HNI Corporation Reports Earnings for Second Quarter Fiscal Year 2019

MUSCATINE, Iowa–(BUSINESS WIRE)–HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended June 29, 2019 of $526.0 million and net income of $15.8 million. GAAP net income per diluted share was $0.36 compared to $0.42 in the prior year. Non-GAAP net income per diluted share was $0.38 compared to $0.44 in the prior year.

Second Quarter Summary Comments

Our teams are performing well – managing through dynamic market conditions while staying focused on our key initiatives. Our efforts to drive operational efficiencies are on-track and bearing fruit. We are seeing strong momentum in our contract business. Our hearth business is executing well while navigating a slower housing market. We continue to see inconsistent demand in our supplies-driven business, which negatively impacted the quarter. We are confident in our ability to deliver profit improvement in the second half,” said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.

HNI Corporation – Financial Performance

(Dollars in millions, except per share data)

 

Three Months Ended

 

 

 

June 29,

 

June 30,

 

 

2019

2018

Change

GAAP

 

 

 

 

 

Net Sales

$526.0

 

$543.6

 

(3.2%)

Gross Profit %

36.6%

 

37.0%

 

-40 bps

SG&A %

32.0%

 

31.8%

 

20 bps

Restructuring and impairment charges %

0.2%

 

0.2%

 

— bps

Operating Income

$23.2

 

$27.1

 

(14.1%)

Operating Income %

4.4%

 

5.0%

 

-60 bps

Effective Tax Rate

23.9%

 

23.9%

 

 

Net Income %

3.0%

 

3.4%

 

-40 bps

EPS – diluted

$0.36

 

$0.42

 

(14.3%)

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

Gross Profit %

36.6%

 

37.0%

 

-40 bps

Operating Income

$24.2

 

$28.2

 

(14.2%)

Operating Income %

4.6%

 

5.2%

 

-60 bps

EPS – diluted

$0.38

 

$0.44

 

(13.6%)

Second Quarter Summary Comments

  • Consolidated net sales decreased $17.6 million or 3.2 percent from the prior year quarter to $526.0 million. On an organic basis, sales decreased 2.3 percent. The net impact of closing and divesting small office furniture companies decreased sales $5.0 million compared to the prior year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
  • Gross profit margin decreased 40 basis points compared to the prior year quarter. This decrease was driven by lower volume and higher input costs, partially offset by price realization and improved operational performance.
  • Selling and administrative expenses as a percent of sales increased 20 basis points compared to the prior year quarter. This increase was primarily due to lower sales volume, partially offset by lower Business System Transformation costs and freight expenses.
  • The Corporation recorded $0.9 million of restructuring charges in connection with a structural realignment in the office furniture segment. In the prior year quarter, $0.8 million of restructuring and impairment charges were recorded in connection with previously announced facilities closures.
  • Non-GAAP net income per diluted share was $0.38 compared to $0.44 in the prior year. This $0.06 decline was due to lower sales volume and higher input costs, partially offset by price realization and improved operational performance.

Office Furniture – Financial Performance

(Dollars in millions)

 

Three Months Ended

 

 

 

June 29,

 

June 30,

 

 

2019

2018

Change

GAAP

 

 

 

 

 

Net Sales

$409.5

 

$423.9

 

(3.4%)

Operating Profit

$18.7

 

$20.0

 

(6.4%)

Operating Profit %

4.6%

 

4.7%

 

-10 bps

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

Operating Profit

$19.7

 

$20.4

 

(3.5%)

Operating Profit %

4.8%

 

4.8%

 

— bps

  • Office furniture net sales decreased $14.4 million or 3.4 percent from the prior year quarter to $409.5 million. On an organic basis, sales decreased 2.2 percent primarily due to a decrease in the supplies-driven business. The net impact of closing and divesting small office furniture companies decreased sales $5.0 million compared to the prior year quarter.
  • Office furniture GAAP operating profit margin decreased 10 basis points. Lower sales volume, higher input costs, and investments were fully offset by improved price realization, operational performance, Business System Transformation costs, and freight expenses. Higher current year restructuring charges drove a 10 basis points decrease.

