HNI (HNI) - 2024 Q1 - Quarterly Results

First Quarter 2024 Results Overview HNI Corporation reported strong Q1 2024 results with significant EPS growth and margin expansion, driven by strategic initiatives Highlights HNI Corporation achieved strong Q1 2024 results with significant EPS growth and margin expansion, driven by Workplace Furnishings and KII acquisition Key Financial Highlights (YoY Change) | Metric | Q1 2024 | Change YoY | | :------------------------------------ | :------ | :--------- | | EPS (GAAP) ($) | $0.37 | 825% | | EPS (non-GAAP) ($) | $0.37 | 185% | | Workplace Furnishings Operating Margin (GAAP) (%) | - | Expanded 730 bps | | Workplace Furnishings Operating Margin (non-GAAP) (%) | - | Expanded 720 bps | - Kimball International (KII) generated an operating profit margin of 9.3% and added an estimated $0.10 to non-GAAP EPS[4] - Residential Building Products posted solid profit of $21.4 million with a 14.4% operating margin despite a soft housing market[4] - Gross leverage remained strong at 1.9x, unchanged from Q4 2023[4] CEO Commentary CEO Jeff Lorenger highlighted HNI's strong Q1 2024, attributing record earnings and margins to Workplace Furnishings transformation and KII integration - Delivered earnings nearly triple the prior-year period, with EPS and operating margin reaching first quarter levels not seen since 2007[5] - Workplace Furnishings profit margin reached its highest first quarter level since 2016, fueled by profit transformation and Kimball International[5] - Residential Building Products' profitability was supported by recent cost actions despite ongoing market weakness[6] Consolidated Financial Performance HNI Corporation achieved robust consolidated financial performance in Q1 2024, with significant GAAP and non-GAAP sales and operating income growth GAAP and Non-GAAP Summary Consolidated GAAP net sales increased 22.7% to $588.0 million, with operating income up 362%, while non-GAAP results also showed strong growth Consolidated Financial Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :-------------------- | :------ | :------ | :----- | | GAAP | | | | | Net Sales ($M) | $588.0M | $479.1M | 22.7% | | Gross Profit (%) | 39.6% | 36.4% | 320 bps | | Operating Income ($M) | $29.7M | $6.4M | 362% | | Operating Income (%) | 5.0% | 1.3% | 370 bps | | EPS – diluted ($) | $0.37 | $0.04 | 825% | | Non-GAAP | | | | | Gross Profit (%) | 39.6% | 36.5% | 310 bps | | Operating Income ($M) | $29.9M | $10.3M | 191% | | Operating Income (%) | 5.1% | 2.1% | 300 bps | | EPS – diluted ($) | $0.37 | $0.13 | 185% | Impact of Kimball International Acquisition The Kimball International acquisition significantly boosted HNI's Q1 2024 consolidated performance, adding $147.5 million to net sales despite organic revenue decline Consolidated Impact of Kimball International Acquisition (Q1 2024) | Metric (GAAP) | Legacy HNI | KII | Consolidated HNI (2024) | Consolidated HNI (2023) | Legacy Change | Consolidated Change | | :---------------------- | :--------- | :---- | :---------------------- | :---------------------- | :------------ | :------------------ | | Net Sales (GAAP) ($M) | $440.5M | $147.5M | $588.0M | $479.1M | (8.1%) | 22.7% | | Gross Profit (GAAP) (%) | 39.9% | 38.7% | 39.6% | 36.4% | 350 bps | 320 bps | | Operating Income (GAAP) (%) | 3.6% | 9.2% | 5.0% | 1.3% | 230 bps | 370 bps | | Operating Income (Non-GAAP) (%) | 3.7% | 9.3% | 5.1% | 2.1% | 160 bps | 300 bps | Summary Comments Consolidated net sales rose 22.7% to $588.0 million, driven by the KII acquisition, with gross profit margin expanding 320 basis points - Consolidated net sales increased 22.7% to $588.0 million, with the KII acquisition contributing $147.5 million, while organic sales decreased 8.1% year-over-year[12] - Gross profit margin expanded 320 basis points, driven by favorable price-cost, improved net productivity, and the impact of the KII acquisition[12] - Selling and administrative expenses as a percent of sales decreased 50 basis points, due to lower non-repeating KII acquisition-related fees, dilution from price realization, lower legacy core SG&A, and KII acquisition-related administrative cost synergies[12] - GAAP and non-GAAP net income per diluted share