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HNI Corporation Reports Earnings for Second Quarter Fiscal Year 2021

HNI

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. GAAP to non-GAAP reconciliations follow the financial statements in this release.

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 quarter. 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.

HNI Corporation – Financial Performance

(Dollars in millions, except per share data)

Three Months Ended

July 3,
2021

June 27,
2020

Change

GAAP

Net Sales

$510.5

$417.5

22.3

%

Gross Profit %

36.8

%

36.1

%

70

bps

SG&A %

32.0

%

32.6

%

-60

bps

Operating Income

$24.7

$14.8

66.3

%

Operating Income %

4.8

%

3.6

%

120

bps

Effective Tax Rate

23.7

%

2.7

%

Net Income %

3.4

%

3.0

%

40

bps

EPS – diluted

$0.39

$0.29

34.5

%

Non-GAAP

Gross Profit %

36.8

%

36.1

%

70

bps

Operating Income

$25.3

$14.8

70.7

%

Operating Income %

5.0

%

3.6

%

140

bps

EPS – diluted

$0.40

$0.20

100.0

%

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. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
  • 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 quarter. 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 levels.
  • 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 – Financial Performance

(Dollars in millions)

Three Months Ended

July 3,
2021

June 27,
2020

Change

GAAP

Net Sales

$344.1

$308.1

11.7

%

Operating Profit

$8.8

$7.8

12.5

%

Operating Profit %

2.5

%

2.5

%

0

bps

Non-GAAP

Operating Profit

$9.4

$7.8

20.8

%

Operating Profit %

2.7

%

2.5

%

20

bps

  • 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 – Financial Performance

(Dollars in millions)

Three Months Ended

July 3,
2021

June 27,
2020

Change

GAAP

Net Sales

$166.3

$109.4

52.1

%

Operating Profit

$30.5

$14.4

112.5

%

Operating Profit %

18.4

%

13.1

%

530

bps

Non-GAAP

Operating Profit

$30.5

$14.4

112.5

%

Operating Profit %

18.4

%

13.1

%

530

bps

  • Residential Building Products net sales increased 52.1 percent from the prior-year quarter to $166.3 million. 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.

Concluding Remarks

“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.

Conference Call

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. A replay of the webcast and call will be made available from Thursday, July 29, 2021 at 1:00 p.m. (Central) through Thursday, August 5, 2021, 10:59 p.m. (Central). To replay the webcast, go to the link above. To replay the call, dial 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.

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 our business, financial condition and results of operations from the COVID-19 pandemic. 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, and its effect on people and the economy; 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

Six Months Ended

July 3,
2021

June 27,
2020

July 3,
2021

June 27,
2020

Net sales

$

510,455

$

417,456

$

994,748

$

886,161

Cost of sales

322,593

266,551

626,940

559,238

Gross profit

187,862

150,905

367,808

326,923

Selling and administrative expenses

163,175

136,063

320,521

303,148

Impairment charges

32,661

Operating income (loss)

24,687

14,842

47,287

(8,886

)

Interest expense, net

1,857

1,943

3,612

3,754

Income (loss) before income taxes

22,830

12,899

43,675

(12,640

)

Income taxes

5,418

345

11,245

(1,299

)

Net income (loss)

17,412

12,554

32,430

(11,341

)

Less: Net loss attributable to non-controlling interest

(2

)

(2

)

(3

)

(2

)

Net income (loss) attributable to HNI Corporation

$

17,414

$

12,556

$

32,433

$

(11,339

)

Average number of common shares outstanding – basic

43,776

42,640

43,469

42,634

Net income (loss) attributable to HNI Corporation per common share – basic

$

0.40

$

0.29

$

0.75

$

(0.27

)

Average number of common shares outstanding – diluted

44,481

42,929

43,986

42,634

Net income (loss) attributable to HNI Corporation per common share – diluted

$

0.39

$

0.29

$

0.74

$

(0.27

)

Foreign currency translation adjustments

$

194

$

45

$

62

$

(555

)

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

(25

)

244

(125

)

302

Change in derivative financial instruments, net of tax

143

(283

)

406

(2,499

)

Other comprehensive income (loss), net of tax

312

6

343

(2,752

)

