Ladies and gentlemen, thank you for standing by and welcome to the HB Fuller Second 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 our host, Director, Investor Relations And International Finance, Mr. Maximilian Marcy.
Sir, you may begin.
Good morning, and welcome to our fiscal year 2018 second quarter earnings call. We have 2 speakers today. Jim Owens, our President and Chief Executive Officer and John Corcoran, our Executive Vice President and Chief Financial Officer. As always, after our prepared remarks, we will have plenty of time to by 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 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 with the GAAP numbers we will report in our Form 10Q. We believe that a 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.
I also want to remind you that in March of this year, we filed an 8 K that included pro form a 2017 results that illustrate what our consolidated and segment level financial performance what have looked like last year had we owned Royal. We chose to file this 8 K to provide you a baseline comparing year over year performance. During our call today, we will make some references to our growth in 2018 versus the pro form a results included in that filing. With that, I'll turn the call over to Jamal.
Thanks, Max, and thank you, everyone, for joining us today. We had a very strong second quarter, another positive milestone along the way to hitting our 2020 target. We continue to make very good progress on and we're making great strides with synergies, which are reflected in our results. We delivered on the margin improvement and profit plans that we outlined during our last call, and we delivered a nice improvement in cash flow from operations as well as debt pay down during the quarter. Our financial performance this quarter was in line with our expectations which will keep us on track 2017 pro form a for Royal.
Adjusted gross margins improved by 30 basis points year over year on a Royal pro form a basis and 190 basis points sequentially, a strong result given that raw material prices were increasing in the second quarter of 2017. Revenue growth and margin expansion contributed to EBITDA of $123,000,000, which was in line with our expectations. In Q1, we noted 3 areas of focus that were imperative to a successful 2018. The first was to realize over $50,000,000 in annualized pricing in the 2nd quarter to offset last year's raw material inflation and we met that goal. The pricing actions that we took in the second quarter have ensured that we deliver this target and have helped to drive higher gross margins.
This year over year improvement should widen as the year progresses. Continue to closely monitor raw materials and we'll continue to implement the appropriate pricing actions needed to offset any cost increases as the year progresses. The second imperative for 2018 we identified was to deliver $15,000,000 of cost synergies from our Royal integration. We retrieved $4,000,000 of synergies during the second quarter for a total of $6,000,000 year to date. These synergies are primarily due to raw material sourcing savings.
We remain on track to deliver free cash flow generation and debt paydown. During the second quarter, we generated operating cash flow of about $54,000,000 and repaid $36,000,000 in debt. We are confident that we can meet our target of reducing debt by $170,000,000 by the end of 2018. The progress that we have made on pricing, synergy realization and cash flow delivery during the quarter puts us in a great position I'd like to walk through the segment performance in the second quarter and then review our expectations for the remainder of the year. And finally, give you a brief update on the Royal integration.
First, in the Americas segment, pro form a for Royal revenue growth increased about 1% versus 2017. Pricing was strong at 3% and volume mix was negative during the quarter, driven by a few factors. We realized some attrition related to pricing actions taken in the quarter expected, particularly in low margin businesses. We also had a negative impact in the quarter related to a trucker strike in Brazil, which is now over, but occurred during the final 10 days of our quarter. And we also strategically exited some low margin business that we acquired in the Wisdom acquisition.
For the remainder of the year, we anticipate organic growth to be in the low single digits with pricing outpacing volume. EBITDA margin in the Americas improved significantly versus the first quarter of 2018, driven by our solid pricing activities and acquisition related synergies. We delivered EBITDA margin of 16% ahead of the 15% target we discussed during last quarter's call. The higher margin was enough to offset lower volume mix. We expect the Americas EBITDA margin to continue to improve in the final 2 quarters of the year and to return to historical levels of 17% by the end of the fiscal year, driven by positive pricing actions, synergy capture and cost control.
Our EIMEA segment delivered solid pro form a revenue growth of 13%, 4% of which was organic. This was driven by solid pricing improvement across the region. On a pro form a basis, EIMEA adjusted EBITDA grew by 30% year over year and the EBITDA margin increased 160 basis points versus the prior year to 13%, driven by pricing actions and solid operational improvements. As we continue through 2018, EIMEA EBITDA and EBITDA margin will be slightly lower in the 3rd quarter, representing the seasonality of the European business, but should remain near 2nd quarter levels on average in the back half of the year. Full year EBITDA margin is expected to improve by about 100 basis points on a pro form a basis versus 2017, reflecting pricing actions and operational efficiency gains.
