HNI Corporation 600 East Second Street, Muscatine, Iowa 52761, Tel 563 272 7400, Fax 563 272 7347, www.hnicorp.com

hni_logoa04.gif
News Release
                                    
For Information Contact:
Marshall H. Bridges, Senior Vice President and Chief Financial Officer (563) 272-7400
Jack D. Herring, Treasurer, Director of Finance and Investor Relations (563) 506-9783

HNI CORPORATION REPORTS EARNINGS
FOR FIRST QUARTER FISCAL YEAR 2019

MUSCATINE, Iowa (April 22, 2019) – HNI Corporation (NYSE: HNI) today announced sales for the first quarter ended
March 30, 2019
of $479.5 million and net income of $1.0 million. GAAP net income per diluted share was $0.02 compared to $0.06 in the prior year. Non-GAAP net income per diluted share was $0.02 compared to $0.10 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Summary Comments
"Our first quarter results were as expected. As anticipated, demand conditions generally improved throughout the quarter after a slow start.  We were able to offset much of the impact from lower volume with cost savings and productivity. We are pleased with the progress on our initiatives and continue to believe our demand and profit results will improve throughout the year," said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.


1


HNI Corporation - Financial Performance
(Dollars in millions, except per share data)
 
Three Months Ended
 
 
 
March 30,
2019
 
March 31,
2018
 
Change
GAAP
 
 
 
 
 
Net Sales

$479.5

 

$505.1

 
(5.1
%)
Gross Profit %
35.4
%
 
35.0
%
 
40
 bps
SG&A %
34.6
%
 
34.0
%
 
60
 bps
Restructuring charges %
%
 
0.3
%
 
-30
 bps
Operating Income

$3.7

 

$3.7

 
(0.2
%)
Operating Income %
0.8
%
 
0.7
%
 
10
 bps
Effective Tax Rate
34.8
%
 
(66.1
%)
 


Net Income %
0.2
%
 
0.5
%
 
-30
 bps
EPS – diluted

$0.02

 

$0.06

 
(66.7
%)
 
 
 
 
 
 
Non-GAAP
 
 
 
 
 
Gross Profit %
35.4
%
 
35.3
%
 
10
 bps
Operating Income

$3.7

 

$6.3

 
(41.5
%)
Operating Income %
0.8
%
 
1.2
%
 
-40
 bps
EPS – diluted

$0.02

 

$0.10

 
(80.0
%)

First Quarter Summary Comments
Consolidated net sales decreased $25.6 million or 5.1 percent from the prior year quarter to $479.5 million. On an organic basis, sales decreased 3.4 percent. The net impact of closing and divesting small office furniture companies decreased sales $8.5 million compared to the prior year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
GAAP gross profit margin increased 40 basis points compared to the prior year quarter. Of this increase, 10 basis points were driven by improved productivity and price realization, partially offset by input cost inflation and lower volume. The remaining increase of 30 basis points was due to lower transition costs.
Selling and administrative expenses increased 60 basis points compared to the prior year quarter. This increase was primarily due to lower sales volume, partially offset by lower Business System Transformation costs and lower core spend.
Non-GAAP net income per diluted share was $0.02 compared to $0.10 in the prior year.  A higher effective tax rate drove $0.04 of the decrease.  The remaining $0.04 decline was due to lower volume and input cost inflation, partially offset by improved price realization, productivity, cost savings, and lower Business System Transformation costs. 



2


Office Furniture – Financial Performance
(Dollars in millions)
 
Three Months Ended
 
 
 
March 30,
2019
 
March 31,
2018
 
Change
GAAP
 
 
 
 
 
Net Sales

$353.5

 

$380.9

 
(7.2
%)
Operating Profit

($1.1
)
 

$0.1

 
NM

Operating Profit %
(0.3
%)
 
%
 
-30
 bps
 
 
 
 
 
 
Non-GAAP
 
 
 
 
 
Operating Profit

($1.1
)
 

$2.3

 
(146.5
%)
Operating Profit %
(0.3
%)
 
0.6
%
 
-90
 bps

First quarter office furniture net sales decreased $27.4 million or 7.2 percent from the prior year quarter to $353.5 million. On an organic basis, sales decreased 5.1 percent with decreases in both the supplies and contract businesses. The net impact of closing and divesting small office furniture companies decreased sales $8.5 million compared to the prior year quarter.
First quarter office furniture GAAP operating profit margin decreased 30 basis points. Of this decrease, 90 basis points were driven by lower sales volume and input cost inflation, partially offset by improved price realization and lower Business System Transformation costs. This decrease was partially offset by a 60 basis point increase due to lower restructuring and transition costs.