was $0.37, significantly up from $0.04 and $0.13 respectively in the prior-year quarter[12] Segment Performance This section details the financial performance of HNI's Workplace Furnishings and Residential Building Products segments in Q1 2024 Workplace Furnishings Workplace Furnishings achieved strong Q1 2024 growth, with net sales up 46.8% and operating income surging 759%, driven by KII acquisition and profit transformation Financial Performance Workplace Furnishings net sales increased 46.8% to $439.8 million, with GAAP operating income improving to $26.3 million and margin expanding 730 basis points Workplace Furnishings Financial Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :-------------------------- | :------ | :------ | :----- | | GAAP | | | | | Net Sales ($M) | $439.8M | $299.6M | 46.8% | | Operating Income (Loss) ($M) | $26.3M | ($4.0)M | 759% | | Operating Income (Loss) (%) | 6.0% | (1.3%) | 730 bps | | Non-GAAP | | | | | Operating Income (Loss) ($M) | $26.5M | ($3.6)M | 841% | | Operating Income (Loss) (%) | 6.0% | (1.2%) | 720 bps | Impact of Kimball International Acquisition KII acquisition added $147.5 million to Workplace Furnishings net sales, with its strong operating margin significantly boosting segment profitability Workplace Furnishings Impact of Kimball International Acquisition (Q1 2024) | Metric (GAAP) | Legacy Workplace | KII | Total Workplace (2024) | Total Workplace (2023) | Legacy Change | Total Change | | :---------------------- | :--------------- | :---- | :--------------------- | :--------------------- | :------------ | :----------- | | Net Sales ($M) | $292.3M | $147.5M | $439.8M | $299.6M | (2.5%) | 46.8% | | Operating Income (Loss) ($M) | $12.7M | $13.6M | $26.3M | ($4.0)M | 418% | 759% | | Operating Income (Loss) (%) | 4.3% | 9.2% | 6.0% | (1.3%) | 560 bps | 730 bps | Summary Workplace Furnishings net sales rose 46.8% to $439.8 million, driven by KII, with GAAP operating margin improving 730 basis points to 6.0% - Workplace Furnishings net sales increased 46.8% to $439.8 million, with organic sales decreasing 2.5% year-over-year. The KII acquisition increased sales by $147.5 million[16] - GAAP operating margin improved 730 basis points to 6.0%, driven by favorable price-cost, improved net productivity, favorable impacts from KII, and lower legacy core SG&A[16] - Excluding the impact of KII, first quarter GAAP operating profit margin for Legacy Workplace was 4.3%, an improvement of 560 basis points year-over-year[16] Residential Building Products Residential Building Products net sales declined 17.4% to $148.2 million due to housing market weakness, yet maintained a solid 14.4% operating margin Financial Performance Residential Building Products net sales decreased 17.4% to $148.2 million, with operating income declining 23.9% and margin compressing 120 basis points Residential Building Products Financial Performance (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | Change | | :---------------- | :------ | :------ | :----- | | Net Sales ($M) | $148.2M | $179.4M | (17.4%) | | Operating Income ($M) | $21.4M | $28.1M | (23.9%) | | Operating Income (%) | 14.4% | 15.6% | -120 bps | Summary Residential Building Products net sales decreased 17.4% to $148.2 million due to housing market weakness, with operating margin compressing 120 basis points to 14.4% - Residential Building Products net sales decreased 17.4% to $148.2 million, primarily due to housing market weakness, with remodel/retrofit (R&R) sales declining at a higher rate than new construction[20] - Operating profit margin compressed 120 basis points year-over-year to 14.4%, driven by lower volume, partially offset by improved net productivity, favorable price-cost, lower variable compensation, and lower core SG&A[20] Order Rates Workplace Furnishings orders increased 2% in Q1 2024, while Residential Building Products orders decreased 12% due to R&R market dynamics - Workplace Furnishings segment orders increased two percent versus the prior-year period, with similar growth from both small-to-medium sized customers and contract customers[20] - Orders in the Residential Building Products segment decreased 12% compared to the first quarter of 2023, with new