HNI Corporation (HNI) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day and thank you for standing by. Welcome to the HNI Corporation First Quarter Fiscal 2021 Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speakers today, Matt McCall. Please go ahead. Matt McCall: Thank you. Good morning. My name is Matt McCall. I'm Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our first quarter fiscal 2021 results. Jeff Lorenger: Good morning and thank you for joining us. This quarter, our members again demonstrated much of what is unique about HNI. We delivered substantial profit improvement, showing the power of our diversified revenue streams, our ability to react quickly to changing market dynamics and our strong operational capability. As we look to the remainder of 2021 and beyond, I'm increasingly optimistic about our enhanced competitive positions and ability to drive profit growth. We have two differentiated business segments well positioned to benefit from a recovery of the cycle, multiple secular trends and numerous HNI specific growth initiatives. We have a track record of effectively deploying capital, driving annual productivity and cost savings and clear opportunities to drive shareholder value. On today's call, I will cover three highlights of the first quarter. I'll go into each in more detail in a moment. But in summary, they are: first, our Residential Building Products segment is hitting on all cylinders, and we expect the strong performance to continue. Second, demand in Workplace Furnishings, while down versus last year is recovering. And third, our incremental profit margins in the first quarter demonstrate the strength of our model. After covering the detail of those highlights, Marshall will then provide some color around our second quarter outlook. I will conclude with some general comments. Finally, we will open up the call to your questions. The first highlight is profit in our Residential Building Products segment, nearly doubled from year-ago levels. Our members responded to stronger-than-expected demand, while maintaining our high levels of service and delivered strong incremental profit. We generated 37% year-over-year revenue growth in the first quarter or 39%, including the impact of acquisitions. Marshall Bridges: Okay. Let's start with our second quarter outlook for the residential building products segment. Recent order trends, housing construction activity and expected benefits tied to our multiple growth initiatives, all suggest second quarter growth rates in excess of 30% from the prior year quarter. We continue to see strong momentum with both remodel retrofit and new construction. Jeff Lorenger: Before we take your questions, I want to highlight our recently published Corporate Social Responsibility report. Last quarter, we discussed our 2018 CSR report and our initial ESG goals. Our new report announced multiple new targets, including, among others, our goals to achieve 100% supplier compliance with HNI's code of conduct by 2022. This includes requirements related to ethical and sustainable material sourcing, to use 100% recyclable packaging by 2025, to achieve zero waste to landfill for all facilities by 2030 and to reduce our energy intensity 50% from a 2018 baseline and reduce Scope 3 greenhouse gas emission 40% per ton of goods by 2035. Operator: Your first question comes from the line of Greg Burns with Sidoti and Company. Your line is open. Greg Burns: Good morning. On the building products – for the building products segment, would you characterize the growth is coming from market share gains or primarily from larger gains or from category expansion that you've been thinking about for the last couple of quarters? Jeff Lorenger: Yes, Greg, let me, I'll comment on that. I would say first of all, just to think about the quarter, we had expected growth kind of in the mid-20% range and that was consistent with our Q4. And mid-quarter remodel retrofit really accelerated and orders were up 55% as I said, year-over-year in the first quarter. It's driven really by two factors; one, our growth initiatives continue to gain traction and I'll give you a couple examples here. Our insert sales are up more than 80% year-to-date. Website traffic awareness consideration and purchase visits are up over 60% year-to-date. And our electric category sales are up over 100% year-to-date. And each is tied to a specific growth initiative that we've been working on. And then the housing remodel markets are strong. The inventories are low. As you well know, mortgage rates are hanging in there. Home equity, the people have it. They got savings. And so, we're connecting better with homebuyers and homeowners and taking advantage of the marketplace. And on top of that, we have a really strong model, as I commented. We've got great products. We've got supply chain strength. We've kept – maintained our service levels throughout the pandemic. And with our vertical integration, we've really been able to service our customers. And I think all that combined is what's driving the growth. Greg Burns: Okay, great. And then is there any way to quantify maybe how much bigger the – how much the category can grow if you move from two-thirds from that 40% to two-thirds of in the new construction market. Like what each maybe percentage point equals in terms of maybe revenue potential or market expansion? Jeff Lorenger: Greg, over the long-term, I mean, if we were able to move from less than 40% of homeowners putting in a fire place in new construction to that 66% or 67% this is a must-have feature, that would be worth like 