Now turning to the Asia Pacific segment, we grew revenue by 15% in the 2nd quarter, primarily driven by solid volume contributions from China and Southeast Asia and positive foreign currency translation. We accept expect to see mid to high single digit organic growth supported by continued positive pricing. The EBITDA margin was essentially flat year over year due to raw material inflation, but was offset by pricing actions. We expect EBITDA margins to expand during the remainder of the year and deliver a 100 basis point improvement in EBITDA margin for the full year based on additional pricing actions and volume leverage. Our construction adhesives pro form a revenue was essentially flat versus the second quarter of 2017.
The combined HP Fuller and Royal Flooring businesses were down slightly in the quarter, due primarily to a weakness at a key customer, However, the commercial roofing business, which got a slow start in the quarter due to seasonality, picked up and drove growth and offset the flooring declines. We are seeing volumes pick up in the 3rd quarter, and we expect to deliver revenue growth in the low single digits on a combined basis in the back half of the year. The construction adhesives EBITDA margin was nearly 20% in the second quarter. As we continue to improve the underlying performance of the flooring business, and realized raw material and manufacturing cost synergies, we expect to improve EBITDA margin on a pro form a basis in 2018 by about 100 basis points. To a margin of just under 18% for the full year.
Lastly, in Engineering Adhesives, we continued to achieve strong results with organic growth in the high teens. Continued strong market wins along with effective management of price contributed to revenue growth. As we move through the year, we expect to maintain a double doer organic growth cadence. Our engineering adhesives adjusted EBITDA increased 30% versus the prior year on a Royal Pro form a basis and EBITDA margin was up approximately 100 basis points. As we move through the year, we expect continued year over year improvements in EBITDA margin finishing the year near 20%.
Overall, it was a very strong quarter for HB Fuller and in line with our revenue growth and EBITDA expectations. Before I turn the call over to John, let me provide some color on the progress of our Royal integration. Ted Clark, CEO of Royal continues to lead the integration. We are leveraging our synergy tracking tools and a well managed governance process to make sure that plans remain on track. Our procurement savings programs are delivering their expected benefits with $6,000,000 of cost synergies recognized on a year to date basis.
We remain on pace quarter, we developed detailed plans around the closure of 2 small forward plants in Texas and California as well as other plans to consolidate volumes and leverage opportunities to drive specialization within our plants and drive efficiencies and cost savings. From a revenue standpoint, we continue to identify new opportunities that support our $50,000,000 revenue synergy target by 2020. Many of these synergies are expected to come from leveraging Royal's technologies through H. B. Fuller's extensive international network.
Others are expected to We will share specifics on these growth synergies during our Investor Day in July. Overall, it has been a great start to the Royal Integration and the business plans exactly as expected with no surprises thus far. We're very pleased with what we're seeing as we move through the integration process. With that, I'll now turn the call over to John.
Thanks, Jim. As Jim mentioned, we had a very strong second quarter. I'll provide you with some additional financial details behind that performance. Net revenue grew by over 40% versus the second quarter of 2017. The majority of growth came from the addition of the Royal business.
On a pro form a basis for Royal, revenue growth was approximately 8% of which half was organic growth. Foreign currency, primarily related to a stronger euro, had approximately 4% impact versus prior year. Pricing was a strong contributor at over 3% as we realized the impact of pricing actions we took to offset last year's raw material inflation and volume mix were essentially flat for the quarter.
On a
pro form a basis for Royal, adjusted gross profit margin improved by 30 basis points versus last year's pro form a results to 28.3 percent and 190 basis points versus the first quarter, reflecting the positive pricing and synergy gains more than offsetting raw material inflation. This improvement is a great result and supports our expectations for continued margin expansion for the remainder of the year. Adjusted selling, general and administrative expenses grew by about 6% on a pro form a basis versus the second quarter of 2017 due to acquisitions and foreign exchange, but declined as a percentage of revenue versus the prior year by about 30 basis points due to sales leverage and overall cost controls. The net of all these performance improvements resulted in an adjusted EBITDA of $123,000,000, up 12% versus the 2nd quarter 2017 on a pro form a basis for Royal and in line with our expectations. And adjusted EPS of $0.89 up 44% versus the second quarter of 2017.
