HNI Corporation (NYSE: HNI) today announced sales for the
second quarter ended July 2, 2022 of $621.7 million and net income
of $30.3 million. GAAP net income per diluted share was $0.72,
compared to $0.39 in the prior year. Non-GAAP net income per
diluted share was $0.52, compared to $0.40 in the prior year. GAAP
to Non-GAAP reconciliations follow the financial statements in this
release.
Highlights
- Strong earnings growth. In the second quarter, the
Corporation delivered 23 percent operating income growth and
increased non-GAAP earnings per share 30 percent on a
year-over-year basis, driven by solid organic volume growth and
positive price-cost.
- Lamex divestiture allows for better focus on core
strategies. Consistent with previously announced portfolio
streamlining plans, last week the Corporation sold its China- and
Hong Kong-based Lamex office furniture business for $75 million,
subject to standard post-closing adjustments. The proceeds will be
used to repay existing debt, providing additional financial
flexibility.
- Continued investment and capital deployment. During the
second quarter, the Corporation completed the acquisition of an
installing distributor located in Raleigh, North Carolina.
Following the closing, the Corporation has 27 owned
installing-distributor locations nationwide supporting its
residential building products business. Additionally in the second
quarter, the Corporation returned over $53 million to its
shareholders in the form of dividends and share repurchases.
“Our members delivered strong top- and bottom-line performance
in the second quarter while we invested to strengthen our
operational network and go-to-market capabilities. We continued to
improve our price-cost position, which also contributed to our
profit growth. Our strategic initiatives focused on driving growth
and simplifying our businesses have momentum and are positioning us
for long-term success,” stated Jeff Lorenger, Chairman, President,
and Chief Executive Officer.
HNI Corporation – Financial
Performance
(Dollars in millions, except per
share data)
Three Months Ended
July 2, 2022
July 3, 2021
Change
GAAP
Net Sales
$621.7
$510.5
21.8%
Gross Profit %
35.5
%
36.8
%
-130 bps
SG&A %
30.5
%
32.0
%
-150 bps
Impairment Charges %
0.2
%
—
%
20 bps
Operating Income
$29.9
$24.7
21.1%
Operating Income %
4.8
%
4.8
%
0 bps
Effective Tax Rate
(9.0
%)
23.7
%
Net Income %
4.9
%
3.4
%
150 bps
EPS – diluted
$0.72
$0.39
84.6%
Non-GAAP
Gross Profit %
35.5
%
36.8
%
-130 bps
Operating Income
$31.1
$25.3
22.7%
Operating Income %
5.0
%
5.0
%
0 bps
EPS – diluted
$0.52
$0.40
30.0%
Second Quarter Summary Comments
- Consolidated net sales increased 21.8 percent from the
prior-year quarter to $621.7 million. On an organic basis, sales
increased 18.9 percent year-over-year. The acquisition of
residential building products companies in 2021 and 2022 increased
year-over-year sales by $14.6 million. A reconciliation of organic
sales, a non-GAAP measure, follows the financial statements in this
release.
- Gross profit margin compressed 130 basis points compared to the
prior-year quarter. This decrease was driven by price-cost dilution
and lower net productivity, partially offset by higher volume.
- Selling and administrative expenses as a percent of sales
decreased 150 basis points compared to the prior-year quarter. The
decrease was driven by dilution from price realization along with
higher volume, partially offset by increased freight costs, higher
investment spend, and higher core SG&A.
- Non-GAAP net income per diluted share was $0.52 compared to
$0.40 in the prior-year quarter. The increase was driven by higher
volume and favorable price-cost, partially offset by lower net
productivity, higher investment spend, and higher core
SG&A.
- Non-GAAP EPS in the current quarter includes an effective tax
rate of 23.7 percent, compared to a GAAP tax rate of (9.0)
percent.
Divestiture of Lamex
- The Corporation sold its China- and Hong Kong-based Lamex
office furniture business on July 20, 2022. The business was
acquired by Kokuyo Co., Ltd. for $75 million, subject to standard
post-closing adjustments. Kokuyo is a leading manufacturer and
provider of office furniture in Japan and across Asia.
- In the second quarter, the transaction created tax benefits
that were excluded from non-GAAP results. It also resulted in
Lamex’s assets and liabilities being classified as held-for-sale at
the end of the quarter. The sale is expected to create a pretax
gain in the Corporation’s third quarter of approximately $50
million.
