HNI Corporation Reports Earnings for Third Quarter Fiscal Year 2019

Company Release - 10/23/2019 4:30 PM ET

MUSCATINE, Iowa--(BUSINESS WIRE)-- HNI Corporation (NYSE: HNI) today announced sales for the third quarter ended September 28, 2019 of $625.4 million and net income of $46.1 million. GAAP net income per diluted share was $1.07 compared to $0.89 in the prior year. Non-GAAP net income per diluted share was $1.08 compared to $0.90 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Third Quarter Summary Comments
"Our teams delivered strong profit growth during the third quarter. The demand environment remains dynamic, and our organization continues to adjust and drive value for shareholders," said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.

HNI Corporation - Financial Performance

(Dollars in millions, except per share data)

 

Three Months Ended

 

 

 

September 28,

 

September 29,

 

 

2019

 

2018

 

Change

GAAP

 

 

 

 

 

Net Sales

$625.4

 

$611.1

 

2.3%

Gross Profit %

38.0%

 

38.2%

 

-20 bps

SG&A %

28.3%

 

29.4%

 

-110 bps

Operating Income

$60.7

 

$53.6

 

13.1%

Operating Income %

9.7%

 

8.8%

 

90 bps

Effective Tax Rate

21.2%

 

21.9%

 

 

Net Income %

7.4%

 

6.5%

 

90 bps

EPS – diluted

$1.07

 

$0.89

 

20.2%

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

Gross Profit %

38.0%

 

38.2%

 

-20 bps

Operating Income

$61.1

 

$53.9

 

13.4%

Operating Income %

9.8%

 

8.8%

 

100 bps

EPS – diluted

$1.08

 

$0.90

 

20.0%

Third Quarter Summary Comments

  • Consolidated net sales increased $14.3 million or 2.3 percent from the prior year quarter to $625.4 million. On an organic basis, sales increased 3.1 percent. The net impact of divesting small office furniture companies decreased sales $4.5 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 20 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 productivity, net of investments.
  • Selling and administrative expenses as a percent of sales decreased 110 basis points compared to the prior year quarter. This decrease was primarily due to higher net sales and lower core SG&A spend.
  • Non-GAAP net income per diluted share was $1.08 compared to $0.90 in the prior year quarter. The $0.18 increase was due to price realization and productivity, net of investments, partially offset by lower sales volume and higher input costs.

Office Furniture – Financial Performance

(Dollars in millions)

 

Three Months Ended

 

 

 

September 28,

 

September 29,

 

 

2019

 

2018

 

Change

GAAP

 

 

 

 

 

Net Sales

$484.8

 

$471.7

 

2.8%

Operating Profit

$51.2

 

$45.7

 

11.9%

Operating Profit %

10.6%

 

9.7%

 

90 bps

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

Operating Profit

$51.7

 

$45.7

 

13.0%

Operating Profit %

10.7%

 

9.7%

 

100 bps

  • Office furniture net sales increased $13.1 million or 2.8 percent from the prior year quarter to $484.8 million. On an organic basis, sales increased 3.8 percent primarily driven by growth in the contract business. The net impact of divesting small office furniture companies decreased sales $4.5 million compared to the prior year quarter.
  • Office furniture GAAP operating profit margin increased 90 basis points for the quarter. This increase was driven by improved price realization and productivity, net of investments, partially offset by lower sales volume, higher input costs, and higher restructuring and transition costs.

Hearth Products – Financial Performance

(Dollars in millions)

 

Three Months Ended

 

 

 

September 28,

 

September 29,

 

 

2019

 

2018

 

Change

GAAP

 

 

 

 

 

Net Sales

$140.6

 

$139.4

 

0.9%

Operating Profit

$23.8

 

$21.8

 

8.9%

Operating Profit %

16.9%

 

15.7%

 

120 bps

 

 

 

 

 

 

Non-GAAP

 

 

 

 

 

Operating Profit

$23.8

 

$22.1

 

7.5%

Operating Profit %

16.9%

 

15.9%

 

100 bps

  • Hearth products net sales increased $1.2 million or 0.9 percent from the prior year quarter to $140.6 million, driven by an increase in the new construction business.
  • Hearth products GAAP operating profit margin increased 120 basis points for the quarter. This increase was driven by price realization and one-time restructuring and transition costs incurred in the prior year quarter, partially offset by lower sales volume and higher input costs.

