Good morning and welcome to H.B. Fuller Q1 2020 Quarterly Earnings Conference call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Barbara Doyle, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to H.B. Fuller's first quarter 2020 earnings call for the fiscal period ended February 29, 2020. 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. Please let me cover a few items before I turn the call over to Jim. First, a reminder that our comments today will include references to non-GAAP financial measures and references to organic revenue which excludes the impact of foreign currency fluctuation and the impact of acquisitions and divestitures. On today's call, unless otherwise specified, discussions of sales and revenue refer to organic revenues and discussions of EPS, margins or EBITDA refer to adjusted non-GAAP measures. These measures are in addition to the GAAP results in our earnings release and in our Forms 10-K and 10-Q. We believe that discussion of these measures is useful to investors to assist in the understanding of our operating performance and the comparability of results with other companies. Reconciliation of non-GAAP measures to the nearest GAAP measure is included in our earnings release. Also, we will be making forward-looking statements during this call. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Many of these risks and uncertainties are, and will be, exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. Actual results could differ materially from these expectations due to factors discussed in our earnings release, comments made during this call or risk factors in our Form 10-K filed with the SEC and available on our website at investors.hbfuller.com. Now, let me please turn the call over to Jim Owens.

Thank you, Barbara. I'd like to first express my thanks and concern to everyone on the call, and especially those of you from New York that are in the epicenter of the US COVID-19 crisis. I know you're dealing with the challenges in your personal lives and inside your own companies and I appreciate you being here to understand what's happening within H.B. Fuller. At H.B. Fuller, we've been dealing with this crisis since January 23 when Hubei province went on lockdown. 18% of our employees and 12% of our revenue are from China. And we quickly learned how to manage social distancing, supply chains, quarantines, and delivery of essential products. We've used that experience and the experiences we have seen as China has begun to return to normal to guide our business plans and our expectations going forward in other parts of the world. A significant portion of our business in China and around the world supports hygiene, health, food and other consumer products, which have seen a significant increase in demand as consumer buying habits have shifted to using products at home. Our position as the largest dedicated manufacturer of adhesives in the world, and our culture of global collaboration, have positioned us to manage the supply chain and resource needs of the business more effectively than our competitors, both big and small. Our company is holding the world together in a time of crisis, whether in a personal hygiene product for your baby, a complex medical filter, electronic communication device, or packaging for the foods we're all eating at home. H.B. Fuller is there as an essential product in our lives. It is this capability to meet the diverse technical adhesive needs of manufacturers across the world that is the long-term value our company provides to the…

Thanks, Jim. I'll begin on slide five with some additional financial details on the first quarter. Net revenue was down 3.9% versus the same period last year. Currency and the divestiture of the surfactants and thickeners business had a combined negative impact of 2.6%. Adjusting for currency and the divestiture, organic revenue was down 1.3%. As Jim mentioned, we estimate that COVID-19 impacted revenues by about $15 million in the quarter, primarily in Engineering Adhesives and HHC. Adjusting for the impacts of COVID-19, \organic revenue was up about 1% year-on-year, with volume growth in all three segments. Year-on-year adjusted gross profit margin was 26.5%, down 50 basis points versus last year as lower volume associated with COVID-19 and product mix offset the impact of lower raw material costs and manufacturing efficiency gains. Adjusted selling, general and administrative expense was down 3.2% versus last year, reflecting actions related to the business reorganization and restructuring announced last year, as well as some impact to foreign currency. Adjusted EBITDA for the quarter of $78 million was in line with our expectations and guidance, despite the impact of COVID-19 on revenue in the quarter, reflecting slightly lower-than-expected raw material costs and higher savings from restructuring. Adjusted earnings per share were $0.34, the same as last year, as underlying organic revenue growth, savings from our restructuring actions and lower interest expense associated with our debt reduction actions and lower interest rates offset the impact of COVID-19 and currency headwinds versus last year. Cash flow from operations increased by $34 million compared with the first quarter of last year based on continued improvement in working capital performance. This allowed us to continue to reduce debt during our lowest cash flow quarter of the year. And it keeps us on track for our full-year debt paydown plan.…

