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 Corcoran, 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 HP 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 hpflor.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 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 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 remained strong. Net revenue grew 42% year on year and consolidated EBITDA was $84,000,000 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 form a 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 During our call today, we will make some references to our growth in 2018 versus the pro form a results, including in that included in that filing.
So in line with that statement, pro form a 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 2nd quarter. First will be to realize over $50,000,000 in annualized pricing to offset last year's raw material inflation.
Next, we continue our Royal integration, which will deliver $15,000,000 of cost synergies this year. And set the stage for revenue synergies of $50,000,000 by 2020. Lastly, we will generate free cash flow of $200,000,000 and reduce outstanding debt balances. Delivering on these initiatives will drive significant value and position us to deliver our 2020 target of $600,000,000 in EBITDA. I will first walk through the segment performance in the 1st 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 form a 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 Atacol acquisitions. Pro form a 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 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 with seasonality effects and increasing 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 form a revenue growth of 15%, 4% of which was organic. This was driven by solid pricing, and strong growth in emerging markets.
On a pro form a 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 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 form a basis, and finished the year at nearly 14%. Now turning to the Asia Pacific segment, we grew revenue by 6% in the 1st 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 anticipate a 100 basis point improvement in EBITDA margin for the full year. Our construction adhesives pro form a 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 form a basis for the full year with stronger growth in the back half 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 toward 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 expect to improve EBITDA margin on a pro form a 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 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. Finishing the year near 20%. Overall, it was a solid quarter for HB Fuller and in line with our revenue growth and EBITDA expectation 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 1 of the 2 companies are realizing significant savings due to the disparity of volumes purchased between the two companies. In the first quarter, we realized just short of $2,000,000 in synergy, and we're on track to realize $15,000,000 this year. In manufacturing, we announced the closure of 2 small fuller plants in Texas and California and our flooring business as we combine 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 in HR, finance, R And D And Supply Chain. These savings will begin to be realized in the second quarter. From an offensive synergy standpoint, 29 separate opportunities have been identified thus far with over $75,000,000 in revenue potential. Many of these come from leveraging Royal Technologies through H. B.
Fuller's extensive international network, particularly in China. Others come from packaging opportunities through Royal 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 quarter of 2017, the vast majority of the growth came from the addition of the Royal business. On a pro form a 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 a more positive revenue contributor as we realize 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 form a 2017 basis, SG And 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 $84,000,000, up 43% versus the first quarter of 2017, and in line with our guidance. On a pro form a 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 of $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 form a basis for Royal, we expect revenue to grow between 6% 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 4 $55,000,000. This represents an increase of 60% versus 2017 or an increase of about 13% on a pro form a combined basis. EBITDA will continue to improve over the remaining based on normal $50,000,000 for the full year, with about $60,000,000 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.
During the first quarter, we increased rate on total outstanding debt is about 4.25 percent. 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% 27% based on U. S. Tax reform.
Capital expenditures are expected to be approximately $90,000,000 in the 2018 fiscal year, which represents 2.5 percent of revenue, plus approximately $15,000,000 of investments for the Royal integration. Cash flow from operations is expected to be approximately $290,000,000 for the year as a result of bringing together 2 companies that both have strong cash flows. The cash generation profile of the combined businesses plus the incremental synergies we expect to generate as a result of the transaction will allow us to generate approximately $200,000,000 of free cash flow after investing in CapEx, of which we expect to devote $170,000,000 to repayment of debt in the 2018 fiscal year. The adjusted full year EPS guidance range of between $3.10 $3.40 remains the same This range represents growth of approximately 30% versus 2017 fiscal year. Free cash flow is expected to increase from $140,000,000 in 20.17 to $200,000,000 in 2018, an increase of over 40%.
With that, I will turn the call back over to Jim Owens to wrap us up.