Outlook
The Corporation expects full year organic sales to be up approximately 1 percent. This compares to the previous organic sales growth expectation of up 1 to 4 percent. The change is primarily driven by lower growth in the contract-driven office furniture business. Including the impact of closing and divesting small office furniture companies, full year sales are expected to be flat to the prior year. The Corporation's estimate of full year non-GAAP earnings per diluted share has narrowed and is expected to be in the range of $2.50 to $2.60 versus the previous guidance range of $2.50 to $2.70.

"We expect continued profit growth in the fourth quarter. Recently, we have seen increasing macro-economic uncertainty slow our growth in the contract business; however, we are confident in our contract competitive position as we come off a strong third quarter. Our outlook for the supplies-driven office furniture and hearth products businesses remains relatively unchanged. We have multiple opportunities in front of us to grow profits and increase long-term shareholder value,” said Mr. Lorenger.

Conference Call
HNI Corporation will host a conference call on Thursday, October 24, 2019 at 10:00 a.m. (Central) to discuss third quarter fiscal year 2019 results. To participate, call 1-877-512-9166 – conference ID number 4141358. 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, October 31, 2019, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 4141358.

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 Comprehensive Income

(In thousands, except per share data)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

September 28,

2019

 

September 29,

2018

 

September 28,

2019

 

September 29,

2018

Net sales

$625,386

 

 

$611,120

 

 

$1,630,868

 

 

$1,659,803

 

Cost of sales

387,715

 

 

377,789

 

 

1,030,993

 

 

1,048,683

 

Gross profit

237,671

 

 

233,331

 

 

599,875

 

 

611,120

 

Selling and administrative expenses

176,731

 

 

179,577

 

 

511,080

 

 

524,445

 

Restructuring and impairment charges

284

 

 

128

 

 

1,214

 

 

2,303

 

Operating income

60,656

 

 

53,626

 

 

87,581

 

 

84,372

 

Interest expense, net

2,205

 

 

2,522

 

 

6,795

 

 

7,375

 

Income before income taxes

58,451

 

 

51,104

 

 

80,786

 

 

76,997

 

Income taxes

12,375

 

 

11,197

 

 

17,878

 

 

16,033

 

Net income

46,076

 

 

39,907

 

 

62,908

 

 

60,964

 

Less: Net loss attributable to non-controlling interest

(2

)

 

0

 

 

(2

)

 

(50

)

Net income attributable to HNI Corporation

$46,078

 

 

$39,907

 

 

$62,910

 

 

$61,014

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding – basic

42,899

 

 

43,823

 

 

43,217

 

 

43,616

 

Net income attributable to HNI Corporation per common share – basic

$1.07

 

 

$0.91

 

 

$1.46

 

 

$1.40

 

Average number of common shares outstanding – diluted

43,186

 

 

44,679

 

 

43,620

 

 

44,349

 

Net income attributable to HNI Corporation per common share – diluted

$1.07

 

 

$0.89

 

 

$1.44

 

 

$1.38

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

($1,035

)

 

($817

)

 

($406

)

 

($1,944

)

Change in unrealized gains (losses) on marketable securities, net of tax

36

 

 

(6

)

 

252

 

 

(99

)

Change in pension and post-retirement liability, net of tax

 

 

(1,185

)

 

0

 

Change in derivative financial instruments, net of tax

(477

)

 

106

 

 

(2,112

)

 

1,459

 

Other comprehensive income (loss), net of tax

(1,476

)

 

(717

)

 

(3,451

)

 

(584

)

Comprehensive income

44,600

 

 

39,190

 

 

59,457

 

 

60,380

 

Less: Comprehensive loss attributable to non-controlling interest

(2

)

 

0

 

 

(2

)

 

(50

)

Comprehensive income attributable to HNI Corporation

$44,602

 

 

$39,190

 

 

$59,459

 

 

$60,430

 

 

HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

 

September 28,

 

December 29,

2019

 

2018

Assets

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$53,013

 

$76,819

Short-term investments

848

 

1,327

Receivables

271,960

 

255,207

Inventories

181,922

 

157,178

Prepaid expenses and other current assets

36,824

 

41,352

Total Current Assets

544,567

 

531,883

Property, Plant, and Equipment:

 

 

 

Land and land improvements

29,306

 

28,377

Buildings

292,902

 

290,263

Machinery and equipment

574,130

 

565,884

Construction in progress

22,046

 

28,443

 

918,384

 

912,967

Less accumulated depreciation

538,303

 

528,034

Net Property, Plant, and Equipment

380,081

 

384,933

 

 

 

 

Right-of-use Operating / Finance Leases

74,244

 

Goodwill and Other Intangible Assets

449,288

 

