H.B. Fuller Company
Q1 2021 Earnings Call Transcript

Published: 25 Mar 2021

[Operator:]

Good day, and thank you for standing by. Welcome to the H.B. Fuller Q1 2021 Earnings Conference Call. . I would now like to hand the conference over to your speaker today, Barbara Doyle, Vice President of Investor Relations. Please go ahead.

[Barbara Doyle:]

Thank you, operator, and welcome to H.B. Fuller's first quarter 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 Corkrean, Executive Vice President and Chief Financial Officer. After our prepared remarks, we will take questions.

[James Owens:]

Thanks, Barbara, and welcome to everyone on the call. Last evening, we reported first quarter results, which built upon the momentum we saw in Q4 of last year. Organic revenues this quarter were up 10.5%, adjusted EBITDA was up 30% and adjusted EPS of $0.66 was nearly double last year's first quarter. 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 customer problems faster than competition, and growth accelerated as demand continued to strengthen in the first quarter. As we reported last March, COVID-19 impacted our fiscal Q1 of 2020, only in China, and by about $15 million in revenue, $4.5 million in EBITDA and $0.06 of EPS. Excluding this impact, our revenues were up 8% organically, EBITDA was up 23% and EPS was up 65%, exceptional results.

[John Corkrean:]

Thanks, Jim. I'll begin on Slide 5 with some additional financial details on the first quarter. Net revenue was up 12.3% versus 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 year. SG&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.

[James Owens:]

Thank you, John. We were very pleased with our strong start in the first quarter, which follows a strong fourth quarter, 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 as global economies continue to open up in 2021. This year, we will focus on 3 critical priorities to profitably grow our business in a dynamic environment. Our top priority is to drive continued volume growth as we support our customers' success in the current high demand and supply-constrained environment. This means continued growth from innovation, leverage of remote servicing tools as a new standard and finding creative ways to address any raw material shortages we see in the coming months.

[Operator:]

. Your first question comes from the line of Mike Harrison from Seaport Global Securities.

[Michael Harrison:]

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 on what you're seeing in terms of customer inventory levels as well?

[James Owens:]

Yes. As you know, Mike, our Engineering Adhesives' 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 the 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 differentiate us on a number of applications and opportunities. And then another area that we focused on strategically is automotive electronics, and there's a lot of new wins in that space, not just electric vehicles, but all the electronics that are 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 Tonsan-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. So 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 getting specced in 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 21% versus a comparable quarter, might be a little high, but certainly in the double-digit range.

[Michael Harrison:]

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 kind of the March, April time frame. So should we expect to see maybe some margin headwind in the second quarter and then some catch-up in the third and fourth quarters as that pricing fully kicks in?

[James Owens:]

Yes. I'll 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 they're 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 price increases. And an excellent job by the team to get those in place here, March 15 and April 1. 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 we'll 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.

[John Corkrean:]

Yes. Thanks. I agree with that, first of all, Jim. I think -- I don't think we're going to see significant pressure on margins in the second quarter. I think there is a delay in terms of how these raw materials work their way through cost of sales. So I think we'll see a little bit more of an impact in the third quarter, actually. So I think the supply disruption maybe is the sort of bigger issue to work through in the second quarter in terms of the top line -- potential top line impact.

[Operator:]

Your next question comes from the line of Jeff Zekauskas from JPMorgan.

[Jeff Zekauskas:]

Why is it so easy to pass through price? What is it about the market that gives that kind of ease?

[James Owens:]

Yes. 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 construction. 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.

[Jeff Zekauskas:]

Okay. And the auto-related revenue and probably happened 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?

[James Owens:]

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 Adhesives' business, it's probably less than 10% of that business, right? 10-ish. So it's not the big driver. But certainly, auto is robust right now. So...

[Jeff Zekauskas:]

You spent $35 million in CapEx in the first quarter, which is high for a first quarter number. What happened there? And how much do you plan to spend on CapEx for the year?