Hearth Products – Financial Performance
(Dollars in millions)
 
Three Months Ended
 
 
 
March 30,
2019
 
March 31,
2018
 
Change
GAAP
 
 
 
 
 
Net Sales

$125.9

 

$124.2

 
1.4
%
Operating Profit

$17.6

 

$17.1

 
2.9
%
Operating Profit %
14.0
%
 
13.8
%
 
20
  bps
 
 
 
 
 
 
Non-GAAP
 
 
 
 
 
Operating Profit

$17.6

 

$17.5

 
0.5
%
Operating Profit %
14.0
%
 
14.1
%
 
-10
  bps

First quarter hearth products net sales increased $1.8 million or 1.4 percent from the prior year quarter to $125.9 million with increases in both the new construction and retail businesses.
First quarter hearth products GAAP operating profit margin increased 20 basis points. Lower sales volume, input cost inflation, and strategic investments, partially offset by improved price realization and lower core spend drove a decline of 10 basis points. This decline was more than offset by a 30 basis points increase due to lower restructuring and transition costs.

3


Outlook
"Our profit outlook for the year is unchanged. Market conditions remain dynamic. Demand has generally improved over the last few months. Our expectation remains that we will drive 2019 profit growth through productivity and cost saving efforts while we continue to invest in new capabilities. I am confident in our strategies and the teams we have in place to execute them," said Mr. Lorenger.

The Corporation expects full year organic sales to be up 2 to 6 percent. This compares to the previous organic sales growth expectation of up 3 to 7 percent. The change is primarily driven by price realization assumptions related to tariffs. Including the impact of closing and divesting small office furniture companies, full year sales are expected to be up 1 to 5 percent. The Corporation's estimate of full year earnings per diluted share remains unchanged and is expected to be in the range of $2.50 to $2.90.


4


Conference Call
HNI Corporation will host a conference call on Monday, April 22, 2019 at 10:00 a.m. (Central) to discuss first quarter fiscal year 2019 results. To participate, call 1-877-512-9166 – conference ID number 4478578. A live webcast of the call will be available on HNI Corporation’s website at http://www.hnicorp.com (under Investors – News Releases & Events). A replay of the webcast will be made available at this website address. An audio replay of the call will be available until Monday, April 29, 2019, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 4478578.


About HNI Corporation
HNI Corporation is an NYSE traded company (ticker symbol: HNI) providing products and solutions for the home and workplace environments. HNI Corporation is a leading global provider and designer of office furniture and the leading manufacturer and marketer of hearth products. The Corporation sells the broadest and deepest selection of quality office furniture solutions available to meet the needs of every customer through an extensive portfolio of well-known and trusted brands. The Corporation's hearth products are the strongest, most respected brands in the industry and include a full array of gas, electric, wood, and biomass burning fireplaces, inserts, stoves, facings, and accessories. More information can be found on the Corporation's website at www.hnicorp.com.


Forward-Looking Statements
This release contains "forward-looking" statements based on current expectations regarding future plans, events, outlook, objectives, and financial performance, expectations for future sales growth, and earnings per diluted share (GAAP and non-GAAP). Forward-looking statements can be identified by words including “expect,” “believe,” “anticipate,” “estimate,” “may,” “will,” “would,” “could,” “confident”, or other similar words, phrases, or expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation's actual future results and performance to differ materially from expected results. These risks include but are not limited to: the levels of office furniture needs and housing starts; overall demand for the Corporation's products; general economic and market conditions in the United States and internationally; industry and competitive conditions; the consolidation and concentration of the Corporation's customers; the Corporation's reliance on its network of independent dealers; change in trade policy; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; changing legal, regulatory, environmental, and healthcare conditions; the risks associated with international operations; the potential impact of product defects; the various restrictions on the Corporation's financing activities; an inability to protect the Corporation's intellectual property; impacts of tax legislation; and force majeure events outside the Corporation’s control. A description of these risks and additional risks can be found in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation assumes no obligation to update, amend, or clarify forward-looking statements, except as required by applicable law.

5


HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Income
(In thousands, except share and per share data)

(Unaudited)
 
Three Months Ended
March 30,
2019
 
March 31,
2018
Net sales
$
479,456

 
$
505,069

Cost of sales
309,842

 
328,150

Gross profit
169,614

 
176,919

Selling and administrative expenses
165,937

 
171,895

Restructuring charges

 
1,338

Operating income
3,677

 
3,686

Interest income
356

 
113

Interest expense
2,467

 
2,337

Income before income taxes
1,566

 
1,462

Income taxes
546

 
(999)

Net income
1,020

 
2,461

Less: Net income (loss) attributable to non-controlling interest
(2
)
 
(49
)
Net income attributable to HNI Corporation
$
1,022

 
$
2,510

 
 
 
 
Average number of common shares outstanding – basic
43,533,527

 
43,359,971

Net income attributable to HNI Corporation per common share – basic
$
0.02

 
$
0.06

Average number of common shares outstanding – diluted
44,088,784

 
44,134,142

Net income attributable to HNI Corporation per common share – diluted
$
0.02

 
$
0.06



6



HNI Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands)

