HNI Corporation (NYSE: HNI) today announced sales for the
third quarter ended October 1, 2022 of $598.8 million and net
income of $63.1 million. GAAP net income per diluted share, which
included a $51 million pre-tax gain from the sale of Lamex, was
$1.51, compared to $0.43 in the prior year. Non-GAAP net income per
diluted share was $0.71, compared to $0.43 in the prior year. GAAP
to non-GAAP reconciliations follow the financial statements in this
release.
Highlights
- Strong earnings growth. In the third quarter, the
Corporation delivered 65 percent growth in non-GAAP earnings per
share on a year-over-year basis, driven by positive price-cost and
improving product mix.
- Solid top- and bottom-line performance in Residential
Building Products. Segment revenue increased 10 percent
organically year-over-year (on top of a +25 percent prior year
comparable), with both new construction and remodel-retrofit
growing similarly in the quarter. Segment operating profit
increased 19 percent versus the same period a year ago, driven by
positive price-cost and volume improvement.
- Cost savings initiatives. In response to softer demand
trends, in anticipation of weaker macro conditions, and as part of
ongoing efforts to improve long-term profitability, the Corporation
initiated corporate-wide cost savings actions during the third
quarter. The savings are estimated to be $30 million on an annual
basis once they become fully mature in early 2023.
“Our members delivered a strong quarter despite softer demand
tied to the weaker macroeconomic environment. In Workplace
Furnishings, orders from larger contract customers remain
subdued—reflecting uncertainty around the economy and how to
execute their office re-entry objectives. Smaller, transactional
order activity, which historically reacts more quickly to economic
concerns, was weak throughout the quarter.
"However, we generated solid revenue growth in the mid-market,
where HNI holds a unique and leading position. Compared to contract
customers in larger metro areas, customers in the mid-market have
more often returned to their offices with traditional in-person or
hybrid working models—driving demand growth in the face of
increasing economic uncertainty. We are encouraged by this trend as
it reflects the underlying strength in demand that will emerge more
broadly once the economy stabilizes and more customers implement
office re-entry plans.
"In Residential Building Products, our category-leading position
and favorable housing demographics further reinforce our
bullishness around future revenue, earnings, and cash flow growth.
Although we expect and are prepared for near-term challenges, we
are confident long-term demand in both of our segments will be
strong,” stated Jeff Lorenger, Chairman, President, and Chief
Executive Officer.
HNI Corporation – Financial
Performance
(Dollars in millions, except per
share data)
Three Months Ended
October 1, 2022
October 2, 2021
Change
GAAP
Net Sales
$598.8
$586.7
2.1
%
Gross Profit %
35.0
%
33.3
%
170 bps
SG&A %
29.8
%
28.8
%
100 bps
Gain on Sale of Subsidiary
$50.6
$ —
NM
Operating Income
$81.9
$26.2
212.1
%
Operating Income %
13.7
%
4.5
%
920 bps
Effective Tax Rate
20.7
%
21.5
%
Net Income %
10.5
%
3.3
%
720 bps
EPS – diluted
$1.51
$0.43
251.2
%
Non-GAAP
Gross Profit %
35.6
%
33.3
%
230 bps
Operating Income
$40.4
$26.2
54.1
%
Operating Income %
6.8
%
4.5
%
230 bps
EPS – diluted
$0.71
$0.43
65.1
%
Third Quarter Summary Comments
- Consolidated net sales increased 2.1 percent from the
prior-year quarter to $598.8 million. On an organic basis, sales
increased 3.3 percent year-over-year. The sale of the Corporation's
China- and Hong Kong-based Lamex office furniture business during
the quarter decreased year-over-year sales $17.9 million, while the
acquisition of residential building products companies in 2021 and
2022 increased year-over-year sales by $11.2 million. A
reconciliation of organic sales, a non-GAAP measure, follows the
financial statements in this release.
