted assets and the time it takes for supply chains and inventory levels to fully recover. We have done a very good job Serving customers thus far by working closely to manage inventories and available materials. Our contracted positions with our suppliers, Backward integration of key polymers and global breadth have helped us manage the supply crisis thus far. The breadth of our adhesive chemistry and the diversity of our raw materials has meant that no single material has had a large impact on us and has enabled us to help customers find alternatives when short supply exists. The near term disruptions we are navigating in the U.
S. Are considerable, but they are temporary and supply is expected to normalize to a more balanced level in the coming months. Our planning assumptions anticipate that the risk of supply disruption will lessen as we exit the Q2, and we do not anticipate that it will have a material impact on our ability to meet demand. However, we now expect year on year raw material inflation to be in the range of 5% to 8%. H.
P. Fuller has done a remarkable job in supporting customers through supply shortages, and we also have implemented over $100,000,000 in annualized price adjustments that are effective in Q2 and will enable us to continue to seamlessly serve our customers. Some of these were effective on February 15, with most effective March 15 April 1. We are preparing for further price adjustments if needed in Q3. These price adjustments will fully offset the impact of raw material increases.
Now let me move on to discuss performance in each of our segments in the Q1 on Slide 4. Hygiene, Health and Consumables Adhesives 1st quarter organic sales increased 7.6% year over year, continuing the strong performance trend in this business unit in 2020. Sales increased versus last year across the majority of our HHC markets with strong growth in packaging, tissue and towel and tape and label and good growth in hygiene in particular. HHC segment EBITDA margin was strong at 13.3%, up 180 basis points. Margin improved versus last year, reflecting volume leverage, restructuring benefits and good expense management.
Construction Adhesives organic revenue was down 10% versus last year as winter storm Yuri, extreme weather and material supply issues across much of the United impacted construction activity as we started the year. Construction ATIZA's EBITDA margin declined versus last year, reflecting these issues. Underlying operational improvements from the GBU restructuring were offset by lower volume and the impact of severe weather. Yulee temporarily disrupted operations at our construction adhesive facilities in Texas in February. Both plants have now been fully up and running since early Aside from these near term impacts, demand for construction adhesives continues to be strong for residential builds And remodeling.
Demand has also begun to improve on the commercial and roofing side. We are planning for both top line performance and margins to improve significantly Engineering Adhesive results were extremely strong with organic revenue up 21% versus last year, Reflecting share gains and improving end market demand. Sales increased versus last year across the majority of our EA markets, with the strongest growth in electronics and new energy. We expect continued strength and double digit full year growth in this segment. Engineering Adhesives EBITDA margins were strong at 15.4%, up 300 basis points compared with Q1 last year, reflecting strong volume leverage and good expense management.
Looking ahead at our full year results, Our planning assumptions are that COVID related shutdown impacts will remain, but continue to decrease as vaccines are rolled out around the world. We anticipate that many raw materials will be tight through the summer as supply chains normalize and demand continues to be strong. We anticipate continued improvement in underlying demand in each of our business units, driving volume growth in 2021 versus 2020. Growth in some end markets such as commercial construction and aerospace will improve at a slower pace and may not return to 2019 levels of activity this year. While engineering adhesive demand is expected to moderate from 1st quarter levels, which reflect some pent up demand, we End market demand will likely be strong for the entire year.
Overall, when considering our strategic pricing actions, Coupled with the solid volume growth in HHC, improved performance in construction adhesives and strong demand in engineering adhesives, We now expect full year revenue growth of high single digits to low double digits versus 2020. Now let me turn the call over to
Thanks, Jim. I'll begin on Slide 5 with some additional financial details on the Q1. Net revenue was up 12.3% Versus the same period last year, currency had a positive impact of 1.8%. Adjusting for currency, organic revenue was up 10.5% with volume Accounting for all of the growth. Pricing had a neutral impact year on year in the quarter.