Hearth Products – Financial Performance

(Dollars in millions)

 

Three Months Ended

 

 

 

June 29,

 

June 30,

 

 

2019

2018

Change

GAAP

 

 

 

 

 

Net Sales

$116.5

 

$119.7

 

(2.7%)

Operating Profit

$13.4

 

$16.3

 

(18.1%)

Operating Profit %

11.5%

 

13.6%

 

-210 bps

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

Operating Profit

$13.4

 

$17.1

 

(21.7%)

Operating Profit %

11.5%

 

14.3%

 

-280 bps

  • Hearth products net sales decreased $3.2 million or 2.7 percent from the prior year quarter to $116.5 million with decreases in both the new construction and retail businesses.
  • Hearth products GAAP operating profit margin decreased 210 basis points for the quarter. Of this decrease, 280 basis points were driven by lower sales volume, higher input costs, and investments, partially offset by price realization and lower core SG&A spend. This decline was partially offset by a 70 basis points increase due to restructuring and impairment charges and other one-time costs incurred in the prior year quarter.

Outlook

The Corporation expects full year organic sales to be up 1 to 4 percent. This compares to the previous organic sales growth expectation of up 2 to 6 percent. The change is primarily driven by lower sales in the supplies-driven business. Including the impact of closing and divesting small office furniture companies, full year sales are expected to be flat to up 3 percent. The Corporation’s estimate of full year earnings per diluted share has narrowed and is expected to be in the range of $2.50 to $2.70 versus the previous guidance range of $2.50 to $2.90.

As we look at the second half of the year, our operational cost efforts are ramping up and will deliver significant benefits. We are also seeing improved second half demand, driven by strong sales growth in our contract and e-commerce office furniture businesses. We expect our supplies-driven business to stabilize in the second half. Our hearth business will deliver modest growth as strength in our retail products channel is partially offset by slow new construction sales.

We are focused on strengthening our operational excellence position and creating effortless experiences for our customers through deepening customer insights. We remain confident in our strategies and continue to invest in critical capabilities to drive long-term results,” said Mr. Lorenger.

Conference Call

HNI Corporation will host a conference call on Thursday, July 25, 2019 at 10:00 a.m. (Central) to discuss second quarter fiscal year 2019 results. To participate, call 1-877-512-9166 – conference ID number 8295057. A live webcast of the call will be available on HNI Corporation’s website at http://www.hnicorp.com (under Investors – News Releases & Events). A replay of the webcast will also be made available at that website address. An audio replay of the call will be available until Thursday, August 1, 2019, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 8295057.

About HNI Corporation

HNI Corporation is an NYSE traded company (ticker symbol: HNI) providing products and solutions for the home and workplace environments. HNI Corporation is a leading global office furniture manufacturer and is the nation’s leading manufacturer of hearth products. The Corporation’s strong brands have leading positions in their markets. More information can be found on the Corporation’s website at www.hnicorp.com.

Forward-Looking Statements

This release contains “forward-looking” statements based on current expectations regarding future plans, events, outlook, objectives, financial performance, expectations for sales growth, and earnings per diluted share (GAAP and non-GAAP). Forward-looking statements can be identified by words including “expect,” “believe,” “anticipate,” “estimate,” “may,” “will,” “would,” “could,” “confident”, or other similar words, phrases, or expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation’s actual future results and performance to differ materially from expected results. These risks include but are not limited to: the levels of office furniture needs and housing starts; overall demand for the Corporation’s products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation’s customers; the Corporation’s reliance on its network of independent dealers; change in trade policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation’s new products; changing legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation’s financing activities; an inability to protect the Corporation’s intellectual property; impacts of tax legislation; and force majeure events outside the Corporation’s control. A description of these risks and additional risks can be found in the Corporation’s annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation assumes no obligation to update, amend, or clarify forward-looking statements, except as required by applicable law.

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except share and per share data)

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

June 29,

 

June 30,

 

June 29,

 

June 30,

2019

2018

2019

2018

Net sales

$526,026

 

$543,614

 

 

$1,005,482

 

 

$1,048,683

 

Cost of sales

333,437

 

342,744

 

 

643,279

 

 

670,894

 

Gross profit

192,589

 

200,870

 

 

362,203

 

 

377,789

 

Selling and administrative expenses

168,411

 

172,973

 

 

334,348

 

 

344,868

 

Restructuring and impairment charges

930

 

837

 

 

930

 

 

2,175

 

Operating income

23,248

 

27,060

 

 

26,925

 

 

30,746

 

Interest income

282

 

89

 

 

638

 

 

202

 

Interest expense

2,762

 

2,718

 

 

5,229

 

 

5,055

 

Income before income taxes

20,768

 

24,431

 

 