- Gross profit margin expanded 170 basis points compared to the
prior-year quarter. This increase was driven by improved price-cost
and favorable product mix, partially offset by lower volume in the
Workplace Furnishings segment, operational investments, and reduced
net productivity. Included in current quarter cost of sales was
$3.6 million of one-time charges primarily due to strategic
restructuring of an eCommerce business in the Workplace Furnishings
segment that commenced in the fourth quarter of 2021.
- Selling and administrative expenses as a percent of sales
increased 100 basis points compared to the prior-year quarter. The
increase was driven by $5.6 million associated with a company-wide
cost reduction initiative, along with lower volume in the Workplace
Furnishings segment, higher investment spend, and increased freight
costs. These factors were partially offset by dilution from price
realization, lower variable compensation, and lower core
SG&A.
- A pre-tax gain of $50.6 million was recorded as a corporate
item during the current quarter as a result of the divestiture of
the Lamex business.
- Non-GAAP net income per diluted share was $0.71 compared to
$0.43 in the prior-year quarter. The increase was driven by
favorable price-cost, along with favorable product mix, lower
variable compensation, and lower core SG&A, partially offset by
lower Workplace Furnishings volume, lower net productivity, and
increased investment spend.
Workplace Furnishings –
Financial Performance
(Dollars in millions)
Three Months Ended
October 1, 2022
October 2, 2021
Change
GAAP
Net Sales
$375.2
$393.1
(4.6
%)
Operating Profit
$5.6
$3.9
44.9
%
Operating Profit %
1.5
%
1.0
%
50 bps
Non-GAAP
Operating Profit
$9.2
$3.9
136.3
%
Operating Profit %
2.5
%
1.0
%
150 bps
- Workplace Furnishings net sales decreased 4.6 percent from the
prior-year quarter to $375.2 million. On an organic basis sales
were flat year-over-year. The impact of the sale of the Lamex
business during the quarter decreased sales $17.9 million compared
to the prior-year quarter.
- Workplace Furnishings GAAP operating profit margin expanded 50
basis points versus the prior-year quarter. On a non-GAAP basis,
segment operating profit margin expanded 150 basis points driven by
favorable price-cost, favorable product mix, and lower core
SG&A, partially offset by lower volume, reduced net
productivity, and increased investment spend.
- The Workplace Furnishings segment recorded $3.6 million of
one-time charges primarily due to strategic restructuring of an
eCommerce business that commenced in the fourth quarter of
2021.
Residential Building Products
– Financial Performance
(Dollars in millions)
Three Months Ended
October 1, 2022
October 2, 2021
Change
GAAP
Net Sales
$223.6
$193.6
15.5
%
Operating Profit
$39.6
$33.4
18.7
%
Operating Profit %
17.7
%
17.2
%
50 bps
- Residential Building Products net sales increased 15.5 percent
from the prior-year quarter to $223.6 million. On an organic basis,
sales increased 9.7 percent year-over-year. The impact of
residential building products companies acquired in 2021 and 2022
increased sales $11.2 million compared to the prior-year
quarter.
- Residential Building Products operating profit margin expanded
50 basis points year-over-year, primarily driven by favorable
price-cost and higher volume, partially offset by the impact of
acquisitions and increased investment spend.
Third Quarter Orders
- Normalized orders in the Workplace Furnishings segment
decreased 15 percent versus the same period a year ago. The quarter
was up against a strong year-ago comparable; third quarter 2021
normalized orders increased 40 percent on a year-over-year basis.
During the third quarter of 2022, orders from small-to-medium sized
customers were stronger than those from larger contract customers.
Transactional activity through national supplies dealers and
wholesale partners was weak throughout the quarter.
- Orders in the Residential Building Products segment decreased
six percent compared to the prior-year period. New construction
order rates outperformed remodel/retrofit activity during the
quarter.
Fourth Quarter 2022 Outlook
Broader macroeconomic and recession concerns continue to
negatively impact demand in most markets. As a result, the
Corporation is lowering its outlook for fiscal year 2022.
- Fourth quarter non-GAAP earnings are expected to
decrease sequentially from third quarter 2022 levels but modestly
exceed year-ago results primarily due to favorable price-cost.
