Fuller Sticks It Again

Fool the analysts once, shame on you. Fool the analysts twice, shame on them. Fool them three times, and maybe we should wonder whether those analysts have been sniffing a little glue in the coat closet.

Adhesives, sealants, and coatings specialist H.B. Fuller (NYSE: FUL  ) once again beat the average estimate and did so by a wide margin. How wide? Try almost double ... and in fact, if you add back some severance expenses, it was more than double.

All in all, it was a pretty respectable quarter for a company that is both economically sensitive and vulnerable to raw-material costs. Reported revenue fell more than 1% in the first quarter, but adjusted for the impact of certain items, it was up nearly 4%. But that's only a small part of the story. The more impressive part was Fuller's efforts to work around costs and move the mix of its business in more profitable directions. As a result, gross margin jumped nearly two and a half points, and operating income more than doubled from last year.

And looking ahead, building a more profitable mix of business will be the key to growth. There's still some room to convert mechanical fasteners to adhesives, but overall, this business seems so large to me that it's probably going to grow more or less in line with economic growth and activity. So what will separate Fuller from PPG (NYSE: PPG  ) , ImperialChemical (NYSE: ICI  ) , or Henkel will be that ability to shift toward more lucrative products.

Now, I'm not about to speak too ill of a company that has just destroyed analyst estimates for quite a few quarters in a row now. Certainly, the folks running Fuller are shooting for something better than just another cyclical company. That said, I generally like to buy these kinds of companies when they look weak and troubled. So I'll just close by applauding the company for another great result but not cheerleading on the underlying stock.

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PPG is a Motley Fool Income Investor recommendation. A 30-day free trial will lead you to other dividend-paying stocks Mathew Emmert has recommended.

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).