During the second quarter, we modified our calculation of EBITDA to conform with the definition of EBITDA and the SEC compliance and disclosure interpretations for non GAAP measures. We have modified our calculations such that EBITDA now includes joint venture earnings well as non operating income and expenses. This modification has been made for all historical periods. Using our historical methodology, adjusted EBITDA would have been 100 $20,000,000 in the second quarter of 2018 $204,000,000 on a year to date basis compared to $123,000,000 for the quarter $208,000,000 on a year to date basis using our updated calculation. This modification is expected to have a favorable impact on EBITDA of about $6,000,000 for the full year.
With that, let me now turn to our guidance for the 2018 fiscal year. Guidance range to between $3.15 $3.40, slightly increasing the midpoint. This range represents growth expected to grow approximately 34% as a result of adding the Royal business. On a pro form a basis for Royal, we expect revenue to grow between 5% 6% the remainder of the year, with acquisitions contributing about 1% to growth and currency having a neutral impact for the remainder of the year. Organic revenue growth will come from volume growth across all segments with pricing actions to offset raw material cost increases we experienced in 2017 fiscal year.
Positive pricing, underlying operational improvements in the addition of the Royal business, including synergies, will contribute to an adjusted EBITDA of approximately $470,000,000 based on a revised calculation of EBITDA. This represents an increase of 60% versus 2017 or an increase of about 13% on a pro form a combined basis. We expect EBITDA continue to improve over the remaining two quarters as we continue to realize our synergy target. Expect approximately $125,000,000 in EBITDA and $0.90 in adjusted earnings per share in the third quarter based on normal revenue pattern. And the impact of recently implemented price increases.
We expect full year depreciation and amortization to be about $148,000,000 for the full year, with about $58,000,000 of new depreciation and amortization related to Royal. We also expect full year interest expense of about $100,000,000 with about $65,000,000 related to financing the Royal acquisition. Our 2018 core tax rate is expected to be between 25% 27% for 20 in 2018 based on U. S. Tax reform.
Capital expenditures are now expected to total approximately $80,000,000 in the 2018 fiscal year, and includes approximately $10,000,000 of investments for the integration of Royal. We expect to generate free cash flow be used to repay $170,000,000 of debt in 2018 fiscal year. With that, I will now turn the call back over to Jim Owens to wrap us up.
Thanks John. 2018 is progressing very well and in line with expectations. We are well on our way to successfully integrating the Royal business and realizing the cost and revenue synergies related to the deal. And this momentum is already having a positive impact on our results. In addition to the Royal integration, we're seeing positive volume growth in both the legacy HB Fuller and Royal Businesses, and we're delivering positive pricing across all of our businesses.
The results of these actions will generate EBITDA of approximately $470,000,000 and free cash flow that will be used to repay $170,000,000 of debt during the year. With each passing quarter our confidence in hitting our 2020 targets of $600,000,000 of EBITDA and $600,000,000 of cumulative debt pay down growth. We are gaining momentum in the business as we continue to grow our top line, improve our margins and deliver our operational performance. Lastly, I invite all of you to attend our Investor Day, scheduled for July 19th at the Grand Hyatt in New York. We plan to discuss in detail how each segment will perform and contribute to our commitment of $600,000,000 in EBITDA and we'll give you an opportunity to speak with our business leaders.
Including our new addition to the leadership team, Ted Clark, former CEO of Royal and G. Wei Kai, the leader of our engineering adhesive business. Registration is open through a link on our Investor Relations site. Please reach out to Max with any questions you might have. This is the end
session. And our first question will come from David Begleiter from Deutsche Bank.
Thank you. This is actually Catherine Griffin on for David. So I guess first, if we could just talk about America's adhesives volumes being pretty weak Could you discuss maybe what happened there beyond just the volume attrition? Was that, I know you said it was in line with your expectations. Does that mean that going forward, if you want to get to that mid single digit organic volume target, does that also include 3% price increase over the next few quarters, kind of like what are the puts and takes there?
Thank you.
Great. Thanks for the question, Catherine. Yes. As I said in my comments, there are really 3 factors. 1 is, Brazil.
So the trucker strike that you may have heard about happened right at the end of our quarter. So that was about 10 days. So that was about 1% of the impact on volume. Now some of that will come back. Some of that was a shutdown of the economy there.