Thank you, John. We don't know for certain what the impact of COVID-19 will be on our business, but we do have good experience from China and a number of other facts that are working in our favor. These facts are as follows. Our first quarter was strong despite the impact of COVID-19 in China for five weeks. Our first month of Q2 remains on track due to increased demand in our consumer goods and hygiene business, offsetting slowdown in our Engineering Adhesives business. Our actions taken last year to decrease SG&A delivered savings in Q1 and will deliver further savings throughout this year. Our actions for reducing manufacturing costs are moving forward as planned this quarter and will result in additional savings. The decrease in oil prices and reduced demand for chemicals globally will result in reduced raw material costs during the second half of this year for H.B. Fuller. H.B. Fuller is an essential supplier and remains open for business around the globe. While there are still many unknowns, the facts surrounding H.B. Fuller's business as an essential supplier will enable us to weather this storm successfully, delivering strong cash flow and reducing our debt. Most importantly, the fundamentals of our business and of your business investment in an industry-leading company that creates significant value remain firmly intact. The execution of our strategy to be the best adhesive company in the world and to grow by solving the world's adhesion challenges better and faster than our competitors has proven itself thus far through this crisis and will continue to be a source of strength for H.B. Fuller going forward. We are better positioned as a business today than we were six months ago, having completed the global business unit realignment in our business. We are more agile and…

Thank you. [Operator Instructions]. Our first question comes from Vincent Anderson from Stifel. Please go ahead with your question.

Thanks. Good morning.

Good morning, Vincent.

Good morning. I was interested in how your sales process is mitigating any limitations on your personnel working directly with customers, bringing visitors to do your prototyping operation? And then, second, do you have any impression on whether customer product development cycles are being delayed in this environment, to the extent that there's risk of maybe missing out on new wins as potential customers are forced to move forward with product refreshes with just whatever materials are available at the time?

Yeah. Well, I would say, Vincent, again with China as our guide, our sales teams continue to work throughout the crisis, staying closely connected with customers. And as our labs opened up, our R&D folks were back in the labs. And today, as an essential business, we have people operating in our labs and working on projects. Importantly, for staying connected with customers, we've put in place a lot of remote communication and the tools are there. We had piloted about a year ago this Google Glass technology where we can give a customer a set of remote glasses that they can wear in their factory as we're trialing products and we've accelerated that program here in the US. And it's been a very successful program while we've used it. So, is there some change in the cycle? Yes. But our customers as well have people working from home. And those people that are working on new projects continue to work with our team. So, I would say there's – that work continues. And based on our experience in China, it continued there as well.

That's great. Thank you. And then, if I think about the effect of the slowdown in cross-border shipments, are there any key exporting plants, for instance, that could suffer in your network? Or on the other hand, any business lines that are really focused on domestic customers that could benefit from the slowdown in import volumes?

Yeah, I would say thus far, that's been an advantage for us – a sizeable advantage. A good example was we have some competitors that export it from China into Southeast Asia. Our facilities in Southeast Asia were able to meet those needs for customers that couldn't get the product there otherwise. In India, before the recent shutdown there, we were able to fill in for some major customers that had supply issues making some hygiene products that weren't able to get materials. And even recently here in the States, there's somebody who exports into the United States from Europe were unable to supply here. So, most of our business is very much – as most of you know, we make around the world for those local markets. We certainly have some exports, but for the most part, we make in country for the country. And I think that's turned out to be an advantage for us in this environment.

Thanks. If I could sneak in a quick modeling question. Just if you think about the second half slowdown that you're potentially expecting, how do we think about the flexibility in your R&D spending to kind of cushion cash flows?

Yeah. The way we look at our modeling, Vincent, is really around three things that we have in flight. We expect walls to come down as a result of significant decline in petrochemical prices as well as a slowdown in demand. And we've seen that through any other slowdown that's ever happened. The SG&A work that we did is going to have a benefit. And there's some things we can do there to accelerate some of that work. And then, this manufacturing project I talked about, we've kicked that off before all of this COVID. So, we'll see some of those savings as well. We have a number of other levers, but those are the three main ones that we see that are going to offset a slowdown. So, our intention is not to cut R&D. We're investing for the long term in our company.

Okay, thanks very much. And good luck.

Okay, thanks.

Our next question comes from Mike Harrison of Seaport Global Securities. Please go ahead.

Hi, good morning.

Good morning, Mike.