22,334

 

 

25,893

 

Income taxes

4,957

 

5,835

 

 

5,503

 

 

4,836

 

Net income

15,811

 

18,596

 

 

16,831

 

 

21,057

 

Less: Net income (loss) attributable to non-controlling interest

1

 

(1

)

 

(1

)

 

(50

)

Net income attributable to HNI Corporation

$15,810

 

$18,597

 

 

$16,832

 

 

$21,107

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding – basic

43,217,580

 

43,665,411

 

 

43,375,554

 

 

43,512,691

 

Net income attributable to HNI Corporation per common share – basic

$0.37

 

$0.43

 

 

$0.39

 

 

$0.49

 

Average number of common shares outstanding – diluted

43,633,949

 

44,289,662

 

 

43,860,013

 

 

44,201,285

 

Net income attributable to HNI Corporation per common share – diluted

$0.36

 

$0.42

 

 

$0.38

 

 

$0.48

 

HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

June 29,

 

December 29,

2019

2018

Assets

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$28,782

 

$76,819

Short-term investments

1,668

 

1,327

Receivables

245,331

 

255,207

Inventories

193,952

 

157,178

Prepaid expenses and other current assets

41,318

 

41,352

Total Current Assets

511,051

 

531,883

Property, Plant, and Equipment:

 

 

 

Land and land improvements

29,133

 

28,377

Buildings

292,081

 

290,263

Machinery and equipment

574,982

 

565,884

Construction in progress

27,252

 

28,443

 

923,448

 

912,967

Less accumulated depreciation

537,368

 

528,034

Net Property, Plant, and Equipment

386,080

 

384,933

 

 

 

 

Right-of-use Operating / Finance Leases

70,241

 

Goodwill and Other Intangible Assets

453,356

 

463,290

Deferred Income Taxes

1,569

 

1,569

Other Assets

19,812

 

20,169

Total Assets

$1,442,109

 

$1,401,844

 

 

 

 

Liabilities and Equity

 

 

 

Current Liabilities:

 

 

 

Accounts payable and accrued expenses

$396,301

 

$428,865

Current maturities of long-term debt

1,101

 

679

Current maturities of other long-term obligations

3,582

 

4,764

Current lease obligations – Operating / Finance

22,194

 

Total Current Liabilities

423,178

 

434,308

 

 

 

 

Long-Term Debt

285,397

 

249,355

Long-Term Lease Obligations – Operating / Finance

56,307

 

Other Long-Term Liabilities

63,753

 

72,767

Deferred Income Taxes

83,965

 

82,155

Equity:

 

 

 

HNI Corporation shareholders’ equity

529,184

 

562,933

Non-controlling interest

325

 

326

Total Equity

529,509

 

563,259

Total Liabilities and Equity

$1,442,109

 

$1,401,844

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Six Months Ended

 

June 29,

 

June 30,

2019

2018

Net Cash Flows From (To) Operating Activities:

 

 

 

Net income

$16,831

 

 

$21,057

 

Non-cash items included in net income:

 

 

 

Depreciation and amortization

38,450

 

 

37,280

 

Other post-retirement and post-employment benefits

738

 

 

883

 

Stock-based compensation

4,072

 

 

4,908

 

Operating / finance lease interest and amortization

11,617

 

 

Deferred income taxes

1,360

 

 

762

 

(Gain) loss on sale and retirement of long-lived assets, net

1,046

 

 

1,488

 

Other – net

2,810

 

 

175

 

Net increase (decrease) in operating assets and liabilities, net of divestitures

(56,281

)

 

(37,008

)

Increase (decrease) in other liabilities

(7,876

)

 

(67

)

Net cash flows from (to) operating activities

12,767

 

 

29,478

 

 

 

 

 

Net Cash Flows From (To) Investing Activities:

 

 

 

Capital expenditures

(34,659

)

 

(26,687

)

Proceeds from sale of property, plant, and equipment

159

 

 

18,444

 

Capitalized software

(2,948

)

 

(5,637

)

Purchase of investments

(2,459

)

 

(1,329

)

Sales or maturities of investments

1,802

 

 

1,357

 

Other – net

2,025

 

 

1,136

 

Net cash flows from (to) investing activities

(36,080

)

 

(12,716

)

 

 

 

 

Net Cash Flows From (To) Financing Activities:

 

 

 

Payments of long-term debt

(40,272

)

 

(291,330

)

Proceeds from long-term debt

76,677

 