Year on year adjusted gross profit margin was 26.7%, up 20 basis points versus last year driven by the higher volume. Adjusted selling, general and administrative expense was up 2.9% versus last SG and A was down 170 basis points as a percentage of revenue, reflecting savings associated with our business reorganization, Lower travel expense, general cost controls offset by higher variable comp than last year. Net other income increased by $3,000,000 versus last year driven primarily by increased income on pension assets. Debt interest expense declined by $2,000,000 reflecting lower debt balances. The adjusted effective income tax rate in the quarter was 27.5%, Up 180 basis points versus the adjusted tax rate in the Q1 last year, driven primarily by mix of income and tax related to global cash strategies.
Adjusted EBITDA for the quarter of $101,000,000 was 30% higher than the same period last year, driven by strong top line growth, Adjusted earnings per share were $0.66 up 94% versus the Q1 of last year, reflecting strong operating income growth and lower interest expense associated with our debt reduction. Cash flow from operations in the quarter of $36,000,000 was up from last year, reflecting strong income growth, partly offset by higher working capital requirements We continue to reduce debt paying down $16,000,000 in the quarter compared to $6,000,000 during the same period last year. Regarding our outlook, based on what we know today and the planning assumptions that Jim laid out earlier, we anticipate revenue to be up high single digits to low double digits versus 2020 and EBITDA to be between $455,000,000 $475,000,000 as continued strong volume growth and pricing actions offset higher raw material costs. We expect cash flow to be strong for the rest of the year, allowing us to maintain our target to pay down approximately $200,000,000 of debt during 2021. With that, I will turn the call back to Jim Owens for some closing comments.
Thank you, John. We were very pleased with our strong start in the Q1, which follows a strong Q4, both of which greatly outperformed predominantly non COVID quarters from the prior year. We are growing through our strategy of delivering sustainable innovation and high value solutions, and we are in a great position to continue to grow our business In the current high demand and supply constrained environment. This means continued growth from innovation, leverage of remote Our second imperative is to strategically manage pricing aligned to the value we deliver In this inflationary environment, our company has built pricing tools and in-depth training in anticipation of the day when material inflation returned, And we are already executing with speed and precision to maintain and grow our business while pricing to value. Our 2020 operations investment was centered on creating the operational discipline and metrics We will also deliver an additional $200,000,000 of debt reduction in 2021, moving the company closer to our net debt target of 2x to 3x EBITDA.
On our conference call a year ago in March of 2020, I told you that because of our extraordinary collaboration with customers, our robust global operations and supply chain and our unmatched expertise in adhesive innovation, Enabling us to grow as global economies recover. I was confident that we would emerge as an even stronger company than prior to the pandemic. Our stronger performance throughout 2020 and our exceptional results in the Q1 are proof And my confidence was well founded. This company is built on an agile business model where people collaborate remotely with each other, with customers and with suppliers around the globe. In a changing world, these attributes of agility, collaboration and flexibility have enabled H.
B. Fuller to excel. As working conditions changed, supply and demand fluctuated Growing the business this year in a period of economic recovery presents exciting opportunities and unique challenges. In 2021, our business priorities are squarely focused on capturing share and managing inflation risks as we continue to build on our rising leadership position in the global adhesive industry. Our culture of collaboration and innovation and our improving operational execution gives me confidence that we are strongly positioned to continue to deliver Operator, please open up the call so we can take some questions.
Your first question comes from the line of Mark Mike Harrison from Seaport Global Securities. Your line is now open.
Hi, good morning.
Good morning, Mike.
Good morning, Mike. Congrats on a nice start to the year. I was wondering if you can first Maybe give a little bit more color on the strength in the engineering adhesives business. Maybe talk in some more detail about What markets or applications are driving that strength and trying to get a sense of how sustainable that strength could be, In particular, as we see a lot of your customers probably doing some inventory restocking that's not going to last forever. So maybe comment
As you know, Mike, our Engineering Adhesive business had been delivering double digit organic growth over the last few years And we see a return to that kind of level here. Certainly, 21% is exceptional, but double digit organic growth is something we're seeing underlying. There's some significant share gains. We've made some Strategic investments to grow in the new energy segment, specifically solar panels, that's really helped us around the world. Our electronics business continues To grow significantly and now off of a bigger base.
So we're winning. We won a number of new and different applications during 2020. And I can't emphasize enough how much of the work we did in 2020 to really get at opportunities and continue to do that remotely differentiated us on a number of applications and opportunities. And then another area that we focused on And there's a lot of new wins in that space, not just electric vehicles, but all the electronics They're going into an automobile, and those new wins are kicking in.