50, 60 points of growth for the industry as well as us. So, it's very meaningful. It's going to take some time to get there, though. Greg Burns: Okay. All right, great. Thanks. And then on the workplace side, is this kind of typically what you see coming out of a recession, the supplies, the SMB moving forward and then you see the contract piece following through, is this kind of following to go pattern where it gives you confidence that you do see those contracts – larger projects coming through? Jeff Lorenger: You know Greg, let me comment on that. Typically, I'm going to do it with an asterix. The answer is yes, but some of it's similar and some of them may be a little different. Typically, we do see that because the shorter-cycle business and it comes out first in the contract market is a longer sell cycle projects are more complex. They take longer. And that's some of this. This recession with the pandemic is a little more unique, though. So, I think that is some of it, but it's also just some of the smaller businesses and smaller markets are where there's less mass transit are open and starting to come out sooner. So it's either coming out sooner, but maybe for a little bit different reason, but we expect it to probably operate in a similar fashion, even with this pandemic. Greg Burns: Okay, great. Thank you. Operator: Your next question comes from the line of Reuben Garner with The Benchmark Company. Your line is open. Reuben Garner: Thanks. Good morning, everybody. Jeff Lorenger: Good Morning. Reuben Garner: So just to follow-up on the building products piece, and I hate to beat a dead horse, but is – you guys are clearly growing faster than any other categories at least that I know of in the building products space. How much of it do you think you attribute to the fact that you guys have been able to execute and have the product available versus maybe some other categories or your competition? And do you feel like your competition is getting back to the point where they're able to run their factories and their supply chains efficient enough to participate in the growth going forward or do you expect to continue to kind of pick up share from some of the same reasons that you have over the last several quarters. Jeff Lorenger: Well, Ruben, that's a good question. I think that our model is going to continue to perform well. That's why we're so optimistic. It's a little tough to figure out how much is share gain, we do believe there's definitely share gains there. I can't really speak to the competition and where they're at in their cycle, their supply chains and kind of their operational model. But I can tell you, we feel really good about our ability to continue to capture market as this goes forward, just given our operational model. Reuben Garner: And maybe a follow-up, like some of those growth initiatives that you mentioned, like the inserts and electric, are you guys kind of first movers? Or do you have an advantage in those spaces? Is – are your products better and that's why you're growing faster? Or do you think the whole category is seeing substantial growth in those areas as well? Marshall Bridges: Well, I think a lot of this is unique to us, Ruben. Obviously, the insert sales, that's one of our early growth initiatives, a little more mature than some of our other ones. And we're definitely seeing momentum there. The website traffic is absolutely unique to us, and we're definitely driving awareness, consideration efforts there. Electric fireplace is probably an emerging category, but I think we're probably doing better than most with the growth rates that Jeff mentioned earlier, up 100% year-to-date. I think it's important to note that these are all very important growth initiatives. They're not entirely large categories right now, but they're categories that can be really large as we move forward to try to grow the category and penetrate more of the remodeling activity. Reuben Garner: Got it. And then on the workplace side, are you seeing the same kind of trends in small businesses versus contract in each of your geographies, in other words, in like New York and LA are the smaller businesses may be returning to the office faster, because it's just easier to get a small office open up than it is for a big – the Fortune 500 company to move that quickly? Or is it also – are you also benefiting from the markets where your – geographical markets where you guys are stronger in some markets that have opened up faster? Jeff Lorenger: Yes, I think that – it's a good question. I think – I would probably lead with geographic locations. New York is a little unique, but any major metro with mass transit is still kind of locked up even on the smaller to mid-size. So, this is probably a little bit more geographic-driven based on what we look at. Reuben Garner: Perfect, very helpful. I'm going to sneak one more in, you called out investment in the press release as a reason or relative to the year-ago period, any way to quantify what – how much you're investing there? How much of it is in building products and some of the things that you talked about already versus maybe in workplace? And if it's in workplace, what sort of investments are you making there? Matt McCall: Yes. Reuben, this is the continuation investments that we've been making for the last couple of years. We're continuing to add to that ramp them up. About half of our investments are going into residential building products and the other half workplace furnishings. The categories are the same, it's digital, and data analytics. It's new product efforts to grow