It's tough not to be stuck on adhesives maker HB Fuller (NYSE:FUL), which will report first-quarter 2007 financial results on Thursday, March 27.

What analysts say:

  • Buy, sell, or waffle? There are six analysts covering Fuller, with five of them issuing buys recommendations with a single hold.
  • Revenues. Sales are expected to rise 3% for the quarter to $358 million.
  • Earnings. That's expected to cause a similar rise in profits to $0.29 per share.

What management says:
The company has been undergoing a largely successful turnaround. Last month, it announced a restructuring program to realign the business around geographic regions of the world, rather than by product type. The shake-up in the reporting segments, which new CEO Michele Volpi believes will create a "more nimble and more focused organization," also led to a management shake-up, and the company has seen a number of executive departures as a result. How that will affect the business going forward remains to be seen.

What management does:
HB Fuller has been sticking to its core profit centers and even turning away low-margin business. It was able to raise prices as its own raw-materials costs increased, it continues to streamline its operations, and it has sold off underperforming assets. That's led to steadily rising free cash flows, from $62.6 million in 2004 to $151.8 million in 2006. It's also helped to serve up a healthy diet of rising margins. Net margin growth outpaced that of the gross, partially thanks to significantly lower tax rates; the company realized a lot of pre-tax earnings from European operations. Despite greatly increased operating income, the firm's effective tax rate decreased from 28.1% in 2005 to only 22.3% in 2006.

























All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Despite the smart shifts in operations that have allowed it to enjoy certain tax benefits, HB Fuller has focused its operations more narrowly on those areas that perform best for it, and it ended up surprising analysts in the process by its strength. Being able to raise prices to cover its own increasing expenses has been a key driver in improving earnings.

Prior to its end-of-year earnings, I had suspected that HB Fuller was at best fairly priced, and I thought the market might react negatively if it missed analyst forecasts. It tumbled around 17% after those results were announced, and while it has gained some ground since, I find that its market cap-to-free cash flow valuation of 10 makes it particularly attractive now.

Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.