And then the other thing, I think, if
you dig into the details, Mike, Some of this is offensive synergy related to the Royal deal and the Tomsen Cyberbond combination. So in a space like this, Combining these businesses, it takes a couple of years to get all of the specifications and the wins in the pipeline. A lot of this is the globalization of opportunities that were happening in China and needed to happen around the world or in Germany taking it around the world. So the short answer is A lot of wins, a lot of fundamental organic growth just by inspecting on new applications. We think there was a little bit of pent up demand.
I don't see any Really supply chain building right now. I mean people are just trying to get the materials they need to do their job. So I don't see a lot of inventory build in these numbers, But some of our customers are picking up some demand. So that might be a lot of 21% versus a comparable quarter, might be a little high, but certainly in the double digit range.
All right, great. Appreciate that. And then my second question is about your new Raw material assumptions and really trying to get a sense of what the cadence of earnings could look like or how we should think about Margin headwinds, you talked about the pricing efforts, some of those coming in mid February, but maybe more of them coming in The March April timeframe. So should we expect to see maybe some margin headwind in the second quarter and And some catch up in the 3rd and 4th quarters if that pricing fully kicks in?
Yes. I will let John try and get specific on some of the timing here. But overall, Mike, as you know, a smaller part of our purchases are commodity materials, which have spiked up quickly. And we're feeling those right away in terms of the raw material input costs. Some of the specialty materials take a little longer, but Definitely things that we're factoring into our planning.
But I think very importantly was the speed in which our teams got out there with And an excellent job by the team to get those in place here March So the net net is, while there's a little risk that we won't get 100% of what we need this quarter, I feel pretty good based on the numbers that we're seeing and the timing that will fully offset Q2 raw material increases with the Price increases we've put forth. But John, maybe you can give some deeper color on that.
Yes. Thanks. I agree with that assessment, Jim. I think I don't think we're going to see significant pressure on margins in the Q2. I think there is a delay in terms of how these raw materials work their way through So I think we'll see a little bit more of an impact in the Q3 actually.
So I think the supply disruption maybe is
All right.
Thanks very much. Thank you, Mike.
Thank you. Your next question comes from the line of Jeff Zekauskas from JPMorgan. Your line is now open.
Thanks very much. Why is it so easy to pass through What is it about the market that gives that kind of ease?
Yes. It's a great question, Jeff. I think we started the year knowing that we were going to put forth price increases. And I think what's happened here across lots of materials, not just the chemical space, is customers are seeing shortages and whether that's the plastic film they buy or the materials for other So when we have that kind of momentum around adhesives, it enables us to raise prices In an easier fashion, right? I mean, the people on the front line may not say it's easy, but I would say, given the nature of everything else that's happening out there And the importance of Adhesives, right, I mean, I emphasize this point a lot.
These things are critically important to our customers. So, yes, it's gone exceptionally well, I would say, this year.
Okay. And the auto Related revenues are probably really strong and probably have been for a couple of quarters. Does that mean that the Engineering business overall will have lower revenues in the second and third quarter. On the auto side?
Yes. I wouldn't say that our auto business is a higher margin Business, Jeff, it's similar to other businesses. And in terms of our engineering adhesive business, it's Probably less than 10% of that business, right? Okay. So it's not the big driver, but certainly auto is robust right now.
You spent $35,000,000 in CapEx in the Q1, which is high For a Q1 number, what happened there and how much do you plan to spend on CapEx for the year?
Yes, it's actually Jeff. It's the 2nd year
in a row we've had a
high number in Q1, but you're right. Traditionally, we have a lower number in Q1. We've put some really good planning processes in place, and those have enabled us to get a better cadence of spending. So There's a combination of some things we freed up at the end of last year. If you remember when COVID hit, we really pulled back on Capital spending, so we freed some things up in Q3 that ended up getting spent in Q1, but we still see the $95,000,000 for the full year being A deliverable number.
John, anything you want to add on that?
No, I think your point is the right one. I think last year, we spent $32,000,000 in the Q1 $87,000,000 for the full year. So It's probably a similar pacing as last year.