Workplace Furnishings –
Financial Performance
(Dollars in millions)
Three Months Ended
July 2, 2022
July 3, 2021
Change
GAAP
Net Sales
$406.7
$344.1
18.2%
Operating Profit
$11.9
$8.8
36.2%
Operating Profit %
2.9
%
2.5
%
40 bps
Non-GAAP
Operating Profit
$12.1
$9.4
28.9%
Operating Profit %
3.0
%
2.7
%
30 bps
- Workplace Furnishings net sales increased 18.2 percent from the
prior-year quarter to $406.7 million.
- Workplace Furnishings operating profit margin expanded 40 basis
points year-over-year primarily driven by higher volume and
favorable price-cost, partially offset by lower net productivity
and increased investment spend.
Residential Building Products
– Financial Performance
(Dollars in millions)
Three Months Ended
July 2, 2022
July 3, 2021
Change
GAAP
Net Sales
$215.1
$166.3
29.3%
Operating Profit
$37.0
$30.5
21.1%
Operating Profit %
17.2
%
18.4
%
-120 bps
- Residential Building Products net sales increased 29.3 percent
from the prior-year quarter to $215.1 million. On an organic basis,
sales increased 20.5 percent year-over-year. The impact of building
products companies acquired in 2021 and 2022 increased sales $14.6
million compared to the prior-year quarter.
- Residential Building Products operating profit margin
compressed 120 basis points year-over-year, primarily driven by
lower net productivity and the impact of acquisitions, partially
offset by increased volume.
Second Quarter Orders
- Normalized orders in the Workplace Furnishings segment
increased four percent year-over-year led by price realization.
Order growth softened late in the quarter, and orders from contract
customers were stronger than those from small-to-medium sized
customers.
- Orders in the Residential Building Products segment increased
14 percent compared to the prior-year period. New construction
order rates outperformed remodel/retrofit activity during the
quarter.
2022 Outlook
Given signs that broader macroeconomic and recession concerns
are negatively impacting demand in key markets, the Corporation is
lowering its 2022 outlook.
Compared to its previous outlook, the Corporation now expects
lower second half profit expansion due to slowing volume growth and
the divestiture of Lamex, partially offset by improved price-cost
and reduced expenses. Despite the increasingly challenging
environment, the Corporation still expects strong revenue and
profit growth compared to the prior year.
- Workplace Furnishings 2022 revenue: the Corporation now
expects revenue growth rates in the low teens for 2022. The new
outlook compares to previously expected 2022 segment growth rates
in the high teens to low 20s. Slower volume growth and the Lamex
divestiture are driving the reduction. When excluding impacts from
the sale of Lamex and the previously announced restructuring of an
eCommerce business, pricing benefits and increased volume are
expected to drive segment growth rates in the low 20s. Those
portfolio actions are expected to lower reported segment growth
rates by approximately 10 percent.
- Residential Building Products 2022 revenue: pricing
benefits, inorganic revenue from acquisitions, and continued
benefits from multiple growth initiatives are expected to fuel
growth rates in the high teens for 2022. This is on top of 25
percent organic growth generated by the segment in 2021. Compared
to the previous outlook, segment growth is now expected to be
softer in the second half of 2022.
- Third quarter 2022 outlook: the Corporation expects
third quarter earnings to improve sequentially from second quarter
2022 levels and be above prior year results primarily due to
favorable price-cost. Pricing benefits are expected to drive third
quarter revenue growth rates in the high single-digits to
low-teens.
- Expected seasonality: for 2022, earnings seasonality is
now expected to be less weighted to the back half than in recent
years when approximately 70 percent of total profit was generated
during the second half.
- Balance Sheet: the Corporation expects to maintain a
strong balance sheet throughout 2022. Low leverage and continued
free cash flow generation are expected to provide ample capacity
for continued investment, M&A, dividend payments, and share
buyback activity.
Concluding Remarks
“Although the operating environment is becoming more
challenging, we are staying focused on our long-term strategies. We
expect strong earnings growth in 2022 while maintaining a strong
balance sheet. We continue to improve our long-term competitive
position as we make progress on our core strategies of expanding
margins in Workplace Furnishings and growing revenue in Residential
Building Products. Our experienced team is prepared to confront an
increasingly difficult economic environment, while driving our
strategic initiatives,” Mr. Lorenger concluded.
Conference Call
HNI Corporation will host a conference call on Thursday, July
28, 2022 at 10:00 a.m. (Central) to discuss second quarter fiscal
year 2022 results. To participate, call 1-855-761-5600 – conference
ID number 7175411. A live webcast of the call will be available on
HNI Corporation’s website at https://investors.hnicorp.com/events-and-presentations.