463,290

Deferred Income Taxes

286

 

1,569

Other Assets

22,010

 

20,169

Total Assets

$1,470,476

 

$1,401,844

 

 

 

 

Liabilities and Equity

 

 

 

Current Liabilities:

 

 

 

Accounts payable and accrued expenses

$435,103

 

$428,865

Current maturities of long-term debt

1,440

 

679

Current maturities of other long-term obligations

1,876

 

4,764

Current lease obligations - Operating / Finance

21,007

 

Total Current Liabilities

459,426

 

434,308

 

 

 

 

Long-Term Debt

239,418

 

249,355

Long-Term Lease Obligations - Operating / Finance

61,143

 

Other Long-Term Liabilities

64,356

 

72,767

Deferred Income Taxes

85,788

 

82,155

Equity:

 

 

 

HNI Corporation shareholders' equity

560,022

 

562,933

Non-controlling interest

323

 

326

Total Equity

560,345

 

563,259

Total Liabilities and Equity

$1,470,476

 

$1,401,844

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Nine Months Ended

 

September 28,

 

September 29,

2019

2018

Net Cash Flows From (To) Operating Activities:

 

 

 

Net income

$62,908

 

$60,964

Non-cash items included in net income:

 

 

 

Depreciation and amortization

57,838

 

55,887

Other post-retirement and post-employment benefits

1,106

 

1,325

Stock-based compensation

5,408

 

6,215

Operating / finance lease interest and amortization

17,252

 

Deferred income taxes

4,798

 

2,733

Loss on sale and retirement of long-lived assets, net

1,609

 

1,283

Other – net

2,864

 

2,314

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

(28,359)

 

(16,533)

Increase (decrease) in other liabilities

(9,802)

 

849

Net cash flows from (to) operating activities

115,622

 

115,037

 

 

 

 

Net Cash Flows From (To) Investing Activities:

 

 

 

Capital expenditures

(46,093)

 

(39,887)

Proceeds from sale of property, plant, and equipment

247

 

22,686

Acquisition spending, net of cash acquired

 

(2,850)

Capitalized software

(4,098)

 

(7,092)

Purchase of investments

(6,140)

 

(2,471)

Sales or maturities of investments

3,889

 

2,375

Other – net

2,327

 

1,135

Net cash flows from (to) investing activities

(49,868)

 

(26,104)

 

 

 

 

Net Cash Flows From (To) Financing Activities:

 

 

 

Payments of long-term debt

(125,039)

 

(352,795)

Proceeds from long-term debt

115,775

 

322,755

Dividends paid

(39,164)

 

(38,201)

Purchase of HNI Corporation common stock

(65,106)

 

(16,043)

Proceeds from sales of HNI Corporation common stock

22,338

 

15,896

Other – net

1,636

 

(155)

Net cash flows from (to) financing activities

(89,560)

 

(68,543)

 

 

 

 

Net increase (decrease) in cash and cash equivalents

(23,806)

 

20,390

Cash and cash equivalents at beginning of period

76,819

 

23,348

Cash and cash equivalents at end of period

$53,013

 

$43,738

HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

September 28,

 

September 29,

 

September 28,

 

September 29,

2019

 

2018

 

2019

 

2018

Net Sales:

 

 

 

 

 

 

 

Office furniture

$484,755

 

$471,687

 

$1,247,778

 

$1,276,480

Hearth products

140,631

 

139,433

 

383,090

 

383,323

Total

$625,386

 

$611,120

 

$1,630,868

 

$1,659,803

 

 

 

 

 

 

 

 

Income Before Income Taxes:

 

 

 

 

 

 

 

Office furniture

$51,162

 

$45,721

 

$68,180

 

$64,898

Hearth products

23,772

 

21,824

 

54,743

 

55,250

General corporate

(14,278)

 

(13,919)

 

(35,342)

 

(35,776)

Operating Income

60,656

 

53,626

 

87,581

 

84,372

Interest expense, net

2,205

 

2,522

 

6,795

 

7,375

Total

$58,451

 

$51,104

 

$80,786

 

$76,997

 

 

 

 

 

 

 

 

Depreciation and Amortization Expense:

 

 

 

 

 

 

 

Office furniture

$11,232

 

$11,012

 

$33,540

 

$33,202

Hearth products

2,291

 

2,026

 

6,521

 

6,080

General corporate

5,863

 

5,569

 

17,777

 

16,605

Total

$19,386

 

$18,607

 

$57,838

 

$55,887

 

 

 

 

 

 

 

 

Capital Expenditures (including capitalized software):

 

 