Okay. And then lastly, your payables went up a lot. Are you going to run with a higher payables level? And does that mean that your working capital penalty this year Might be a little less than you originally thought. I see that you're forecasting growth in operating
I think that increase in payables is consistent with the work that we've done over the last couple of years to Strategically increase our terms with our suppliers. If you look at the last 3 years, we've taken, I'd say 2018 through 2020, we've taken working capital as a percentage of revenue down a little over 300 basis points and it's really been all the areas that we've impacted. I think that working capital will probably be a modest use of cash this year, even not by strong revenue from a strong revenue year Based on our ability to continue to focus on this as an area of improvement, we've targeted another 100 basis points The improvement in working capital as a percentage of revenue and I think you'll see some of that in payables. I think you might see more of that actually in inventory Where our operations efficiency project has a portion of it focused on managing inventory more effectively.
Okay, great. Thank you so much.
Thank you, Jeff. Thanks.
Your next question comes from the line of Ghansham Panjabi coming from Baird. Your line is now open.
Yes. Thank you, ma'am. Good morning, everybody. I guess, Jim, going back to your prepared comments, I mean in 2020 during the peak of COVID, you were able to gain market share given some of the production disruptions across the industry You sort of flex your footprint and just effectively executed better. Do you see the same sort of backdrop at this Point post, Winterstrom, Yuri.
I mean, I'm asking because there are media reports of adhesive shortages in the U. S. Impacting the paper industry. Just give us a real time view of what
Yes. So the short answer is yes. I I've talked about our team that COVID gave us an opportunity because we're more flexible and agile and have this global presence that we leveraged Last year, and I think the supply shortage also puts us in that same position. There are adhesive shortages, particularly on the water based adhesives. So That's really the big issue, which were driven by van and the time it took for selling East Dow and LyondellBasell We had one of the things that sets us apart Ghansham is we're backward integrated in some of those polymers.
We had some inventory. We had some products. So our team has done an exceptional job of keeping our customers supplied. Now we've had to have allocations and manage everybody's supply, work closely with customers on their inventory levels. So there are definitely issues out there that we're managing.
But I would say, broadly speaking, And this is the feedback I get directly from customers, and I'm talking to a lot of them these days that we're doing a better job than most in managing through those. And then I think importantly, we're on the back end of those problems now. So as things have gotten put back together down in Texas, Our suppliers have done a good job of getting their assets up and running. So it's just a matter of them getting that material through the supply chain over the coming weeks.
Got it. And then on the raw material guidance, I mean 5% to 8% for the year, I think previously you were sort of implying kind of low single digits, How are you expecting the evolution of the curve to kind of progress as the year unfolds? Are you expecting some level of moderation as the year unfolds? And the I'm asking is because every chemical producer seems to be pushing price aggressively and you see all these shortages with containerships and logistics more broadly, etcetera. So I guess the question is, off that 5% to 8%, are you just marking to market what you see now and you're assuming it stays static or Assuming incremental more inflation or deflation?
How should we think?
Yes. So we have a pretty in-depth process where And all of this built in, and it varies by material, Ghansham. So as you know, the commodity Some of the specialty materials we're anticipating as there's a roll on effect to affect us in Q3 and Q4. I think the most important thing for us is to remain flexible. And I was very clear in my commentary and we're very clear internally that That it's likely that we're going to have a Q3 increase.
And right now, we're just trying to size up the scope of that. So I think ongoing raw material pricing pressure is something we're anticipating, and Some
of that's built in, but
if it's more than we anticipate, we're certainly prepared to respond quickly as we add our Q3.
Okay, perfect. Thanks so much.
Okay. Thanks, Ghansham.
Your next question comes from the line of Vincent Anderson from Stifel. Your line is now open.
Yes, thanks. I wanted to Follow-up on Mike's question because you got into it a little bit, Jim. But when we think about the strategy that you applied for integrating Royal and Could you give us any update on how the legacy durable assembly business Contributing maybe any metrics in terms of increased cross border sales, if I recall, those were traditionally more regional businesses?
Yes, I don't have specific data. I can tell you that every one of all but one of the 14 segments within Our engineering adhesive business, which includes those former durable assemblies, showed positive organic growth in the quarter And some of them very sizable. And as you point out, some of those are synergy points. A good example of one that's going extremely well is our insulating glass business. So it was a durable assembly business.