Comprehensive income (loss)

17,724

12,560

32,773

(14,093

)

Less: Comprehensive loss attributable to non-controlling interest

(2

)

(2

)

(3

)

(2

)

Comprehensive income (loss) attributable to HNI Corporation

$

17,726

$

12,562

$

32,776

$

(14,091

)

HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

July 3,
2021

January 2,
2021

Assets

Current Assets:

Cash and cash equivalents

$

118,498

$

116,120

Short-term investments

102

1,687

Receivables

213,925

207,971

Allowance for doubtful accounts

(4,365

)

(5,514

)

Inventories

187,467

137,811

Prepaid expenses and other current assets

47,571

37,660

Total Current Assets

563,198

495,735

Property, Plant, and Equipment:

Land and land improvements

29,974

29,691

Buildings

293,842

293,708

Machinery and equipment

580,730

578,643

Construction in progress

24,310

17,750

928,856

919,792

Less accumulated depreciation

568,551

553,835

Net Property, Plant, and Equipment

360,305

365,957

Right-of-use Finance Leases

9,671

6,095

Right-of-use Operating Leases

66,254

70,219

Goodwill and Other Intangible Assets

451,624

458,896

Other Assets

26,136

21,130

Total Assets

$

1,477,188

$

1,418,032

Liabilities and Equity

Current Liabilities:

Accounts payable and accrued expenses

$

420,706

$

413,638

Current maturities of long-term debt

3,955

841

Current maturities of other long-term obligations

4,119

2,990

Current lease obligations - Finance

2,439

1,589

Current lease obligations - Operating

19,680

19,970

Total Current Liabilities

450,899

439,028

Long-Term Debt

174,566

174,524

Long-Term Lease Obligations - Finance

7,193

4,516

Long-Term Lease Obligations - Operating

50,710

53,249

Other Long-Term Liabilities

85,710

81,264

Deferred Income Taxes

73,327

74,706

Total Liabilities

842,405

827,287

Equity:

HNI Corporation shareholders' equity

634,460

590,419

Non-controlling interest

323

326

Total Equity

634,783

590,745

Total Liabilities and Equity

$

1,477,188

$

1,418,032

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

Six Months Ended

July 3,
2021

June 27,
2020

Net Cash Flows From (To) Operating Activities:

Net income (loss)

$

32,430

$

(11,341

)

Non-cash items included in net income:

Depreciation and amortization

41,139

38,605

Other post-retirement and post-employment benefits

664

736

Stock-based compensation

7,788

5,659

Reduction in carrying amount of right-of-use assets

13,081

11,342

Deferred income taxes

(1,430

)

1,092

Impairment of goodwill and intangible assets

32,661

Other – net

3,211

(284

)

Net increase (decrease) in operating assets and liabilities

(62,905

)

(49,631

)

Increase (decrease) in other liabilities

3,305

(1,019

)

Net cash flows from (to) operating activities

37,283

27,820

Net Cash Flows From (To) Investing Activities:

Capital expenditures

(26,215

)

(15,739

)

Proceeds from sale of property, plant, and equipment

151

69

Acquisition spending, net of cash acquired

(1,529

)

(10,857

)

Capitalized software

(6,078

)

(5,037

)

Purchase of investments

(2,375

)

(1,631

)

Sales or maturities of investments

2,393

1,043

Net cash flows from (to) investing activities

(33,653

)

(32,152

)

Net Cash Flows From (To) Financing Activities:

Payments of long-term debt

(648

)

(73,828

)

Proceeds from long-term debt

3,785

82,129

Dividends paid

(26,841

)

(26,040

)

Purchase of HNI Corporation common stock

(6,543

)

(6,764

)

Proceeds from sales of HNI Corporation common stock

29,320

1,294

Other – net

(325

)

1,672

Net cash flows from (to) financing activities

(1,252

)

(21,537

)

Net increase (decrease) in cash and cash equivalents

2,378

(25,869

)

Cash and cash equivalents at beginning of period

116,120

52,073

Cash and cash equivalents at end of period

$

118,498

$

26,204

HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)

Three Months Ended

Six Months Ended

July 3,
2021

June 27,
2020

July 3,
2021

June 27,
2020

Net Sales:

Workplace furnishings

$

344,137

$

308,081

$

646,885

$

646,467

Residential building products

166,318

109,375

347,863

239,694

Total

$

510,455

$

417,456

$

994,748

$

886,161

Income (Loss) Before Income Taxes:

Workplace furnishings

$

8,756

$

7,785

$

5,685

$

(25,446

)

Residential building products

30,525

14,365

70,374

35,036

General corporate

(14,594

)

(7,308

)

(28,772

)

(18,476

)

Operating Income (Loss)

24,687

14,842

47,287

(8,886

)

Interest expense, net

1,857

1,943

3,612

3,754

Total

$

22,830

$

12,899

$

43,675

$

(12,640

)

Depreciation and Amortization Expense:

Workplace furnishings

$

12,051

$

10,782

$

24,035

$

22,113

Residential building products

2,448

2,318

4,858

4,624

General corporate

6,177

6,019

12,246

11,868

Total

$

20,676

$

19,119

$

41,139

$

38,605

Capital Expenditures (including capitalized software):

Workplace furnishings

$

7,017

$

4,293

$

17,504

$

11,394

Residential building products

1,947

206

6,657

3,179

General corporate

4,365

3,118

8,132

6,203

Total

$

13,329

$

7,617

$

32,293

$

20,776

As of

July 3, 2021

As of

January 2, 2021

Identifiable Assets:

Workplace furnishings

$

784,880

$

762,780

Residential building products

408,333

381,550

General corporate

283,975

273,702

Total

$

1,477,188

$

1,418,032

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 condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, this earnings release uses the following non-GAAP financial measures: organic sales, gross profit, operating income (loss), operating profit (loss), income taxes, net income (loss), and net income (loss) 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 year, as this rate is reflective of the tax applicable to most non-GAAP adjustments.

The sales adjustments to arrive at the non-GAAP organic sales information included in this earnings release excludes the impact of acquiring DPG and residential building products distributors. The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release include non-recurring costs related to the COVID-19 pandemic.

HNI Corporation Reconciliation

(Dollars in millions)

Three Months Ended

July 3, 2021

June 27, 2020

Workplace
Furnishings

Residential
Building
Products

Total

Workplace
Furnishings

Residential
Building
Products

Total

Sales as reported (GAAP)

$

344.1

$

166.3

$

510.5

$

308.1

$

109.4

$

417.5

% change from PY

11.7

%

52.1

%

22.3

%

Less: Acquisitions

8.7

1.5

10.2

Organic Sales (non-GAAP)

$

335.4

$

164.8

$

500.2

$

308.1

$

109.4

$

417.5

% change from PY

8.9

%

50.7

%

19.8

%

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended

July 3, 2021

Gross
Profit

Operating
Income

Tax

Net
Income

EPS

As reported (GAAP)

$

187.9

$

24.7

$

5.4

$

17.4

$

0.39

% of net sales

36.8

%

4.8

%

3.4

%

Tax %

23.7

%

COVID-19 costs

0.6

0.2

0.5

0.01

Results (non-GAAP)

$

187.9

$

25.3

$

5.6

$

17.9

$

0.40

% of net sales

36.8

%

5.0

%

3.5

%

Tax %

23.7

%

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended

June 27, 2020

Gross
Profit

Operating
Income

Tax

Net
Income

EPS

As reported (GAAP)

$

150.9

$

14.8

$

0.3

$

12.6

$

0.29

% of net sales

36.1

%

3.6

%

3.0

%

Tax %

2.7

%

Income tax adjustment

3.8

(3.8)

(0.09)

Results (non-GAAP)

$

150.9

$

14.8

$

4.2

$

8.7

$

0.20

% of net sales

36.1

%

3.6

%

2.1

%

Tax %

32.5

%

Workplace Furnishings Reconciliation

(Dollars in millions)

Three Months Ended

July 3,
2021

June 27,
2020

Percent
Change

Operating profit as reported (GAAP)

$

8.8

$

7.8

12.5

%

% of net sales

2.5

%

2.5

%

COVID-19 costs

0.6

Operating profit (non-GAAP)

$

9.4

$

7.8

20.8

%

% of net sales

2.7

%

2.5

%