I think you guys are in a pretty good position, having gone through what you saw in China and, as you said, applying some of those lessons. I wanted, though, to understand as you're seeing the effects of COVID starting in China and now, obviously, parts of Europe and maybe we're a couple weeks behind that in the US. Can you talk about some of the trends that you're seeing in, I guess, maybe those EA markets where you're seeing the most pronounced impact? It seems like China had more of a V-shaped impact where things fell off very quickly and now have recovered more quickly than people would have assumed. Are you seeing the pattern be pretty similar in Europe and the US or do you feel like, at this point, the fall off has been a little bit more gradual in those two geographies?

Yeah. So, I would say, certainly, it's two months' difference between where the US is and China is, pretty close to that. And Europe is only a week or two ahead. So, the recovery curve could be different in those different areas. I think the big difference – and we've looked at what the differences are. China had the extended lunar holiday for most of the country. So, there's sort of an abrupt process there that was a little different than what happened in other parts of the world where sort of tick a wave across Europe and a wave across the US. But our fundamental assessment is very similar. The steps that the government took there, very similar to what's been taken by other governments. And the things that we learned, we've been able to, I think, do a better job as a company. We're doing a better job in Europe and North America. And I'm guessing the governments are learning from China. So, there's a chance that governments in other parts of the world will have a faster recovery than China. Of course, there's a chance it will be slower. But, for us, supplying raw materials, supplying logistics, really important. Getting the social distancing right, making certain that we quarantined employees and put ourselves in a position where other employees weren't going to get sick, all were steps that we took in China that we were able to do very early in advance of issues. And you look at a plant like our plant in Italy, in Venice, it's still operating today. They supply materials for essential goods. None of our employees have caught the virus. We've quarantined any that have family members that have the virus and we've been able to keep our employees safe and keep our business running. And I would say our reaction and the attitude and energy of our Italy team is a great example of how we've learned from China. So, did I answer your question? Or did you have more to it, Mike?

No, I think that got to the question that I was trying to ask there. The second question I have is, I think you did a good job mentioning that in in hygiene, packaging and filtration, you're seeing some benefit, some elevated demand. Can you help us quantify how much improvements you're seeing in some of those markets? Is some of it pull forward and, unusually, maybe the effect of hoarding or unusual spikes that would be not sustainable and other areas may be sustainable? Maybe just a little bit more color on what you're seeing in some of those markets that are benefiting.

Yeah. So, again, we're using China as our guide in terms of what's happened and what we expect to happen. Our demand this month is way up in Hygiene, Health and Consumables around the world, including China, but in Europe and North America as well. And one of our priorities right now is filling that demand. We do think there's increased usage, I think, in a world where people are worried about coronavirus. Anything that's related to cleaning products, hygiene, personal hygiene products, there's an increased use of those products. Food packaging, I think has potentially a long-term shift as people are certainly eating out less. And at some point in this process, they'll start eating out again, but there may be some resistance by some people to eat out. So, I think we're anticipating this. Well, some of it's definitely a spike in demand, some of it's refilling pipelines, and some of it is, we think, a little bit of a shift in demand that's going to happen over time based on our customers. We don't see any hoarding. We see customers ramping up their facilities and meeting demand, whether that's our food customers or our hygiene customers. So, so they're not building inventory of adhesives. They're using these adhesives as they get them.

All right. And then, last question I had is on the 5% to 15% decline that you're guiding to for second quarter revenues. Just trying to frame up kind of what you're seeing thus far in March to inform that range, maybe what assumptions you're using to get to that range? And is the 15% decline and the $90 million EBITDA number, is that a worst case scenario? Is that just a pretty bad case scenario? Kind of how did you get to that range?

