HNI (US:HNI)2023-05-08 19:23Financial Data and Key Metrics Changes - The first quarter of 2023 marked the fourth consecutive quarter of year-over-year profit improvement in Workplace Furnishings, with a seasonal non-GAAP operating loss narrowing by more than 40% year-over-year and segment gross margin expanding by 190 basis points [7][8] - Consolidated second quarter revenue for HNI is expected to decline at a rate in the high teens to low 20s, with organic revenue expected to be down at a mid to high teens rate [25][26] - Approximately 80% of annual non-GAAP earnings per share is expected to be generated in the second half of 2023, compared to approximately 60% in the second half of 2022 [22][87] Business Line Data and Key Metrics Changes - In the Workplace Furnishings segment, organic orders grew by 13% year-over-year, driven by improving market demand trends and price increases implemented during the quarter [10] - The Residential Building Products segment experienced a decline in orders due to weakening macroeconomic conditions, but operating margin remained in the mid-teens, marking the 11th consecutive quarter with an operating margin exceeding 15% [11][12] - The sale of Lamex is expected to lower growth in Workplace Furnishings by 6 percentage points or $27 million in the second quarter [15] Market Data and Key Metrics Changes - Recent Workplace Furnishings demand trends are encouraging, with actual first quarter organic sales down only 11%, compared to previous expectations of a high teens decline [17] - The company anticipates that new construction will be more negatively impacted than remodel/retrofit for the year, despite the first quarter showing unexpected results in remodel/retrofit [41][43] - The housing market's strong fundamentals are expected to drive robust future construction growth, with unique growth opportunities identified in product innovation and market expansion [19] Company Strategy and Development Direction - The company is focused on profit improvement actions in Workplace Furnishings, emphasizing simplification of business and cost structure streamlining [9] - The acquisition of Kimball International is expected to create a market leader with pro forma revenue of approximately $3 billion and combined EBITDA of approximately $305 million, enhancing the company's market position [20] - The company remains committed to investing in long-term growth despite short-term demand challenges in Residential Building Products [30] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to drive profit growth in Workplace Furnishings despite macroeconomic uncertainties [16] - The company is optimistic about mid to long-term growth due to strong housing market fundamentals and demographic trends [19] - Management noted that while macro conditions are uncertain, they expect to maintain reasonable leverage levels and strong free cash flow [27] Other Important Information - The company has replaced initial bridge loan financing with a new term loan facility for the Kimball International transaction, maintaining a focus on reasonable leverage levels [27] - The company expects to provide more commentary on guidance following the completion of the Kimball acquisition [91] Q&A Session All Questions and Answers Question: Order growth in Workplace Furnishings seems higher than industry trends - Management noted that order growth was driven by price increases and improving market demand, particularly in the mid-market segment [34][35] Question: Impact of price increases on order trends - Management confirmed that the price increase implemented in March had a significant impact, with approximately 50% of order growth attributed to pull-forward activity ahead of the price increase [38][40] Question: Performance in Residential Building Products and acquisition appetite - Management indicated that they continue to invest in Residential Building Products and are open to acquisition opportunities, maintaining a proactive posture in the market [42][46] Question: Changes in gross profit and SG&A margins - Management highlighted that gross profit margin expanded due to favorable price cost and cost savings programs, while SG&A as a percentage of sales increased due to volume decline [50][51] Question: Trends in Workplace Furnishings and competition - Management acknowledged that the SMB segment is performing better than the contract segment, but competition remains strong across the board [77] Question: Long-term margin expectations for Residential Building Products - Management expressed confidence in returning to previous margin levels and driving topline growth in the long term [82]