But in terms of volume impact in Q3, you wouldn't see any of that going forward. About 2% of it is repositioning of our Wisdom business. So some of the business we bought from Wisdom in Q1 of 2017 was lower margin business that that we strategically realigned and exited. So, so you'll see a bit of that. That will flow through the numbers as we go forward.
In the past, that showed up in the acquisition line, going forward, that shows up as volume, but that was strategically planned. And then the 3rd piece is attrition related to price increases. Mostly at our lower margin, lower price businesses. I think as we indicated in prior calls, we expected some level of attrition in those areas. So This is pretty much in line with what we expected.
We got the $50,000,000 in increases that we expected to get last quarter, we have the 390 basis point improvement quarter versus quarter in EBITDA margin. And as part of that, repositioning our pricing meant that we lost some volume in some of the lower end businesses. So we're very happy with the performance of the Americas business the volume losses that we got were planned. I'd say going forward, the Brazil impact will go away. We are back on offense, so I think you'll see the volume numbers in terms of attrition go away.
We're we've had less price increases going forward, although we have some. And also see more competitive activity. So I think you'll see volumes improve and you'll also see pricing improve. So the organic number net overall will improve here in Q3 and Q4. And we expect, as I mentioned, continued EBITDA margins at current or higher levels going forward as a all this.
So, overall, very pleased with the approach the American business took to their price increases and the business that we we did lose, we're not unhappy about. So does that help?
Great. Yeah, no, absolutely. Thank you for the color there. And then I guess on engineering adhesives where organic growth was very strong. I'm just curious which product or regions, are you seeing, contribute to that strong volume growth?
Yes. So we're seeing it broad based in our business we've got a very strong electronics team and they continue to gain shares. They've moved into some micro electronics opportunities. So that's been some of the newer wins are in that area in addition to our strength in assembly. Our automotive business continues to improve a combination of some nice early synergy wins from Royal as well as some of the specification work we've done leveraging a really strong team in Germany that's connected with, with BMW and Mercedes and leveraging their technology broadly across the market, especially into China.
So the China market is a really positive one for us. We've also seen growth in the energy space, both solar energy, as well as some of the work we're doing in wind and car batteries showing up in the in the numbers. So broad based, the team is a very entrepreneurial team, finding new opportunities and continues to build on the organic growth strategy that we have there. So, very pleased and the momentum continues there. And I think it'll be a highlight for people is to learn more about that business at the Investor Day as well.
So thanks for that question as well.
All right. Thank you. And our next question comes from Dimitri Silverstein with Longbow Research.
Good morning. Let me follow-up that line of questioning on the volume declines in EMEA. It looks like it was down about 1.5 percentage points, given that you just talked about Germany being a good automotive market for you, for engineered Adhesives, What was the offset for the volume decline that you saw year over year in Europe or EMEA region?
Yes. Yes. So the auto business shows up in engineering adhesives, Dimitry. So, I would say the, but then the same question applies. What happened in Europe similar impact to North America, except we don't have the Brazil effect or the wisdom effect.
So fundamentally, I think the team's done a very good job of managing pricing but some of that results in our some losses in our lower margin pieces of the business. So as you know, we have a wide array of businesses. We have some high end, durable assembly businesses, some very specialized packaging and hygiene businesses. And we also have some more paper converting and polymer businesses. And those are the businesses that get pressure in the short term from a volume standpoint.
And that's where you'll see, most of the pullback is on that, that lower end water point
So to follow-up on that, as well as your North American or your Americas losses in volume and pricing, are you losing this volume to other major players that are not as proactive in pricing or are you losing that volume to smaller players? Whether there is a chance that you can get it back, if the performance is not there or service is not there, whatever, and you'll have a chance that that business later on?
Yes, it's more the lower end competitors, Dimitry. I mean, I think we see relatively good pricing action from Henkel. They just announced a surcharge in North America, just this last week. So we see activity there. We've finally seen more activity from, from Bostik friends at Arkama.
So So I think we see pricing activity from the major players, but less at this point. And it's typical, as you know, for those guys to lag the market. So I do think as they have service issues, as they have margin issues, some of that business will come back over
And then on your raw material outlook, it sounds like you're still experiencing a little bit of inflation. Is the price that you've gotten the second quarter enough to cover what you see in the second half of the year? Or do you feel right now that if this continues, you're going to have to go out with another price increase in the back end of the year?