Yeah, we did a detailed assessment for each one of our segments because we know it would be an important question and people would have to model it. I can let John comment more on our process. I wouldn't call guidance, right? I'd call it our planning assumptions. We have to build our plans and our business plans on what's going to happen. As I mentioned in the comments earlier, if you looked at our March revenue numbers overall, you'd see a company that, through Q1 and through this month, is right on plan. But we do see auto plants shutting down. We do see what happened in China in terms of certain market segments where there was a clear short-term dip in demand on especially more durable goods. So, we modeled what happened in China in aggregate into our views on our Engineering Adhesive business and we looked at what's happening with HHC and the feedback we had for our customers in our HHC business and applied very similar numbers to Europe and North America. Europe and North America could get through this quicker and the numbers would be on the high side of that or maybe better. There could be a much longer-term problem in Europe and North America, but we see this all on the EA side. On Construction Adhesives, thus far, construction demand and a lot of the things we did to advance some new products continue to see good demand here in March. And at this point, looking into April, we still see solid demand in most of those segments. We are thinking that construction will slow down in May a bit, especially related to recessionary forces and uncertainty. So, that's what we modeled, Mike, but it was really educated based on what we saw. But all that is temporary. Right? We see all that is temporary. And then, the only thing that we all need to figure out, is there a lasting recessionary impact that will last into Q3 and Q4, but the downturn we talked about there was temporary. So, I don't know, John, if you have anything else you want to add to that.

Yeah, maybe just a little color around the approach. Like we did, we went to the people who are running the business in each GBU and the region to get their view. So, it's really sort of a bottoms up. And not surprisingly, there's pretty wide range of outcomes that they are thinking could be anticipated, given how early we are in this. The other thing we tried to assess is how quickly raw material cost savings could come. And I think our position, at least for this view, was that they won't – not very much will show up in the second quarter, and I think a big focus will be to try to accelerate those savings.

All right. Thanks very much. Great color.

Okay. Thanks, Mike. Thanks for the question.

Our next question comes from Ghansham Panjabi with Baird. Please go ahead.

Hey, guys. Good morning. I hope all of you are safe. Thanks for taking my questions. I guess, first, so maybe following up on the last line of questions. Just from our check, it seems like there's a fair amount of concern about employee absenteeism along the supply chain and related disruption risk. Jim, you mentioned that customers seem to be just sort of ordering like normal, the service demand. But are you seeing a buildup on safety stock in some of the other businesses? Your EA business is very, very specified. I assume that there's a longer production cycle associated with that along the supply chain. So, just curious as to your thoughts in terms of what you're seeing this week maybe versus last week, and if you're seeing customers start to worry about raw material accessibility including what you procure?

Yeah, I would say that – well, first off, on the issue of absenteeism, I think that's a priority for us. And I think most manufacturers understand how important that is. And I'm part of the business community here, which has a lot of global companies in the twin cities. And clearly, everyone's doing a lot of work to keep their manufacturing employees safe and healthy and an isolated from other employees. So, what I see around the world is manufacturing sector employees not having a major absentee problem up till this point. The supply chain issues we see are mostly people filling demand that they have. So, we don't see – even in some of the specified orders, the auto supply chain, people trying to load up on adhesives, right, so I think people are trying to get a balance of their supply/demand. And we don't see, at this point, a lot of over-ordering. Might that change in April and May and we see customers, the auto companies that are shut down trying to build up adhesive supply? Potentially. But that's not what we see at this point.

Okay. And then, in terms of the guidance specific to 2Q and the 5% to 15% and looking at the midpoint of EBITDA, that sort of implies 35% decremental. How do you see that manifesting in the back half of the year as raw material prices pick in on the downside and starts to buffer some of that impact? And, John, you mentioned using 2008/2009 as sort of a proxy for cash flow. So, going back to that timeline, how did decrementals kind of phase through apart from the initial shock, which I assume is in Q2?

Yeah. So, as is clear from our commentary, we're not really commenting in detail on the second half of this year, other than to say that we're going to get continued SG&A benefits, that we're definitely going to get raw material benefits that will happen, and we're quantifying and working to accelerate those, and that this manufacturing project that we already started, we'll start seeing benefits in the second half of the year. We also have other levers that we could pull, but those are the three main levers that were targeted on. I'll let John give more color on 2008 to 2009, but these are the high level numbers. Our revenue from 2008 to 2009 was down 11%. And our gross profit was up 380 basis points. And our operating income was flat. Working capital went from a use of capital to a source of cash. And our cash flow was up 50% from 2008 to 2009. So, that's what we saw back then. We're in a different time and company is different, but the same fundamental things are what we anticipate and what we've modeled all the various scenarios. John, anything you want to add to that?

