HNI Corporation (NYSE: HNI) today announced sales for the
first quarter ended March 28, 2020 of $468.7 million and net loss
of $23.9 million. GAAP net income (loss) per diluted share was
($0.56), compared to $0.02 in the prior year. GAAP operating profit
was impacted by intangible impairments and one-time charges related
to the COVID-19 crisis of $37.7 million. Non-GAAP net income per
diluted share was $0.21, compared to $0.02 in the prior year. GAAP
to non-GAAP reconciliations follow the financial statements in this
release.
Pandemic Response Update
Health, safety, and community support
Earlier this month, the Corporation announced the implementation
of workplace health and safety measures consistent with guidelines
from the Centers for Disease Control and Prevention. The
Corporation is taking strong measures to create social distancing
and keep members safe. All members able to work remotely are
currently doing so. In addition, the Corporation has reorganized
production facilities to protect members and increased the
frequency and depth of cleanings, among other measures.
To support local communities and health providers, the
Corporation is producing, donating, and supporting the production
of personal protective equipment (PPE) to first responders,
healthcare systems, and hospitals utilizing HNI’s facilities in
Iowa, New York, and North Carolina. These efforts include the
manufacture of washable cloth facemasks, washable cloth facemask
coverings, and washable and disposable protective gowns. Further,
the Corporation is loaning equipment processing time to support
local vendors’ PPE production efforts.
Cost savings and cash flow support
In its COVID-19 response update on April 6th, the Corporation
provided details around its debt and liquidity levels and withdrew
its fiscal 2020 sales and earnings guidance. The Corporation also
announced plans to reduce operating costs, lower capital
expenditures, and temporarily suspend share repurchase activity to
support free cash flow. Since then, the Corporation has taken
additional actions, including:
- Salaries reduced. Base salaries for salaried exempt
members were reduced by 10 percent; executive salaries were reduced
by 15 percent; and CEO Jeff Lorenger’s salary was reduced by 25
percent. These measures will be reassessed in six months.
- Board retainers reduced. The Corporation’s Board of
Directors reduced its cash and equity retainers by 25 percent. This
action will also be reassessed in six months.
- Members furloughed. Members have been furloughed to
better match staffing levels with demand activity. The Corporation
will pay all health insurance premiums for these members during
furlough.
- Capital plan reduced. The Corporation reduced its
capital expenditure budget for 2020 from approximately $65 million
to $35 million.
“We are taking an aggressive, yet balanced approach to our
pandemic response. Our primary focus is on the health and safety of
our members, and we have implemented measures accordingly.
Financially, we entered this crisis from a position of strength
with modest debt levels, strong liquidity, and earnings momentum.
To maintain that strength and ensure the long-term health of the
organization, we are taking aggressive cost actions and other
measures to support cash flow,” stated Jeff Lorenger, HNI
Corporation, Chairman, President, and Chief Executive Officer.
First Quarter Highlights
- GAAP operating profit was impacted by intangible impairments
and one-time charges related to the COVID-19 crisis. Non-GAAP
operating profit expanded 279 percent from the prior-year
quarter.
- Gross margin and non-GAAP operating margin expanded 220 bps
from the prior-year quarter. Both segments generated year-over-year
non-GAAP operating margin expansion.
- Hearth Products segment revenue increased 2.6 percent
organically from the prior-year quarter and strengthened through
the quarter.
- Quarter-ending debt levels were $230 million, equal to a gross
leverage ratio of approximately 1.0x. Liquidity, as measured by
cash and borrowing availability at the end of Q1 was $356
million.
“Our first quarter results demonstrate the strength of our
operating platform as our annual productivity and cost savings
initiatives again drove improved profitability. Unfortunately, the
COVID-19 pandemic has derailed what began as another strong year.
While our continued focus is on the safety of our members and on
managing through the near-term revenue pressure associated with the
crisis, I remain confident in our long-term strategic direction,”
said Mr. Lorenger.
HNI Corporation - Financial
Performance
(Dollars in millions, except per
share data)
Three Months Ended
March 28, 2020
March 30, 2019
Change
GAAP
Net Sales
$468.7
$479.5
(2.2
%)
Gross Profit %
37.6
%
35.4
%
220
bps
SG&A %
35.6
%
34.6
%
100
bps
Impairment Charges %
7.0
%
—
%
Operating Income (Loss)
($23.7
)
$3.7
NM
Operating Income (Loss) %
(5.1
%)
0.8
%
-590
bps
Effective Tax Rate
6.4
%
34.8
%
Net Income (Loss) %
(5.1
%)
0.2
%
-530
bps
EPS – diluted
($0.56
)
$0.02
NM
Non-GAAP
Gross Profit %
37.6
%
35.4
%
220
bps
Operating Income
$13.9
$3.7
279
%
Operating Income %
3.0
%
0.8
%
220
bps
EPS – diluted
$0.21
$0.02
950
%
First Quarter Summary Comments
- Consolidated net sales decreased 2.2 percent from the
prior-year quarter to $468.7 million. On an organic basis, sales
decreased 2.5 percent. The impact of acquiring small hearth
companies increased sales $1.1 million compared to the prior-year
quarter. A reconciliation of organic sales, a non-GAAP measure,
follows the financial statements in this release.
