Volume increased 5% compared to the prior year; Selling, General and Administrative (SG&A) expenses were tightly controlled, up less than 3% despite absorbing higher than planned Project ONE implementation costs; Adjusted diluted EPS of $0.781 was up 16% versus last year; On track to substantially complete business integration by the end of the third quarter 2014; Project ONE proceeding; North America adhesives business operating on SAP and stable; Completed closure of Pirmasens, Germany production site; completed consolidation of two production sites in Guangzhou, China; After the end of the quarter, signed definitive agreement to acquire Tonsan Adhesive.
Second Quarter 2014 Results: Net income for the second quarter of 2014 was $20.5 million, or $0.40 per diluted share, versus net income of $25.9 million, or $0.51 per diluted share, in last year’s second quarter.
Net revenue for the second quarter of 2014 was $544.0 million, up 4.8% versus the second quarter of 2013. Higher volume and positive foreign currency translation positively impacted net revenue growth by 4.8 and 0.3 percentage points, respectively. Lower average selling prices negatively impacted net revenue growth by percentage points. Organic revenue grew by 4.5% year-over-year.
Gross profit margin was down approximately 200 basis points versus the prior year’s result due to a variety of factors including excess costs associated with the business integration project in Europe and Project ONE “go-live” in North America, a temporary spike in the cost of certain raw materials in Europe, margin compression on certain products in our Construction Products business and adverse foreign currency exchange effects in Australia. SG&A expense was up only about 3%, or $2.6 million, versus the prior year’s second quarter, despite absorbing unplanned and non-recurring costs related to Project ONE in North America.
“During the second quarter we reached historic milestones toward our strategic plan with the closure of a major European production site in May, our initial go-live on SAP in April and the negotiation of a significant acquisition in China. Our financial performance in the second quarter was mixed. On the positive side, we retained our discipline in discretionary spending and improved our organic revenue growth trend. Notably, sales volume increased 20% in our Construction Products business, 14% in Asia and about 5% in the Americas. However, these positives were tempered by the costs associated with the execution of our business integration project in Europe and the Project ONE go-live in North America,” said Jim Owens, H.B. Fuller president and CEO. “The added costs in the second quarter reflect our commitment to minimize the disruption to our customers while we proceed with the transformation of our company. During the second half of this year we will complete the business integration project in Europe, reduce the costs of our Project ONE implementation and get our profit margin performance back on track in all segments of our business, setting the stage for a strong 2015 and the delivery of our strategic commitments.”
At the end of the second quarter of 2014, H.B. Fuller had cash totaling $95 million and total debt of $566 million. This compares to first quarter 2014 levels of $113 million and $534 million, respectively. Sequentially, net debt was up by $50 million. Cash flow from operations was negative $17 million in the second quarter primarily due to inventory building to support the business integration project and higher accounts receivable balances.
Net income for the first half of 2014 was $35.1 million, or $0.69 per diluted share, versus net income of $46.6 million, or $0.91 per diluted share, in the first half of 2013. Adjusted total diluted earnings per share in the first half of 2014 were $1.271, up 9% from the prior year’s result of $1.161.
Net revenue for the first half of 2014 was $1,030.0 million, up 3.1% versus the first half of 2013. Higher volume positively impacted net revenue growth by 3.6%age points. Lower average selling prices and negative foreign currency translation negatively impacted net revenue growth by 0.3 and 0.2%age points, respectively. Organic revenue grew by 3.3% year-over-year.