No, I think that was a good description. I think, obviously, 2008, 2009 could be very different than what we're seeing right now. But I do think those fundamental things that we talked that Jim hi on, if we see a revenue decline, we expect offsetting lower raw material costs and we would see working capital free up. So, those are the basic fundamental things that we think will be the case for the rest of this year. And that's how we're looking at our cash flow.

Okay. And just one final one on the Construction segment. I think, Jim, you mentioned in your comment of backlog being pretty healthy. I forget the exact word that you used. Just give us some more color on that, which particular end market, kind of separate between roofing and flooring or whatever else is relevant. Thanks again.

Yeah. So, we've had conversations with all of our major roofing customers, right, which is the biggest segment and out with contractors and roofers, right. There's a pent up demand in that space. So, they have current projects and insight into their next projects that they see continuing to go forward. So, they're concerned about filling supply chains and ordering and moving forward. How and when that will slow down really, I think, depends on people, the overall economic conditions in the country, but what we see – certainly what we've had, we have the orders in hand and product shipped and sold. And in March and what we see into April is still pretty robust there. In the flooring business, we're seeing more activity at the big boxes than we're seeing at the distributors. So, I think there's a bit of a DIY piece going on and maybe some planning around there. So, we see more activity there than the other. And then, in our utility infrastructure business, pretty stable so far in terms of the projects and the things that are going forward. But, again, in a recession, we'd expect that to slow down if there is a recession as we go forward. And then, we have some anomalies in the business. We have a disinfectant product that we – in our utility infrastructure business that's used when people install new insulation, especially after hurricanes or other issues. That product, of course, is selling off the shelves and our team is doing everything they can to get that out in the hands of users. It's effective against coronavirus and is an uptick. So, we have things like that that are out there as well that are balancing things out. But, yeah, right now, we see construction strong, but we're really anticipating it to slow down here in the second half of the quarter.

Thanks so much. Stay safe.

Okay, you too.

Our next question comes from Eric Petrie​​ of Citi. Please go ahead with your question. Eric Petrie​​: Hey, good morning, Jim and John.

Good morning. Eric Petrie​​: So, a question on electronics. You noted that volumes were up double digit and a lot of that was due to share gains. But if I'm looking correctly at your planning assumptions for 2020, it looks like you have electronics under down moderately. So, just give any color there, whether it be impact of lower shipments of smartphones. And remind us too, how much of sales does electronics represent?

Yeah. So, appreciate your persistence on the second question. We don't share specifically our electronics business, but it is growing sizably and becoming a sizable part of our business. We are gaining share both through wins that we had that are impacting products that are being launched, as well as the really great work that our team did in China helped us fill some needs that are out there in the market that others weren't able to fill needs. So, business that we maybe were about to replace got accelerated because of our ability to get our Yantai facility up and running so quickly. I would say the down moderately is only because of what we read externally. Our business is very strong in electronics and it could be up, it could be down. Certainly, would have been up a lot more in Q1 if the coronavirus hadn't hit China. Eric Petrie​​: Thank you. As a follow-up, are you seeing any near-term pressures on the smaller mom and pop adhesive suppliers? And can you gain share there? Is there an opportunity for consolidation in the industry?

Yeah, I think everybody's in a different position. Depends on the nature of their business. Certainly, if somebody is a smaller company that exports around the world, they've got a lot of challenges, right? And there's a number of those that have a sizable part of their business or at least a piece of their business where they're trying to ship around the world. That's a big challenge for small companies. And then, in the local market, depending on the nature of the situation, if you're a small adhesive company in Hubei province, your ability to serve all of China's is dramatically impacted. So, depends on who they are. But I would say, broadly speaking, as I said in the script and my other comments, our global supply chain, our team's ability to work around the world has been a competitive advantage. It's enabled us to serve customers really well and demonstrate the benefits of our strength as a company, not just versus small suppliers, but also big suppliers who maybe are distracted with other parts of our business. Everybody in this company worries about the adhesive business and where and how to serve it. And I think that's a fundamental advantage that we have in our understanding and our singular focus in making that happen versus companies that have a lot of other needs and a lot of other different parts of the business. Eric Petrie​​: Right. Thank you.

Thank you, Eric.

Our next question comes from David Begleiter​ of Deutsche Bank. Please go ahead.

Hi. This is David Huang here for Dave. I guess, first question, just on your restructuring phasing, how much do you expect to realize in Q2 and then the second half?