the category on the hard side, which are pretty broad. For the year, we're probably looking like $15 million to $20 million of incremental investments. Operator: Your next question comes from the line of Kathryn Thompson with Thompson Research Group. Your line is open. Kathryn Thompson: Hi, thank you for taking my questions today. First, focusing on your residential side of the business and with harsh. With so much focus on outdoor living, could you give any color on orders or placement of your products in outdoor living spaces? And how have those orders trended versus kind of the more standard indoor options? Really is any other way you can frame-up the opportunity for the focus on outdoor living? Thank you. Jeff Lorenger: You're in residential right, Kathryn? Kathryn Thompson: Correct. Yes. Jeff Lorenger: Yes. It's emerging, it's a small piece of our business, but the orders are good, and that's another area that we're looking to expand in. Kathryn Thompson: Have you sized up what that opportunity could be? Jeff Lorenger: Not really, not totally because it's so dynamic right now. I mean there's a lot of focus there. So, we're just trying to kind of keep up with the piece of the business we do have. But I think there's definitely a longer-term play in the outdoor space that we can be – take advantage of. But we're still – we don't have a target on what the market opportunity is just yet. Kathryn Thompson: Okay. In your workplace segment or legacy, it's good to see better relative trends sequentially improving off of the last couple of quarters. And I want to dig a little bit more into e-commerce. I mean, one, how much of the acquisition of Design Public Group, how did that help e-commerce sales specifically in the quarter? And I know the contract is lagging, but are you seeing any shift of your contract purchases going through e-commerce? And in general, just kind of how we should think and size the e-commerce opportunity given fundamental changes in a post-COVID world? Jeff Lorenger: Well, Kathryn, the simple answer to Design Public, we added approximately $6 million of revenue to the first quarter. We're expecting to add $40 million to $45 million for the full year. So, we're very excited about the integration. We're seeing lots of opportunity and it's somewhat complementary to contract. I don't know that it's a substitute. I think that's we're kind of alluding to just, yes, there's still a lot of complexity in the – when you're doing a large office, the mix is a little challenging to do 100% through e-commerce, but it can definitely be complementary and additive. Kathryn Thompson: And I guess that is kind of that – and very helpful. Marshall, I guess it speaks to the bigger change we seeing more complementary sort of melding versus a pure contract, the melding of the e-commerce with the traditional and it was really just getting a better sense of how you see that world, are you seeing any trends from designers who are consistently splitting up orders because that's going to change your growth trajectory? And how we think about modeling e-commerce going forward if that makes sense. Marshall Bridges: Yes, I know what you getting at, I think, Kathryn, we haven't really seen that yet. I think that's a rational possibility down the road, but right now, we haven't seen – it's early days. I think the most of the e-com we've seen is work from home kind of stand-alone as it relates to contract product, maybe going into the home, but as far as kind of processing you know the two combined. I think people are still heads down trying to figure out how they want to come back to the office, whether it's 50% time or 75% time and really get the main office rolling first and then that opportunity or theory would probably come into play and kind of the later middle innings after things are kind of back up and running. Kathryn Thompson: Okay. And final question is on supply chain, which has been a focus and the construction industry in general and also the ripple impact of the Texas freeze in the quarter. If you could give color on basic raw materials or any categories that are being impacted with you be it steel – we're even hearing foam for seats has also been tough to come by, because of these delays, but just being able to flush out how you feel you are with the supply chain and the impact now and the impact you see going forward. Thank you. Jeff Lorenger: Yes, I would say, you're absolutely right. I think the supply chains for most manufacturers and is in a lot of categories are tight. I think the pricing or inflation cost, but we've been able to maintain most of the categories pretty well, the foam is unique. You are correct we have seen – were on some allocations on foam right now, we do see that recovering, but it's been, a challenge in the soft seating category, specifically been in ocean freight. The general logistics for the supply chain has been constrained a bit as well and tight. But so far, teams have worked through it and we've been able to maintain lead times at this point other than the slight bumps in the foam area. Kathryn Thompson: Okay, great. Thanks very much. Jeff Lorenger: Thank you. Operator: There are no further questions at this time. I will now turn the call back to Mr. Lorenger for closing remarks. Jeff Lorenger: Great. Well, thanks everybody for your interest in HNI and thanks for joining us today. Have a great day. Operator: This concludes today’s conference call. You may now disconnect.
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HNI Corporation (NYSE:HNI) Shows Promising Growth and Financial Stability

