HNI Corporation Reports Earnings for Second Quarter Fiscal Year 2023

HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended July 1, 2023 of $563.5 million and a net loss of $12.8 million. GAAP earnings per diluted share declined from $0.72 in the prior year to ($0.30) in the current year primarily due to transaction expenses related to the acquisition of Kimball International. When excluding acquisition expenses and select other items, non-GAAP net income per diluted share was $0.55, compared to $0.52 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Second Quarter Highlights

• Grew non-GAAP profit in a challenging demand environment. Although one-time expenses related to the Kimball International acquisition impacted GAAP profit measures, non-GAAP EPS grew six percent despite a nine percent (15 percent organic) decline in net sales compared to the prior year. Improved price-cost and recent profit improvement actions more than offset lower volume.
• Delivered significant profit improvement in Workplace Furnishings. Segment GAAP operating profit grew 33 percent driven by a 90 basis point expansion of GAAP operating margin to 3.8 percent. On a year-over-year basis and excluding the impact of the Kimball International acquisition, segment non-GAAP operating margin expanded 550 basis points to 8.5 percent. This is the highest non-GAAP margin level since the third quarter of fiscal year 2019. Segment non-GAAP operating profit, excluding the impact of the Kimball International acquisition, grew 149 percent compared to the prior year, marking the fifth consecutive quarterly period of year-over-year improvement.
• Kimball International accretion moves significantly higher due to planned exit of Poppin. The Corporation intends to divest Poppin, which was acquired by Kimball International in 2020. Based on trailing 12-month results, exiting Poppin is estimated to increase annual operating profit by $20 million while reducing annual revenue by $56 million. Poppin is classified as “held for sale” on the Corporation’s financial statements, and the divestiture is expected to be completed during the third quarter of 2023.
  Poppin’s losses have masked the strength of Kimball International’s core businesses, which collectively generate strong operating margins. Further, the Corporation is increasingly confident in the strategic and financial rationale for the combination of HNI and Kimball International and confirms the previously announced annual run-rate synergies of $25 million, not including eliminating Poppin’s $20 million annual loss. In addition, the Corporation now sees the strong potential for additional synergies and will provide updates as the integration process progresses.
• Profit support actions in place in Residential Building Products. The Residential Building Products segment continues to face volume pressure, consistent with general weakness in the broader housing market. In response to the volume declines, the Corporation enacted new cost reduction actions. These actions will begin to support profitability in the third quarter of 2023. The intermediate- to long-term demand dynamics remain encouraging for the segment, and the Corporation is well positioned for sustained long-term profit growth.

“Our members delivered an excellent quarter. In Workplace Furnishings, our profit transformation efforts are ahead of schedule as evidenced by our margin expansion and profit growth. And since closing, we are even more confident our combination with Kimball International will give us a stronger platform for growth in our Workplace Furnishings segment. In Residential Building Products, we are taking actions to support near-term profitability while staying focused on our attractive long-term opportunities in both the new construction and remodel/retrofit spaces,” stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.

The following table contains results for (1) the Corporation’s legacy business, excluding the impacts of the Kimball International acquisition (“Legacy HNI”), (2) the newly acquired Kimball International business, excluding Poppin (“KII”), and (3) Poppin. Please refer to non-GAAP reconciliations, which follow the financial statements in this release, for further information on the adjustments made to calculate non-GAAP performance.

Second Quarter Summary Comments

• Consolidated net sales decreased 9.4 percent from the prior-year quarter to $563.5 million. On an organic basis, sales decreased 14.8 percent year-over-year. The acquisition of Kimball International in the current quarter increased year-over-year net sales by $56.0 million, while the acquisition of a residential building products company in the second quarter of 2022 increased year-over-year sales by $0.9 million. The sale of the Corporation’s China- and Hong Kong-based Lamex office furniture business in the third quarter of 2022 decreased year-over-year sales by $27.0 million. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
• Gross profit margin expanded 280 basis points compared to the prior-year quarter. This increase was driven by favorable price-cost, improved net productivity, and the impact of the Kimball International acquisition, partially offset by lower volume.
• Selling and administrative expenses as a percent of sales increased 690 basis points compared to the prior-year quarter. The increase was primarily driven by $31.3 million of costs associated with the acquisition of Kimball International. Also contributing to the increase was lower volume, partially offset by price realization and lower core SG&A.
• Restructuring and impairment charges totaled $8.1 million in the current quarter, primarily in connection with the planned exit of the Poppin business.
• Non-GAAP net income per diluted share was $0.55 compared to $0.52 in the prior-year quarter. The increase was driven by favorable price-cost, lower core SG&A, and improved net productivity, partially offset by lower volume and higher interest expense.
• Non-GAAP net income per diluted share in the current quarter includes an effective tax rate of 22.4 percent, compared to a GAAP tax rate of (41.8) percent. The negative GAAP tax rate in the current-year period was driven by non-deductible costs related to the acquisition of Kimball International.

The following table contains results for (1) the Corporation’s legacy workplace furnishings business, excluding the impacts of the Kimball International acquisition (“Legacy Workplace”), (2) KII, and (3) Poppin. Please refer to non-GAAP reconciliations, which follow the financial statements in this release for further information on the adjustments made to calculate non-GAAP performance.