- Gross profit margin expanded 220 basis points compared to the
prior-year quarter. This increase was primarily driven by price
realization and net productivity, partially offset by lower office
volume and increased tariff expense.
- Selling and administrative expenses as a percent of sales
increased 100 basis points compared to prior year, due to $5.0
million one-time costs related to the COVID-19 pandemic (of which
$1.6 million was recorded as a corporate charge). Lower office
volume was fully offset by lower core SG&A spend and reduced
variable compensation.
- The Corporation recorded charges of $32.7 million in the first
quarter related to the impairment of goodwill and intangible
assets.
- Non-GAAP net income per diluted share was $0.21 compared to
$0.02 in the prior-year quarter. The $0.19 increase was primarily
due to price realization, net productivity, and lower core SG&A
spend, partially offset by lower office volume and increased tariff
expense.
Office Furniture – Financial
Performance
(Dollars in millions)
Three Months Ended
March 28, 2020
March 30, 2019
Change
GAAP
Net Sales
$338.4
$353.5
(4.3
%)
Operating Loss
($33.2
)
($1.7
)
NM
Operating Loss %
(9.8
%)
(0.5
%)
-930
bps
Non-GAAP
Operating Profit (Loss)
$2.8
($1.7
)
264
%
Operating Profit (Loss) %
0.8
%
(0.5
%)
130
bps
- Office furniture net sales decreased 4.3 percent from the
prior-year quarter to $338.4 million.
- Office furniture GAAP operating profit margin decreased 930
basis points versus the prior-year quarter. On a non-GAAP basis,
segment operating margin expanded 130 basis points year-over-year,
driven by price realization, net productivity, and lower core
SG&A spend, partially offset by lower volume and higher tariff
expense.
- The office furniture segment recorded charges of $32.7 million
in the first quarter related to the impairment of goodwill and
intangible assets, as well as $3.4 million related to the COVID-19
pandemic.
Hearth Products – Financial
Performance
(Dollars in millions)
Three Months Ended
March 28, 2020
March 30, 2019
Change
GAAP
Net Sales
$130.3
$125.9
3.5
%
Operating Profit
$20.7
$17.6
17.4
%
Operating Profit %
15.9
%
14.0
%
190
bps
Non-GAAP
Operating Profit
$20.7
$17.6
17.4
%
Operating Profit %
15.9
%
14.0
%
190
bps
- Hearth products net sales increased 3.5 percent from the
prior-year quarter to $130.3 million. On an organic basis, sales
grew 2.6 percent. The impact of acquiring small hearth companies
increased sales $1.1 million compared to the prior-year
quarter.
- Hearth products operating profit margin expanded 190 basis
points, driven by price realization and higher volume, partially
offset by increased tariff expense.
Concluding Remarks
"Although volumes and profit levels will be adversely impacted
by the pandemic, we will adjust our business, maintain our
long-term focus, and utilize our strong balance sheet to
successfully weather this crisis. The HNI culture shines in times
like these. Together, our members, dealers, suppliers, and
communities will overcome the challenges presented by this crisis.
Our business is strong, our leadership is seasoned, our members are
capable and dedicated, and I am confident in our ability to
effectively navigate this difficult period,” Mr. Lorenger
concluded.
Conference Call
HNI Corporation will host a conference call on Thursday, April
23, 2020 at 10:00 a.m. (Central) to discuss first quarter fiscal
year 2020 results. To participate, call 1-877-512-9166 – conference
ID number 1049187. 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 also be made
available at that website address. An audio replay of the call will
be available until Thursday, April 30, 2020, 10:59 p.m. (Central)
by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number
1049187.
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 office furniture
manufacturer and is the nation's leading manufacturer of hearth
products. The Corporation's strong brands have leading positions in
their markets. 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, financial performance, expectations for sales growth,
and earnings per diluted share (GAAP and non-GAAP), including
statements regarding the expected effects on our business,
financial condition and results of operations from the COVID-19
pandemic. 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 duration and scope of the COVID-19 pandemic, and
its effect on people and the economy; 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.