A replay of the webcast and call will be made available from
Thursday, July 28, 2022 at 1:00 p.m. (Central) through Thursday,
August 4, 2022, 10:59 p.m. (Central). To replay the webcast, go to
the link above. To replay the call, dial 1-800-770-2030 –
Conference ID: 7175411.
About HNI Corporation
HNI Corporation (NYSE: HNI) is a manufacturer of workplace
furnishings and residential building products, operating under two
segments. The Workplace Furnishings segment is a leading global
designer and provider of commercial furnishings, going to market
under multiple unique brands. The Residential Building Products
segment is the nation’s leading manufacturer and marketer of hearth
products, which include a full array of gas, electric, wood, and
pellet-burning fireplaces, inserts, stoves, facings, and
accessories. 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), including
statements regarding the expected effects on the Corporation’s
business, financial condition and results of operations from the
COVID-19 pandemic and other declining macroeconomic conditions.
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 duration
and scope of the COVID-19 pandemic, including any emerging variants
of the virus, and its effect on people and the economy; potential
disruptions in the global supply chain; the effects of prolonged
periods of inflation; potential labor shortages; 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, including those
that may result from the effects of climate change. 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 Comprehensive Income
(In millions, except per share
data)
(Unaudited)
Three Months Ended
Six Months Ended
July 2, 2022
July 3, 2021
July 2, 2022
July 3, 2021
Net sales
$
621.7
$
510.5
$
1,194.1
$
994.7
Cost of sales
401.2
322.6
776.6
626.9
Gross profit
220.6
187.9
417.5
367.8
Selling and administrative expenses
189.7
163.2
366.1
320.5
Impairment charges
1.0
—
1.0
—
Operating income
29.9
24.7
50.3
47.3
Interest expense, net
2.1
1.9
4.1
3.6
Income before income taxes
27.8
22.8
46.2
43.7
Income taxes
(2.5
)
5.4
1.8
11.2
Net income
30.3
17.4
44.5
32.4
Less: Net income (loss) attributable to
non-controlling interest
0.0
(0.0
)
(0.0
)
(0.0
)
Net income attributable to HNI
Corporation
$
30.3
$
17.4
$
44.5
$
32.4
Average number of common shares
outstanding – basic
41.8
43.8
42.1
43.5
Net income attributable to HNI Corporation
per common share – basic
$
0.73
$
0.40
$
1.06
$
0.75
Average number of common shares
outstanding – diluted
42.4
44.5
42.7
44.0
Net income attributable to HNI Corporation
per common share – diluted
$
0.72
$
0.39
$
1.04
$
0.74
Foreign currency translation
adjustments
$
(1.3
)
$
0.2
$
(1.8
)
$
0.1
Change in unrealized gains (losses) on
marketable securities, net of tax
(0.1
)
(0.0
)
(0.5
)
(0.1
)
Change in derivative financial
instruments, net of tax
0.1
0.1
1.0
0.4
Other comprehensive income (loss), net of
tax
(1.3
)
0.3
(1.3
)
0.3
Comprehensive income
29.0
17.7
43.1
32.8
Less: Comprehensive income (loss)
attributable to non-controlling interest
0.0
(0.0
)
(0.0
)
(0.0
)
Comprehensive income attributable to HNI
Corporation
$
29.0
$
17.7
$
43.1
$
32.8
Amounts may not sum due to rounding.
HNI Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
(In millions)
(Unaudited)
July 2, 2022
January 1, 2022
Assets
Current Assets:
Cash and cash equivalents
$
19.6
$
52.3
Short-term investments
1.0
1.4
Receivables
255.3
240.0
Allowance for doubtful accounts
(2.7
)
(2.8
)
Inventories, net
227.0
181.6
Prepaid expenses and other current
assets
53.4
51.1
Assets held for sale
71.2
—
Total Current Assets
624.7
523.5
Property, Plant, and Equipment:
Land and land improvements
30.9
30.9
Buildings
291.1
294.5
Machinery and equipment
581.3
593.6
Construction in progress
26.9
29.7
930.2
948.7
Less accumulated depreciation
(584.0
)
(581.9
)
Net Property, Plant, and Equipment
346.1
366.8
Right-of-use Finance Leases
11.3
10.2
Right-of-use Operating Leases
91.4
82.9
Goodwill and Other Intangible Assets
458.2
471.5
Other Assets
55.1
43.1
Total Assets
$
1,586.7
$
1,497.9
Liabilities and Equity
Current Liabilities:
Accounts payable and accrued expenses
$
423.4
$
473.8
Current maturities of debt
1.7
3.2
Current maturities of other long-term
obligations
2.1
3.9
Current lease obligations - Finance
3.3
2.8
Current lease obligations - Operating
20.5
22.8
Liabilities held for sale
41.1
—
Total Current Liabilities
492.1
506.4
Long-Term Debt
308.7
174.6
Long-Term Lease Obligations - Finance
7.9
7.4
Long-Term Lease Obligations -
Operating
75.9
63.8
Other Long-Term Liabilities
78.5
80.7
Deferred Income Taxes
61.7
75.0
Total Liabilities
1,024.7
907.9
Equity:
HNI Corporation shareholders' equity
561.7
589.6
Non-controlling interest
0.3
0.3
Total Equity
562.0
590.0
Total Liabilities and Equity
$
1,586.7
$
1,497.9
Amounts may not sum due to rounding.