[James Owens:]

Yes. It's actually, Jeff, the second year in a row, we've had a high number in the first quarter. 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 million for the full year being a deliverable number. John, anything you want to add on that?

[John Corkrean:]

I think your point's the right one. I think last year, we spent $32 million in the first quarter and $87 million for the full year. So it's probably a similar pacing as last year.

[Jeff Zekauskas:]

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 cash flow, even though you're going to have a working capital build.

[James Owens:]

Yes.

[John Corkrean:]

I'll go answer that.

[James Owens:]

Go, John.

[John Corkrean:]

I think the 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 of the areas that they've impacted. I think that working capital will probably be a modest use of cash this year even on a 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 of 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 that, focused on managing inventory more effectively.

[Operator:]

Your next question comes from the line of Ghansham Panjabi coming from Baird.

[Ghansham Panjabi:]

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 Winter Storm Uri? I mean I'm asking because there are media reports that say adhesive shortages in the U.S. impacting the paper industry. Just give us a real-time view of what you see on the capacity side specific to the U.S.

[James Owens:]

Yes. Yes. So the short answer is yes. 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 VAM and the time it took for Celanese, Dow and LyondellBasell to get their VAM production up. 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 now of getting that material through the supply chain over the coming weeks.

[Ghansham Panjabi:]

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. First quarter was flat. 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 reason 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, et cetera. So I guess the question is, of 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 about that?

[James Owens:]

Yes. So we have a pretty in-depth process where we take all of our roughly 2,000 key raw materials, and we project out each quarter what we see the price happening going forward. So there's a forward projection, and all of it is built in. And it varies by material, Ghansham. So as you know, the commodity material have been short supply, went up quickly. Some of the specialty materials we're anticipating as there's a roll-on effect to affect us in Q3 and Q4. But 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 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 enter Q3.

[Operator:]

The next question comes from the line of Vincent Anderson from Stifel.

[Vincent Anderson:]

I wanted to follow up on Mike's question because you got into a little bit, Jim. But when we think about the strategy that you applied for integrating Royal and how that's been going for Engineering Adhesives, could you give us any update on how the legacy durable assembly business has been contributing, maybe any metrics in terms of increased cross-border sales? If I recall, those were traditionally more regional businesses.

[James Owens:]

Yes. I don't have specific data. I can tell you that every one of -- all but 1 of the 14 segments within our Engineering Adhesives' business, which includes those former durable assemblies, show positive organic growth in the quarter. 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, 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 that work's 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 durable assembly.

[Vincent Anderson:]

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 legacy Engineering Adhesives but trending in that direction?

[James Owens:]

Yes. I think the cost structure savings benefited a lot. As you know, we had 5 segments in 3 regional aspects. So 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're getting some value pricing pieces, but the biggest impact is just driving the operational effectiveness of 5 segments down to three.

[Vincent Anderson:]

Great. And I don't know, maybe dangerous territory here. But the balance sheet is -- it continues to delever. And 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 off for when you feel comfortable with approaching that again?

[James Owens:]

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? This is 3 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.

[Operator:]

Your next question comes from the line of David Begleiter from Deutsche Bank.

[Katherine Griffin:]

This is Katherine 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?

[James Owens:]

Yes. Katherine, why don't I let John give you some of the specifics there, and I could add color if needed. John?

[John Corkrean:]

Sure. So Katherine, I'd say for the first quarter, 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, a lot of it's -- we pay a bigger piece in terms of that going forward based on our -- 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 -- continue -- very strong start to the year, has tougher comparisons in Q2 and Q3, but it'll probably be in kind of that mid-single-digit type of growth range. And in EA, we talked about growing double digits, CA growing a little bit slower than the average. So that would -- hopefully, that helps.

[James Owens:]

Yes. The only thing I'd add, Katherine, is HHC had a particularly strong Q2 last year. So a little lower single digits second quarter and mid to -- mid-ish higher single digits the rest of the year.