- Workplace Furnishings fourth quarter revenue: the
Corporation now expects revenue to decline at a low-teens
year-over-year rate in the fourth quarter. This outlook is lower
than previous expectations due to reduced demand and also includes:
– The result of divesting Lamex in the third quarter, which is
expected to decrease fourth quarter revenue approximately eight
percent versus the prior year. – The impact of the previously
announced restructuring of an eCommerce business, which is expected
to lower fourth quarter revenue approximately seven percent
compared to the prior year.
- Residential Building Products fourth quarter revenue:
pricing benefits and inorganic revenue from acquisitions are
expected to drive growth rates in the low-to-mid single-digits in
the fourth quarter. This outlook is lower than previous
expectations with slower demand driving the reduction.
- Balance Sheet: the Corporation expects to maintain a
strong balance sheet through the remainder of 2022, and throughout
2023. Low leverage and continued free cash flow generation are
expected to provide ample capacity for investment, dividend
payments, M&A, and share buyback.
Concluding Remarks
“We are prepared for a difficult near-term environment and
remain committed to our core strategies, which will expand margins
in Workplace Furnishings and drive long-term revenue growth in
Residential Building Products,” Mr. Lorenger concluded.
Conference Call
HNI Corporation will host a conference call on Monday, October
24, 2022 at 10:00 a.m. (Central) to discuss third 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
Monday, October 24, 2022 at 1:00 p.m. (Central) through Monday,
October 31, 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
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
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2, 2021
Net sales
$
598.8
$
586.7
$
1,792.9
$
1,581.5
Cost of sales
389.3
391.4
1,165.9
1,018.3
Gross profit
209.5
195.4
627.0
563.2
Selling and administrative expenses
178.2
169.1
544.3
489.6
Gain on sale of subsidiary
(50.6
)
—
(50.6
)
—
Impairment charges
—
—
1.0
—
Operating income
81.9
26.2
132.2
73.5
Interest expense, net
2.4
1.9
6.5
5.5
Income before income taxes
79.5
24.4
125.8
68.1
Income taxes
16.4
5.2
18.2
16.5
Net income
63.1
19.2
107.6
51.6
Less: Net income (loss) attributable to
non-controlling interest
(0.0
)
0.0
(0.0
)
(0.0
)
Net income attributable to HNI
Corporation
$
63.1
$
19.2
$
107.6
$
51.6
Average number of common shares
outstanding – basic
41.3
43.8
41.8
43.6
Net income attributable to HNI Corporation
per common share – basic
$
1.53
$
0.44
$
2.57
$
1.18
Average number of common shares
outstanding – diluted
41.8
44.3
42.3
44.0
Net income attributable to HNI Corporation
per common share – diluted
$
1.51
$
0.43
$
2.54
$
1.17
Foreign currency translation
adjustments
$
(3.7
)
$
0.0
$
(5.5
)
$
0.1
Change in unrealized gains (losses) on
marketable securities, net of tax
(0.3
)
(0.0
)
(0.8
)
(0.2
)
Change in derivative financial
instruments, net of tax
(0.1
)
0.2
0.9
0.6
Other comprehensive income (loss), net of
tax
(4.0
)
0.2
(5.4
)
0.5
Comprehensive income
59.1
19.3
102.2
52.1
Less: Comprehensive income (loss)
attributable to non-controlling interest
(0.0
)
0.0
(0.0
)
(0.0
)
Comprehensive income attributable to HNI
Corporation
$
59.1
$
19.3
$
102.2
$
52.1
Amounts may not sum due to rounding.
