HNI (US:HNI)2022-07-30 20:54Financial Data and Key Metrics Changes - The company reported a 30% earnings growth in Q2 2022, driven by solid organic volume growth and positive price cost [6][8] - Consolidated gross and operating margins improved sequentially due to higher volume and recovery from inflationary pressures faced in the previous year [9][10] - Price exceeded cost by nearly $8 million during the quarter, with expectations for significant profit improvement in 2022 [10] Business Line Data and Key Metrics Changes - Workplace Furnishings and Residential Building Products both achieved double-digit year-over-year revenue growth, with Workplace Furnishings segment shipments growing nearly 30% when excluding recent restructuring impacts [8][9] - Residential Building Products experienced a 21% organic revenue growth, supported by pricing volume and lead time improvements [9] Market Data and Key Metrics Changes - Orders in Workplace Furnishings increased by 4% compared to Q2 2021, while orders from small- to medium-sized customers lagged behind contract customers [16] - In Residential Building Products, orders increased by 14% compared to Q2 2021, with new construction order rates outperforming remodel retrofit activity [18] Company Strategy and Development Direction - The company continues to invest in operational network and go-to-market capabilities, with over $5 million invested in Q2 2022 [11][12] - The divestiture of Lamex for $75 million aligns with the company's portfolio simplification efforts, allowing for a greater focus on core strategies [15][29] - Inorganic growth remains a key part of the long-term strategy, particularly in the Residential Building Products segment [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged macroeconomic and recession concerns impacting second-half demand, leading to a lowered 2022 outlook [22][24] - Despite negative trends, the company remains optimistic about long-term dynamics in the Residential Building Products segment, driven by demographic trends and an undersupplied market [20][34] Other Important Information - The company returned over $50 million to shareholders in the quarter, totaling more than $170 million over the past four quarters through dividends and repurchases [14] - The balance sheet remains strong, with a debt to EBITDA ratio of 1.7 at the end of Q2 [28] Q&A Session Summary Question: Differences in contract and small- to medium-sized businesses - Management noted that historically, small- to medium-sized businesses show a slowdown before contract businesses, but current economic uncertainty makes predictions difficult [38][40] Question: Growth in new construction versus repair and remodel - Remodel retrofit sales grew faster than new construction, with organic growth expected in the low teens, including about 10% price realization [45][46] Question: Strategy behind vertical integration and acquisitions - The strategy focuses on getting closer to customers and improving service levels through a network of installing distributors [49][50] Question: Preparing for a slowdown - Management is being prudent and has plans in place to respond to potential economic changes, maintaining flexibility in operations [53][54] Question: Price cost trajectory - Price cost improved from $2 million favorable in Q1 to $8 million in Q2, with expectations of $25 million to $30 million favorable in the second half [67] Question: Maintaining profitability during a slowdown - The company plans to continue investing in the Residential Building Products segment while managing profitability, expecting to invest $7 million to $9 million in the back half of the year [70][71]