MUSCATINE, Iowa, Oct. 23, 2017 /PRNewswire/ -- HNI Corporation (NYSE: HNI) today announced sales for the third quarter ended September 30, 2017 of $599.5 million and net income of $37.3 million.  GAAP net income per diluted share was $0.84 compared to $0.74 in the prior year.  Non-GAAP net income per diluted share was $0.82 compared to $0.80 in the prior year.  GAAP to non-GAAP reconciliations follow the financial statements in this release.

Summary Comments
"We drove strong growth during the third quarter and delivered earnings as expected.  We continue making progress on several significant business transformation initiatives, positioning our businesses for long-term profitable growth," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

HNI Corporation - Financial Performance

(Dollars in millions, except per share data)






Three Months Ended




September 30,
 2017


October 1,
 2016


Change

GAAP






Net Sales

$599.5


$584.6


2.5%

Gross Profit %

36.9%


37.9%


-100 bps

SG&A %

28.3%


29.0%


-70 bps

Gain on sale and license of assets %

(1.1%)


—%


-110 bps

Restructuring charges %

0.1%


0.1%


— bps

Operating Income

$57.7


$51.7


11.7%

Operating Income %

9.6%


8.8%


80 bps

Net Income %

6.2%


5.8%


40 bps

EPS – diluted

$0.84


$0.74


13.5%







Non-GAAP






Organic Sales

$597.6


$540.2


10.6%

Gross Profit %

37.8%


38.3%


-50 bps

SG&A %

28.3%


28.7%


-40 bps

Operating Income

$56.8


$56.0


1.4%

Operating Income %

9.5%


9.6%


-10 bps

EPS – diluted

$0.82


$0.80


2.5%

Third Quarter Summary Comments

  • Consolidated net sales increased $14.8 million or 2.5 percent from the prior year quarter to $599.5 million. On an organic basis, sales increased 10.6 percent. The net impact of acquisitions and divestitures of small office furniture companies decreased sales $42.5 million compared to the prior year quarter.
  • GAAP gross profit margin decreased 100 basis points compared to the prior year quarter. Of this decline, 50 basis points were driven by unfavorable product and business mix and input cost inflation, partially offset by higher volume and the impact of divestitures. The remaining decrease of 50 basis points was due to higher restructuring and transition costs.
  • Selling and administrative expenses decreased as a percentage of sales due to lower incentive based compensation and the impact of divestitures, partially offset by strategic investments.
  • The Corporation recorded $2.3 million of restructuring costs and $3.6 million of transition costs in the third quarter in connection with previously announced facility closures and structural realignments. Of these charges, $5.1 million was included in cost of sales. Specific items incurred include accelerated depreciation and production move costs. The Corporation also recorded a $6.0 million nonrecurring gain from the sale and license of a previously acquired intangible asset and an $0.8 million gain on the sale of a closed facility in the third quarter.

 

Office Furniture – Financial Performance

(Dollars in millions)






Three Months Ended




September 30,
 2017


October 1,
 2016


Change

GAAP






Net Sales

$465.3


$454.9


2.3%

Operating Profit

$39.7


$44.7


(11.2%)

Operating Profit %

8.5%


9.8%


-130 bps







Non-GAAP






Organic Sales

$463.4


$410.5


12.9%

Operating Profit

$44.5


$46.1


(3.4%)

Operating Profit %

9.6%


10.1%


-50 bps

 

  • Office furniture net sales increased $10.4 million or 2.3 percent from the prior year quarter to $465.3 million. On an organic basis, sales increased 12.9 percent driven by increases in the North American contract, supplies-driven, and international businesses. The net impact of acquisitions and divestitures of small office furniture companies decreased sales $42.5 million compared to the prior year quarter.
  • Office furniture GAAP operating profit margin decreased 130 basis points. Of this decline, 50 basis points were driven by unfavorable product and business mix, input cost inflation, and strategic investments, partially offset by higher volume, lower incentive based compensation, and the impact of divestitures. The remaining decrease of 80 basis points was due to higher restructuring and transition costs.

