HNI (US:HNI)2025-07-24 16:00Financial Data and Key Metrics Changes - Non-GAAP earnings per share increased by 41% year over year to $1.11, driven by better-than-expected volume growth [8][9] - Consolidated non-GAAP gross margin expanded by 90 basis points year on year to 42.9% [9] - Non-GAAP operating margin expanded by 200 basis points year over year to 11%, marking the highest EBIT margin on record for the second quarter [9][24] Business Line Data and Key Metrics Changes - In the Workplace Furnishings segment, organic net sales increased by more than 8% year over year, with contract brands revenue up nearly 15% [9][10] - Residential Building Products revenue increased by more than 5% year over year, with new construction channel revenue up over 4% and remodel retrofit sales growing over 7% [11][12] - Workplace Furnishings non-GAAP EBIT margin expanded by 120 basis points year over year to 13.1% [10] Market Data and Key Metrics Changes - Orders in the Workplace Furnishings segment grew across all major office brands, with a 3% increase in SMB orders [13][14] - Residential Building Products orders decreased approximately 2% year over year, but showed improvement in May and June [15][16] Company Strategy and Development Direction - The company continues to focus on investing in growth initiatives across both segments, with a strong emphasis on market connectivity and product development [22][50] - The company is optimistic about long-term opportunities in the housing market despite current challenges, and is enhancing its product offerings to increase market share [21][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving a fourth consecutive year of double-digit non-GAAP earnings improvement, supported by margin expansion and revenue growth [6][24] - The company remains focused on operational efficiencies and has high visibility for significant profit growth driven by ongoing initiatives [24][30] Other Important Information - The company has recognized approximately $0.24 of EPS benefit from its initiatives, with an expected additional benefit of $0.50 to $0.60 over the next eighteen months [24] - The company continues to maintain a strong balance sheet, with gross debt leverage at 1.4 times [30] Q&A Session Summary Question: What is driving the increased earnings outlook? - Management indicated that confidence in network optimization and synergy work has led to a modest increase in the full-year EPS outlook [34] Question: Is the SMB business showing signs of improvement? - Management noted that the SMB business is rebounding from a temporary lull due to tariff impacts, indicating a return to growth [36][37] Question: How is the residential segment performing despite market challenges? - Management highlighted strong competition and growth initiatives as key factors contributing to outperformance in the residential segment [39][40] Question: Where is the company investing in the workplace furnishings segment? - Investments are focused on increasing people capacity, streamlining dealer experiences, and accelerating product cycles [50] Question: What is the expected margin range for the workplace business? - Management indicated a target margin range of 12% for the workplace business, with room for expansion due to ongoing initiatives [52] Question: How is the company managing cash flow and capital expenditures? - Management expects free cash flow growth to align with earnings per share growth, projecting an increase in cash flow generation [68]