HNI Corporation Reports Earnings for Third Quarter Fiscal Year 2021

HNI Corporation (NYSE: HNI) today announced sales for the third quarter ended October 2, 2021 of $586.7 million and net income of $19.2 million. GAAP net income per diluted share was $0.43, compared to $0.71 in the prior year. There was no variation between GAAP and Non-GAAP net income per diluted share in the third quarter of 2021 or 2020.

Third Quarter Highlights

  • Strong growth in Residential Building Products: Third quarter 2021 revenue grew 26 percent on a year-over-year basis, and operating profit increased more than 10 percent versus third quarter 2020 levels despite multiple sources of pressure.
  • Continuing recovery in Workplace Furnishings: Third quarter 2021 revenue was up approximately 11 percent from the third quarter of 2020.
  • Expanding capacity: In September, the Corporation announced plans to expand production by opening a new seating facility in Mexico. The facility, along with continued domestic hiring, will provide capacity to help meet growing customer demand.
  • Residential Building Products acquisition: Earlier this month, the Corporation completed the acquisition of Trinity Hearth and Home, an installing distributor in North Texas. Trinity adds to the Corporation’s leading installing distributor platform and will allow the Corporation’s Residential Building Products segment to better serve its customers in the rapidly growing Southwest region.

“Our members stayed focused on serving customers in the third quarter as the continued ripple effects of the pandemic created near-term headwinds. While we drove strong order growth, the ongoing difficulties tied to labor availability, supply chain disruptions, and inflation in all categories of input costs negatively impacted our results. Despite these pressures, we are increasingly encouraged about 2022 given the actions we are taking, the on-going recovery in Workplace Furnishings, and strength in our Hearth business,” stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.

HNI Corporation – Financial Performance

(Dollars in millions, except per share data)

 

Three Months Ended

 

 

 

October 2,

2021

 

September 26,

2020

 

Change

GAAP

 

 

 

 

 

Net Sales

$586.7

 

 

$507.1

 

 

15.7

%

Gross Profit %

33.3

%

 

36.6

%

 

-330

bps

SG&A %

28.8

%

 

28.9

%

 

-10

bps

Operating Income

$26.2

 

 

$38.8

 

 

(32.3

%)

Operating Income %

4.5

%

 

7.6

%

 

-310

bps

Effective Tax Rate

21.5

%

 

17.6

%

 

 

Net Income %

3.3

%

 

6.1

%

 

-280

bps

EPS – diluted

$0.43

 

 

$0.71

 

 

(39.4

%)

Third Quarter Summary Comments

  • Consolidated net sales increased 15.7 percent from the prior-year quarter to $586.7 million. On an organic basis, sales increased 13.8 percent year-over-year. The acquisition of Design Public Group ("DPG") in the fourth quarter of 2020 increased year-over-year sales by $8.9 million, and the acquisition of residential building products distributors in 2021 increased year-over-year sales by $0.9 million. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
  • Gross profit margin decreased 330 basis points compared to the prior-year quarter. This decrease was driven by unfavorable price-cost and was partially offset by higher volume and improved net productivity.
  • Selling and administrative expenses as a percent of sales decreased 10 basis points compared to the prior-year quarter. The decrease was driven by improved leverage from higher volume, partially offset by the return of costs related to temporary actions taken in the prior-year quarter, higher investment spend, and increased freight costs.
  • Net income per diluted share was $0.43 compared to $0.71 in the prior-year quarter. The majority of the $0.28 decrease was driven by unfavorable price-cost along with the return of costs related to temporary actions taken in the prior-year quarter and increased investment spend, and was partially offset by increased volume.

Third Quarter Orders

  • Orders in the Workplace Furnishings segment increased more than 30 percent year-over-year, led by broad-based strength with both small to mid-sized and contract customers. Workplace Furnishings orders were also up greater than five percent versus third quarter 2019 pre-pandemic levels.
  • Normalized orders in the Residential Building Products segment increased 35 percent compared to the prior-year quarter, with the year-over-year trend moderating somewhat as the quarter progressed. Remodel-retrofit and new construction were both strong throughout the quarter.