 

Hearth Products – Financial Performance

(Dollars in millions)






Three Months Ended




September 30,
 2017


October 1,
 2016


Change

GAAP






Net Sales

$134.1


$129.7


3.4%

Operating Profit

$28.7


$19.1


50.4%

Operating Profit %

21.4%


14.7%


670 bps







Non-GAAP






Operating Profit

$23.0


$20.5


12.6%

Operating Profit %

17.2%


15.8%


140 bps

 

  • Hearth products net sales increased $4.4 million or 3.4 percent from the prior year quarter to $134.1 million driven by increases in the new construction and retail businesses.
  • Hearth products GAAP operating profit margin increased 670 basis points. Of this increase, 140 basis points were driven by structural cost reductions and higher volume. The remaining increase of 530 basis points was due to nonrecurring gains and lower restructuring and transition costs.

Outlook
"We are expecting a significant decline in our fourth quarter profit as we work through two major challenges.  First, we continue to confront highly dynamic conditions in our supplies-driven office furniture business, resulting in increased investment and lower near-term sales.  Second, our operational transformations have been more difficult than anticipated, resulting in higher costs.

"We are confident in our ability to meet these challenges.  Our supplies-driven business has market access, brands, and scale unmatched by its competition, even in this new environment.  We are establishing direct service capabilities which will provide economic advantages to our dealer partners with improved responsiveness and delivery.  We are confident we will stabilize our transformations and return to driving cost improvements and continue to grow the top line," said Mr. Askren.

The Corporation estimates full year 2017 non-GAAP earnings per share to be in the range of $1.88 to $1.95, which excludes restructuring and transition costs and other nonrecurring gains.  This compares to prior guidance of non-GAAP earnings per share of $2.35 to $2.55.  Lower fourth quarter volume in the supplies-driven business, higher costs related to operational transformations, and unfavorable business and product mix are primarily driving the reduced outlook.

For the fourth quarter 2017, the Corporation expects sales to be flat to down 3 percent.  Fourth quarter organic sales, which exclude the impacts of acquisitions and divestitures, are expected to be flat to up 3 percent.  Fourth quarter non-GAAP earnings per share are anticipated to be in the range of $0.38 to $0.45, which excludes restructuring and transition costs.

To focus on taking care of customers and strengthening its operational network, the Corporation proactively elected to move the next Business Systems Transformation implementation phase to February 2018, a historically slower demand period.

"We are confronting our challenges and responding to these dynamic conditions.  We remain optimistic about our opportunities to drive profit improvement," said Mr. Askren.

The Corporation estimates full year non-GAAP earnings per share for 2018, which excludes restructuring and transition costs, to be in the range of $2.15 to $2.65 with consolidated organic net sales up 2 to 5 percent.

Conference Call
HNI Corporation will host a conference call on Tuesday, October 24, 2017 at 10:00 a.m. (Central) to discuss third quarter fiscal year 2017 results.  To participate, call 1-877-512-9166 – conference ID number 88144493.  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, October 31, 2017 at 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 88144493.

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.  We sell 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.  Our 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: general economic conditions in the United States and internationally; unfavorable changes in the United States housing market; industry and competitive conditions; a decline in corporate spending on office furniture; changes in raw material, component, or commodity pricing; future acquisitions, divestitures, or investments; the cost of energy; changing legal, regulatory, environmental, and healthcare conditions; the Corporation's ability to successfully complete its business software system implementation; the Corporation's ability to implement price increases; changes in the sales mix of products; the Corporation's ability to achieve the anticipated benefits from closures and structural alignment initiatives; 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 undertakes no obligation to update, amend, or clarify forward-looking statements.