construction outperforming R&R[20] - Reduced channel backlogs and shortened lead times resulted in R&R orders returning to normal patterns, negatively impacting year-over-year growth[20] Outlook HNI Corporation provides its financial outlook for Q2 and full-year 2024, anticipating strong earnings growth driven by strategic initiatives and market adjustments Second Quarter 2024 Outlook HNI projects solid Q2 2024 non-GAAP EPS growth, driven by KII and Workplace Furnishings transformation, despite slight organic revenue declines - Second quarter non-GAAP earnings per share is expected to increase solidly year-over-year, driven by KII benefits and continued profit transformation in Legacy Workplace Furnishings[20] - Workplace Furnishings organic segment revenue is expected to be down slightly compared to the same quarter of 2023[20] - Residential Building Products revenue is projected to decline at a low-single digit rate versus the year-ago period, with year-over-year declines expected to moderate[20] - KII is expected to be accretive to non-GAAP EPS in Q2, generally in line with Q1 results, and add $75 to $80 million of incremental revenue[20] Full-Year 2024 Outlook HNI expects strong full-year earnings growth from Workplace Furnishings and KII, with Residential Building Products revenue projected flat-to-slightly down - Full-year earnings are expected to increase strongly from 2023 levels, driven by continued margin expansion in Workplace Furnishings and the full-year benefit of accretion from KII[21] - Workplace Furnishings organic revenue is expected to increase at a low-single digit rate[21] - Residential Building Products full-year revenue is expected to be flat-to-slightly down versus 2023 levels, a modest reduction from the previous outlook due to softer R&R and a slower start in new construction[21] - Residential Building Products segment revenue trends are expected to improve as the year progresses, with year-over-year growth returning in the second half[21] Concluding Remarks CEO Jeff Lorenger highlighted an excellent start to 2024, driven by Workplace Furnishings transformation and KII, with optimism for Residential Building Products - HNI had an excellent start to 2024, with strategies delivering outstanding earnings growth[22] - Workplace Furnishings profit transformation initiatives maintained momentum, pushing margins to multi-year highs[22] - The integration of Kimball International continues to build momentum, strengthening the business strategically and financially and providing new growth opportunities[23] - Despite housing-driven weakness, HNI remains bullish on Residential Building Products, having adjusted its cost structure and invested in growth strategies, expecting demand trends to improve in the back half of 2024[24] Additional Information This section provides details on the Q1 2024 conference call, an overview of HNI Corporation, and important forward-looking statements Conference Call HNI Corporation hosted a conference call on April 29, 2024, to discuss its first quarter fiscal year 2024 results - HNI Corporation hosted a conference call on Monday, April 29, 2024, at 10:00 a.m. (Central) to discuss first quarter fiscal year 2024 results[26] - A live webcast of the call was available on HNI Corporation's website, with a replay available through May 6, 2024[26] About HNI Corporation HNI Corporation is a leading manufacturer of workplace furnishings and residential building products, operating through two distinct segments - HNI Corporation (NYSE: HNI) is a manufacturer of workplace furnishings and residential building products, operating under two segments[27] - The Workplace Furnishings segment is a leading global designer and provider of commercial furnishings[27] - The Residential Building Products segment is the nation's leading manufacturer and marketer of hearth products[27] Forward-Looking Statements This section contains forward-looking statements based on current expectations, involving known and unknown risks that may cause actual results to differ materially - The release contains forward-looking statements based on current expectations regarding future plans, events, financial performance, and sales growth[29] - Forward-looking