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.

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 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 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.

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.

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