 

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Income

(In thousands, except share and per share data)


(Unaudited)



Three Months Ended


Nine Months Ended

September 30,
 2017


October 1,
 2016


September 30,
 2017


October 1,
 2016

Net sales

$599,455


$584,629


$1,591,607


$1,622,204

Cost of sales

378,211


363,075


1,011,888


1,006,019

Gross profit

221,244


221,554


579,719


616,185

Selling and administrative expenses

169,547


169,495


495,897


496,920

Gain on sale and license of assets

(6,805)



(6,805)


Restructuring charges

783


399


3,325


2,057

Operating income

57,719


51,660


87,302


117,208

Interest income

71


80


467


221

Interest expense

1,835


1,091


4,228


4,096

Income before income taxes

55,955


50,649


83,541


113,333

Income taxes

18,624


16,837


27,573


38,652

Net income

37,331


33,812


55,968


74,681

Less: Net income (loss) attributable to the non-controlling interest

60


(1)


12


(4)

Net income attributable to HNI Corporation

$37,271


$33,813


$55,956


$74,685









Average number of common shares outstanding – basic

43,682,805


44,547,375


43,970,377


44,412,310

Net income attributable to HNI Corporation per common share – basic

$0.85


$0.76


$1.27


$1.68









Average number of common shares outstanding – diluted

44,479,117


45,844,566


45,078,719


45,488,067

Net income attributable to HNI Corporation per common share – diluted

$0.84


$0.74


$1.24


$1.64

 

HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)


(Unaudited)



September 30,
 2017


December 31,
 2016

Assets




Current Assets:




   Cash and cash equivalents

$22,416


$36,312

   Short-term investments

1,692


2,252

   Receivables

266,087


229,436

   Inventories

154,085


118,438

   Prepaid expenses and other current assets

43,863


46,603

     Total Current Assets

488,143


433,041





Property, Plant, and Equipment:




   Land and land improvements

29,581


27,403

   Buildings

319,568


283,930

   Machinery and equipment

546,128


528,099

   Construction in progress

46,488


51,343


941,765


890,775

   Less accumulated depreciation

548,791


534,330

     Net Property, Plant, and Equipment

392,974


356,445





Goodwill and Other Intangible Assets

513,976


511,419





Deferred Income Taxes

210


719





Other Assets

30,113


28,610





     Total Assets

$1,425,416


$1,330,234





Liabilities and Equity




Current Liabilities:




   Accounts payable and accrued expenses

$430,617


$425,046

   Current maturities of long-term debt

17,270


34,017

   Current maturities of other long-term obligations

3,018


4,410

     Total Current Liabilities

450,905


463,473





Long-Term Debt

295,000


180,000





Other Long-Term Liabilities

65,236


75,044





Deferred Income Taxes

118,394


110,708





Equity:




HNI Corporation shareholders' equity

495,463


500,603

Non-controlling interest

418


406





     Total Equity

495,881


501,009





     Total Liabilities and Equity

$1,425,416


$1,330,234

 

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)


(Unaudited)



Nine Months Ended


September 30,
 2017


October 1,
 2016

Net cash flows from (to) operating activities

$62,345


$113,707

Net cash flows from (to) investing activities

(99,829)


(114,722)

Net cash flows from (to) financing activities

23,588


(198)

Net increase (decrease) in cash and cash equivalents

(13,896)


(1,213)

Cash and cash equivalents at beginning of period

36,312


28,548

Cash and cash equivalents at end of period

$22,416


$27,335

 

HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)


(Unaudited)



Three Months Ended


Nine Months Ended


September 30,
 2017


October 1,
 2016


September 30,
 2017


October 1,
 2016

Net Sales:








Office furniture

$465,312


$454,946


$1,231,737


$1,270,398

Hearth products

134,143


129,683


359,870


351,806

  Total

$599,455


$584,629


$1,591,607


$1,622,204









Income Before Income Taxes:








Office furniture

$39,729


$44,729


$65,856


$109,396

Hearth products

28,737


19,108


52,651


41,623

General corporate

(12,511)


(13,188)


(34,966)


(37,686)

  Total

$55,955


$50,649


$83,541


$113,333









Depreciation and Amortization Expense:








Office furniture

$12,132


$10,889


$37,515


$32,709

Hearth products

1,973


3,034


8,167


9,012

General corporate

3,955


3,354


8,842


7,187

  Total

$18,060


$17,277


$54,524


$48,908









Capital Expenditures (including capitalized software):