 

312,279

 

Dividends paid

(26,075

)

 

(25,268

)

Purchase of HNI Corporation common stock

(57,357

)

 

(9,120

)

Proceeds from sales of HNI Corporation common stock

18,906

 

 

8,755

 

Other – net

3,397

 

 

(4,361

)

Net cash flows from (to) financing activities

(24,724

)

 

(9,045

)

 

 

 

 

Net increase (decrease) in cash and cash equivalents

(48,037

)

 

7,717

 

Cash and cash equivalents at beginning of period

76,819

 

 

23,348

 

Cash and cash equivalents at end of period

$28,782

 

 

$31,065

 

HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

Six Months Ended

 

June 29,

 

June 30,

 

June 29,

 

June 30,

2019

2018

2019

2018

Net Sales:

 

 

 

 

 

 

 

Office furniture

$409,512

 

 

$423,878

 

 

$763,023

 

 

$804,793

 

Hearth products

116,514

 

 

119,736

 

 

242,459

 

 

243,890

 

Total

$526,026

 

 

$543,614

 

 

$1,005,482

 

 

$1,048,683

 

 

 

 

 

 

 

 

 

Income Before Income Taxes:

 

 

 

 

 

 

 

Office furniture

$18,749

 

 

$20,035

 

 

$17,018

 

 

$19,177

 

Hearth products

13,362

 

 

16,312

 

 

30,970

 

 

33,426

 

General corporate

(8,863

)

 

(9,287

)

 

(21,063

)

 

(21,857

)

Operating Income

23,248

 

 

27,060

 

 

26,925

 

 

30,746

 

Interest expense, net

2,480

 

 

2,629

 

 

4,591

 

 

4,853

 

Total

$20,768

 

 

$24,431

 

 

$22,334

 

 

$25,893

 

 

 

 

 

 

 

 

 

Depreciation and Amortization Expense:

 

 

 

 

 

 

 

Office furniture

$11,247

 

 

$11,204

 

 

$22,307

 

 

$22,190

 

Hearth products

2,174

 

 

2,092

 

 

4,230

 

 

4,054

 

General corporate

5,989

 

 

5,539

 

 

11,913

 

 

11,036

 

Total

$19,410

 

 

$18,835

 

 

$38,450

 

 

$37,280

 

 

 

 

 

 

 

 

 

Capital Expenditures (including capitalized software):

 

 

 

 

 

 

 

Office furniture

$12,347

 

 

$13,420

 

 

$22,666

 

 

$24,997

 

Hearth products

2,577

 

 

1,229

 

 

7,575

 

 

4,167

 

General corporate

3,587

 

 

1,344

 

 

7,366

 

 

3,160

 

Total

$18,511

 

 

$15,993

 

 

$37,607

 

 

$32,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

June 29,

December 29,

2019

2018

Identifiable Assets:

 

 

 

 

 

 

 

Office furniture

 

 

 

 

$864,155

 

 

$797,574

 

Hearth products

 

 

 

 

375,817

 

 

352,060

 

General corporate

 

 

 

 

202,137

 

 

252,210

 

Total

 

 

 

 

$1,442,109

 

 

$1,401,844

 

Non-GAAP Financial Measures

This earnings release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to HNI’s financial statements as prepared in accordance with GAAP are included below and throughout this earnings release. This information gives investors additional insights into HNI’s financial performance and operations. While HNI’s management believes the non-GAAP financial measures are useful in evaluating HNI’s operations, this information should be considered supplemental and not in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures within this earnings release: organic sales, gross profit, operating income, operating profit, income taxes, net income, and net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the impacts of the selected items as summarized in the table below. Generally, non-GAAP EPS is calculated using HNI’s overall effective tax rate for the period, as this rate is reflective of the tax applicable to most non-GAAP adjustments.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release excludes the impact of closing and divesting small office furniture companies. The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release for both periods presented include restructuring charges, impairment charges, and/or transition costs. Restructuring charges incurred in the current year period presented are primarily comprised of severance costs related to a structural realignment in the office furniture segment. In the prior year period presented, costs were incurred as part of the previously announced closures of the hearth manufacturing facility in Paris, Kentucky, the office furniture manufacturing facility in Orleans, Indiana, and structural realignments in China. Restructuring items incurred include severance, while impairment charges recorded in the second quarter of 2018 relate to a closed manufacturing facility previously held for sale. Transition items incurred include production move costs.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the full fiscal year. We provide such non-GAAP measure to investors on a prospective basis for the same reasons we provide it to investors on a historical basis. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP earnings per diluted share to a forward-looking estimate of GAAP earnings per diluted share without unreasonable efforts because certain information needed to make a reasonable forward-looking estimate of GAAP earnings per diluted share is highly variable and difficult to predict and estimate, and is dependent on future events which are uncertain or outside of our control. These may include unanticipated charges related to asset impairments (fixed assets, intangibles, or goodwill), unanticipated acquisition related costs, and other unanticipated nonrecurring items not reflective of ongoing operations. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our GAAP earnings per diluted share.