Thanks, John. 2018 is off to a great 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 $50,000,000 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 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 $465,000,000 this year and free cash flow of approximately With each passing quarter, we gained confidence in our 2020 targets of $600,000,000 in EBITDA and $600,000,000 in cumulative debt pay down. 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
The company would like to provide everyone the opportunity to ask a question. You may re queue as often as you would like. Time permitting. We'll move to the first caller in the queue. We'll hear from Dimitri Silverstein from Longbow Research.
Good morning. Thanks for taking my call. Just wanted to clarify. Actually, since I get one call, let me clarify one thing. The $50,000,000 in annual price realization that you're hoping to get, I'm assuming that's for 2018.
That represents about maybe a point and a half or so in your revenue. That's a little bit lower than I think, certainly I expect it. 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 $50,000,000, even if you don't increase prices again, just on the basis of which we've already done?
Yes, that's an additional increase in Q2. And so it would add about 1.5% to 2% of pricing starting in Q2 of this year. That would extend into 2019. So you'd have 2 quarters of benefit.
This is actually incremental to the price that you already got, not sort of Correct.
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, 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, 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 volume. 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?
So far it's a little better than expected, Dimitry. 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've planned for the worst and I mean, I think things are a little better at this point.
Okay, Jim. Thank you very much.
Thanks, Dimitry.
We'll hear next from Mike Harrison with Seaport Global Securities.
Good morning. This is Jacob on for Mike. Good morning. 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 yes, 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 at East Coast.
Got it. And then one follow-up It looks like the Royal Business in EMEA grew 19% year over year based on the 8 K information. So maybe a little more color of 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 form a 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 the growth rates are similar to the HB Fuller growth rates, which is low double digits and it's some of that's exchange and then there's some good volume growth.
Thank you.
We'll move on to Ghansham Panjabi from Baird. Please go ahead.
Hi, good morning. This is actually Matt Krueger sitting in for Ghansham. How are you doing today? Hi, Matt. Good.
How about yourself? Good, good. 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 off, 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 Adhesive business. That's a that's helpful. Thanks.
Thank you.
From David Begleiter from Deutsche Bank.
Thank you. 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 the legacy businesses had a very nice and continue to have a very nice profile of 15 ish percent organic growth And the, the royal pieces of that are more in the 5% to 7% growth. So we'll nudge down to the to the mid digits, but closer to 12% to 15%. You 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 it was right at the end of our first quarter.
So, so the pickup that happens after Chinese New Year didn't happen in our business until the 1st month of. So there's a couple of percent of volume related to that that'll will come back in the numbers actually in Q2.
Understood. And just on raws versus pricing, will you be fully caught up by the end Q2 with these $50,000,000 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 Marbelli from Gabelli And Company. Please go ahead.
Thank you. Good morning, everyone. Tim, I was wondering if you could give us a a better feel for what is happening in the construction side. You said roofing was strong, flooring was was weak. Can you give us a little more detail and what we should expect?
Yes. So, in terms of Q1, it's a very trick, tricky quarter, both on the roofing and the flooring side, because you've got Christmas and you've got normal seasonality of less construction in the 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 effect 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 a positive growth. And then the flooring business will be definitely positive in growth this year, which 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 margin. 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 that's a very nice margin expansion story in construction products.
Were they affected more than other businesses by the higher cost of raw materials? And on this subject, do 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 costs in the second as well?
Yes. I'd say broadly speaking petrochemicals are going up. A couple areas are hit, a little harder, certainly anything related to MDI. So if you think about that from a construction context, there's more urethane in our roofing business than there was in our, in our legacy businesses. So it's probably more of an effect of raw materials than there have been in the past than our new construction versus what would have been construction adhesives in the past.
So yes, so I think, silicones and MDI related materials are going up more than others, but there's broad a modest inflation here going on in 2018 that we need to recover as well.
All right. Thank
you. Does that help? Yes. Thanks Rosemary. Jeff
Zekauskas
from JPMorgan. Your line is open. Please go ahead.
