HNI Corporation (NYSE: HNI) today announced sales for the first quarter ended March 31, 2018 of $505.1 million and net income of $2.5 million. GAAP net income per diluted share was $0.06 compared to $0.11 in the prior year. Non-GAAP net income per diluted share was $0.10 compared to $0.26 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.
This news release is being issued earlier than previously scheduled to coincide with the announcement of the leadership change communicated today. As previously scheduled, HNI Corporation will host a conference call on Tuesday, May 1, 2018 at 10:00 a.m. (Central) to discuss first quarter fiscal year 2018 results.
“First quarter results exceeded our expectations led by strong organic sales growth. All of our businesses, supplies-driven, contract, and Hearth, performed well and delivered significant top-line improvement. We achieved a significant milestone with the successful go-live of our Business Systems Transformation initiative. This, combined with the completion of our operational transformations, makes us a stronger company, well positioned to drive long-term profitable growth for our shareholders,” said Stan Askren, HNI Corporation Chairman and Chief Executive Officer
First Quarter Summary Comments
• Consolidated net sales increased $27.4 million or 5.7 percent from the prior year quarter to $505.1 million. On an organic basis, sales increased 8.6 percent. The net impact of closing and divesting small office furniture companies decreased sales $12.4 million compared to the prior year quarter.
• GAAP gross profit margin decreased 140 basis points compared to the prior year quarter. Of this decline, 270 basis points were driven by unfavorable business and product mix and input cost inflation, partially offset by higher sales volume. This decline was partially offset by 130 basis points due to lower restructuring and transition costs.
• Selling and administrative expenses primarily increased due to impacts from the Business Systems Transformation initiative, partially offset by cost management and the impact of closing and divesting small office furniture companies.
• The Corporation recorded $1.3 million of restructuring costs and $1.3 million of transition costs in the first quarter in connection with previously announced closures and structural realignments. Of these charges, $1.3 million was included in cost of sales. Specific items include severance and production move costs.
• The Corporation released a valuation allowance for certain foreign tax items in the first quarter, which resulted in a favorable effective tax rate.
Office Furniture – Financial Performance
• First quarter office furniture net sales increased $20.9 million or 5.8 percent from the prior year quarter to $380.9 million. On an organic basis, sales increased 9.7 percent driven by increases in the North American contract, supplies-driven, and international businesses. The net impact of closing and divesting small office furniture companies decreased sales $12.4 million compared to the prior year quarter.
• First quarter office furniture GAAP operating profit margin decreased 190 basis points. Of this decline, 310 basis points were driven by impacts from the Business Systems Transformation initiative, input cost inflation, and unfavorable business and product mix, partially offset by higher sales volume. This decline was partially offset by 120 basis points due to lower restructuring and transition costs.
Hearth Products – Financial Performance
• First quarter hearth products net sales increased $6.5 million or 5.5 percent from the prior year quarter to $124.2 million driven by increases in the new construction and retail businesses.
• First quarter hearth products GAAP operating profit margin increased 380 basis points. Of this increase, 80 basis points were driven by higher sales volume. The remaining 300 basis points was due to lower restructuring and transition costs.
Outlook
“We continue to project solid top line growth and strong productivity improvement in 2018. We are seeing increased inflationary pressures. While we are working to offset these cost increases, they will have a negative impact on our results, particularly in the second quarter. We continue to be excited about our competitive position and expect to deliver solid profit improvement for the year,” said Mr. Askren.
The Corporation continues to expect full year organic sales to be up 5 to 8 percent. Including the impact of closing and divesting small office furniture companies, full year sales are expected to be up 1 to 4 percent. The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.40 to $2.70, which excludes restructuring and transition costs. This compares to prior guidance of non-GAAP earnings per share of $2.40 to $2.80. The impact of rising input costs is primarily driving the reduced earnings outlook.
For the second quarter, the Corporation expects organic sales to be up 4 to 7 percent compared to the same quarter last year. Including the impact of closing and divesting small office furniture companies, second quarter sales are expected to be up 1 to 4 percent. Second quarter non-GAAP earnings per share are anticipated to be in the range of $0.28 to $0.38, which excludes restructuring and transition costs.
Conference Call
HNI Corporation will host a conference call on Tuesday, May 1, 2018 at 10:00 a.m. (Central) to discuss first quarter fiscal year 2018 results. To participate, call 1-877-512-9166 – conference ID number 3179229. 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 be made available at this website address. An audio replay of the call will be available until Tuesday, May 8, 2018, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 3179229.
(The full text of HNI’s 1Q18 earnings release, including all tables, is available at http://investors.hnicorp.com.)
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 provider and designer of office furniture and the leading manufacturer and marketer of hearth products. We sell the broadest and deepest selection of quality office furniture solutions available to meet the needs of every customer through an extensive portfolio of well-known and trusted brands. Our hearth products are the strongest, most respected brands in the industry and include a full array of gas, electric, wood, and biomass burning fireplaces, inserts, stoves, facings, and accessories. More information can be found on the Corporation’s website at www.hnicorp.com.