Workplace Furnishings – Financial Performance

(Dollars in millions)

 

Three Months Ended

 

 

 

October 2,

2021

 

September 26,

2020

 

Change

GAAP

 

 

 

 

 

Net Sales

$393.1

 

 

$353.4

 

 

11.3

%

Operating Profit

$3.9

 

 

$16.8

 

 

(76.9

%)

Operating Profit %

1.0

%

 

4.8

%

 

-380

bps

  • Workplace Furnishings net sales increased 11.3 percent from the prior-year quarter to $393.1 million. On an organic basis, sales increased 8.7 percent year-over-year. The acquisition of DPG in the fourth quarter of 2020 increased sales by $8.9 million compared to the prior-year quarter.
  • Workplace Furnishings operating profit margin decreased 380 basis points year-over-year driven by unfavorable price-cost and the return of costs related to temporary actions taken in the prior-year quarter, partially offset by higher volume and improved productivity.

Residential Building Products – Financial Performance

(Dollars in millions)

 

Three Months Ended

 

 

 

October 2,

2021

 

September 26,

2020

 

Change

GAAP

 

 

 

 

 

Net Sales

$193.6

 

 

$153.7

 

 

26.0

%

Operating Profit

$33.4

 

 

$30.2

 

 

10.6

%

Operating Profit %

17.2

%

 

19.6

%

 

-240

bps

  • Residential Building Products net sales increased 26.0 percent from the prior-year quarter to $193.6 million. On an organic basis, sales increased 25.4 percent year-over-year. The impact of building products distributors acquired in 2021 increased sales $0.9 million compared to the prior-year quarter.
  • Residential Building Products operating profit margin decreased 240 basis points, primarily driven by unfavorable price-cost, lower productivity, higher freight costs, and higher investment spend, partially offset by increased volume and lower variable compensation.

Fourth Quarter 2021 Outlook

  • Solid consolidated growth: The Corporation expects consolidated revenue, including the impact of acquisitions, to grow in the mid-to-high single-digit percent range compared to the prior-year quarter. This outlook includes the assumption of continued impacts from labor availability and supply chain constraints.
  • Workplace Furnishings revenue: The Corporation expects growth in the mid-single-digit percent range on a year-over-year basis including acquisitions impacts. Order trends, an elevated backlog, and continued momentum with office re-entry activity support stronger growth but fourth quarter revenue will be constrained by ongoing labor shortages and supply chain issues.
  • Residential Building Products revenue: Recent order trends, quarter-ending backlog, new home construction activity, the outlook for remodel/retrofit demand, and expected benefits tied to multiple growth initiatives, combine to suggest growth rates in the high single-digit percent range compared to the prior-year quarter, including impacts from acquisitions and labor and supply chain constraints.
  • Profitability drivers: Many of the margin pressures experienced in the third quarter of 2021 are expected to persist in the fourth quarter of 2021. As a result, the Corporation expects fourth quarter operating income to be at or slightly below that reported in the third quarter.

Concluding Remarks

“We remain optimistic about our businesses and ability to drive profit growth. We are aggressively addressing the current headwinds. This includes increasing our capacity, strengthening our supply chains, and taking aggressive pricing actions to offset the ongoing and increasing inflationary pressures. Supported by our strong balance sheet, we are also continuing to invest as reflected by the addition of Trinity, which expands our strong Fireside Hearth & Home installing distribution business into a rapidly expanding housing region. These actions and investments position us for success in 2022 and over the long-term,” Mr. Lorenger concluded.

Conference Call

HNI Corporation will host a conference call on Monday, October 25, 2021 at 10:00 a.m. (Central) to discuss third quarter fiscal year 2021 results. To participate, call 1-833-522-0258 – conference ID number 3066955. A live webcast of the call will be available on HNI Corporation’s website at https://investors.hnicorp.com/events-and-presentations. A replay of the webcast and call will be made available from Monday, October 25, 2021 at 1:00 p.m. (Central) through Monday, November, 1, 2021, 10:59 p.m. (Central). To replay the webcast, go to the link above. To replay the call, dial 1-800-585-8367 or 416-621-4642 – Conference ID: 3066955.