Thank you. Your interest expense expectation I think it's $100,000,000, but if you annualize the first quarter, you get about $110,000,000. 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 that 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, but you have to kind of net those two lines.
Okay. Why is it that why is it that engineering adhesives would reach a 20% EBITDA margin by the end of the year? That is why is the very, very large lift from where we are now?
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 see margins tick up a lot because of that. And then some of the seasonality from a growth standpoint or in some of our higher margin businesses. So is there a wide range of businesses in there?
So sort of what's been what was your normalized margin going into the year in engineering adhesives on a pro form a basis? And how much do you expect that to change in 2018?
You have it there. John's got that number. Yes.
So the information that we provided on a pro form a combined basis shows that engineering adhesives was approximately 16% EBITDA margin last year if you were to have the 2 businesses combined. And we, you know, we are expecting, I think we said in the script, you know, roughly 100 basis point lift in that EBITDA margin for the year.
Okay, great. Thank you. So the full
year improvement is about 100 basis points, driven by growth of a high margin business.
Okay, great. Thank you so much.
Thanks, Jeff.
We'll move next to Eric Petrie from Citi.
Hi, good morning, Jim.
Good morning. How are you today here?
I'm well. Thanks. 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. 1, deeper and better analytics, one is a broader price increase leveraging our software tools and very importantly is more competitive activity. So, you know, I think Henkel's been, especially in North America and Asia active both publicly, but also with customers. And we've seen a lot more activity in North America from all of the competitors.
So I think those things, 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 in the second half?
Yes, I think some of that's built into our guidance. I think there's a seasonality that always existed in our this that is bigger now, with Royal because of, mostly because of the construction adhesives piece, but a couple 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, and the pricing and the synergies add up to it. So, we feel very good about that $4.65, but I like to deliver more than the $4.65, we're certainly not stopping there, but I think it's a very firm, very deliverable commitment at $465,000,000 EBITDA and we're really working toward our long term goal of $600,000,000 EBITDA. So we've committed by combining these companies to build a company that's going to get that year is going to be a very nice step in that.
Will we do more than 4.65, you know, possibly, but I can assure you or 65 is going to happen and our commitment to 600 is very high in 2020. Does that help? I mean, no more applications.
We'll move next to Curt Siegmeyer from KeyBanc Capital Markets.
Thanks,
Kurt. I was wondering if you are able to quantify the transportation and logistics costs that you had mentioned? And is the $50,000,000 in pricing actions 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 some color while John looks up the number to make sure he gives you his Pacific and others can. Yes, I think logistics costs, 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 but it is a it's a small percentage of our costs, but with sizable increases, it becomes something that we've definitely factored into our price increases here in Q2. Right.
So John, you want to give a little point?
Yes. So just as a kind of quantify it, it's less than 5% of sales. It's around 3% to 4% of sales, but it's up pretty significantly. And it would be kind of up mid mid teens, obviously driven in part 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 maybe you would back to with the combined Royal business with what that brings to the table, would you anticipate the long term growth opportunity to 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 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, HP 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 Routeboost that they didn't have in their product portfolio. So 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, of the $50,000,000 in revenue, it's a single digit millions of opportunity in construction products.
In added growth. And as far as across roofing and adhesives, we haven't built any of that and Adhesives franchise. The, the channels that we have from a retail standpoint are things that we think we can leverage those aren't built into, at this point, into the 2020 growth synergies. Thank you.
At this time, we'll move to a follow-up from Dimitri Silverstein from Longbow Research.
Yes. Good afternoon. Good morning, Tim. Yes.
Dimitry, thanks for requeuing. I know we you got a lot of questions. So you get asked as many as you like.