statements involve known and unknown risks and uncertainties, which may cause actual future results and performance to differ materially from expected results[29] - Risks include disruptions in the global supply chain, inflation, rising interest rates, labor shortages, demand levels, and the anticipated benefits of the Kimball International acquisition[29] - The Corporation assumes no obligation to update, amend, or clarify forward-looking statements, except as required by applicable law[29] Condensed Consolidated Financial Statements This section presents HNI Corporation's condensed consolidated statements of comprehensive income, balance sheets, and cash flows for Q1 2024 Statements of Comprehensive Income HNI Corporation reported Q1 2024 net sales of $588.0 million, gross profit of $232.8 million, operating income of $29.7 million, and diluted EPS of $0.37 Condensed Consolidated Statements of Comprehensive Income (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :------------------------------------------ | :------ | :------ | | Net sales ($M) | $588.0M | $479.1M | | Cost of sales ($M) | $355.1M | $304.8M | | Gross profit ($M) | $232.8M | $174.3M | | Selling and administrative expenses ($M) | $203.1M | $167.9M | | Operating income ($M) | $29.7M | $6.4M | | Net income attributable to HNI Corporation ($M) | $17.7M | $1.6M | | Diluted EPS ($) | $0.37 | $0.04 | Balance Sheets As of March 30, 2024, HNI Corporation's total assets were $1,912.6 million, with total liabilities at $1,140.8 million and total equity at $771.8 million Condensed Consolidated Balance Sheets (March 30, 2024 vs. December 30, 2023) | Metric | March 30, 2024 | December 30, 2023 | | :---------------------------------- | :------------- | :---------------- | | Total Current Assets ($M) | $527.2M | $535.9M | | Net Property, Plant, and Equipment ($M) | $552.2M | $555.2M | | Goodwill and Other Intangible Assets, net ($M) | $645.9M | $651.9M | | Total Assets ($M) | $1,912.6M | $1,928.8M | | Total Current Liabilities ($M) | $407.7M | $463.7M | | Long-Term Debt ($M) | $460.2M | $428.3M | | Total Liabilities ($M) | $1,140.8M | $1,167.0M | | Total Equity ($M) | $771.8M | $761.8M | Statements of Cash Flows For Q1 2024, HNI Corporation reported net cash outflow from operating activities of ($4.3) million, with net cash inflow from financing activities of $12.9 million Condensed Consolidated Statements of Cash Flows (Q1 2024 vs. Q1 2023) | Metric | Q1 2024 | Q1 2023 | | :---------------------------------- | :------ | :------ | | Net cash flows from (to) operating activities ($M) | ($4.3)M | $17.3M | | Net cash flows from (to) investing activities ($M) | ($10.6)M | ($20.0)M | | Net cash flows from (to) financing activities ($M) | $12.9M | $2.1M | | Net decrease in cash and cash equivalents ($M) | ($2.0)M | ($0.6)M | | Cash and cash equivalents at end of period ($M) | $27.0M | $16.8M | Reportable Segment Data In Q1 2024, Workplace Furnishings generated $439.8 million in net sales, while Residential Building Products reported $148.2 million in net sales Reportable Segment Data (Q1 2024) | Segment | Net Sales ($M) | Income (Loss) Before Income Taxes ($M) | | :------------------------ | :-------- | :-------------------------------- | | Workplace furnishings | $439.8M | $26.3M | | Residential building products | $148.2M | $21.4M | | General corporate | - | ($18.0)M | | Total | $588.0M | $22.0M | Non-GAAP Financial Measures Reconciliation This section reconciles HNI Corporation's non-GAAP financial measures to their most directly comparable GAAP counterparts, providing adjusted performance insights Explanation of Non-GAAP Measures HNI Corporation uses non-GAAP measures to provide additional insights by excluding specific items like acquisition costs, restructuring charges, and Poppin exit costs - Non-GAAP financial measures (organic sales, gross profit, operating income, net income, and EPS) are used to provide additional insights into HNI's financial performance and operations[41][42] - Adjustments to GAAP measures exclude impacts from the Kimball International acquisition (professional fees, other costs), restructuring charges, costs associated with the exit of Poppin, and prior period cost