About HNI Corporation

HNI Corporation (NYSE: HNI) is a manufacturer of workplace furnishings and residential 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

 

Nine Months Ended

October 2,

2021

 

September 26,

2020

 

October 2,

2021

 

September 26,

2020

Net sales

$

586,750

 

 

$

507,063

 

 

$

1,581,498

 

 

$

1,393,224

 

Cost of sales

391,394

 

 

321,516

 

 

1,018,334

 

 

880,754

 

Gross profit

195,356

 

 

185,547

 

 

563,164

 

 

512,470

 

Selling and administrative expenses

169,113

 

 

146,785

 

 

489,634

 

 

449,933

 

Impairment charges

 

 

 

 

 

 

32,661

 

Operating income

26,243

 

 

38,762

 

 

73,530

 

 

29,876

 

Interest expense, net

1,853

 

 

1,517

 

 

5,465

 

 

5,271

 

Income before income taxes

24,390

 

 

37,245

 

 

68,065

 

 

24,605

 

Income taxes

5,232

 

 

6,558

 

 

16,476

 

 

5,259

 

Net income

19,158

 

 

30,687

 

 

51,589

 

 

19,346

 

Less: Net loss attributable to non-controlling interest

0

 

 

(1

)

 

(3

)

 

(3

)

Net income attributable to HNI Corporation

$

19,158

 

 

$

30,688

 

 

$

51,592

 

 

$

19,349

 

 

 

 

 

 

 

 

 

Average number of common shares outstanding – basic

43,781

 

 

42,684

 

 

43,573

 

 

42,651

 

Net income attributable to HNI Corporation per common share – basic

$

0.44

 

 

$

0.72

 

 

$

1.18

 

 

$

0.45

 

Average number of common shares outstanding – diluted

44,342

 

 

43,010

 

 

44,045

 

 

42,905

 

Net income attributable to HNI Corporation per common share – diluted

$

0.43

 

 

$

0.71

 

 

$

1.17

 

 

$

0.45

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

$

46

 

 

$

923

 

 

$

107

 

 

$

368

 

Change in unrealized gains (losses) on marketable securities, net of tax

(32

)

 

(33

)

 

(157

)

 

269

 

Change in derivative financial instruments, net of tax

170

 

 

106

 

 

577

 

 

(2,393

)

Other comprehensive income (loss), net of tax

184

 

 

996

 

 

527

 

 

(1,756

)

Comprehensive income

19,342

 

 

31,683

 

 

52,116

 

 

17,590

 

Less: Comprehensive loss attributable to non-controlling interest

0

 

 

(1

)

 

(3

)

 

(3

)

Comprehensive income attributable to HNI Corporation

$

19,342

 

 

$

31,684

 

 

$

52,119

 

 

$

17,593

 

 

HNI Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)

 

October 2,

2021

 

January 2,

2021

Assets

 

 

 

Current Assets:

 

 

 

Cash and cash equivalents

$

126,436

 

 

$

116,120

 

Short-term investments

1,299

 

 

1,687

 

Receivables

238,620

 

 

207,971

 

Allowance for doubtful accounts

(4,185

)

 

(5,514

)

Inventories

188,590

 

 

137,811

 

Prepaid expenses and other current assets

44,702

 

 

37,660

 

Total Current Assets

595,462

 

 

495,735

 

Property, Plant, and Equipment:

 

 

 

Land and land improvements

29,983

 

 

29,691

 

Buildings

294,240

 

 

293,708

 

Machinery and equipment

588,126

 

 

578,643

 

Construction in progress

26,082

 

 

17,750

 

 

938,431

 

 

919,792

 

Less accumulated depreciation

576,423

 

 

553,835

 

Net Property, Plant, and Equipment

362,008

 

 