HNI Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
(In millions)
(Unaudited)
October 1, 2022
January 1, 2022
Assets
Current Assets:
Cash and cash equivalents
$
21.1
$
52.3
Short-term investments
2.0
1.4
Receivables
243.8
240.0
Allowance for doubtful accounts
(2.4
)
(2.8
)
Inventories, net
222.2
181.6
Prepaid expenses and other current
assets
53.4
51.1
Total Current Assets
540.0
523.5
Property, Plant, and Equipment:
Land and land improvements
31.0
30.9
Buildings
292.3
294.5
Machinery and equipment
589.3
593.6
Construction in progress
31.9
29.7
944.5
948.7
Less accumulated depreciation
(595.4
)
(581.9
)
Net Property, Plant, and Equipment
349.1
366.8
Right-of-use Finance Leases
11.0
10.2
Right-of-use Operating Leases
92.3
82.9
Goodwill and Other Intangible Assets
451.9
471.5
Other Assets
54.3
43.1
Total Assets
$
1,498.6
$
1,497.9
Liabilities and Equity
Current Liabilities:
Accounts payable and accrued expenses
$
435.0
$
473.8
Current maturities of debt
1.2
3.2
Current maturities of other long-term
obligations
2.0
3.9
Current lease obligations - Finance
3.3
2.8
Current lease obligations - Operating
18.8
22.8
Total Current Liabilities
460.4
506.4
Long-Term Debt
199.7
174.6
Long-Term Lease Obligations - Finance
7.7
7.4
Long-Term Lease Obligations -
Operating
82.3
63.8
Other Long-Term Liabilities
77.5
80.7
Deferred Income Taxes
64.6
75.0
Total Liabilities
892.2
907.9
Equity:
HNI Corporation shareholders' equity
606.1
589.6
Non-controlling interest
0.3
0.3
Total Equity
606.4
590.0
Total Liabilities and Equity
$
1,498.6
$
1,497.9
Amounts may not sum due to rounding.
HNI Corporation and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(In millions)
(Unaudited)
Nine Months Ended
October 1, 2022
October 2, 2021
Net Cash Flows From (To) Operating
Activities:
Net income
$
107.6
$
51.6
Non-cash items included in net income:
Depreciation and amortization
63.5
62.0
Other post-retirement and post-employment
benefits
1.0
1.0
Stock-based compensation
6.4
9.5
Reduction in carrying amount of
right-of-use assets
19.7
19.0
Deferred income taxes
(10.4
)
(2.1
)
Gain on sale of subsidiary
(50.6
)
—
Other – net
(0.4
)
2.6
Net decrease in cash from operating assets
and liabilities
(99.3
)
(64.1
)
Increase (decrease) in other
liabilities
(3.5
)
8.9
Net cash flows from (to) operating
activities
33.9
88.5
Net Cash Flows From (To) Investing
Activities:
Capital expenditures
(41.7
)
(38.2
)
Proceeds from sale of property, plant, and
equipment
0.0
0.2
Acquisition spending, net of cash
acquired
(9.2
)
(1.5
)
Capitalized software
(7.0
)
(9.6
)
Purchase of investments
(2.3
)
(3.3
)
Sales or maturities of investments
1.9
3.2
Net proceeds from sale of subsidiary
71.4
—
Net cash flows from (to) investing
activities
13.2
(49.2
)
Net Cash Flows From (To) Financing
Activities:
Payments of debt
(298.5
)
(1.8
)
Proceeds from debt
321.6
4.3
Dividends paid
(39.9
)
(40.4
)
Purchase of HNI Corporation common
stock
(65.2
)
(18.5
)
Proceeds from sales of HNI Corporation
common stock
4.0
29.9
Other – net
(0.4
)
(2.6
)
Net cash flows from (to) financing
activities
(78.3
)
(29.0
)
Net increase (decrease) in cash and cash
equivalents
(31.2
)
10.3
Cash and cash equivalents at beginning of
period
52.3
116.1
Cash and cash equivalents at end of
period
$
21.1
$
126.4
Amounts may not sum due to rounding.