I just wanted to kind of revisit the volume declines that we've seen in construction in the APAC businesses in the quarter. And I understand the cadence of war, the timing that the new years fell in, the Lunar New Year fill 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 before maybe not in line with engineered cases, but maybe more in line with what the Asian markets were, where all 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 exception. So, and it was mostly the Lunar New Year. Not even without the Lunar New Year, it will be a little lower than it's been, but we've been volume wise, I think high single digits consistently 20172016.
And I think that's our expectation for that business 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 you know, we'll have to manage through that, but that's my expectation of that business strategically and I think that's what we've delivered. On construction adhesives, it was a pointing year in volume growth. And I would say our flooring business being negative is not acceptable even in Q1, even with the seasonality.
So that's the area that I expect to see a turnaround. What's it taken there? I think the service issues that 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 gives you all good.
Yes, I just want to follow-up on the Asian market. A lot of the we've seen in print and we've seen in the company's results, sort of the impact both good and bad of the stricter environmental 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 respect to your business. Are you sort of benefiting more from getting some of these lower cost less disciplined, less environmentally responsible players out of the market?
Where it's easier for you to get share and pricing, or is the reduction in your customer base for the same reasons as they're beginning their plan 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.
It affects us from a raw material standpoint, from an availability and pricing standpoint, for local roles in China, which we're managing using our global network And, and in terms of your question about, is it starting to stomp out smaller competitors, not yet, but we definitely see that pressure on some of these smaller competitors who are operating in non chemical zones and 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. 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.
You, Dmitry. Yes, Dmitry, if you're listening, just to clarify that Asia Pacific last year's constant currency growth was double digit in in Q4 and for the full year in volume was double digit. So I think Q1 was kind of the outlier.
Looking at 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 throughout the year and then it turned into a negative growth in the February quarter. So I just wanted to make sure that there was nothing going on that was venture from returning to the high single digit growth you've seen?
Right, right. I think you might be looking at the impact of the extra week in the fourth quarter.
Yes, we also had that extra week. So but I think it's a great offline question, Dan. Make sure the numbers are clear in terms of that. But yeah, we did have an offline week in Q3, but no doubt the Q1 number has to bounce here in Q2 on volume. Okay, great.
Thanks.
We'll move to another follow-up from Rosemarie Morbelli from Gabelli and Company. Please go ahead.
Hello, again. Where do you stand in terms of manufacturing consolidation? Are those two particular facilities kind of the end or do you see more coming?
Yes, I think when we when we announced the closure of those two 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 two sites that are located near each other that we think we can that we can bring together. And those projects are under study. So those are the ones that we have insight in our plans here over the next 24 months. And, long term, there's probably a lot more that can be done Rosemary, but we see a lot of value to be generated.
By running this pretty, pretty extensive network of plants, driving some of the cost synergies, driving the renovation synergies, But, 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.
Yes. It's 24 months, okay, translating that into 2 years. So that eliminates my next question about subject And when you say you are very comfortable with your $465,000,000 of EBITDA this year, What could cause you to miss that particular number? What would have would need to happen in the marketplace in order for you to be below that level?
Nothing rose, Mary. There's no way. Yeah, we've tried to anticipate a lot of the things that are happening. We have pretty good visibility. I think, we 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 I think what we've committed to 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 4th period of the year and that continues to be in track with what we expect.
So generally speaking, there's robust economies. Our business is being run well. The integration is going as needed. Our pricing which is, as I said, upfront, critical driver for us is looking really good. So So there's nothing that screams at us.
One of the great things about Fuller's businesses, we're very diverse. So there's not one thing that could really get us off track. And, and I would also say that, thanks to John's leadership, we have very good detailed books at 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 model down pat. Every company is more or less, including you, is more or less anticipating raw material costs 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, right? 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 that 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.
Okay, great. Thank you.
So I'd like to thank everyone for your time today and your continued support of our business and our strategy. Thanks today. Okay. We'll just continue the call there. Thank you, operator.
You're welcome. Thank you ladies and gentlemen. This does conclude today's H. B. Fuller 1st Quarter 2018 Investor Call.
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