HNI Corporation Reports Strong Sales Growth Continued During Second Quarter Fiscal Year 2018

MUSCATINE, Iowa, July 23, 2018 /PRNewswire/ -- HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended June 30, 2018 of $543.6 million and net income of $18.6 million.  GAAP net income per diluted share was $0.42 compared to $0.31 in the prior year.  Non-GAAP net income per diluted share was $0.44 compared to $0.42 in the prior year.  GAAP to non-GAAP reconciliations follow the financial statements in this release.

Summary Comments

"Our strong sales momentum continued during the second quarter.  Results were better than expected in both our Hearth and Office Furniture businesses.  The investments we've made in product, selling, and fulfillment capabilities are paying dividends.  I'm pleased with our quarterly results and our progress driving long-term shareholder value," said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.

Second Quarter Summary Comments

• Consolidated net sales increased $29.1 million or 5.7 percent from the prior year quarter to $543.6 million.  On an organic basis, sales increased 8.4 percent.  The net impact of closing and divesting small office furniture companies decreased sales $13.2 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 110 basis points compared to the prior year quarter.  A decline of 30 basis points was primarily driven by increased input costs partially offset by improved price realization.  This decline was more than offset by a 140 basis point increase due to lower restructuring and transition costs.
• Selling and administrative expenses as a percent of sales increased 20 basis points compared to the prior year quarter.  This increase was primarily due to impacts from the Business Systems Transformation initiative and strategic investments, partially offset by higher sales and the impact of closing and divesting small office furniture companies.
• Restructuring and impairment charges as a percent of sales increased 10 basis points compared to the prior year quarter.  This increase was due to charges incurred in connection with previously announced closures.

• Second quarter office furniture net sales increased $17.4 million or 4.3 percent from the prior year quarter to $423.9 million.  On an organic basis, sales increased 7.8 percent driven by increases in the supplies-driven, North American contract, and international businesses.  The net impact of closing and divesting small office furniture companies decreased sales $13.2 million compared to the prior year quarter.
• Second quarter office furniture GAAP operating profit margin was flat to prior year.  A decline of 140 basis points was due to increased input costs, the Business Systems Transformation initiative, and strategic investments, partially offset by improved price realization and the impact of closing and divesting small office furniture companies.  This decline was offset by a 140 basis point increase from lower restructuring and transition costs.

• Second quarter hearth products net sales increased $11.7 million or 10.8 percent from the prior year quarter to $119.7 million driven by increases in the new construction and retail businesses.
• Second quarter hearth products GAAP operating profit margin increased 240 basis points.  Of this increase, 130 basis points were driven by higher sales volume and improved price realization, partially offset by increased input costs and higher incentive based compensation.  The remaining 110 basis points increase was due to lower restructuring and transition costs.

Outlook

"We expect to continue generating solid top-line growth in the second half of 2018.  I like our competitive position and am excited about our opportunities to grow the business and deliver improved earnings for our shareholders.  In the short term, we are experiencing additional headwinds from increasing input costs and timing related to our cost savings and productivity initiatives," said Mr. Lorenger.

The Corporation expects full year organic sales to be up 6 to 8 percent.  Including the impact of closing and divesting small office furniture companies, full year sales are expected to be up 3 to 5 percent.  The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.35 to $2.55, which excludes restructuring and transition costs.  This compares to prior guidance of non-GAAP earnings per share of $2.40 to $2.70.  The impact of rising input costs and the slower ramp up of cost savings and productivity initiatives are the primary drivers of the reduced earnings outlook.

For the third quarter, the Corporation expects organic sales to be up 4 to 7 percent compared to the same quarter last year.  Including the impact of closing and divesting small office furniture companies, third quarter sales are expected to be up 1 to 4 percent.  Third quarter non-GAAP earnings per share are anticipated to be in the range of $0.80 to $0.90, which excludes restructuring and transition costs.

Conference Call

HNI Corporation will host a conference call on Tuesday, July 24, 2018 at 10:00 a.m. (Central) to discuss second quarter fiscal year 2018 results.  To participate, call 1-877-512-9166 – conference ID number 6183888.  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 Tuesday, July 31, 2018, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 6183888.

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; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; the Corporation's ability to successfully execute its business software system integration; the Corporation's ability to achieve desired results from closures and structural cost reduction initiatives; the Corporation's ability to achieve the anticipated benefits from integrating its acquired businesses and alliances; 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; the impact of recent 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.

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.

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 both years presented 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 and between office furniture facilities in Muscatine, Iowa.  Specific restructuring items incurred include severance and accelerated depreciation.  Specific transition items incurred include production move costs.  Specific transactions in second quarter 2018 excluded for purposes of our other non-GAAP financial information included in this earnings release include the impairment of a closed manufacturing facility held for sale.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the next quarter and full fiscal year.  We provide such non-GAAP measures 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.

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

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SOURCE HNI Corporation