Yeah, let me give that to John. But I think we said, originally, it would be two-thirds this year and we're doing work to accelerate that and move some of those savings forward. So, that $25 million to $35 million, we originally said was going to be two-thirds. We're now saying we're at the high end. And we're also working to accelerate some of those savings. So, John, I don't know, if you have specific number on Q2, you can share.

Yeah, I think Q2 will be at least what we realized in Q1, which was $6 million, and we'd expect that to increase slightly over the year. As Jim said, we originally had a range of $25 million to $35 million with two-thirds of that realized this year, which would put us – so can do the math on that. Obviously, our goal is to exceed that.

And second one, I guess, how much pricing erosion do you expect this year from lower raw materials and probably weaker demand?

Yeah. So, we're not really in a position to quantify that. We certainly see the dramatic change in petrochemical prices as something that's very unique to happen that quickly. And we definitely know it'll benefit us. Normally, it takes a couple of quarters for us to see those benefits. We think, in this environment, there could be an opportunity to accelerate that. But we don't go up and down with petrochemical – with oil prices, except when it makes dramatic moves like this. And normally, there's a phasing of that. Supply/demand drives us more than anything. And if supply/demand slows down, that will also be a contributing positive factor. But the models we're running show what we're seeing as potential downturn in the second half of this year will be offset by raw material savings? John, do you want to add anything?

Yeah, the only point is, even though raw materials have been dropping, I'd say our customers are more concerned with supply than price right now. And so, that's been their big focus.

And, I guess, last question, just assuming the current energy prices stay here, just what level of raw material savings are we talking about? And then, how much cash would you expect to realize from working capital?

Yeah. Again, we're not modeling – providing guidance on what that's going to be in the last half of the year. But I think it's a sizable tens of millions of dollars of benefit on raw materials. And we see that flow through on working capital as well. So, John, do you want to add anymore?

No, I think your question also on working capital, we've been targeting to reduce working capital by 100 basis points as a percentage of sales this year. We think that we're still on track to do that. If we have lower sales, we'll see lower working capital. So, the percentage should hold.

Okay, thank you.

[Operator Instructions]. Our next question comes from Jeff Zekauskas​ of J.P. Morgan. Please go ahead with your question.

Hey, Jeff, you might be on mute. Jeff Zekauskas​: I am. Sorry about that. Hi, how are you?

Good. Jeff Zekauskas​: Can you remind us what percentage of your sales were to the auto market in 2019 and how you expect Fuller's adhesive sales to the auto market to fare in 2020?

Yeah. So, that's a great question. So, if you can figure that out, we're looking at external numbers in terms of car builds and trying to manage our plans around that. Certainly, at this point, we're expecting a decline. I think the latest numbers I saw in the US were 20% decline in builds. But that number moves around every day and every week, Jeff. So, we're building that into our second half models, a decline, but we don't know exactly what it is. Our revenue in auto is between 5% and 10% on the lower end of that. Jeff Zekauskas​: So, I wish you could just speak a little bit more specifically to the – I think you said a 30% decline in revenues in Engineering Adhesives in the second quarter. So, that must have pockets of much better performance and pockets of much worse performance. Can give us an idea of what the levers are in that?

Yeah. So, solar and new energy was down sizably. Again, these are things we're expecting around the world. Auto and anything transportation related was down sizably. Markets like textiles, footwear, filtration, down less so. So, I'd say things that are more consumer oriented or construction oriented were down less and things that are more heavy durable goods, bus, truck, rail and then solar for infrastructure panels were down more. John, you want to add something to that?

Yeah, just for your reference, Jeff, we added a slide in the presentation that was posted in the appendix that sort of shows those different markets. And so, on the down moderately, other than construction, those are the engineering adhesives markets that would be down moderately. Jeff Zekauskas​: Okay. Normally, when oil falls, you say, well, we don't buy oil, difficult to know how it affects our raw material costs, but your stance is much different with oil being down very sharply. Do you expect to see a widening of your price/raw material gap for a period of time and then to have it close up? Do customers really want prices to come down very quickly? Or do you think they'll be more patient?