HNI Corporation and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Six Months Ended
July 2, 2022
July 3, 2021
Net Cash Flows From (To) Operating
Activities:
Net income
$
44.5
$
32.4
Non-cash items included in net income:
Depreciation and amortization
42.4
41.1
Other post-retirement and post-employment
benefits
0.7
0.7
Stock-based compensation
8.5
7.8
Reduction in carrying amount of
right-of-use assets
13.2
13.1
Deferred income taxes
(13.4
)
(1.4
)
Other – net
0.6
3.2
Net decrease in cash from operating assets
and liabilities
(118.2
)
(62.9
)
Increase (decrease) in other
liabilities
(3.5
)
3.3
Net cash flows from (to) operating
activities
(25.2
)
37.3
Net Cash Flows From (To) Investing
Activities:
Capital expenditures
(27.9
)
(26.2
)
Proceeds from sale of property, plant, and
equipment
0.0
0.2
Acquisition spending, net of cash
acquired
(9.3
)
(1.5
)
Capitalized software
(5.3
)
(6.1
)
Purchase of investments
(1.8
)
(2.4
)
Sales or maturities of investments
1.5
2.4
Net cash flows from (to) investing
activities
(42.8
)
(33.7
)
Net Cash Flows From (To) Financing
Activities:
Payments of debt
(159.3
)
(0.6
)
Proceeds from debt
291.8
3.8
Dividends paid
(26.7
)
(26.8
)
Purchase of HNI Corporation common
stock
(65.2
)
(6.5
)
Proceeds from sales of HNI Corporation
common stock
3.4
29.3
Other – net
(2.5
)
(0.3
)
Net cash flows from (to) financing
activities
41.5
(1.3
)
Net increase (decrease) in cash and cash
equivalents including cash classified within current assets held
for sale
(26.5
)
2.4
Less: net increase in cash classified
within current assets held for sale
6.2
—
Net increase (decrease) in cash and cash
equivalents
(32.7
)
2.4
Cash and cash equivalents at beginning of
period
52.3
116.1
Cash and cash equivalents at end of
period
$
19.6
$
118.5
Amounts may not sum due to rounding.
HNI Corporation and
Subsidiaries
Reportable Segment
Data
(In millions)
(Unaudited)
Three Months Ended
Six Months Ended
July 2, 2022
July 3, 2021
July 2, 2022
July 3, 2021
Net Sales:
Workplace furnishings
$
406.7
$
344.1
$
759.8
$
646.9
Residential building products
215.1
166.3
434.3
347.9
Total
$
621.7
$
510.5
$
1,194.1
$
994.7
Income (Loss) Before Income Taxes:
Workplace furnishings
$
11.9
$
8.8
$
5.5
$
5.7
Residential building products
37.0
30.5
77.3
70.4
General corporate
(19.0
)
(14.6
)
(32.5
)
(28.8
)
Operating Income
29.9
24.7
50.3
47.3
Interest expense, net
2.1
1.9
4.1
3.6
Total
$
27.8
$
22.8
$
46.2
$
43.7
Depreciation and Amortization Expense:
Workplace furnishings
$
11.7
$
12.1
$
23.2
$
24.0
Residential building products
3.1
2.4
6.1
4.9
General corporate
6.6
6.2
13.1
12.2
Total
$
21.3
$
20.7
$
42.4
$
41.1
Capital Expenditures (including
capitalized software):
Workplace furnishings
$
8.2
$
7.0
$
16.4
$
17.5
Residential building products
2.7
1.9
8.5
6.7
General corporate
4.1
4.4
8.4
8.1
Total
$
15.0
$
13.3
$
33.2
$
32.3
As of
July 2, 2022
As of
January 1, 2022
Identifiable Assets:
Workplace furnishings
$
889.2
$
809.0
Residential building products
516.3
479.5
General corporate
181.2
209.5
Total
$
1,586.7
$
1,497.9
Amounts may not sum due to rounding.
