HNI Corporation (NYSE: HNI) today announced sales for the
second quarter ended June 27, 2020 of $417.5 million and net income
of $12.6 million. GAAP net income per diluted share was $0.29,
compared to $0.36 in the prior year. Non-GAAP net income per
diluted share was $0.20, compared to $0.38 in the prior year. GAAP
to non-GAAP reconciliations follow the financial statements in this
release.
Second Quarter Highlights
- The Corporation delivered solid profits and increased second
quarter operating cash flows by $20 million or 49 percent versus
the prior year despite pandemic related top-line pressures.
- Residential Building Products segment operating profit
increased, and segment operating margin expanded on a
year-over-year basis in the second quarter 2020.
- Workplace Furnishings segment generated second quarter 2020
operating profit of nearly $8 million, despite a 25 percent
year-over-year contraction on the top line.
- Quarter-ending debt levels were $183 million, equal to a gross
leverage ratio of approximately 0.8x. Liquidity, as measured by
cash and borrowing availability, at the end of the second quarter
was $392 million.
“Our members did a great job of managing through challenging
second quarter conditions. We aggressively managed costs and drove
productivity—offsetting much of the impact from lower volumes. Our
teams stayed focused on our customers—generating and seizing market
opportunities. The strength of our strategy, including our diverse
revenue streams, price point breadth, channel reach, and lean
operating model, along with the dedication of our members, helped
demonstrate again what makes HNI unique,” stated Jeff Lorenger,
Chairman, President, and Chief Executive Officer.
Salary adjustments
Compensation for HNI members and Board of Directors are being
restored to levels existing prior to the reductions announced on
April 22, 2020.
“Our members responded in an outstanding manner to this
environment, and I am pleased we are able to take this action 60-90
days earlier than we originally anticipated,” continued Mr.
Lorenger.
Debt Level Update
As of June 27, 2020, the Corporation’s net debt totaled $157
million (as defined as gross debt of $183 million less cash and
cash equivalents of $26 million). At the end of the quarter, the
Corporation had $366 million of borrowing capacity under its
existing $450 million credit facility. On a gross leverage basis,
the quarter-ending level of 0.8x remains well below the
Corporation’s debt covenant of 3.5x.
“We generated strong free cash flow in the quarter and further
enhanced our already strong balance sheet. We have the financial
strength and cost structure to successfully weather this crisis for
a prolonged period,” said Mr. Lorenger.
HNI Corporation – Financial
Performance
(Dollars in millions, except per
share data)
Three Months Ended
June 27, 2020
June 29, 2019
Change
GAAP
Net Sales
$
417.5
$
526.0
(20.6
%)
Gross Profit %
36.1
%
36.6
%
-50 bps
SG&A %
32.6
%
32.0
%
60 bps
Restructuring Charges %
—
%
0.2
%
Operating Income
$
14.8
$
23.2
(36.2
%)
Operating Income %
3.6
%
4.4
%
-80 bps
Effective Tax Rate
2.7
%
23.9
%
Net Income %
3.0
%
3.0
%
— bps
EPS – diluted
$
0.29
$
0.36
(19.4
%)
Non-GAAP
Gross Profit %
36.1
%
36.6
%
-50 bps
Operating Income
$
14.8
$
24.2
(38.6
%)
Operating Income %
3.6
%
4.6
%
-100 bps
EPS – diluted
$
0.20
$
0.38
(47.4
%)
Second Quarter Summary Comments
- Consolidated net sales decreased 20.6 percent from the
prior-year quarter to $417.5 million. On an organic basis, sales
decreased 21.2 percent. The impact of acquiring residential
building products distributors increased sales $2.9 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 decreased 50 basis points compared to the
prior-year quarter. This decrease was primarily driven by lower
volume, partially offset by price realization and net
productivity.
- Selling and administrative expenses as a percent of sales
increased 60 basis points compared to prior-year quarter due to
lower volume, partially offset by lower core SG&A spend and net
productivity.
- Non-GAAP net income per diluted share was $0.20 compared to
$0.38 in the prior-year quarter. The $0.18 decrease was primarily
due to lower volume, partially offset by lower core SG&A spend,
net productivity, and price realization.
- Non-GAAP EPS in the current quarter includes an effective tax
rate of 32.5 percent, compared to a GAAP tax rate of 2.7 percent.
The higher non-GAAP tax rate is related to timing of the tax impact
from one-time charges recorded in first quarter 2020.