Yeah, it's true that normally when oil comes down – and normally, oil is moving $10 a barrel and people are asking me are you going to see raw material decline, and I say no, right, because it goes up and down $10 or $15 a barrel. Now, when it moves $30 a barrel, there's a substantial change in the cost structure of our suppliers that we think will eventually get passed on to us. Normally, that's a nine-month cycle. We think the fact that their costs are down, combined with the supply/demand dynamics that will likely be unfavorable across the chain, and with China's chemical production ramping up, we see a positive dynamic for us. And it's not like huge, but it's sizable, right? And 2008/2009, we shared there. So, that gives you some color, right? And we think it'll buffer any kind of recessionary decline that we see in volumes. As far as customers' reaction, we have about 15% of our revenue that moves on some sort of an index. Some of those are tied to external numbers and some of those are just tied to what our costs are. So, we've set agreements up with customers. The other 85%, most of those products are specified. We won't see any change in pricing and some of them will have negotiated pricing. So, yes, some of it will be given back to the market, but a lot of it will be retained. Jeff Zekauskas​: Can you turn off your CapEx if you need to? Or are you pretty much fixed on what you're going to spend this year?

Yeah, I think one of the things you saw on the slide on our earnings release was a very strong commitment to deliver the $200 million in debt. And I think two fundamental principles John and I have and our leadership has is build the company for the long term and make certain we deliver that $200 million in debt paydown. So, we definitely have some levers on capital that can be pulled back. And, in fact, some projects, we've been able to delay already. So, I think there's an opportunity there. And we also think there's a sizable opportunity on working capital, Jeff. So, yeah, we think those are two levers that we can modify, depending on how the world looks when we come out of this. Jeff Zekauskas​: I guess, just the last question, like order of magnitude, Jim – I know it's early days in the virus issue and the downturn. Like, do you think that H.B. Fuller's experience will be similar to what it was in the 2009 downturn? Maybe you guys were down 20% in EBITDA. And when you look at the kinds of near-term forecasts that you have, it seems sort of similar.

Yeah. Interestingly, Jeff, we were flat in EBITDA from 2008 to 2009 and into 2010. So, it was this raw material piece and some of the savings we were able to generate that offset declines in volume. Our base case, as I said in the script, is this Q2 decline, mostly around EA and somewhat in Construction, and then some recessionary forces. We're not expecting a Great Recession type of decline. We've got scenarios that are built like that. We've got scenarios that are built worse than that. But some recessionary impact into Q3, maybe into Q4 is what our planning assumptions are, right? So, I wouldn't call that a projection or guidance. I just say that's what we're planning for. Jeff Zekauskas​: Okay, good luck to you guys.

Thanks, Jeff.

Thank you. Our next question comes from Rosemarie Morbelli​ with Gabelli & Company. Please go ahead with your question. Rosemarie Morbelli​: Thank you. Good morning, everyone.

Good morning, Rosemarie. Rosemarie Morbelli​: I was wondering if you could touch on the potential financial issues from some of your customers. Have you taken some bad debt into consideration, receivables that you are not going to get, some smaller customers filing?

Yes. We've looked at 2008 and we've factored some of that in. I don't know, John, do you want to comment on that?

Yeah. So, I'd just say, at the current state, we haven't seen any customers file. We're doing pretty in depth review of customer credit quality as we always do, but we're stepping that up given the current situation. So, I think we would be in a position to get out ahead of, hopefully, a situation where a customer was under significant stress.

I would comment, Rosemarie, that our credit team is outstanding and they've leveraged a lot of learning around the world. So, if you look at our numbers relative to industry benchmarks, in normal times, we've outperformed external benchmarks. Rosemarie Morbelli​: Okay, thanks. And could you give us a little more detail via-a-vis your comment on China's durable goods having spiked recently. Which areas was that? And were those particular areas down substantially and now just filling up the pipeline?

Yeah. So, I didn't say the durable goods spiked. HHC, so all the hygiene products, the packaging products, consumable products, those have come up dramatically. And we see a lot of demand there and we see consumers using them, right? Today, I was on the phone with our guy who's leading China. People are on the streets of Beijing, in parts of China now restaurants are opening, life is not normal yet, but it's getting back to normal where people are back to living – are moving towards living a normal life and there's normal consumption patterns. That's driving a lot of business in HHC, but also an increase in other spending around construction products and other durable goods. And as I said, the exception to that is what's happened so far in the new energy, the solar space, and transportation so far. So, those are the two that really haven't seen that uptick. And then, of course, China, some of our customers export around the world. So, they're dealing with that. I would say the China domestic economy is moving forward very nicely. Any of our customers that export out of China, they're going to deal with the next couple months of lack of demand in the US and Europe. Rosemarie Morbelli​: So, as we are all confined at home, or at least most of us, and everyone has bought a lot of packaged food, we may or we may not eat it all. So, do you think that we could see a very slow recovery as everyone is kind of eating from their pantries as opposed to going back to the store and, therefore, we could expect some decline in the demand when this is all over that could last maybe a quarter or two.

