HNI Corporation Reports Earnings for Third Quarter Fiscal Year 2022
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.
- 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.
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
- 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
- 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.
“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.
The full text of HNI’s 3Q22 earnings release, including all tables, may be accessed at https://investors.hnicorp.com/news. A replay of the company’s Oct. 24 conference call may be accessed at https://investors.hnicorp.com/events-and-presentations. A telephone replay of the call will be available through Monday, October 31, 2022, 10:59 p.m. (Central) at 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.