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 the condensed consolidated financial statements,
which are prepared and presented in accordance with GAAP, this
earnings release contains the following non-GAAP financial
measures: organic sales, gross profit, operating income, operating
profit, income taxes, net income, and net income per diluted shares
(i.e., EPS). These measures are adjusted from the comparable GAAP
measure to exclude the impacts of the selected items as summarized
in the following tables. In the current period, the effective tax
rate used to calculate non-GAAP EPS differs from the GAAP effective
tax rate due to the expected impact of the Workplace Furnishings
divestiture in third quarter 2022. 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
components.
The sales adjustments to arrive at the non-GAAP organic sales
information included in this earnings release exclude the impact of
acquiring residential building products companies. The transactions
excluded for purposes of other non-GAAP financial information
included in this earnings release include restructuring charges and
COVID-19 costs in the Workplace Furnishings segment, and impairment
charges and nonrecurring tax items in the Corporate segment.
Restructuring charges incurred in the current period presented are
comprised of inventory valuation adjustments in connection with
business simplification efforts, and relocation and new facility
setup costs in connection with capacity expansion initiatives.
COVID-19 costs incurred in the prior period presented include
showroom exit charges. Impairment charges incurred in the current
period are related to an equity investment. Nonrecurring tax items
in the current period are related to the divestiture of the Lamex
business.
HNI Corporation
Reconciliation
(Dollars in millions)
Three Months Ended
July 2, 2022
July 3, 2021
Workplace Furnishings
Residential Building Products
Total
Workplace Furnishings
Residential Building Products
Total
Sales as reported (GAAP)
$
406.7
$
215.1
$
621.7
$
344.1
$
166.3
$
510.5
% change from PY
18.2
%
29.3
%
21.8
%
Less: Acquisitions
—
14.6
14.6
—
—
—
Organic Sales (non-GAAP)
$
406.7
$
200.4
$
607.1
$
344.1
$
166.3
$
510.5
% change from PY
18.2
%
20.5
%
18.9
%
HNI Corporation
Reconciliation
(Dollars in millions, except per
share data)
Three Months Ended
July 2, 2022
Gross Profit
Operating Income
Tax
Net Income
EPS
As reported (GAAP)
$
220.6
$
29.9
$
(2.5
)
$
30.3
$
0.72
% of net sales
35.5
%
4.8
%
4.9
%
Tax %
(9.0
%)
Restructuring charges
0.2
0.2
0.0
0.1
0.00
Impairment charges
—
1.0
0.2
0.8
0.02
Income tax adjustment
—
—
9.1
(9.1
)
(0.21
)
Results (non-GAAP)
$
220.8
$
31.1
$
6.9
$
22.1
$
0.52
% of net sales
35.5
%
5.0
%
3.6
%
Tax %
23.7
%
HNI Corporation
Reconciliation
(Dollars in millions, except per
share data)
Three Months Ended
July 3, 2021
Gross Profit
Operating Income
Tax
Net Income
EPS
As reported (GAAP)
$
187.9
$
24.7
$
5.4
$
17.4
$
0.39
% of net sales
36.8
%
4.8
%
3.4
%
Tax %
23.7
%
COVID-19 costs
—
0.6
0.2
0.5
0.01
Results (non-GAAP)
$
187.9
$
25.3
$
5.6
$
17.9
$
0.40
% of net sales
36.8
%
5.0
%
3.5
%
Tax %
23.7
%
Workplace Furnishings
Reconciliation
(Dollars in millions)
Three Months Ended
July 2, 2022
July 3, 2021
Percent Change
Operating profit as reported (GAAP)
$
11.9
$
8.8
36.2
%
% of net sales
2.9
%
2.5
%
Restructuring charges
0.2
—
COVID-19 costs
—
0.6
Operating profit (non-GAAP)
$
12.1
$
9.4
28.9
%
% of net sales
3.0
%
2.7
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220726006157/en/
Marshall H. Bridges, Senior Vice President and Chief Financial
Officer (563) 272-7400 Matthew S. McCall, Vice President, Investor
Relations and Corporate Development (563) 275-8898
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