(Unaudited)
 
March 30,
2019
 
December 29,
2018
Assets
 
 
 
Current Assets:
 
 
 
   Cash and cash equivalents
$
47,872

 
$
76,819

   Short-term investments
1,705

 
1,327

   Receivables
224,650

 
255,207

   Inventories
170,589

 
157,178

   Prepaid expenses and other current assets
39,192

 
41,352

     Total Current Assets
484,008

 
531,883

Property, Plant, and Equipment:
 
 
 
   Land and land improvements
29,110

 
28,377

   Buildings
291,005

 
290,263

   Machinery and equipment
570,121

 
565,884

   Construction in progress
32,132

 
28,443

 
922,368

 
912,967

   Less accumulated depreciation
534,439

 
528,034

     Net Property, Plant, and Equipment
387,929

 
384,933

 
 
 
 
Right-of-use Operating / Finance Leases
72,925

 

Goodwill and Other Intangible Assets
458,550

 
463,290

Deferred Income Taxes
1,569

 
1,569

Other Assets
18,415

 
20,169

     Total Assets
$
1,423,396

 
$
1,401,844

 
 
 
 
Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
   Accounts payable and accrued expenses
$
346,185

 
$
428,865

   Current maturities of long-term debt
478

 
679

   Current maturities of other long-term obligations
3,478

 
4,764

   Current lease obligations - Operating / Finance
22,719

 

     Total Current Liabilities
372,860

 
434,308

 
 
 
 
Long-Term Debt
295,876

 
249,355

Long-Term Lease Obligations - Operating / Finance
58,688

 

Other Long-Term Liabilities
67,650

 
72,767

Deferred Income Taxes
83,071

 
82,155

Equity:
 
 
 
HNI Corporation shareholders' equity
544,927

 
562,933

Non-controlling interest
324

 
326

     Total Equity
545,251

 
563,259

     Total Liabilities and Equity
$
1,423,396

 
$
1,401,844


7


HNI Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)

(Unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Net cash flows from (to) operating activities
$
(28,274
)
 
$
(30,753
)
Net cash flows from (to) investing activities
(18,578
)
 
2,861

Net cash flows from (to) financing activities
17,905

 
33,357

Net increase (decrease) in cash and cash equivalents
(28,947
)
 
5,465

Cash and cash equivalents at beginning of period
76,819

 
23,348

Cash and cash equivalents at end of period
$
47,872

 
$
28,813



8


HNI Corporation and Subsidiaries
Reportable Segment Data
(In thousands)

(Unaudited)
 
Three Months Ended
 
March 30,
2019
 
March 31,
2018
Net Sales:
 
 
 
Office furniture
$
353,511

 
$
380,915

Hearth products
125,945

 
124,154

Total
$
479,456

 
$
505,069

 
 
 
 
Income Before Income Taxes:
 
 
 
Office furniture
$
(1,055
)
 
$
84

Hearth products
17,609

 
17,114

General corporate
(12,877
)
 
(13,512
)
Operating Income
3,677

 
3,686

Interest expense, net
2,111

 
2,224

Total
$
1,566

 
$
1,462

 
 
 
 
Depreciation and Amortization Expense:
 
 
 
Office furniture
$
11,060

 
$
10,986

Hearth products
2,056

 
1,962

General corporate
5,924

 
5,497

Total
$
19,040

 
$
18,445

 
 
 
 
Capital Expenditures (including capitalized software):
 
 
 
Office furniture
$
10,319

 
$
11,577

Hearth products
4,998

 
2,938

General corporate
3,779

 
1,816

Total
$
19,096

 
$
16,331

 
 
 
 
 
As of
March 30,
2019
 
As of
December 29,
2018
Identifiable Assets:
 
 
 