  • HNI Corporation (NYSE:HNI) has seen a monthly gain of approximately 11.22%, indicating strong investor confidence.
  • The company has a Piotroski Score of 8, reflecting robust financial health and efficient management practices.
  • Analysts have set a target price of $80 for HNI, suggesting significant growth potential.

HNI Corporation (NYSE:HNI) is a leading provider of office furniture and hearth products. The company operates in two main segments: workplace furnishings and residential building products. HNI is known for its innovative designs and high-quality products, catering to both commercial and residential markets. The company faces competition from other major players in the industry, such as Steelcase and Herman Miller.

HNI's recent performance has been noteworthy, with a monthly gain of approximately 11.22%. This increase reflects strong investor confidence and positive market sentiment. However, the stock has experienced a slight decline of about 0.37% in the last 10 days. This short-term dip might offer a buying opportunity for investors who believe in the stock's potential for a rebound.

The growth potential for HNI is significant, with a projected stock price growth of 73.57%. This suggests that the stock has ample room to appreciate, making it an attractive option for investors focused on growth. Such potential indicates that the market sees promising prospects for HNI's future performance.

Financially, HNI is in a strong position, as evidenced by its Piotroski Score of 8. This score indicates robust financial health and efficient management practices. A high Piotroski Score is a positive sign for investors, as it suggests that the company is well-managed and financially stable.

Analysts have set a target price of $80 for HNI, indicating substantial upside from its current levels. This target price reflects the market's confidence in HNI's ability to deliver value to its shareholders. Additionally, the stock has recently touched a local minimum, suggesting a potential rebound. This technical indicator, combined with the stock's overall positive outlook, makes HNI an intriguing prospect for investors.

HNI Corporation (NYSE:HNI) Bullish Price Target and Dividend Increase Amid Economic Indicators

  • HNI Corporation (NYSE:HNI) receives a bullish price target of $80 from Susquehanna, indicating a potential upside of approximately 66.94%.
  • The company has increased its dividend payments, aligning with trends seen in companies like Marriott International and Sun Life Financial amid softening inflation.
  • Despite market volatility and geopolitical tensions, HNI's stock shows resilience, with a slight increase in its trading price, and the company benefits from a favorable economic backdrop.

HNI Corporation (NYSE:HNI) is a prominent player in the office furniture and hearth products industry, known for its innovative designs and high-quality products. Competing with major companies such as Steelcase and Herman Miller, HNI has been set a bullish price target of $80 by Mehdi Hosseini from Susquehanna, suggesting a potential upside of approximately 66.94% from its current trading price of $47.92.

Investors are advised to monitor HNI, as the company has recently increased its dividend payments. This move aligns with other companies like Marriott International and Sun Life Financial, which have also raised dividends amid signs of softening inflation. The consumer price index rose by only 0.2% in April and 2.3% from the previous year, marking the lowest increase since February 2021. This environment may provide a favorable backdrop for HNI's growth prospects.

Despite the Nasdaq Composite and the Dow Jones Industrial Average experiencing declines of 1.03% and 0.52% respectively, the S&P 500 has seen a slight gain of 0.60% year-to-date. HNI's stock has shown resilience, currently priced at $47.92, reflecting a slight increase of 0.36% or $0.17. The stock has fluctuated between a low of $47.76 and a high of $48.23 today, indicating some volatility in the market.

HNI's market capitalization stands at approximately $2.23 billion, with a trading volume of 218,212 shares today. Over the past year, the stock has reached a high of $58.42 and a low of $39.76. Investors remain cautious due to President Donald Trump's announcement of extensive tariffs on all U.S. trading partners. However, a potential truce between the United States and China suggests that import duties could be significantly reduced if an agreement is reached.

Federal Reserve Chair Jerome Powell has indicated that the Fed requires more clarity before considering further interest rate cuts. Analysts predict that any such cuts may not occur until September at the earliest. This cautious approach by the Fed may impact HNI's future performance, but the company's recent dividend increase and the potential for reduced tariffs could provide a positive outlook for investors.