HNI Corporation Reconciliation

(Dollars in millions)

 

Three Months Ended

 

June 29, 2019

 

June 30, 2018

 

Office

 

 

 

Office

 

 

Furniture

Hearth

Total

Furniture

Hearth

Total

Sales as reported (GAAP)

$409.5

$116.5

$526.0

 

$423.9

$119.7

$543.6

% change from PY

(3.4%)

(2.7%)

(3.2%)

 

 

 

 

 

 

 

 

 

 

 

 

Less: Closure and Divestitures

 

5.0

5.0

 

 

 

 

 

 

 

 

Organic Sales (non-GAAP)

$409.5

$116.5

$526.0

 

$418.8

$119.7

$538.6

% change from PY

(2.2%)

(2.7%)

(2.3%)

 

 

 

 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

 

Three Months Ended

June 29, 2019

 

Gross

 

Operating

 

 

 

Net

 

 

Profit

Income

Tax

Income

EPS

As reported (GAAP)

$192.6

 

$23.2

 

$5.0

 

$15.8

 

$0.36

% of net sales

36.6%

 

4.4%

 

 

 

3.0%

 

 

Tax %

 

 

 

 

23.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges

 

0.9

 

0.2

 

0.7

 

0.02

 

 

 

 

 

 

 

 

 

 

Results (non-GAAP)

$192.6

 

$24.2

 

$5.2

 

$16.5

 

$0.38

% of net sales

36.6%

 

4.6%

 

 

 

3.1%

 

 

Tax %

 

 

 

 

23.9%

 

 

 

 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

 

Three Months Ended

June 30, 2018

 

Gross

 

Operating

 

 

 

Net

 

 

Profit

Income

Tax

Income

EPS

As reported (GAAP)

$200.9

 

$27.1

 

$5.8

 

$18.6

 

$0.42

% of net sales

37.0%

 

5.0%

 

 

 

3.4%

 

 

Tax %

 

 

 

 

23.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring and impairment charges

 

0.8

 

0.2

 

0.6

 

0.02

Transition costs

0.3

 

0.3

 

0.1

 

0.2

 

0.00

 

 

 

 

 

 

 

 

 

 

Results (non-GAAP)

$201.1

 

$28.2

 

$6.1

 

$19.4

 

$0.44

% of net sales

37.0%

 

5.2%

 

 

 

3.6%

 

 

Tax %

 

 

 

 

23.9%

 

 

 

 

Office Furniture Reconciliation

(Dollars in millions)

 

Three Months Ended

 

 

 

June 29,

 

June 30,

 

Percent

2019

2018

Change

Operating profit as reported (GAAP)

$18.7

 

$20.0

 

(6.4%)

% of net sales

4.6%

 

4.7%

 

 

 

 

 

 

 

 

Restructuring charges

0.9

 

0.1

 

 

Transition costs

 

0.3

 

 

 

 

 

 

 

 

Operating profit (non-GAAP)

$19.7

 

$20.4

 

(3.5%)

% of net sales

4.8%

 

4.8%

 

 

 

Hearth Products Reconciliation

(Dollars in millions)

 

Three Months Ended

 

 

 

June 29,

 

June 30,

 

Percent

2019

2018

Change

Operating profit as reported (GAAP)

$13.4

 

$16.3

 

(18.1%)

% of net sales

11.5%

 

13.6%

 

 

 

 

 

 

 

 

Restructuring and impairment charges

 

0.7

 

 

 

 

 

 

 

 

Operating profit (non-GAAP)

$13.4

 

$17.1

 

(21.7%)

% of net sales

11.5%

 

14.3%

 

 

 

Contacts

Marshall H. Bridges, Senior Vice President and Chief Financial Officer (563) 272-7400

Jack D. Herring, Treasurer, Director of Finance and Investor Relations (563) 506-9783

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