Workplace Furnishings –
Financial Performance
(Dollars in millions)
Three Months Ended
June 27, 2020
June 29, 2019
Change
GAAP
Net Sales
$
308.1
$
409.5
(24.8
%)
Operating Income
$
7.8
$
18.7
(58.5
%)
Operating Income %
2.5
%
4.6
%
-210 bps
Non-GAAP
Operating Profit
$
7.8
$
19.7
(60.4
%)
Operating Profit %
2.5
%
4.8
%
-230 bps
- Workplace Furnishings net sales decreased 24.8 percent from the
prior-year quarter to $308.1 million.
- Workplace Furnishings GAAP operating profit margin decreased
210 basis points versus the prior-year quarter. On a non-GAAP
basis, segment operating margin decreased 230 basis points
year-over-year driven by lower volume, partially offset by net
productivity, lower core SG&A spend, and price
realization.
Residential Building Products
– Financial Performance
(Dollars in millions)
Three Months Ended
June 27, 2020
June 29, 2019
Change
GAAP
Net Sales
$
109.4
$
116.5
(6.1
%)
Operating Profit
$
14.4
$
13.4
7.5
%
Operating Profit %
13.1
%
11.5
%
160 bps
Non-GAAP
Operating Profit
$
14.4
$
13.4
7.5
%
Operating Profit %
13.1
%
11.5
%
160 bps
- Residential Building Products net sales decreased 6.1 percent
from the prior-year quarter to $109.4 million. On an organic basis,
sales decreased 8.6 percent. The impact of acquiring building
products distributors increased sales $2.9 million compared to the
prior-year quarter.
- Residential Building Products operating profit margin expanded
160 basis points, driven by price realization, lower variable
compensation, lower core SG&A spend, and net productivity,
partially offset by lower volume and unfavorable mix.
Concluding Remarks
“The HNI culture remains the foundation for our success.
Together, our members, dealers, suppliers, and communities will
continue to overcome the challenges presented by this crisis.
Pandemic-related uncertainty continues to limit visibility and
our ability to provide guidance. However, we are seeing a seasonal
uptick in sales and do expect third quarter sales and profit to
track ahead of second quarter 2020 levels. We have demonstrated we
can adapt our cost structure quickly, and our balance sheet is
strong. More importantly, we have developed new and better ways to
operate our businesses that will serve us well in the future,” Mr.
Lorenger concluded.
Conference Call
HNI Corporation will host a conference call on Thursday, July
23, 2020 at 10:00 a.m. (Central) to discuss second quarter fiscal
year 2020 results. To participate, call 1-877-512-9166 – conference
ID number 6232199. 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, July 30, 2020, 10:59 p.m. (Central) by
dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number
6232199.
About HNI Corporation
HNI Corporation (NYSE: HNI) is a manufacturer of workplace
furnishings and building products, operating under two segments.
The Workplace Furnishings segment is a leading global designer and
provider of commercial furnishings, going to market under multiple
unique brands. The Residential Building Products segment is the
nation's leading manufacturer and marketer of hearth products,
which include a full array of gas, electric, wood, and
pellet-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, 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
Six Months Ended
June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019
Net sales
$
417,456
$
526,026
$
886,161
$
1,005,482
Cost of sales
266,551
333,437
559,238
643,279
Gross profit
150,905
192,589
326,923
362,203
Selling and administrative expenses
136,063
168,411
303,148
334,348
Impairment and restructuring charges
—
930
32,661
930
Operating income (loss)
14,842
23,248
(8,886
)
26,925
Interest expense, net
1,943
2,480
3,754
4,591
Income (loss) before income taxes
12,899
20,768
(12,640
)
22,334
Income taxes
345
4,957
(1,299
)
5,503
Net income (loss)
12,554
15,811
(11,341
)
16,831
Less: Net income (loss) attributable to
non-controlling interest
(2
)
1
(2
)
(1
)
Net income (loss) attributable to HNI
Corporation
$
12,556
$
15,810
$
(11,339
)
$
16,832
Average number of common shares
outstanding – basic
42,640
43,218
42,634
43,376
Net income (loss) attributable to HNI
Corporation per common share – basic
$
0.29
$
