HNI Corporation (HNI) on Q1 2023 Results - Earnings Call Transcript
Operator: Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation First Quarter Fiscal 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Mr. McCall, you may begin your conference. Matthew McCall: 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 2023 results. With me today are Jeff Lorenger, Chairman, President and CEO; and Marshall Bridges, Senior Vice President and CFO. Copies of our financial news release and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risks. Actual results could differ materially. The financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I'm now pleased to turn the call over to Jeff Lorenger. Jeff? Jeffrey Lorenger: Good morning, and thank you for joining us. Our first quarter results were better than expected, reflecting the momentum we have with our strategies, our market positions and our actions to streamline our businesses. On the call today, I will highlight three key topics. First, our profit improvement actions in Workplace Furnishings continued to deliver results. Second, recent Workplace Furnishings demand trends are encouraging. And third, our Residential Building Products segment is performing well despite a period of weaker demand. Following those highlights, I will provide a brief update on the Kimball International transaction. Marshall will then review our outlook. I will conclude with some general closing commentary before we open the call to your questions. Moving to the first topic. Our profit improvement actions in Workplace Furnishings are delivering results. The first quarter of 2023 marked the fourth consecutive quarter of year-over-year profit improvement in Workplace Furnishings. During the quarter, multiple drivers supported our profit improvement. Specifically, our annual net productivity savings returned following a year of elevated investment, benefits from streamlining efforts and cost actions implemented in 2022 continue to deliver and price benefits exceeded cost inflation. As a result, our first quarter seasonal non-GAAP operating loss in Workplace Furnishings narrowed by more than 40% on a year-over-year basis. And segment gross margin expanded 190 basis points from the prior-year period. This was despite demand pressure associated with prior year backlog dynamics and weakening macroeconomic conditions. While macro conditions are still uncertain, we remain confident in our ability to drive Workplace Furnishings profit growth in 2023 and beyond. It is important to note that we are not dependent on volume growth and are driving four primary profit growth actions. First, we continue to simplify our business, focusing on our most attractive markets. The actions we took late last year to divest Lamex and rationalize our e-commerce offering are currently improving our profitability. Second, we have streamlined our cost structure. We continue to expect $25 million of our previously announced $30 million to $35 million cost savings initiative to impact Workplace Furnishings this year. Third, our productivity efforts are driving profit growth and our future results will benefit from our ongoing operational investments. And fourth, price cost will continue to be a tailwind through the remainder of this year. Moving to my second topic, recent Workplace Furnishings demand trends are encouraging. On our last earnings call, we discussed our expectations for soft first quarter volume. We were projecting first quarter organic sales to decline at a high teens rate year-over-year, driven by the unwind of backlog in the prior year, macroeconomic conditions and inconsistent office reentry patterns. Actual results were down only 11%. Shipments to small and medium-sized businesses and contract customers both exceeded our expectations. Order growth was also better than expected. Organic orders in the Workplace Furnishings segment grew 13% versus the same period a year-ago, reflecting improving market demand trends, our unique market positions, and the benefit of pull-forward activity driven by price increases implemented during the quarter. We are encouraged by the order trends. However, we still believe we are in a period of slow improvement that is being dampened by macroeconomic uncertainty. We believe the improving order rates reflect intermediate and long-term trends related to employment growth with small to midsize offices, population shifts to secondary geographies, increased furniture events driven by the adoption of hybrid work models and more large corporate customers ramping up their return to office plans. These trends all align with our strong market coverage and our product and price point breadth and depth, positions that will only be enhanced through our combination with Kimball International. From a third topic, our Residential Building Products segment is prepared for a period of weaker demand. Consistent with our previously discussed expectations, weakening macroeconomic conditions and softer housing-related demand negatively impacted Residential Building Products during the first quarter. However, productivity savings, cost reduction actions and continued price cost improvement offset nearly half of the volume-related pressure. As a result, segment operating margin remained in the mid-teens. This was the 11th straight quarter with an operating margin in excess of 15%. Not unexpectedly, segment orders softened in the quarter. As I previously mentioned, we are prepared for a slower near-term demand environment. We however, remain bullish about our mid to long-term growth given the housing market's strong fundamentals. Housing is undersupplied, demographic trends point to robust future construction growth and renovation activity will benefit from an aging housing stock. In addition to strong market fundamentals, we have unique growth opportunities. We continue to invest in our initiatives aimed at expanding the market, including in the areas of category awareness, new product innovation, including the electric category, online capabilities, including tools that assist homebuyers in selecting the right fireplace for their home and the expansion of our wholly-owned installing distributor footprint. The market's strong fundamentals are unique growth opportunities and our category-leading positions point to the return of strong growth beyond 2023. Before I turn the call over to Marshall, I wanted to provide an update on our combination with Kimball International. On March 8, we announced an agreement to acquire Kimball International in a transaction currently valued at approximately $455 million. The transaction is cleared in a trust review, and the vote of Kimball