Office furniture

$27,102


$13,875


$64,467


$43,923

Hearth products

5,606


1,957


12,818


8,969

General corporate

7,095


10,811


26,606


29,607

  Total

$39,803


$26,643


$103,891


$82,499














As of
September 30,
2017


As of
December 31,
2016

Identifiable Assets:








Office furniture





$838,094


$749,145

Hearth products





361,241


340,494

General corporate





226,081


240,595

  Total





$1,425,416


$1,330,234

 

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 should not be considered 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.  Non-GAAP EPS is calculated using HNI's overall effective tax rate for the period as that is reflective of the tax rate applicable to the non-GAAP adjustments.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release excludes the impacts of acquisitions and divestitures.  The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release include restructuring and transition costs, a nonrecurring gain on the sale and license of a previously acquired intangible asset, the gain on the sale of a closed manufacturing facility, and the accelerated depreciation in conjunction with the donation of a building.  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.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the 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.

 

HNI Corporation Reconciliation

(Dollars in millions)




Three Months Ended


September 30, 2017


October 1, 2016


Office Furniture

Hearth

Total


Office Furniture

Hearth

Total

Sales as reported (GAAP)

$465.3

$134.1

$599.5


$454.9

$129.7

$584.6

% change from PY

2.3%

3.4%

2.5%













Less: Impact of Acquisitions and Divestitures

1.9

1.9


44.4

44.4









Organic Sales (non-GAAP)

$463.4

$134.1

$597.6


$410.5

$129.7

$540.2

% change from PY

12.9%

3.4%

10.6%





 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)




Three Months Ended
September 30, 2017


Gross
Profit


Operating
Income


Tax


Net
Income


EPS

As reported (GAAP)

$221.2


$57.7


$18.6


$37.3


$0.84

% of net sales

36.9%


9.6%




6.2%



Tax %





33.3%















Restructuring charges

1.6


2.3


0.8


1.5


0.03

Transition costs

3.6


3.6


1.2


2.4


0.05

Nonrecurring gain


(6.0)


(2.0)


(4.0)


(0.09)

Gain on sale of assets


(0.8)


(0.3)


(0.5)


(0.01)











Results (non-GAAP)

$226.4


$56.8


$18.3


$36.7


$0.82

% of net sales

37.8%


9.5%




6.1%



Tax %





33.3%





 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)




Three Months Ended
October 1, 2016


Gross
Profit


Operating
Income


Tax


Net
Income


EPS

As reported (GAAP)

$221.6


$51.7


$16.8


$33.8


$0.74

% of net sales

37.9%


8.8%




5.8%



Tax %





33.2%















Restructuring charges

0.7


1.1


0.4


0.8


0.02

Charitable donation of building


1.6


0.5


1.1


0.02

Transition costs

1.6


1.6


0.5


1.1


0.02











Results (non-GAAP)

$223.9


$56.0


$18.3


$36.7


$0.80

% of net sales

38.3%


9.6%




6.3%



Tax %





33.2%





 

Office Furniture Reconciliation

(Dollars in millions)






Three Months Ended




September 30,
 2017


October 1,
 2016


Percent Change

Operating profit as reported (GAAP)

$39.7


$44.7


(11.2%)

% of net sales

8.5%


9.8%









Restructuring charges

2.0


0.1



Transition costs

2.8


1.2









Operating profit (non-GAAP)

$44.5


$46.1


(3.4%)

% of net sales

9.6%


10.1%




Hearth Products Reconciliation

(Dollars in millions)






Three Months Ended




September 30,
 2017


October 1,
 2016


Percent Change

Operating profit as reported (GAAP)

$28.7


$19.1


50.4%

% of net sales

21.4%


14.7%









Restructuring charges

0.3


1.0



Transition costs

0.8


0.4



Nonrecurring gain

(6.0)




Gain on sale of assets

(0.8)










Operating profit (non-GAAP)

$23.0


$20.5


12.6%

% of net sales

17.2%


15.8%



 

For Information Contact:
Marshall H. Bridges, 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

Copyright 2017 PR Newswire

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