HNI Corp. Reports Earnings for Second Quarter Fiscal Year 2021
HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended July 3, 2021 of $510.5 million and net income of $17.4 million. GAAP net income per diluted share was $0.39, compared to $0.29 in the prior year. Non-GAAP net income per diluted share was $0.40, compared to $0.20 in the prior year.
Second Quarter Highlights
- Non-GAAP EPS doubled vs. prior year: Second quarter 2021 non-GAAP EPS increased 100 percent year-over-year despite a challenging inflationary environment and the return of costs related to temporary actions taken in the prior-year quarter. The profit growth was driven by increased volume and higher productivity.
- Exceptional performance in Residential Building Products: Second quarter 2021 revenue grew 51 percent, organically, on a year-over-year basis, and operating margin expanded 530 basis points from prior-year Segment operating profit more than doubled versus second quarter 2020 levels.
- Recovery in Workplace Furnishings: Second quarter 2021 revenue was up approximately nine percent from the second quarter of 2020, on an organic basis. Segment non-GAAP operating profit increased more than 20 percent year-over-year.
“Our members again executed at a high level during the second quarter—delivering substantial year-over-year profit improvement. Our industry leading Residential Building Products platform continues to drive exceptional growth, and we are capitalizing on the beginnings of the post-pandemic recovery in Workplace Furnishings. Our strong growth and the macro-economic environment presented new challenges related to labor availability, supply chain capacity, and inflation. Our teams managed through those challenges to deliver strong results. Overall, the second quarter shows the power of our diversified revenue streams, our ability to react quickly to changing market dynamics, and our overall operational capability,” stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.
Second Quarter Summary Comments
- Consolidated net sales increased 22.3 percent from the prior-year quarter to $510.5 million. On an organic basis, sales increased 19.8 percent year-over-year. The acquisition of Design Public Group (“DPG”) in the fourth quarter of 2020 increased year-over-year sales by $8.7 million, and the acquisition of residential building products distributors in 2020 and 2021 increased year-over-year sales by $1.5 million.
- Gross profit margin expanded 70 basis points compared to the prior-year quarter. This increase was primarily driven by higher volume and improved net productivity, partially offset by unfavorable price-cost and the return of costs related to temporary actions taken in the prior-year quarter.
- Selling and administrative expenses as a percent of sales decreased 60 basis points compared to the prior-year quarter. The decrease was driven by improved leverage from higher volume, partially offset by the return of costs related to temporary actions taken in the prior-year quarter, higher investment spend, increased freight costs, and normalized variable compensation. Included in current-year quarter SG&A was $0.6 million of one-time costs from exiting Workplace Furnishings showrooms.
- Non-GAAP net income per diluted share was $0.40 compared to $0.20 in the prior-year The $0.20 increase was due to higher volume and improved net productivity, partially offset by unfavorable price-cost, the return of costs related to temporary actions taken in the prior-year quarter, higher investment spend, and normalized variable compensation.
- Non-GAAP EPS in the prior-year quarter included an effective tax rate of 32.5 percent, compared to a GAAP tax rate of 2.7 percent. The higher non-GAAP tax rate was related to timing of the tax impact from one-time charges recorded in first quarter 2020.
Second Quarter Orders
- Orders in the Workplace Furnishings segment increased more than 30 percent year-over-year, led by activity with small to mid-sized customers. Public sector demand remained strong, and domestic contract orders recovered—increasing more than 23 percent from second quarter 2020.
- Normalized orders in the Residential Building Products segment increased more than 50 percent compared to the prior-year quarter, with the trend moderating somewhat as the quarter progressed as year-ago comparisons increased. Remodel-retrofit and new construction were both strong throughout the quarter.
- Workplace Furnishings net sales increased 11.7 percent from the prior-year quarter to $344.1 million. On an organic basis, sales increased 8.9 percent year-over-year. The acquisition of DPG in the fourth quarter of 2020 increased sales by $8.7 million compared to the prior-year quarter.
- Workplace Furnishings GAAP operating profit margin was flat versus the prior-year quarter. On a non- GAAP basis, segment operating margin expanded 20 basis points year-over-year driven by higher volume and improved productivity, partially offset by unfavorable price-cost and the return of costs related to temporary actions taken in the prior-year quarter.
- The Workplace Furnishings segment recorded $0.6 million of one-time costs in the current-year quarter from exiting showrooms.
Residential Building Products
- Residential Building Products net sales increased 52.1 percent from the prior-year quarter to $166.3 On an organic basis, sales increased 50.7 percent year-over-year. The impact of building products distributors acquired in 2020 and 2021 increased sales $1.5 million compared to the prior-year quarter.
- Residential Building Products operating profit margin expanded 530 basis points, primarily driven by strong volume growth, partially offset by unfavorable price-cost, normalized variable compensation, the return of costs related to temporary actions taken in the prior-year quarter, and higher investment spend.
Third Quarter 2021 Outlook
- Strong consolidated growth: The Corporation expects consolidated revenue to grow in the mid-20 percent range compared to the prior-year quarter. This outlook includes the impact of headwinds from labor availability and supply chain constraints.
- Residential Building Products revenue: Recent order trends, new home construction activity, the outlook for remodel/retrofit demand, and expected benefits tied to multiple growth initiatives, combine to suggest growth rates in the mid-to-high 20 percent range compared to the prior-year quarter, including the impact of constraints.
- Workplace Furnishings revenue: Strong second quarter order trends, continued momentum with office re-entry activity, and a low prior-year comparable suggest a growth rate, including acquisition impacts, in the low-to-mid-20 percent range on a year-over-year basis, net of the impact from constraints.
- Profitability drivers: Compared to the prior-year quarter, the Corporation expects the impact of strong volume growth to be mostly offset by cost challenges related to inflationary pressures, increased growth investments, and the return of costs associated with temporary actions taken in the prior year. The Corporation expects profit growth to accelerate after the third quarter as recent price actions become effective and temporary cost actions taken during the pandemic are anniversaried.
“Looking to the remainder of 2021 and into 2022, we remain optimistic about our businesses and our markets. We continue to gain momentum in Workplace Furnishings, where our winning customer experiences, multiple strategic investments, and operational excellence provide a competitive advantage as the market recovers. In addition, our unique, industry-leading Residential Building Products platform is positioned for sustained long- term growth. Our growth strategies in this segment continue to gain traction, and we see strong demand supported by demographics and low housing inventories. I am extremely proud of and grateful for the efforts of all HNI members. As we move through the next stage of the recovery, we do so positioned to grow revenue, expand margins, and increase cash flow,” Mr. Lorenger concluded.
HNI Corporation will host a conference call on Thursday, July 29, 2021 at 10:00 a.m. (Central) to discuss second quarter fiscal year 2021 results. To participate, call 1-833-522-0258 – conference ID number 9696837. A live webcast of the call will be available on HNI Corporation’s website at https://investors.hnicorp.com/events- and-presentations.
The full text of HNI’s 2Q21 earnings release, including all tables, may be accessed at investors.hnicorp.com. A replay of the company’s July 29 conference call webcast, including presentation slides, will be available on the website through Thursday, August 5, 2021, 10:59 p.m. (Central). A telephone replay of the call may be accessed by dialing 1-800-585-8367 or 416-621-4642 – Conference ID: 9696837.
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.