HNI Corporation and
Subsidiaries
Condensed Consolidated
Statements of Comprehensive Income
(In thousands, except per share
data)
(Unaudited)
Three Months Ended
March 28, 2020
March 30, 2019
Net sales
$
468,704
$
479,456
Cost of sales
292,686
309,842
Gross profit
176,018
169,614
Selling and administrative expenses
167,085
165,937
Impairment charges
32,661
—
Operating income (loss)
(23,728
)
3,677
Interest expense, net
1,811
2,111
Income (loss) before income taxes
(25,539
)
1,566
Income taxes
(1,643
)
546
Net income (loss)
(23,896
)
1,020
Less: Net loss attributable to
non-controlling interest
(1
)
(2
)
Net income (loss) attributable to HNI
Corporation
$
(23,895
)
$
1,022
Average number of common shares
outstanding – basic
42,628
43,534
Net income (loss) attributable to HNI
Corporation per common share – basic
$
(0.56
)
$
0.02
Average number of common shares
outstanding – diluted
42,628
44,089
Net income (loss) attributable to HNI
Corporation per common share – diluted
$
(0.56
)
$
0.02
Foreign currency translation
adjustments
$
(600
)
$
963
Change in unrealized gains (losses) on
marketable securities, net of tax
59
90
Change in pension and post-retirement
liability, net of tax
—
(1,185
)
Change in derivative financial
instruments, net of tax
(2,216
)
(309
)
Other comprehensive income (loss), net of
tax
(2,757
)
(441
)
Comprehensive income (loss)
(26,653
)
579
Less: Comprehensive loss attributable to
non-controlling interest
(1
)
(2
)
Comprehensive income (loss) attributable
to HNI Corporation
$
(26,652
)
$
581
HNI Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands)
(Unaudited)
March 28, 2020
December 28, 2019
Assets
Current Assets:
Cash and cash equivalents
$
35,413
$
52,073
Short-term investments
835
1,096
Receivables
235,617
278,124
Allowance for doubtful accounts
(5,170
)
(3,559
)
Inventories
170,522
163,465
Prepaid expenses and other current
assets
44,170
37,635
Total Current Assets
481,387
528,834
Property, Plant, and Equipment:
Land and land improvements
29,776
29,394
Buildings
294,903
295,517
Machinery and equipment
579,958
581,225
Construction in progress
21,284
20,881
925,921
927,017
Less accumulated depreciation
551,335
545,510
Net Property, Plant, and Equipment
374,586
381,507
Right-of-use Finance Leases
2,032
2,129
Right-of-use Operating Leases
71,625
72,883
Goodwill and Other Intangible Assets
418,770
445,709
Other Assets
21,499
21,450
Total Assets
$
1,369,899
$
1,452,512
Liabilities and Equity
Current Liabilities:
Accounts payable and accrued expenses
$
338,954
$
453,202
Current maturities of long-term debt
1,830
790
Current maturities of other long-term
obligations
2,975
1,931
Current lease obligations - Finance
577
564
Current lease obligations - Operating
21,279
22,218
Total Current Liabilities
365,615
478,705
Long-Term Debt
228,460
174,439
Long-Term Lease Obligations - Finance
1,479
1,581
Long-Term Lease Obligations -
Operating
57,585
58,233
Other Long-Term Liabilities
66,397
67,990
Deferred Income Taxes
98,708
87,196
Equity:
HNI Corporation shareholders' equity
551,332
584,044
Non-controlling interest
323
324
Total Equity
551,655
584,368
Total Liabilities and Equity
$
1,369,899
$
1,452,512
HNI Corporation and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Three Months Ended
March 28, 2020
March 30, 2019
Net Cash Flows From (To) Operating
Activities:
Net income (loss)
$
(23,896
)
$
1,020
Non-cash items included in net income:
Depreciation and amortization
19,487
19,040
Other post-retirement and post-employment
benefits
364
369
Stock-based compensation
4,358
2,451
Reduction in carrying amount of
right-of-use assets
5,599
5,559
Deferred income taxes
12,258
1,119
Impairment of goodwill and intangible
assets
32,661
—
Other – net
(2,252
)
2,038
Net increase (decrease) in operating
assets and liabilities, net of divestitures
(81,573
)
(55,038
)
Increase (decrease) in other
liabilities
(312
)
(4,832
)
Net cash flows from (to) operating
activities
(33,306
)
(28,274
)
Net Cash Flows From (To) Investing
Activities:
Capital expenditures
(8,488
)
(17,575
)
Proceeds from sale of property, plant, and