Yeah, I would say, right now, we've put forth a pretty aggressive price increase. So Some of that actually is being implemented in the 2nd quarter. So we'll have more pricing actions that are I'm sorry, in the 3rd quarter, more after pricing actions. A little early to predict whether another price increase will be in fourth quarter or 1st quarter next year, but we see generally an inflationary environment. Whether it's fourth quarter of this year or early next year, I'd expect there'd be some more pricing action that we'd probably have to take, at some point here down the road, Dimitry.
But it is I would say overall the level of inflation is a little lower than it's been the first half of the year. Still inflationary, but not at the same rate we saw in the first year.
Okay.
Okay. Thank you.
Yes. Thank you.
All right. Thank you. Our next question will come from Eric Petrie
Could you, I was looking at the charges that you backed out for your organizational realignment for year to date totals. You've done quite a bit in both construction adhesives in EMEA. What actions are you taking and how long should we expect these charges to extend throughout this year and maybe into next year?
I can take that 1, Eric. It's John. The organizational realignments, for this year are primarily a carryover some of the restructuring actions we announced in January 2017. So within EIMEA, I would say the majority of that is headcount related within construction products. It's related to some of the facility rationalizations we've done.
And that will pay off this year. And basically be done.
Okay. And then so the two plants that you identified to close is that within the roughly $5,500,000 year to date?
That will actually be reflected in the Royal Restructuring integration and that we've yet to record anything specifically on that. So we're still in the planning stages, but very close to completing that. And that'll show up in that Royal Restructuring line.
Okay. And secondly, just in terms of engineering initiatives, nice growth, how much of that growth would you say is from new business is, legacy business and taking opportunity to leverage some of the acquisitions and the new technologies acquired?
Yes, I don't have a great number for you. I don't think you do either, John. So, I think we're in we, our strategy in engineering adhesives is 2 things. 1 is to pick the most attractive segments. And then the second is to, to be faster in solving problems.
So targeting those opportunities where there's wind. So there is a combination in there, but I would say these businesses grow in aggregate, probably in the mid single digits, maybe mid to high single digits. And then we're building wins and market share gains on top of that.
Okay. And then would there be any lumpiness or changes in activity or builds for like solar or winds that attributed to any positive volume growth in engineering, it suits in a specific quarter versus the full year?
Yes, I would say, there there can be. There haven't been huge shifts, I would say, over the last couple of years in solar panel production. It can be driven a bit by subsidies in various countries around the world. The volumes there. Right now, the biggest impact in that business is what's happening with the price of silicone.
So there's a sizable, increase in the cost of silicone materials that's driving pricing and and some shared dynamics. But, but overall, I think the build rates, first off, we're much bigger than solar than wind. We have a we have some nice early winds in wind, but would be much bigger than solar. And, and I would say overall, there's not a huge shift right now in the, in the volume of solar, but there will be some tailing off in the second half of the year, but not a dramatic impact for us. Okay.
Thanks guys. Okay. Thanks.
Thank you. Our next question comes from Rosemarie Morbelli with Gabelli And Company.
Thank you. Good morning, everyone.
Good morning, Rosemarie.
So, Jim, you mentioned house strong your business is within engineered Adhesives, related to the automotive, which I am guessing is most likely China So what could be the potential impact from tariffs and the brewing trade wars that we seem to be having with China given your strong business there?
Yes, I think we're in a a very good position relative to tariffs. Most of what we do around the world Rosemary is make in local countries for local countries. So as you know, we have 7 facilities in China and we produce products there for China. We've done a pretty deep, so I would say overall pretty benign for us, really not a big impact. We have done a deep dive.
This first set of tariffs that's supposed to come in here in a couple of weeks really has, very little impact on us. The only impact will be passed through on steel drums, which is pretty insignificant, I think, overall for us, and that would be U. S. Steel Drones. The 2nd set of tariffs we've looked at all the pass through potential there.
It adds up to a total of $11,000,000 through our supply chain. Again, most of our stuff is local. We could mitigate at least half of that by making some changes in suppliers. So we don't see the tariff situation as one that impacts our business. Because we're not exporting from country to country and most of our raw materials that we purchased are bought in country or in re
Any, do you see any sign of retaliation against American Companies at this stage?
No, we've seen we've seen none of that.
And you haven't heard any tidbits about the potential?