Office furniture
$
840,160

 
$
797,574

Hearth products
364,849

 
352,060

General corporate
218,387

 
252,210

Total
$
1,423,396

 
$
1,401,844



9


Non-GAAP Financial Measures

This earnings release includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G. Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to HNI’s financial statements as prepared in accordance with GAAP are included below and throughout this earnings release. This information gives investors additional insights into HNI’s financial performance and operations. While HNI’s management believes the non-GAAP financial measures are useful in evaluating HNI’s operations, this information should be considered supplemental and not in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. In addition, these measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures within this earnings release: organic sales, gross profit, operating income, operating profit, and net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the after-tax impacts of the selected items as summarized in the table below. Generally, non-GAAP EPS is calculated using HNI’s overall effective tax rate for the period, as this rate is reflective of the tax applicable to most non-GAAP adjustments. In the first quarter 2018, the effective tax rate applied to non-GAAP items was adjusted to exclude a one-time tax impact of releasing a valuation allowance.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release excludes the impact of closing and divesting small office furniture companies. The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release for 2018 include restructuring and transition costs. The restructuring and transition costs are costs incurred as part of the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana and structural realignments in China. Specific items incurred include severance and production move costs.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the full fiscal year. We provide such non-GAAP measure to investors on a prospective basis for the same reasons we provide it to investors on a historical basis. We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP earnings per diluted share to a forward-looking estimate of GAAP earnings per diluted share without unreasonable efforts because certain information needed to make a reasonable forward-looking estimate of GAAP earnings per diluted share is highly variable and difficult to predict and estimate, and is dependent on future events which are uncertain or outside of our control. These may include unanticipated charges related to asset impairments (fixed assets, intangibles, or goodwill), unanticipated acquisition related costs, and other unanticipated nonrecurring items not reflective of ongoing operations. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our GAAP earnings per diluted share.


HNI Corporation Reconciliation
(Dollars in millions)
 
Three Months Ended
 
March 30, 2019
 
March 31, 2018
 
Office Furniture
Hearth
Total
 
Office Furniture
Hearth
Total
Sales as reported (GAAP)
$
353.5

$
125.9

$
479.5

 
$
380.9

$
124.2

$
505.1

% change from PY
(7.2
%)
1.4
%
(5.1
%)
 
 
 
 
 
 
 
 
 
 
 
 
Less: Closure and Divestitures



 
8.5


8.5

 
 
 
 
 
 
 
 
Organic Sales (non-GAAP)
$
353.5

$
125.9

$
479.5

 
$
372.4

$
124.2

$
496.6

% change from PY
(5.1
%)
1.4
%
(3.4
%)
 
 
 
 

10


HNI Corporation Reconciliation
(Dollars in millions, except per share data)
 
Three Months Ended
March 30, 2019
 
Gross Profit
 
Operating Income
 
Tax
 
Net Income
 
EPS
As reported (GAAP)
$
169.6

 
$
3.7

 
$
0.5

 
$
1.0

 
$
0.02

% of net sales
35.4
%
 
0.8
%
 
 
 
0.2
%
 
 
Tax %
 
 
 
 
34.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges

 

 

 

 

Transition costs

 

 

 

 

 
 
 
 
 
 
 
 
 
 
Results (non-GAAP)
$
169.6

 
$
3.7

 
$
0.5

 
$
1.0

 
$
0.02

% of net sales
35.4
%
 
0.8
%
 
 
 
0.2
%
 
 
Tax %
 
 
 
 
34.8
%
 
 
 
 


HNI Corporation Reconciliation
(Dollars in millions, except per share data)
 
Three Months Ended
March 31, 2018
 
Gross Profit
 
Operating Income
 
Tax
 
Net Income
 
EPS
As reported (GAAP)
$
176.9

 
$
3.7

 
$
(1.0
)
 
$
2.5

 
$
0.06

% of net sales
35.0
%
 
0.7
%
 
 
 
0.5
%
 
 
Tax %
 
 
 
 
(66.1
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restructuring charges

 
1.3

 
0.4

 
1.0

 
0.02

Transition costs
1.3

 
1.3

 
0.3

 
0.9

 
0.02

 
 
 
 
 
 
 
 
 
 
Results (non-GAAP)
$
178.2

 
$
6.3

 
$
(0.3
)
 
$
4.4

 
$
0.10

% of net sales
35.3
%
 
1.2
%
 
 
 
0.9
%
 
 
Tax %
 
 
 
 
(6.6
%)
 
 
 
 


11


Office Furniture Reconciliation
(Dollars in millions)
 
Three Months Ended
 
 
 
March 30,
2019
 
March 31,
2018
 
Percent Change
Operating profit as reported (GAAP)
$
(1.1
)
 
$
0.1

 
NM

% of net sales
(0.3
%)
 
%
 
 
 
 
 
 
 
 
Restructuring charges

 
1.2

 
 
Transition costs

 
1.0

 
 
 
 
 
 
 
 
Operating profit (non-GAAP)
$
(1.1
)
 
$
2.3

 
(146.5
%)
% of net sales
(0.3
%)
 
0.6
%
 
 
 
Hearth Products Reconciliation
(Dollars in millions)
 
Three Months Ended
 
 
 
March 30,
2019
 
March 31,
2018
 
Percent Change
Operating profit as reported (GAAP)
$
17.6

 
$
17.1

 
2.9
%
% of net sales
14.0
%
 
13.8
%
 
 
 
 
 
 
 
 
Restructuring charges

 
0.1

 
 
Transition costs

 
0.3

 
 
 
 
 
 
 
 
Operating profit (non-GAAP)
$
17.6

 
$
17.5

 
0.5
%
% of net sales
14.0
%
 
14.1
%
 
 


12

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