International shareholders is scheduled for May 31. We expect the transaction to close in early June. The combination creates a market leader with pro forma revenue of approximately $3 billion and combined EBITDA of approximately $305 million when including $25 million of expected synergies. Together, we will be strongly positioned for post-pandemic trends with an expanded presence in secondary geographies and leading positions in ancillary products. With that, Marshall will now discuss our outlook for 2023. Marshall? Marshall Bridges: Thanks, Jeff. Let's start with expected seasonality. As we discussed last quarter, we expect sales and earnings seasonality during 2023 to be more in line with pre-pandemic trends. As a result, our quarterly year-over-year comparisons of sales and profit will be distorted. Specifically, first half year-over-year comparisons will be more challenging due to backlog dynamics that positively impacted both segments in the first half of 2022, and our second half comps will be less challenging, particularly in Workplace Furnishings where demand slowed in the second half 2022. We now expect approximately 80% of our annual non-GAAP earnings per share will be generated in the second half of 2023. That compares to approximately 60% in the second half of 2022. Let's move on to our outlook for the second quarter. In Workplace Furnishings, we expect second quarter revenue to decline at a year-over-year rate in the mid-teens. I would like to point out the two unusual factors are contributing to that decline. First, we are comparing against a strong prior year result. In the second quarter of 2022, net sales in Workplace Furnishings grew 18% year-over-year. That growth rate was driven by strong activity with transactional customers and the final unwind of excess backlog built up during 2021. Neither of those benefits are expected to repeat in this year's second quarter. Second, the sale of Lamex will lower growth in Workplace Furnishings by 6 percentage points or $27 million in the second quarter. Excluding that divestiture, organic revenue is expected to decline at a high single-digit rate. Moving to second quarter Residential Building Products revenue, we expect segment revenue to decline at a year-over-year rate in the high 20% to low 30% range. This decline reflects both a return to normal seasonality and weakening new construction and remodel/retrofit demand. The second quarter in Residential Building Products is typically our seasonally weakest quarter with revenue nearly 10% below first quarter levels. Last year, we did not see that dip as the second quarter benefited from excess backlog and strong incoming demand. Having that seasonal dip return is expected to drive approximately one-third of the second quarter revenue decline in Residential Building Products. Weaker market conditions are driving the other two-third of the decline. So in total, consolidated second quarter revenue for HNI overall is expected to decline at a rate in the high teens to low 20s. Excluding the sale of Lamex, organic revenue is expected to be down at a mid to high teens rate in the second quarter. We expect consolidated non-GAAP operating income in the second quarter to exceed first quarter of 2023 levels. I would also like to note that our second quarter outlook excludes any impact from our expected closing of the Kimball International transaction. Let's move on to our outlook for 2023 overall. First off, our main point is our outlook for the remainder of the year is essentially unchanged. We expect productivity benefits, reduce structural costs and improved price/cost will create $85 million to $95 million of total benefit during 2023. This will drive profit growth in Workplace Furnishings despite topline pressures, and those drivers will offset much of the negative impact from lower volume in Residential Building Products that's being driven by the weakening housing market. Shifting to the balance sheet, we now have our permanent financing in place for the Kimball International transaction. During the quarter, we replaced the initial bridge loan financing with a new term loan facility and an amendment to our revolver. Looking forward, we expect to maintain reasonable leverage levels. We have a history of generating strong free cash flow through a variety of economic conditions. The combination with Kimball International will further strengthen our cash flow and we expect free cash flow in 2023 to benefit from a return to more normal working capital levels. Our reasonable leverage and cash generation will provide flexibility for the dynamic environment and continued investment. I'll now turn the call back over to Jeff. Jeffrey Lorenger: Thanks, Marshall. In closing, we are well positioned for both the current environment and the long-term. In Workplace Furnishings, our profit improvement actions will continue to drive results. Our future profit growth is not dependent on volume. However, we expect demand to eventually benefit from employment shifts, population migration and the accelerated adoption of hybrid work models. These trends all align with our strong market positions. We are excited about our soon-to-be combination with Kimball International, the complementary nature of the business will create compelling value for all of our stakeholders. In Residential Building Products, while we are prepared for weak near-term demand, we remain focused on driving long-term growth. High-margin, high-return businesses possess market-leading brands, unmatched product depth and price point breadth and unequal distribution capabilities, and its vertically integrated model and regional distribution infrastructure will continue to provide superior customer service and support for our market leadership positions. We will now open the call to your questions. Operator: Thank you. [Operator Instructions] We'll take our first question from Budd Bugatch at Water Tower Research. Operator: We’ll move to our next question for Reuben Garner at Benchmark Company. Operator: We’ll go next to Greg Burns at Sidoti & Company. Operator: We’ll take our next question from Steven Ramsey at Thompson Research Group. Operator: We’ll take a follow-up from Budd Bugatch at Water Tower Research. Operator: And that does conclude our question-and-answer session. At this time, I’d like to turn the conference back over to Mr. Lorenger for closing remarks. Jeffrey Lorenger: Yes. Thank you. I’d like to thank everybody for your interest in HNI and joining us today on the call and have a great rest of your day. Thanks. Operator: That does conclude today’s conference call. You may now disconnect.
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.