Yes, I think people we talk to on the I mean, of course everybody likes to talk about what's in the news, but I think in terms of real action on the ground, I don't think there's it's very preliminary. And again, our company, while we're U. S. Owned, is very local in the leadership and the approach we take to the market. So in China, we're well integrated as a Chinese company.
As you know, the cornerstone of our business is Tonsan, where the founders of the company are still part of our organization. So, we're pretty comfortable with our position in China, but we'll see where the world goes. I think we're well positioned relative to others can't control what happens with tariffs, but we're certainly well positioned.
Okay. And then if I may, on the volume mix, decline. I mean, you have mentioned on several occasions and for different segments, the elimination of the low margin products which would make me think that the mix would increase. So if you separate the mix from the volume, how of a volume decline did you actually experienced?
Yes, I think you got to be I guess the way we look at the business is a combination of volume and mix together, Rosemary. So I think parsing those out. One of the challenges I think if you dig under the covers of this volume number is we sell products in 5 milliliter vials and we sell products in tank trucks. And and that whole mix of all those products and the way mix is calculated by segment can get pretty complicated. So I think your question overall is, how do we feel about the volume mix loss?
I would say it's very much on those lower margin businesses in segments that are less of our growth initiatives. So, But did I get at your question or maybe I missed the point there?
No, I mean, I was wondering what real volume decline was. Yes. Real estate. Yes.
I think you've got to be very careful about looking at real volume, right? So a product that we sell for $15 or even higher $15 a pound versus one that we buy at $0.70 a pound. Or product that we convert into a new package that's double in price per pound, is a very are all part of our mix in our products. So the short answer is I don't have a number for you because we don't even look at the business that way.
Okay. No, I understand. Thank you. And if we look at the Royal acquisition, Do you think, I mean, in your opinion, while I don't want to kill your sender on July 19th, but any potential of higher targets for 2020 since you have made the acquisition following your last Investor Day?
Yes, I think our $600,000,000 target is it creates a huge amount of value for shareholders. So are we striving to achieve more than that? Certainly, right? And is there a potential to do that? Possibly.
But I think a $600,000,000 target is a good balanced view of where the organization can deliver and should deliver. And we're on track to deliver that Rosemary. So I think you see very consistent performance. I think we're being very clear about what we're delivering each quarter. We were last quarter.
We over delivered that slightly. We were this quarter. We over delivered that slightly. So I think we're on a really good path and under John's leadership in finance, we've got a very good handle on exactly what it's going to take and the team's delivering.
Okay, great.
And our next question will come from Ghansham Panjabi with Baird.
Hi, good morning. This is actually Matt Krueger sitting in for Ghansham. How are you doing today?
Good, Matt. How are you?
Good, good. Can you provide some additional details on the underlying assumptions that are baked into your guidance? So for example, what are you assuming as far as FX rates, key raw material costs and any other related parameters would be helpful?
Yes. So I'll cover the raw materials highlighted and I'll let John talk about FX rates. In terms of raw materials, we see a total for the full year, about 3% inflation after our synergies. It would have been probably closer to 4% before our synergies. And, and that, as I said to Dimitri earlier, was more front end loaded than back end loaded.
Going forward, we see more 2% to 3% inflationary pressures. As far as the exchange rates, John can give you specifics there?
Sure, Matt. So we generally just, assume that the spot rate is going to be the rate for the remainder year. So that's been a little bit of a moving target recently, but with the euro at 116, 117 and 17 and the RINminbi in the 6 $55,000,000 range. Those are this, our assumptions, that's those are the 2 major currencies that impact us.
Okay. That's definitely very helpful. Then given some of the volume variability across the segments and geographies, can you provide an update on the macroeconomic conditions by region across your various businesses? And then if you could provide a little bit of a brief outlook for each of the regions, that would be helpful as well. Just from your perspective?
Right. So just a perspective on the market. Yes, I would say, our volume and organic performance was by segments pretty much online. So we've strategically defined where we want to grow and we're growing there and, where we have different expectations, we're not, as we prices and done other things as we've talked about already. As far as your perspective on what's happening in the world, generally speaking, we see positive growth around the world.
China continues to be robust. India and the Middle East, underlying performance in the markets continues to be positive. The U. S, we see good activity in the manufacturing sector, a little less in Europe, but still positive. And then, the only place where I think we see some weakness is Latin America.
I think the combination of, some economic things that are happening there as well as upcoming elections has led to maybe a little bit less robust growth underlying. So that would be my around the world book at what we see as a suppliers and lots of manufacturers around the world.