0.37
$
(0.27
)
$
0.39
Average number of common shares
outstanding – diluted
42,929
43,634
42,634
43,860
Net income (loss) attributable to HNI
Corporation per common share – diluted
$
0.29
$
0.36
$
(0.27
)
$
0.38
Foreign currency translation
adjustments
$
45
$
(333
)
$
(555
)
$
630
Change in unrealized gains (losses) on
marketable securities, net of tax
244
126
302
216
Change in pension and post-retirement
liability, net of tax
—
—
—
(1,185
)
Change in derivative financial
instruments, net of tax
(283
)
(1,327
)
(2,499
)
(1,636
)
Other comprehensive income (loss), net of
tax
6
(1,534
)
(2,752
)
(1,975
)
Comprehensive income (loss)
12,560
14,277
(14,093
)
14,856
Less: Comprehensive income (loss)
attributable to non-controlling interest
(2
)
1
(2
)
(1
)
Comprehensive income (loss) attributable
to HNI Corporation
$
12,562
$
14,276
$
(14,091
)
$
14,857
HNI Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
(In thousands)
(Unaudited)
June 27, 2020
December 28, 2019
Assets
Current Assets:
Cash and cash equivalents
$
26,204
$
52,073
Short-term investments
2,310
1,096
Receivables
208,795
278,124
Allowance for doubtful accounts
(5,778
)
(3,559
)
Inventories
156,647
163,465
Prepaid expenses and other current
assets
42,816
37,635
Total Current Assets
430,994
528,834
Property, Plant, and Equipment:
Land and land improvements
29,750
29,394
Buildings
294,238
295,517
Machinery and equipment
568,265
581,225
Construction in progress
22,630
20,881
914,883
927,017
Less accumulated depreciation
546,036
545,510
Net Property, Plant, and Equipment
368,847
381,507
Right-of-use Finance Leases
2,282
2,129
Right-of-use Operating Leases
76,614
72,883
Goodwill and Other Intangible Assets
416,317
445,709
Other Assets
20,309
21,450
Total Assets
$
1,315,363
$
1,452,512
Liabilities and Equity
Current Liabilities:
Accounts payable and accrued expenses
$
334,719
$
453,202
Current maturities of long-term debt
—
790
Current maturities of other long-term
obligations
2,953
1,931
Current lease obligations - Finance
654
564
Current lease obligations - Operating
23,266
22,218
Total Current Liabilities
361,592
478,705
Long-Term Debt
183,481
174,439
Long-Term Lease Obligations - Finance
1,639
1,581
Long-Term Lease Obligations -
Operating
60,761
58,233
Other Long-Term Liabilities
67,337
67,990
Deferred Income Taxes
87,484
87,196
Equity:
HNI Corporation shareholders' equity
552,747
584,044
Non-controlling interest
322
324
Total Equity
553,069
584,368
Total Liabilities and Equity
$
1,315,363
$
1,452,512
HNI Corporation and
Subsidiaries
Condensed Consolidated
Statements of Cash Flows
(In thousands)
(Unaudited)
Six Months Ended
June 27, 2020
June 29, 2019
Net Cash Flows From (To) Operating
Activities:
Net income (loss)
$
(11,341
)
$
16,831
Non-cash items included in net income:
Depreciation and amortization
38,605
38,450
Other post-retirement and post-employment
benefits
736
738
Stock-based compensation
5,659
4,072
Reduction in carrying amount of
right-of-use assets
11,342
11,617
Deferred income taxes
1,092
1,360
Impairment of goodwill and intangible
assets
32,661
—
Other – net
(284
)
3,856
Net increase (decrease) in operating
assets and liabilities, net of divestitures
(49,631
)
(56,281
)
Increase (decrease) in other
liabilities
(1,019
)
(7,876
)
Net cash flows from (to) operating
activities
27,820
12,767
Net Cash Flows From (To) Investing
Activities:
Capital expenditures
(15,739
)
(34,659
)
Proceeds from sale of property, plant, and
equipment
69
159
Acquisition spending, net of cash
acquired
(10,857
)
—
Capitalized software
(5,037
)
(2,948
)
Purchase of investments
(1,631
)
(2,459
)
Sales or maturities of investments
1,043
1,802
Other – net
—
2,025
Net cash flows from (to) investing
activities
(32,152
)
(36,080
)
Net Cash Flows From (To) Financing
Activities:
Payments of long-term debt
(73,828
)
(40,272
)
Proceeds from long-term debt
82,129
76,677
Dividends paid
(26,040
)
(26,075
)
Purchase of HNI Corporation common
stock
(6,764
)
(57,357
)
Proceeds from sales of HNI Corporation
common stock
1,294
18,906
Other – net
1,672
3,397
Net cash flows from (to) financing
activities
(21,537
)
(24,724
)
Net increase (decrease) in cash and cash
equivalents