HNI Corporation and
Subsidiaries
Reportable Segment
Data
(In millions)
(Unaudited)
Three Months Ended
Nine Months Ended
October 1, 2022
October 2, 2021
October 1, 2022
October 2, 2021
Net Sales:
Workplace furnishings
$
375.2
$
393.1
$
1,135.0
$
1,040.0
Residential building products
223.6
193.6
657.9
541.5
Total
$
598.8
$
586.7
$
1,792.9
$
1,581.5
Income (Loss) Before Income Taxes:
Workplace furnishings
$
5.6
$
3.9
$
11.1
$
9.6
Residential building products
39.6
33.4
117.0
103.8
General corporate
(14.0
)
(11.0
)
(46.5
)
(39.8
)
Gain on sale of subsidiary
50.6
—
50.6
—
Operating income
81.9
26.2
132.2
73.5
Interest expense, net
2.4
1.9
6.5
5.5
Total
$
79.5
$
24.4
$
125.8
$
68.1
Depreciation and Amortization Expense:
Workplace furnishings
$
11.3
$
11.9
$
34.6
$
35.9
Residential building products
3.2
2.5
9.3
7.4
General corporate
6.5
6.4
19.6
18.7
Total
$
21.0
$
20.9
$
63.5
$
62.0
Capital Expenditures (including
capitalized software):
Workplace furnishings
$
10.0
$
6.5
$
26.4
$
24.0
Residential building products
3.6
5.5
12.1
12.1
General corporate
1.8
3.5
10.2
11.7
Total
$
15.5
$
15.5
$
48.7
$
47.8
As of October 1, 2022
As of January 1, 2022
Identifiable Assets:
Workplace furnishings
$
807.7
$
809.0
Residential building products
517.7
479.5
General corporate
173.3
209.5
Total
$
1,498.6
$
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 impact of the Lamex 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 presented in this earnings release relate to the
current period exclusion of net sales of residential building
products companies acquired, as well as the exclusion of a portion
of the prior period net sales of the Lamex business that was
divested in the current quarter. The transactions excluded for
purposes of other non-GAAP financial information included in this
earnings release include restructuring charges comprised of
inventory valuation adjustments and relocation and new facility
setup costs in connection with capacity expansion initiatives in
the Workplace Furnishings segment. Also excluded are one-time items
related to the gain on sale of the Lamex business and company-wide
cost reduction initiatives.
HNI Corporation
Reconciliation
(Dollars in millions)
Three Months Ended
October 1, 2022
October 2, 2021
Workplace Furnishings
Residential Building Products
Total
Workplace Furnishings
Residential Building Products
Total
Sales as reported (GAAP)
$
375.2
$
223.6
$
598.8
$
393.1
$
193.6
$
586.7
% change from PY
(4.6
%)
15.5
%
2.1
%
Less: Acquisitions and Divestitures
—
11.2
11.2
17.9
—
17.9
Organic Sales (non-GAAP)
$
375.2
$
212.4
$
587.6
$
375.2
$
193.6
$
568.8
% change from PY
0.0
%
9.7
%
3.3
%
HNI Corporation
Reconciliation
(Dollars in millions, except per
share data)
Three Months Ended
October 1, 2022
Gross Profit
Operating Income
Tax
Net Income
EPS
As reported (GAAP)
$
209.5
$
81.9
$
16.4
$
63.1
$
1.51
% of net sales
35.0
%
13.7
%
10.5
%
Tax %
20.7
%
Restructuring charges
3.6
3.6
0.8
2.8
0.07
Company-wide cost reduction initiative
—
5.6
1.2
4.4
0.10
Gain on sale of subsidiary
—
(50.6
)
(10.1
)
(40.5
)
(0.97
)
Results (non-GAAP)
$
213.0
$
40.4
$
8.3
$
29.7
$
0.71
% of net sales
35.6
%
6.8
%
5.0
%
Tax %
21.9
%
Workplace Furnishings
Reconciliation
(Dollars in millions)
Three Months Ended
October 1, 2022
October 2, 2021
Percent Change
Operating profit as reported (GAAP)
$
5.6
$
3.9
44.9
%
% of net sales
1.5
%
1.0
%
Restructuring charges
3.6
—
Operating profit (non-GAAP)
$
9.2
$
3.9
136.3
%
% of net sales
2.5
%
1.0
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221020006129/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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