Our next question comes from Mike Harrison with Seaport Global Securities.
Good morning. This is Jacob on for Mike. Hi Jacob. Could you talk a little bit more on that key customer weakness you were seeing in flooring, is that expected to continue in the back half of the year or has that kind of run its course in the 1st 2 quarters?
Yes, I think, I think overall our flooring volumes are weaker than our roofing volumes. We're aligned with 2 of the big box manufacturers. And the third one is the one who, who is having the biggest growth in the flooring space. So that'll depend on the market dynamics there. So we're tied to our customers in that regard.
But I would say overall, we expect our construction adhesives business to to be positive growth going forward. We're seeing very strong performance in our roofing business as we get into the third quarter. So I think any weakness we see in flooring will be overcome with our roofing business.
All right. And then, you guys seem pretty confident in the 600 or $465,000,000 EBITDA guide in Q1. And if I was being picky, I would say that the increase of $5,000,000 versus the $6,000,000 calculation benefit, it nets out to sort of a $1,000,000 reduction, just being picky. So given the
Yes. Well, it's interesting we had an internal discussion about that. So, the guidance is unchanged. Right. We didn't want to say $4.71 because it sounded a little precise.
That was John's point. This is an approximation. So So $4.71 sounded a little too precise for us, which is why we rounded to $4.70, but maybe
you can comment. If that number is, that additional impact is $6,000,000, then our target, it'll be $4.71. And if it's $7,000,000, it'll be $4.72. We're trying not to be given the impression
we're that precise. There's a range around that number. Okay. But yes, we haven't changed our guidance at all on EBITDA and we're still very confident in delivering the number.
Yes, I guess I
was just asking, was the confidence unchanged, but it sounds like it is.
It's unchanged.
All right. Thank you guys.
Thanks Jacob. Thanks, Jacob.
And our next question comes from curt Siegmeyer, who is an analyst.
Good morning guys. Thanks for taking my question. So not to get 2 ahead of the Investor Day next month, but when you think about your prior long term EBITDA target and sort of the walk to get there, the assumption was volumes sort of in the mid single digit range. So some of the raw material volatility and the attrition that you guys have seen, how should we kind of think about the walk now? Is it more price and maybe less volume potentially and that mix just changes or is there a certain recovery in volumes sort of back to that mid single digit range by next year given your guidance for second half or maybe just a little bit more color on how we should sort of think about the contribution of each?
Well, I would say at a high level, the target's unchanged, right, and the expectation is unchanged. We think that Given the long term trends in adhesives and our ability to gain share by targeting the right segments, this 4 to 5, 3 to 5 range is is the right kind of thinking for our business. If you look, last year, we had some very robust volume numbers in some of our segments this year, this quarter actually we have less robust. That's all about us driving the margin performance we expect out of the business. So I think what you need to take away from that is irrespective of volume, we are usually committed in this company to get to that $600,000,000 EBITDA and pay down the debt.
And as circumstances present themselves and market dynamics move, we'll pull the pricing lever harder or softer depending on what we need to do to deliver that. So But I'd say long term, we're gaining share in the right segments. Those are higher growth segments. I think you'd expect to see volumes closer to those numbers. Over the span of time.
But in a quarter where we had to, as I said, in the Americas, we improved our margins to 390 basis we were lower in margin than we wanted to be last quarter. We had to correct that, that meant, we had to, through that process shed some volume, but it doesn't mean there's a change in the direction. I think that's what you'll see at a Investor Day. You want to add to that, John? I think
that's exactly right.
I mean, I think you're I think you have to concentrate on what the overall expected growth rate is, including pricing and volume and that's unchanged.
Yes. Thanks for the question. Okay.
Yes. And if I could have one quick follow-up on the CapEx reduction, I apologize if I missed it, but what was the $10,000,000 in reduction attributable to?
It was a main it was a little bit of it was timing on projects, some projects are sliding a little bit into 2019. I think we're also finding through our integration that there's some opportunity to capture synergies at a lower capital investment. So a little bit of both, I think a little bit of a permanent reduction and a little bit of its timing.
Thank
Yeah. Well, I'd like to thank everyone for your time today and for your continued support of HP Fuller and our business strategy.
Thank you, ladies and gentlemen. This does conclude today's HB Fuller Second Quarter 2018 Investor Conference Call. You may now disconnect.