(25,869
)
(48,037
)
Cash and cash equivalents at beginning of
period
52,073
76,819
Cash and cash equivalents at end of
period
$
26,204
$
28,782
HNI Corporation and
Subsidiaries
Reportable Segment
Data
(In thousands)
(Unaudited)
Three Months Ended
Six Months Ended
June 27, 2020
June 29, 2019
June 27, 2020
June 29, 2019
Net Sales:
Workplace furnishings
$
308,081
$
409,512
$
646,467
$
763,023
Residential building products
109,375
116,514
239,694
242,459
Total
$
417,456
$
526,026
$
886,161
$
1,005,482
Income (Loss) Before Income Taxes:
Workplace furnishings
$
7,785
$
18,749
$
(25,446
)
$
17,018
Residential building products
14,365
13,362
35,036
30,970
General corporate
(7,308
)
(8,863
)
(18,476
)
(21,063
)
Operating Income (Loss)
14,842
23,248
(8,886
)
26,925
Interest expense, net
1,943
2,480
3,754
4,591
Total
$
12,899
$
20,768
$
(12,640
)
$
22,334
Depreciation and Amortization Expense:
Workplace furnishings
$
10,782
$
11,247
$
22,113
$
22,307
Residential building products
2,318
2,174
4,624
4,230
General corporate
6,019
5,989
11,868
11,913
Total
$
19,119
$
19,410
$
38,605
$
38,450
Capital Expenditures (including
capitalized software):
Workplace furnishings
$
4,293
$
12,347
$
11,394
$
22,666
Residential building products
206
2,577
3,179
7,575
General corporate
3,118
3,587
6,203
7,366
Total
$
7,617
$
18,511
$
20,776
$
37,607
As of June 27, 2020
As of December 28, 2019
Identifiable Assets:
Workplace furnishings
$
741,876
$
874,913
Residential building products
383,642
364,653
General corporate
189,845
212,946
Total
$
1,315,363
$
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 condensed consolidated financial statements, which
are prepared and presented in accordance with GAAP, this earnings
release uses the following non-GAAP financial measures: 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. In the current period, the
effective tax rate used to calculate non-GAAP EPS differs from the
GAAP effective tax rate due to the timing of the tax impact of
one-time charges recorded in first quarter 2020. 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 the non-GAAP organic sales
information included in this earnings release excludes the impact
of acquiring residential building products distributors.
Restructuring charges incurred in the prior year period are
primarily comprised of severance costs related to a structural
realignment in the Workplace Furnishings segment.
HNI Corporation
Reconciliation
(Dollars in millions)
Three Months Ended
June 27, 2020
June 29, 2019
Workplace Furnishings
Residential Building Products
Total
Workplace Furnishings
Residential Building Products
Total
Sales as reported (GAAP)
$
308.1
$
109.4
$
417.5
$
409.5
$
116.5
$
526.0
% change from PY
(24.8
%)
(6.1
%)
(20.6
%)
Less: Acquisitions
—
2.9
2.9
—
—
—
Organic Sales (non-GAAP)
$
308.1
$
106.5
$
414.6
$
409.5
$
116.5
$
526.0
% change from PY
(24.8
%)
(8.6
%)
(21.2
%)
HNI Corporation
Reconciliation
(Dollars in millions, except per
share data)
Three Months Ended June 27,
2020
Gross Profit
Operating Income
Tax
Net Income
EPS
As reported (GAAP)
$
150.9
$
14.8
$
0.3
$
12.6
$
0.29
% of net sales
36.1
%
3.6
%
3.0
%
Tax %
2.7
%
Income tax adjustment
—
—
3.8
(3.8
)
(0.09
)
Results (non-GAAP)
$
150.9
$
14.8
$
4.2
$
8.7
$
0.20
% of net sales
36.1
%
3.6
%
2.1
%
Tax %
32.5
%
HNI Corporation
Reconciliation
(Dollars in millions, except per
share data)
Three Months Ended June 29,
2019
Gross Profit
Operating Income
Tax
Net Income
EPS
As reported (GAAP)
$
192.6
$
23.2
$
5.0
$
15.8
$
0.36
% of net sales
36.6
%
4.4
%
3.0
%
Tax %
23.9
%
Restructuring charges
—
0.9
0.2
0.7
0.02
Results (non-GAAP)
$
192.6
$
24.2
$
5.2
$
16.5
$
0.38
% of net sales
36.6
%
4.6
%
3.1
%
Tax %
23.9
%
Workplace Furnishings
Reconciliation
(Dollars in millions)
Three Months Ended
June 27, 2020
June 29, 2019
Percent Change
Operating profit as reported (GAAP)
$
7.8
$
18.7
(58.5
%)
% of net sales
2.5
%
4.6
%
Restructuring charges
—
0.9
Operating profit (non-GAAP)
$
7.8
$
19.7
(60.4
%)
% of net sales
2.5
%
4.8
%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200722005852/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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