HNI (HNI) - 2023 Q4 - Annual Results

HNI Corporation Earnings Report Overview HNI Corporation reported strong full-year 2023 sales and significant Q4 earnings growth, driven by the Kimball International acquisition and margin expansion across segments Executive Summary HNI Corporation reported full-year 2023 sales of $2.434 billion and net income of $49.2 million, with non-GAAP diluted EPS increasing to $2.65, and Q4 sales up 19% year-over-year with non-GAAP diluted EPS at $0.98 | Metric | 2023 (GAAP) | 2022 (GAAP) | Change | | :----- | :---------- | :---------- | :----- | | Sales | $2.434 billion | $2.361 billion | 3.1% | | Net Income | $49.2 million | $123.9 million | (60.3%) | | GAAP EPS Diluted | $1.09 | $2.94 | (62.9%) | | Non-GAAP EPS Diluted | $2.65 | $2.20 | 20.5% | | Metric | Q4 2023 (GAAP) | Q4 2022 (GAAP) | Change | | :----- | :------------- | :------------- | :----- | | Sales | $679.8 million | $568.9 million | 19.5% | | Net Income | $22.7 million | $16.3 million | 39.2% | | GAAP EPS Diluted | $0.48 | $0.39 | 23.1% | | Non-GAAP EPS Diluted | $0.98 | $0.63 | 55.6% | Fourth Quarter Highlights The fourth quarter saw strong earnings growth, significant margin expansion in Workplace Furnishings, and the Kimball International acquisition proving solidly accretive with increased synergy expectations - Strong earnings growth: Q4 GAAP EPS increased 23% year-over-year, and non-GAAP diluted EPS was 56% higher despite a 6.4% year-over-year organic revenue decline[6] - Workplace Furnishings margin expansion: Segment GAAP operating margin expanded 410 basis points year-over-year, with Legacy HNI non-GAAP operating profit margin increasing 480 basis points due to price-cost improvement, productivity gains, and cost savings initiatives[6] - Kimball International (KII) accretion: KII added approximately $16 million to fourth quarter operating profit (11% operating profit margin) and an estimated $0.07 to fourth quarter non-GAAP EPS, with total annual cost synergies now expected to be $35 million[6] - Residential Building Products margins improve: Segment GAAP operating margin expanded 310 basis points year-over-year to 22.3%, and non-GAAP operating margin improved 240 basis points to 22.3% despite a 13.1% year-over-year revenue decline[6][7] - Balance sheet strengthened: Reduced debt by $73 million in the fourth quarter and by $162 million during the second half of 2023, ending Q4 with $436 million in total debt and a gross leverage ratio of 1.9x[7] Financial Performance - Fourth Quarter 2023 HNI Corporation's Q4 2023 financial performance was significantly boosted by the Kimball International acquisition, leading to increased sales and improved operating margins Consolidated Fourth Quarter Financial Performance (GAAP & Non-GAAP) HNI Corporation's Q4 2023 consolidated financial performance showed significant growth in net sales and operating income, both on a GAAP and non-GAAP basis, largely driven by the Kimball International acquisition | Metric | Q4 2023 (GAAP) | Q4 2022 (GAAP) | Change (GAAP) | Q4 2023 (Non-GAAP) | Q4 2022 (Non-GAAP) | Change (Non-GAAP) | | :-------------------- | :------------- | :------------- | :-------------- | :----------------- | :----------------- | :------------------ | | Net Sales | $679.8M | $568.9M | 19.5% | $679.8M | $568.9M | 19.5% | | Gross Profit % | 40.2% | 36.6% | 360 bps | 40.2% | 37.4% | 280 bps | | Operating Income | $30.7M | $23.0M | 33.6% | $66.1M | $36.2M | 82.6% | | Operating Income % | 4.5% | 4.0% | 50 bps | 9.7% | 6.4% | 330 bps | | EPS – diluted | $0.48 | $0.39 | 23.1% | $0.98 | $0.63 | 55.6% | Impact of Kimball International Acquisition on Q4 The Kimball International acquisition significantly boosted HNI's consolidated Q4 performance, contributing substantially to net sales, gross profit, and operating income, despite a decline in Legacy HNI's organic sales | Metric | Legacy HNI (GAAP) | KII (GAAP) | Consolidated HNI (GAAP) | Consolidated HNI (Q4 2022 GAAP) | Legacy HNI (Non-GAAP) | KII (Non-GAAP) | Consolidated HNI (Non-GAAP) | Consolidated HNI (Q4 2022 Non-GAAP) | | :-------------------- | :---------------- | :--------- | :---------------------- | :-------------------------- | :-------------------- | :--------- | :---------------------- | :-------------------------- | | Net Sales | $532.4M | $147.4M | $679.8M | $568.9M | $532.4M | $147.4M | $679.8M | $568.9M | | Net Sales Change YoY | (6.4%) | N/A | 19.5% | N/A | (6.4%) | N/A | 19.5% | N/A | | Gross Profit % | 39.8% | 41.6% | 40.2% | 36.6% | 39.8% | 41.6% | 40.2% | 37.4% | | Operating Income | $14.5M | $16.2M | $30.7M | $23.0M | $50.3M | $15.7M | $66.1M | $36.2M | | Operating Income % | 2.7% | 11.0% | 4.5% | 4.0% | 9.5% | 10.7% | 9.7% | 6.4% | | EPS - diluted | N/A | N/A | $0.48 | $0.39 | $0.91 | N/A | $0.98 | $0.63 | Fourth Quarter Summary Comments Consolidated net sales increased by 19.5% due to the Kimball International acquisition, offsetting a 6.4% organic sales decrease, while gross profit margin expanded by 360 basis points - Consolidated net sales increased 19.5% from the prior-year quarter to $679.8 million, with the acquisition of Kimball International increasing sales by $147.4 million, while organic sales decreased 6.4%[13] - Gross profit margin expanded 360 basis points compared to the prior-year quarter, driven by favorable price-cost, improved net productivity, lower restructuring costs, and the impact of the Kimball International acquisition[13] - Restructuring and impairment charges totaled $31.4 million in the current-year quarter, primarily from goodwill and intangible asset impairments related to small business units in the Workplace Furnishings segment[13] - Non-GAAP net income per diluted share was $0.98 compared to $0.63 in the prior-year quarter, primarily driven by improved net productivity, favorable price-cost, lower core SG&A, and the net impact of the Kimball International acquisition[13] - The GAAP tax rate in the current-year period was 0.0 percent, impacted by the effects of the Kimball International acquisition and impairment charges, while non-GAAP net income per diluted share included an effective tax rate of 19.5 percent[14] Financial Performance - Full Year 2023 HNI Corporation's full-year 2023 financial performance showed sales growth driven by acquisitions, with non-GAAP metrics indicating improved profitability despite GAAP declines Consolidated Full Year Financial Performance (GAAP & Non-GAAP) For the full year 2023, HNI Corporation reported a 3.1% increase in GAAP net sales, reaching $2.434 billion, with non-GAAP operating income and diluted EPS showing significant growth | Metric | FY 2023 (GAAP) | FY 2022 (GAAP) | Change (GAAP) | FY 2023 (Non-GAAP) | FY 2022 (Non-GAAP) | Change (Non-GAAP) | | :-------------------- | :------------- | :------------- | :--------------