[Katherine Griffin:]

Right. Okay. Great. And then just kind of an extension of the questions that have already been asked about raw materials. I mean, I'm just curious like what gives you confidence that you can continue to raise prices in Q3 with customers, 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 yes, what gives you confidence you can continue to raise prices?

[James Owens:]

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, Katherine, 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 material driving -- materially driving their P&L. So yes, I think in an inflationary world, we see that we definitely will and need to get the increases.

[Operator:]

Next question comes from the line of Paretosh Misra from Berenberg.

[Paretosh Misra:]

Just going back to the mix within the Engineering Adhesives' 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 could impact your margins as we look ahead?

[James Owens:]

Yes. I think generally, our higher-margin piece, Paretosh, are growing faster than the lower margin pieces. So we do have a nice mix phenomenon 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.

[Paretosh Misra:]

Got it. And how much of that business is currently China?

[James Owens:]

I don't know we publicize that specifically, but I would say roughly 1/3. I mean it's a -- we've got a good, strong position in China. We've built that here at Fuller over the last 10 to 12 years, but we're a -- we've got a strong position in China, probably a little less than 1/3, maybe 25% to 30%. So...

[Paretosh Misra:]

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 -- as it flows through to your P&L?

[James Owens:]

Yes. So I would say the SG&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 million to $30 million, 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 I cover it?

[John Corkrean:]

No, I think that was good. I think we -- last year, we realized about $30 million of savings from our restructuring actions. We expect the annualized number to be $35 million. So we had about $3 million incremental in Q1. So we're really just sort of annualizing against all the actions that have already been executed.

[Operator:]

Your next question comes from the line of Eric Petrie from Citi.

[Eric Petrie:]

So it looks like over the next three years, hybrid electric and battery electric autos are going to be growing 40% to 50% CAGR. How's H.B. 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 in those applications higher than the ICE or dollar value, if you could quantify?

[James Owens:]

Yes. 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 our automotive business are really an important driver of growth, and that's creating more value per vehicle. 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 disperse 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.

[Eric Petrie:]

Okay. And for my follow-up, is the Construction Adhesives business core? Or would you be willing to sell and deploy capital to higher-growth, higher-return engineering, organic or inorganic growth investments?

[James Owens:]

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 it -- 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.

[Operator:]

The next question comes from the line of Rosemarie Morbelli coming from G. Research.

[Rosemarie Morbelli:]

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 whether you have lost in the first quarter is kind of gone until next year?

[James Owens:]

Yes. 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 in the last couple of weeks of February. And we lost about $5 million or $6 million in revenue and $2 million to $3 million 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.

[Rosemarie Morbelli:]

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 chain that you are dealing with?

[James Owens:]

Yes. I think 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 that because we've been in this mode -- 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 that's making 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 but just fine.

[Rosemarie Morbelli:]

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 the solar business? And are you also playing in the wind area?

[James Owens:]

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 million. This one is close to the average. So is it a little smaller? A little bigger? We don't go into the details, but it's a good-sized business for us that's growing.

[Rosemarie Morbelli:]

And is it -- in terms of the margin, does it -- is it at the average level, above or below?

[James Owens:]

It varies because of challenges with 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, Rosemarie. 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. But 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.

[Operator:]

. We have a follow-up question coming from Mike Harrison from Seaport Global Securities.

[Michael Harrison:]

Just one more question on the HHC business. You mentioned the challenging comp as you get into the second quarter. 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 countries. 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.

[James Owens:]

Yes. Yes. So I would say, Mike -- first off, there's a different dynamic, as you pointed out, in emerging countries versus mature countries. And a big piece of our business is in emerging countries because 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 is 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 the short answer is, for the overall H.B. Fuller, it's a 1% or 2% of 10% to 12% of our business is the impact. So relatively small.

[Operator:]

Thank you. At this time, 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.

[James Owens:]

Thanks, everybody, for the thoughtful questions and for all of your support for H.B. Fuller. We'll talk to you soon. Bye now.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.