 

 

 

 

 

Office furniture

$6,524

 

$10,324

 

$29,190

 

$35,321

Hearth products

3,204

 

2,150

 

10,779

 

6,317

General corporate

2,856

 

2,181

 

10,222

 

5,341

Total

$12,584

 

$14,655

 

$50,191

 

$46,979

 

 

 

 

 

 

 

 

 

 

 

 

 

As of

 

As of

September 28,

 

December 29,

2019

 

2018

Identifiable Assets:

 

 

 

 

 

 

 

Office furniture

 

 

 

 

$872,501

 

$797,574

Hearth products

 

 

 

 

379,534

 

352,060

General corporate

 

 

 

 

218,441

 

252,210

Total

 

 

 

 

$1,470,476

 

$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 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. Transition items incurred in connection with this realignment include member relocation costs. 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 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

 

September 28, 2019

 

September 29, 2018

 

Office
Furniture

 

Hearth

 

Total

 

Office
Furniture

 

Hearth

 

Total

Sales as reported (GAAP)

$484.8

 

$140.6

 

$625.4

 

$471.7

 

$139.4

 

$611.1

% change from PY

2.8%

 

0.9%

 

2.3%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Divestitures

 

 

 

4.5

 

 

4.5

 

 

 

 

 

 

 

 

 

 

 

 

Organic Sales (non-GAAP)

$484.8

 

$140.6

 

$625.4

 

$467.2

 

$139.4

 

$606.6

% change from PY

3.8%

 

0.9%

 

3.1%

 

 

 

 

 

 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

 

Three Months Ended

September 28, 2019

 

Gross

 

Operating

 

 

 

Net

 

 

Profit

 

Income

 

Tax

 

Income

 

EPS

As reported (GAAP)

$237.7

 

$60.7

 

$12.4

 

$46.1

 

$1.07

% of net sales

38.0%

 

9.7%

 

 

 

7.4%

 

 

Tax %

 

 

 

 

21.2%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges

 

0.3

 

0.1

 

0.2

 

0.01

Transition costs

 

0.2

 

0.0

 

0.2

 

0.00

 

 

 

 

 

 

 

 

 

 

Results (non-GAAP)

$237.7

 

$61.1

 

$12.5

 

$46.5

 

$1.08

% of net sales

38.0%

 

9.8%

 

 

 

7.4%

 

 

Tax %

 

 

 

 

21.2%

 

 

 

 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

 

Three Months Ended

September 29, 2018

 

Gross

 

Operating

 

 

 

Net

 

 

Profit

 

Income

 

Tax

 

Income

 

EPS

As reported (GAAP)

$233.3

 

$53.6

 

$11.2

 

$39.9

 

$0.89

% of net sales

38.2%

 

8.8%

 

 

 

6.5%

 

 

Tax %

 

 

 

 

21.9%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Restructuring charges

 

0.1

 

0.0

 

0.1

 

0.00

Transition costs

0.2

 

0.2

 

0.1

 

0.1

 

0.01

 

 

 

 

 

 

 

 

 

 

Results (non-GAAP)

$233.5

 

$53.9

 

$11.3

 

$40.1

 

$0.90

% of net sales

38.2%

 

8.8%

 

 

 

6.6%

 

 

Tax %

 

 

 

 

21.9%

 

 

 

 

Office Furniture Reconciliation

(Dollars in millions)

 

Three Months Ended

 

 

 

September 28,

 

September 29,

 

Percent

2019

2018

Change

Operating profit as reported (GAAP)

$51.2

 

$45.7

 

11.9%

% of net sales

10.6%

 

9.7%

 

 

 

 

 

 

 

 

Restructuring charges

0.3

 

0.0

 

 

Transition costs

0.2

 

0.0

 

 

 

 

 

 

 

 

Operating profit (non-GAAP)

$51.7

 

$45.7

 

13.0%

% of net sales

10.7%

 

9.7%

 

 

 

Hearth Products Reconciliation

(Dollars in millions)

 

Three Months Ended

 

 

 

September 28,

 

September 29,

 

Percent

2019

2018

Change

Operating profit as reported (GAAP)

$23.8

 

$21.8

 

8.9%

% of net sales

16.9%

 

15.7%

 

 

 

 

 

 

 

 

Restructuring charges

 

0.1

 

 

Transition costs

 

0.2

 

 

 

 

 

 

 

 

Operating profit (non-GAAP)

$23.8

 

$22.1

 

7.5%

% of net sales

16.9%

 

15.9%

 

 

 

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

Source: HNI Corporation