Yeah, I guess, from a packaging food, in particular, Rosemarie, I think people are – it's not just filling their pantries. People are eating a lot more packaged foods today all around the world and we saw it in China. Our thesis is that, after the crisis, people definitely – as I'm sure you are, dying to get to their favorite restaurant, but there will be a trend that has people eating more packaged foods. So, that's what we're hearing from our customers and the people that are studying the market. And, of course, that's a positive trend for us. All this – everything around hygiene, around medical, around packaged foods are positive trends that we think will continue certainly throughout this year. Rosemarie Morbelli​: And if I may squeeze in a couple small ones, of the 72 plants that you currently have, how – and you have that under study, how many do you think you can get by with?

You mean after our study? Well, we're going to evaluate that, Rosemarie. So, it's premature to say what we would do with the whole network. Rosemarie Morbelli​: And then, lastly, can you share the size of the areas that are considered essential and that are benefiting from the current situation?

Yeah. So, it depends on the region, Rosemarie, and what's happening. Again, as China is our guide, fundamentally, our factories supply all these consumer goods, food, health products. But, also, if you think about areas like some of our construction products, some of those are being used in hospitals and medical facilities. So, our business as a manufacturer in every geography around the world has been deemed essential. Now, today in India, they're sorting through that. Everything is shut down today in India but India is sorting through. One of the big markets for our products in India are hygiene and baby diapers. And assuming the baby diaper production continues, I'm certain our plant there would be operational. But other than that place, where there's been a government edict, our facilities are open for business and supply in the various markets. John, did you want to add something there?

Yeah. And this is just a kind of an indication of how fast things move. I just got an email that our – the Pune government has approved our India plant as essential.

So, as of this moment, all 72 of our factories are operating, Rosemarie. Rosemarie Morbelli​: And the size of those essential product lines?

Well, again, we have a number in the appendix, but I would say across all of our businesses, the products are deemed essential in some way or another. So, it's not like we're supplying products to non-essential markets. So, everywhere around the world, the facilities we have supply essential markets, and therefore, the facilities are open. Rosemarie Morbelli​: Okay, thank you very much. And you guys stay healthy.

You as well, Rosemarie. You and your family.

Our final question comes as a follow-up from Mike Harrison. Please go ahead.

Hey, just a quick one here. You talked a lot about cash flow and your expectation of cash flow is still going to be solid for the year and your $200 million of expected debt paydown. I was just wondering, can we think of that as maybe you'll keep that $200 million or accrue that cash on the balance sheet rather than pay down the debt right away in an environment where cash and liquidity is going to be very important? Or are you definitely committed to some kind of timeline for specifically paying down the debt?

Yeah. So, our liquidity situation is extremely strong in the most ridiculous of scenarios. And we've run them all, Mike. So, we don't have any concerns about managing cash. So, we haven't set a specific timeline on our debt pay down. As you know, it's weighted towards the third and fourth quarters because of how our demand cycles and that's probably how it will happen this year. But we have a very strong focus on making certain that we continue to bring that debt down and we're going to focus on essentially our three priorities that I talked about, right? Supplying our customers, making certain that our employees and our communities are safe, and then preparing for the future. And we're doing a great job of managing this crisis. And hopefully, you felt that through this call. But, importantly, I think, for our investors is this is going to make us a stronger company coming out of this crisis. And I'm really proud of the work our employees are doing. So, I really appreciate the question. Certainly, the timing probably won't be affected by that. Okay. Thanks, Mike.

Thank you. Understood. Thanks very much.

Thank you. Thanks, everybody, for your time on this call. Again, our hearts are with all of you. We appreciate your time here with H.B. Fuller and please keep yourselves, your families and your community safe.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.