It had synergies because of some technology that have been developed in Germany. The global team we have set up is driving that around the world and creating significant growth everywhere. So it's patented technology, provides real value for customers and driving a lot of growth. And so definitely A big piece of this is, as we talked about when we set up the realignment, was taking durable assembly and run them through the engineering adhesives model, which is more about getting specified upfront and networks paying off. So in terms of the durable assembly Versus the old legacy engineering adhesives, a little more growth in engineering adhesives, but an important part of the success formula is what's happening in doorbell assembly.
Great. And how is it with COVID, it's obviously maybe tough to answer, but how are those legacy business units Trending in terms of getting that margin profile, maybe not quite to legacy Engineering Adhesives, but trending in that
Yes. I think the cost structure savings benefited a lot. As you know, we had 5 segments and 3 regional aspects. You see that in our underlying performance, especially as we get the volume growth. It's just driving to a really nice incremental margin.
So that's the biggest impact. I think we are getting some value pricing pieces, but the biggest impact is just driving the operational effectiveness of Five segments down to 3.
Great. And then I don't know, maybe dangerous territory here, but the balance sheet is It continues to delever now that we're getting some help here on the denominator side. Have you started to rebuild your bolt on pipeline? Is it still too early to think about that, but just in terms of getting it spun up for when you feel comfortable with approaching that
Yes. Yes, strategically, all throughout the last few years, Ted and I and the leadership team have spent time talking about what it would be like when we got back active. So I think that is a 2022 issue. I think at the current guidance, we'll be around 3.1 at the end of this year, right, is 1 to 3.2. So clearly in 2022, we'll be below 3, which has been our target and commitment.
So I think we have a good strategic vision. Royal did a great job of acquiring businesses. We had done a really good job of acquiring businesses. So The learning of both companies is being combined into a strategic view that we're talking about and then we'll be able to execute as we go into 2022.
All right. Thanks. Thanks a lot.
Okay. Thank you.
Your next question comes from the line of David Begleiter from Deutsche
This is Catherine Griffin on for David. First, Can you provide any additional color on the breakdown of volume versus price for organic growth in the quarter and then in terms of the full year guidance. And then also just on that growth target for the full year, can you speak to what you expect for growth in each Segment, either above or below that total company target?
Yes. Catherine, why don't I let John Give you some of the specifics there and I could add color if needed. John?
Sure. So Catherine, I'd say for the Q1, if you look at organic growth of 10.5%, it was really all volume On an enterprise level basis, pricing was neutral. If you look within the GBUs, there was a little positive pricing in HHC. EA was neutral and CA was slightly negative as far as pricing, but none of those GBUs had a pricing impact of more than 1%. So it was really a volume driven quarter.
For the full year, if you look at kind of our guidance on the top line Sort of high single digits, low double digits. Pricing allows us to repay a bigger piece in terms of that going forward based on The pricing that we're executing, so we're estimating that pricing is probably going to be in the 2.5% to 3% impact for the full year, Sort of ramping up as we go through the year. And then FX will continue to be around 1.5% to 2% and the rest would be volume. From a GBU standpoint, HHC, we would say, continues very strong start to the year, has tougher comparisons In Q2 and Q3, but it will probably be in kind of that mid single digit type of growth range. In EA, we talked about growing double digits, CA growing a little bit slower than the average.
So that would hopefully that helps.
Yes. The only thing I'd add, Catherine, HHC had a particularly strong Q2 last year, so a little lower single digits second quarter and mid ish Higher single digits for the rest of the year.
Right. Okay, great. Thank you. And then just kind of an extension of the questions that have already been About raw materials, I mean, I'm just curious like what gives you confidence that you can continue to raise prices in Q3 with Just given the severity of raw material shortages and perhaps longer lasting effects on the global supply chain than what You're seeing currently, I'm just curious like what those negotiations look like and what gives you confidence you can continue to raise prices?