equipment
49
68
Acquisition spending, net of cash
acquired
(9,321
)
—
Capitalized software
(4,671
)
(1,521
)
Purchase of investments
(1,456
)
—
Sales or maturities of investments
996
450
Net cash flows from (to) investing
activities
(22,891
)
(18,578
)
Net Cash Flows From (To) Financing
Activities:
Payments of long-term debt
(15,000
)
(606
)
Proceeds from long-term debt
70,129
46,897
Dividends paid
(13,033
)
(12,872
)
Purchase of HNI Corporation common
stock
(5,839
)
(23,869
)
Proceeds from sales of HNI Corporation
common stock
722
5,413
Other – net
2,558
2,942
Net cash flows from (to) financing
activities
39,537
17,905
Net increase (decrease) in cash and cash
equivalents
(16,660
)
(28,947
)
Cash and cash equivalents at beginning of
period
52,073
76,819
Cash and cash equivalents at end of
period
$
35,413
$
47,872
HNI Corporation and
Subsidiaries
Reportable Segment
Data
(In thousands)
(Unaudited)
Three Months Ended
March 28, 2020
March 30, 2019
Net Sales:
Office furniture
$
338,386
$
353,511
Hearth products
130,318
125,945
Total
$
468,704
$
479,456
Income (Loss) Before Income Taxes:
Office furniture
$
(33,231
)
$
(1,731
)
Hearth products
20,671
17,609
General corporate
(11,168
)
(12,201
)
Operating Income (Loss)
(23,728
)
3,677
Interest expense, net
1,811
2,111
Total
$
(25,539
)
$
1,566
Depreciation and Amortization Expense:
Office furniture
$
11,332
$
11,060
Hearth products
2,306
2,056
General corporate
5,849
5,924
Total
$
19,487
$
19,040
Capital Expenditures (including
capitalized software):
Office furniture
$
7,101
$
10,319
Hearth products
2,973
4,998
General corporate
3,085
3,779
Total
$
13,159
$
19,096
As of March 28, 2020
As of December 28, 2019
Identifiable Assets:
Office furniture
$
785,063
$
874,913
Hearth products
376,862
364,653
General corporate
207,974
212,946
Total
$
1,369,899
$
1,452,512
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 (loss),
operating profit (loss), income taxes, net income (loss), and net
income (loss) per diluted share (i.e., EPS). These measures are
adjusted from the comparable GAAP measures to exclude the 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 acquiring small hearth companies. The transactions excluded for
purposes of our other non-GAAP financial information included in
this earnings release include impairments of goodwill and
intangible assets, and non-recurring costs related to the COVID-19
pandemic.
HNI Corporation
Reconciliation
(Dollars in millions)
Three Months Ended
March 28, 2020
March 30, 2019
Office Furniture
Hearth
Total
Office Furniture
Hearth
Total
Sales as reported (GAAP)
$
338.4
$
130.3
$
468.7
$
353.5
$
125.9
$
479.5
% change from PY
(4.3
%)
3.5
%
(2.2
%)
Less: Acquisitions
—
1.1
1.1
—
—
—
Organic Sales (non-GAAP)
$
338.4
$
129.3
$
467.6
$
353.5
$
125.9
$
479.5
% change from PY
(4.3
%)
2.6
%
(2.5
%)
HNI Corporation
Reconciliation
(Dollars in millions, except per
share data)
Three Months Ended March 28,
2020
Gross Profit
Operating Income (Loss)
Tax
Net Income (Loss)
EPS
As reported (GAAP)
$
176.0
$
(23.7
)
$
(1.6
)
$
(23.9
)
$
(0.56
)
% of net sales
37.6
%
(5.1
%)
(5.1
%)
Tax %
6.4
%
Impairment charges
—
32.7
4.0
28.7
0.67
COVID-19 costs
—
5.0
0.6
4.4
0.10
Results (non-GAAP)
$
176.0
$
13.9
$
2.9
$
9.2
$
0.21
% of net sales
37.6
%
3.0
%
2.0
%
Tax %
24.1
%
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
%
Impairment charges
—
—
—
—
—
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
%
Office Furniture
Reconciliation
(Dollars in millions)
Three Months Ended
March 28, 2020
March 30, 2019
Percent Change
Operating profit (loss) as reported
(GAAP)
$
(33.2
)
$
(1.7
)
NM
% of net sales
(9.8
%)
(0.5
%)
Impairment charges
32.7
—
COVID-19 costs
3.4
—
Operating profit (loss) (non-GAAP)
$
2.8
$
(1.7
)
264
%
% of net sales
0.8
%
(0.5
%)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200422005969/en/
Marshall H. Bridges, Senior Vice President and Chief Financial
Officer (563) 272-7400 Matthew S. McCall, Vice President, Investor
Relations and Corporate Development (563) 275-8898
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