365,957

 

Right-of-use Finance Leases

9,940

 

 

6,095

 

Right-of-use Operating Leases

80,223

 

 

70,219

 

Goodwill and Other Intangible Assets

446,758

 

 

458,896

 

Other Assets

39,975

 

 

21,130

 

Total Assets

$

1,534,366

 

 

$

1,418,032

 

Liabilities and Equity

 

 

 

Current Liabilities:

 

 

 

Accounts payable and accrued expenses

$

464,599

 

 

$

413,638

 

Current maturities of long-term debt

3,345

 

 

841

 

Current maturities of other long-term obligations

3,598

 

 

2,990

 

Current lease obligations - Finance

2,632

 

 

1,589

 

Current lease obligations - Operating

19,970

 

 

19,970

 

Total Current Liabilities

494,144

 

 

439,028

 

Long-Term Debt

174,587

 

 

174,524

 

Long-Term Lease Obligations - Finance

7,270

 

 

4,516

 

Long-Term Lease Obligations - Operating

64,634

 

 

53,249

 

Other Long-Term Liabilities

91,270

 

 

81,264

 

Deferred Income Taxes

72,754

 

 

74,706

 

Total Liabilities

904,659

 

 

827,287

 

Equity:

 

 

 

HNI Corporation shareholders' equity

629,384

 

 

590,419

 

Non-controlling interest

323

 

 

326

 

Total Equity

629,707

 

 

590,745

 

Total Liabilities and Equity

$

1,534,366

 

 

$

1,418,032

 

 

HNI Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

Nine Months Ended

 

October 2,

2021

 

September 26,

2020

Net Cash Flows From (To) Operating Activities:

 

 

 

Net income

$

51,589

 

 

$

19,346

 

Non-cash items included in net income:

 

 

 

Depreciation and amortization

62,010

 

 

57,917

 

Other post-retirement and post-employment benefits

996

 

 

1,104

 

Stock-based compensation

9,540

 

 

6,746

 

Reduction in carrying amount of right-of-use assets

18,964

 

 

16,965

 

Deferred income taxes

(2,057

)

 

(3,730

)

Impairment of goodwill and intangible assets

 

 

32,661

 

Other – net

2,640

 

 

815

 

Net increase (decrease) in cash from operating assets and liabilities

(64,073

)

 

13,316

 

Increase (decrease) in other liabilities

8,925

 

 

(1,779

)

Net cash flows from (to) operating activities

88,534

 

 

143,361

 

 

 

 

 

Net Cash Flows From (To) Investing Activities:

 

 

 

Capital expenditures

(38,182

)

 

(24,751

)

Proceeds from sale of property, plant, and equipment

193

 

 

81

 

Acquisition spending, net of cash acquired

(1,530

)

 

(10,857

)

Capitalized software

(9,613

)

 

(7,250

)

Purchase of investments

(3,273

)

 

(3,922

)

Sales or maturities of investments

3,164

 

 

3,246

 

Net cash flows from (to) investing activities

(49,241

)

 

(43,453

)

 

 

 

 

Net Cash Flows From (To) Financing Activities:

 

 

 

Payments of long-term debt

(1,810

)

 

(82,828

)

Proceeds from long-term debt

4,335

 

 

82,119

 

Dividends paid

(40,419

)

 

(39,060

)

Purchase of HNI Corporation common stock

(18,461

)

 

(6,764

)

Proceeds from sales of HNI Corporation common stock

29,944

 

 

2,210

 

Other – net

(2,566

)

 

1,727

 

Net cash flows from (to) financing activities

(28,977

)

 

(42,596

)

 

 

 

 

Net increase in cash and cash equivalents

10,316

 

 

57,312

 

Cash and cash equivalents at beginning of period

116,120

 

 

52,073

 

Cash and cash equivalents at end of period

$

126,436

 

 

$

109,385

 

 

HNI Corporation and Subsidiaries

Reportable Segment Data

(In thousands)

(Unaudited)

 

 

Three Months Ended

 

Nine Months Ended

 