Yes. I think Q3 could be a little more challenging than Q2, but I would say Q2 is exceptional in terms of the environment. But I think at the end of the day, Catherine, adhesives are a Critical component for our customers. I think people are feeling that as we've had these really hard work to make certain we kept everybody supplied. And I think when people feel pressure on other materials, the adhesive price increase makes sense and it's not materially driving their P and L.
So yes, I think in an inflationary world, we see that We definitely will and need to get the increases.
Okay. Thank you.
Thanks.
Next question comes from the line of Paretosh Misra from Berenberg. Your line is now open.
Thank you. Just going back to the mix within the Engineering Adhesive business, given that you supply to many different end markets. As you look ahead, you think the mix within that segment is going to remain relatively stable or It could be a change, so it could impact your margins as we look ahead.
Yes. I think generally, our higher margin pieces, Parrotash, Are growing faster than the lower margin pieces. So we do have a nice mix phenomena there. Certainly, electronics, New Energy and then Auto Electronics are 3 of the areas where we see more fundamental growth that is Both organically gaining share as well as underlying markets. So there's a positive mix dynamic long term.
Got it. And how much of that business is currently China?
I don't know if we publicized that Specifically, but I would say roughly a third. I mean, it's we've got a good strong position in China. We've built that here At Solar over the last 10 to 12 years, but we're a we've got a strong position in China, probably less than a third, maybe 25% to 30%.
Got it. That's very useful. And then the last one, if you could just remind me Where we are on the cost cutting and restructuring, how much has been accomplished and how much more to go in terms of how it flows through to your P and L?
Yes. So I would say the SG and A piece of this is fully through. So we I think this quarter, we had an incremental benefit versus Q1 of last year, but all those cost savings around what we introduced in early 2019 are through the system. The manufacturing piece, we have quite a bit to go. So it's about $20,000,000 to $30,000,000 of which we expect to get more than half of that this year.
And that would come in the upcoming quarters. John, do you want to give any more color on that or did Did I cover it?
No, I think that was a good I think we last year, we realized about $30,000,000 of savings From our restructuring actions, we expect the annualized number to be $35,000,000 So we had about $3,000,000 incremental in Q1. So we're really just sort of annualizing against all the
Your next question comes from the line of Eric Petrie from Citi. Your line is now open.
Hi. Good afternoon, Jim and John. Hi, Eric. Hi, Eric. So it looks like over the next 3 years, Hybrid electric and battery electric autos are going to be growing 40% to 50% CAGR.
How is HP Fuller positioned? And do You have the capacity runway as well as the technology to capture that full opportunity set. And then is the glue content And those applications higher than ICE or dollar value, if you could quantify?
Yes. Generally, it's higher. I think one of the things that happens with particularly electric, but electric hybrid as well is noise dampening becomes a more important issue and There are a number of applications where that's an important part of what we provide. So that's one area. The second area I've talked a lot about is electronics And the convergence of our electronics and automotive business are really an important driver of growth, and that's creating more value per vehicles.
And then the really interesting opportunity is in the batteries themselves. So We've got materials that help insulate those batteries to prevent any kind of combustion problems from overheating, but also 1st, the energy, and that's a really exciting piece of that business that could have a big impact as we go forward. So those are the 3 main pieces for us, Eric, and Generally all positive, I think, in terms of what it does to our auto business.
Okay. And for my follow-up, is the Construction Would you be willing to sell and deploy capital to higher growth, higher return engineering, Organic or inorganic growth investments? Yes,
it's definitely core and it's definitely a business that We see returning to similar levels like Engineering Adhesives. As you know, we shape that business around some Higher value product and highly specified products. So what you'll see in that business is great Volume leverage. And as the year progresses, you'll see margins that move very nicely into the right direction. So COVID hasn't been kind to the construction business, especially commercial construction.
And right now, the industry is dealing with Supply shortages of materials as well as a bit of labor shortages in the U. S, but the underlying dynamics of that business for us are very positive And we see that being a really important core part of our growth strategy in the future.
Thank you.
Thank you.
Next question comes from the line of Rosemarie Morbelli coming from G. Research. Your line is now open.
Thank you. Good morning, everyone.
Good morning, everyone.
Good morning, everyone.
And I will add my congratulations to a great quarter. Jim, in the following up on the Construction Adhesives, this business was Down 10% or so year over year. Do you think that as the weather improves, as Supply return to a more regular level. Can you make up what you have lost? Or what you have Loss in the Q1 is kind of gone until next year.