reduction initiatives[43] - Non-GAAP EPS is generally calculated using HNI's overall effective tax rate for the period[42] Organic Sales Reconciliation In Q1 2024, HNI's consolidated GAAP sales increased 22.7%, but organic sales decreased 8.1% to $440.5 million after excluding the KII acquisition HNI Corporation Organic Sales Reconciliation (Q1 2024) | Segment | Sales as reported (GAAP) ($M) | Less: Kimball International acquisition ($M) | Organic Sales (non-GAAP) ($M) | % change from PY (Organic) | | :-------------------- | :----------------------- | :------------------------------------ | :----------------------- | :------------------------- | | Workplace Furnishings | $439.8M | $147.5M | $292.3M | (2.5%) | | Residential Building Products | $148.2M | — | $148.2M | (17.4%) | | Total | $588.0M | $147.5M | $440.5M | (8.1%) | Consolidated Reconciliation For Q1 2024, HNI's non-GAAP gross profit was $233.0 million (39.6%) and operating income was $29.9 million (5.1%), slightly higher than GAAP HNI Corporation Consolidated Non-GAAP Reconciliation (Q1 2024) | Metric | As reported (GAAP) | Restructuring charges | Acquisition costs | Results (non-GAAP) | | :---------------- | :----------------- | :-------------------- | :---------------- | :----------------- | | Gross Profit ($M) | $232.8M | $0.1M | — | $233.0M | | Gross Profit % | 39.6% | - | - | 39.6% | | Operating Income ($M) | $29.7M | $0.2M | $0.0M | $29.9M | | Operating Income % | 5.0% | - | - | 5.1% | | Net Income ($M) | $17.7M | $0.2M | $0.0M | $17.9M | | EPS ($) | $0.37 | $0.00 | $0.00 | $0.37 | Legacy HNI EPS Reconciliation Legacy HNI's diluted EPS for Q1 2024 was $0.27 (GAAP and non-GAAP), excluding impacts from new shares issued for the Kimball International acquisition Legacy HNI EPS Reconciliation (Q1 2024) | Metric | GAAP (Legacy HNI) | Non-GAAP (Legacy HNI) | | :------------------------------------------ | :---------------- | :-------------------- | | Operating income ($M) | $16.1M | $16.2M | | Net income ($M) | $11.5M | $11.6M | | Average number of common shares outstanding – diluted (M shares) | 43.3M | 43.3M | | EPS - Diluted ($) | $0.27 | $0.27 | - The average number of common shares outstanding – diluted for the Legacy HNI business is calculated by excluding the average impacts of new issuances of HNI common stock (4.7 million) and dilutive HNI restricted stock units (0.1 million) as a result of the acquisition of Kimball International[46] Prior Year Non-GAAP Reconciliation For Q1 2023, HNI's non-GAAP operating income was $10.3 million (2.1%) and diluted EPS was $0.13, adjusted from GAAP for various charges HNI Corporation Non-GAAP Reconciliation (Q1 2023) | Metric | As reported (GAAP) | Restructuring charges | Cost reduction initiative | Acquisition costs | Results (non-GAAP) | | :---------------- | :----------------- | :-------------------- | :------------------------ | :---------------- | :----------------- | | Gross Profit ($M) | $174.3M | $0.5M | — | — | $174.8M | | Gross Profit % | 36.4% | - | - | - | 36.5% | | Operating Income ($M) | $6.4M | $0.5M | ($0.1)M | $3.4M | $10.3M | | Operating Income % | 1.3% | - | - | - | 2.1% | | Net Income ($M) | $1.6M | $0.3M | ($0.0)M | $3.4M | $5.3M | | EPS ($) | $0.04 | $0.01 | ($0.00) | $0.08 | $0.13 | Workplace Furnishings Reconciliation In Q1 2024, Workplace Furnishings reported non-GAAP operating income of $26.5 million (6.0%), while Q1 2023 showed a non-GAAP operating loss of ($3.6) million Workplace Furnishings Non-GAAP Reconciliation (Q1 2024 vs. Q1 2023) | Metric | GAAP (Q1 2024) | Non-GAAP (Q1 2024) | GAAP (Q1 2023) | Non-GAAP (Q1 2023) | | :-------------------------- | :------------- | :--------------- | :------------- | :--------------- | | Operating income (loss) ($M) | $26.3M | $26.5M | ($4.0)M | ($3.6)M | | Operating income (loss) % | 6.0% | 6.0% | (1.3%) | (1.2%) | Contact Information This section provides contact details for investor relations and corporate development inquiries at HNI Corporation - For information, contact Marshall H. Bridges, Senior Vice President and Chief Financial Officer, at (563) 272-7400[49] - Alternatively, contact Matthew S. McCall, Vice President, Investor Relations and Corporate Development, at (563) 275-8898[49]