October 2,

2021

 

September 26,

2020

 

October 2,

2021

 

September 26,

2020

Net Sales:

 

 

 

 

 

 

 

Workplace furnishings

$

393,141

 

 

$

353,361

 

 

$

1,040,026

 

 

$

999,827

 

Residential building products

193,609

 

 

153,702

 

 

541,472

 

 

393,397

 

Total

$

586,750

 

 

$

507,063

 

 

$

1,581,498

 

 

$

1,393,224

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes:

 

 

 

 

 

 

 

Workplace furnishings

$

3,893

 

 

$

16,826

 

 

$

9,578

 

 

$

(8,619)

 

Residential building products

33,392

 

 

30,197

 

 

103,766

 

 

65,232

 

General corporate

(11,042)

 

 

(8,261)

 

 

(39,814)

 

 

(26,737)

 

Operating Income

26,243

 

 

38,762

 

 

73,530

 

 

29,876

 

Interest expense, net

1,853

 

 

1,517

 

 

5,465

 

 

5,271

 

Total

$

24,390

 

 

$

37,245

 

 

$

68,065

 

 

$

24,605

 

 

 

 

 

 

 

 

 

Depreciation and Amortization Expense:

 

 

 

 

 

 

 

Workplace furnishings

$

11,882

 

 

$

11,065

 

 

$

35,918

 

 

$

33,177

 

Residential building products

2,545

 

 

2,351

 

 

7,403

 

 

6,976

 

General corporate

6,443

 

 

5,896

 

 

18,689

 

 

17,764

 

Total

$

20,870

 

 

$

19,312

 

 

$

62,010

 

 

$

57,917

 

 

 

 

 

 

 

 

 

Capital Expenditures (including capitalized software):

 

 

 

 

 

 

 

Workplace furnishings

$

6,494

 

 

$

6,946

 

 

$

24,001

 

 

$

18,340

 

Residential building products

5,456

 

 

2,695

 

 

12,113

 

 

5,874

 

General corporate

3,549

 

 

1,584

 

 

11,681

 

 

7,787

 

Total

$

15,499

 

 

$

11,225

 

 

$

47,795

 

 

$

32,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of,

October 2,

2021

 

As of

January 2,

2021

Identifiable Assets:

 

 

 

 

 

 

 

Workplace furnishings

 

 

 

 

$

832,055

 

 

$

762,780

 

Residential building products

 

 

 

 

415,092

 

 

381,550

 

General corporate

 

 

 

 

287,219

 

 

273,702

 

Total

 

 

 

 

$

1,534,366

 

 

$

1,418,032

 

 

Non-GAAP Financial Measure

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. This information gives investors additional insights into HNI’s financial performance and operations. While HNI’s management believes the non-GAAP financial measure is 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, this measure may be different from non-GAAP financial measures used by other companies, limiting its 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 measure: organic sales. This measure is adjusted from the comparable GAAP measure to exclude the impacts of the selected items as summarized in the table below.

The sales adjustments to arrive at the non-GAAP organic sales information included in this earnings release exclude the impact of acquiring DPG and residential building products distributors.

HNI Corporation Reconciliation

(Dollars in millions)

 

Three Months Ended

 

October 2, 2021

 

September 26, 2020

 

Workplace

Furnishings

Residential

Building

Products

Total

 

Workplace

Furnishings

Residential

Building

Products

Total

Sales as reported (GAAP)

$

393.1

 

$

193.6

 

$586.7

 

 

$

353.4

 

$

153.7

 

$

507.1

 

% change from PY

11.3

%

26.0

%

15.7

%

 

 

 

 

 

 

 

 

 

 

 

 

Less: Acquisitions

8.9

 

0.9

 

9.8

 

 

 

 

 

Organic Sales (non-GAAP)

$

384.2

 

$

192.8

 

$

577.0

 

 

$

353.4

 

$

153.7

 

$

507.1

 

% change from PY

8.7

%

25.4

%

13.8

%

 

 

 

 

 

Contacts

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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