Yes. Well, the short answer is, yes, I think we'll make it up and then some. Yes. As you point out, Rosemarie, that business is the only one where I have plants in Texas that were impacted by the weather. So they were closed the last couple of weeks of February, and we lost about $5,000,000 or $6,000,000 in revenue and $2,000,000 to $3,000,000 in EBITDA.
So if you had taken that out, It would have been relatively flat, which compared to the market is pretty good. But yes, we see good momentum as we head into Q2. We're against very easy comps in Q2 and Q3 in particular. So we see very strong double digit growth in that business As we look into Q2 and Q3, unless there's some big disruptions in the construction business.
And talking about disruption, the fact that there is a ship stuck in the middle of the Suez Canal and then another 100 kind of waiting to go through. Is that something that is going to affect the supply
Yes, I think that that will affect the chemical supply chain to some degree, Rosemarie. It's 150 ships right now, And it's going to take a couple more days for that. So I think it just adds to the ongoing stress in the supply chain. Is it going to transform everything in a negative way? No, but it's an issue that we're watching very carefully.
We're tracking exactly what materials that our suppliers have that might be on those ships. And but I would say Because we've been in this mode and in a global mode, we meet every day to go through the details of the issues Across thousands of materials, we have a task force that's our sourcing team, our supply chain team and our commercial team Let's make it certain that we supply customers. So they're well in the mode of managing those issues and a ship stuck in the Suez is Exactly what they're set up to do, so they'll manage it just fine.
All right. That is great. And then I was wondering if you could touch on the size And the potential, if not the size of your the solar business? And are you also playing in the wind area?
Yes. So on the second question, we have a very small wind business. It is an opportunity for us. So we'll see as that goes forward. So we have a whole new energy team, but the biggest piece of that new energy is around solar.
And again, we don't talk specifics about each of our businesses. But Rosemarie, as you know, we have about 30 different segments. So they average about $100,000,000 This one is close to the average. So is it a little smaller, a little bigger? We don't go into details.
It's a good sized business for us that's growing.
And is it in terms of the margin, does it Is it at the average level, above or below?
It varies
Because of challenges with the raw materials and the dynamics of that market, which go up and down year to year. But generally speaking, it's a good business for us, Rosemary. We're a technology leader in that space. We help our customers with their next level innovations and we have a broad mix of products. So some products are higher margins, some are lower.
Overall, it's a very nice growing sizable, solid, middle of the road margin for EA, Right. So maybe above our averages, but middle of the road for EA.
Okay. Thank you.
Thank you.
We have a follow-up question coming from Mike Harrison from Seaport Global Securities. Your line is now open.
Hi. Just one more question on the HHC business. You mentioned the challenging comp as you get into the Q2. But I wanted to ask about the lower number of births that Is expected in 2021 as a result of the pandemic. It seems like they're talking about that across a number of developed So can you maybe help to frame up how much of the HHC business is specifically related to diapers?
And maybe if you can break out how much of that is developed versus emerging, maybe just in talking about how that lower birth rate could impact The hygiene business potentially over the next couple of years.
Yes. So I would say, Mike, first off, there's a different dynamic, as That's where most of the babies are around the world. So, I think one of the beauties of H. B. Fuller is the level of diversity of our business.
So while The hygiene business is one of our biggest ones. It still makes up maybe about 10% to 12% of our business. And if birth rates are off versus standard rates, 1% to 2%. It's really a small impact on the overall company. So the hygiene team managing it, yes.
And then as you point out, baby diapers are one part of that business, but there's also adult care businesses, which are growing and then the feminine product business, which is growing Nicely around the world as economies mature. So, short answer is, for the overall H. P. Fuller, It's a 1% or 2% of 10% to 12% of our business is the impact, so relatively small.
Understood. Thanks very much.
Okay. Thank you.
Thank you. At this Tom, this concludes our question and answer session. I would now like to turn back the call over to Mr. Jim Owens for any closing remarks.
Thanks everybody for the thoughtful questions and for all of your support for H. B. Fuller. We'll talk to you soon. Bye now.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.