HNI Corporation Reports Earnings For Second Quarter Fiscal Year 2017

MUSCATINE, Iowa, July 24, 2017 /PRNewswire/ -- HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended July 1, 2017 of $514.5 million and net income of $13.8 million.  GAAP net income per diluted share was $0.31 compared to $0.64 in the prior year.  Non-GAAP net income per diluted share was $0.42 compared to $0.68 in the prior year.  GAAP to non-GAAP reconciliations follow the financial statements in this release.

Summary Comments
"We continue to manage through a dynamic environment in our office furniture businesses.  Our second quarter results were consistent with our prior announcement.  Office furniture sales were negatively impacted by shipment timing and a greater than anticipated decline in the wholesale channel.  We continue to aggressively respond to the changing environment by investing in new products and selling capabilities and advancing initiatives around quick ship, direct fulfillment.  Though a short-term negative profit impact, our response to these shifts will make us stronger in the long term as we become closer to our customers, delivering unmatched value," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

Second Quarter Summary Comments

• Consolidated net sales decreased $22.0 million or 4.1 percent from the prior year quarter to $514.5 million. On an organic basis, sales increased 0.1 percent. The net impact of acquisitions and divestitures of small office furniture companies decreased sales $22.5 million compared to the prior year quarter.
• GAAP gross profit margin decreased 300 basis points compared to the prior year quarter primarily driven by input cost inflation, deeper discounting, and product mix. Non-GAAP gross profit margin, which excludes restructuring and transition costs, decreased 260 basis points compared to the prior year quarter.
• Selling and administrative expenses increased as a percentage of sales due to strategic growth investments and prior year non-repeating adjustments, partially offset by the impact of divestitures, lower incentive based compensation, and the impact of stock price change on deferred compensation.
• The Corporation recorded $3.4 million of restructuring costs and $4.3 million of transition costs in the second quarter in connection with previously announced facility closures and structural realignments. $7.3 million of these charges were included in cost of sales. Specific items incurred include accelerated depreciation and production move costs.

• Second quarter office furniture net sales decreased $21.7 million or 5.1 percent to $406.4 million. On an organic basis, sales increased 0.2 percent. Increases in the North American contract and international businesses were offset by a decrease in the supplies-driven business. The net impact of acquisitions and divestitures of small office furniture companies decreased sales $22.5 million compared to the prior year quarter.
• Second quarter office furniture GAAP operating profit margin decreased 530 basis points due to input cost inflation, deeper discounting, strategic growth investments, and product mix, partially offset by the impact of divestitures and lower incentive based compensation. Excluding restructuring and transition costs, non-GAAP operating profit margin declined 440 basis points.

• Second quarter net sales of hearth products decreased $0.4 million or 0.4 percent to $108.0 million. Increases in the new construction and retail pellet businesses were offset by a decrease in the retail wood/gas business.
• Second quarter GAAP operating profit margin of hearth products increased 200 basis points due to structural cost reductions and favorable operational performance. Excluding restructuring and transition costs, non-GAAP operating profit margin increased 110 basis points.

Outlook
"We expect stronger demand in the second half.  Our contract office furniture businesses continue to drive strong growth.  Demand in our supplies-driven office furniture business is stabilizing, and we are seeing solid growth in our hearth business.  We are in the midst of multiple transformations positioning our supplies business for long-term success, driving further business simplification, and improving our operational cost structure.  I am confident our growth together with our demonstrated record of cost reduction will drive long-term profit improvement," said Mr. Askren.

The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.35 to $2.55, which excludes restructuring and transition costs.  Full year organic sales are expected to be up 2 to 5 percent.  Including the impacts of acquisitions and divestitures, full year sales are expected to be down 2 percent to up 1 percent.  This compares to prior guidance of non-GAAP earnings per diluted share of $2.40 to $2.70 on organic sales growth of 2 to 5 percent.  Delayed cost savings and competitive pricing pressure are primarily driving the reduced outlook.

For the third quarter, organic sales are expected to be up 7 to 10 percent.  Including the impacts of acquisitions and divestitures, third quarter sales are expected to be down 1 percent to up 2 percent.  Non-GAAP earnings per share are anticipated to be in the range of $0.76 to $0.86 for the third quarter, which excludes restructuring and transition costs.

Conference Call
HNI Corporation will host a conference call on Tuesday, July 25, 2017 at 10:00 a.m. (Central) to discuss second quarter fiscal year 2017 results.  To participate, call 1-877-512-9166 – conference ID number 35496202.  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 be made available at this website address.  An audio replay of the call will be available until Tuesday, August 1, 2017 at 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 35496202.

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 provider and designer of office furniture and the leading manufacturer and marketer of hearth products.  We sell the broadest and deepest selection of quality office furniture solutions available to meet the needs of every customer through an extensive portfolio of well-known and trusted brands.  Our hearth products are the strongest, most respected brands in the industry and include a full array of gas, electric, wood and biomass 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 and financial performance, expectations for future sales growth and earnings per diluted share (GAAP and non-GAAP). 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:  general economic conditions in the United States and internationally; unfavorable changes in the United States housing market; industry and competitive conditions; a decline in corporate spending on office furniture; changes in raw material, component or commodity pricing; future acquisitions, divestitures or investments; the cost of energy; changing legal, regulatory, environmental and healthcare conditions; the Corporation's ability to successfully complete its business software system implementation; the Corporation's ability to implement price increases; changes in the sales mix of products; the Corporation's ability to achieve the anticipated benefits from closures and structural alignment initiatives; 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 undertakes no obligation to update, amend or clarify forward-looking statements.

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.  HNI's management believes providing investors with this information gives additional insights into HNI's financial performance and operations.  While HNI's management believes that the non-GAAP financial measures herein are useful in evaluating HNI's operations, this information should be considered supplemental and should not be considered 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, operating profit, and net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the after-tax impacts of the selected items as summarized in the table below.  Non-GAAP EPS is calculated using HNI's overall effective tax rate for the period as that is reflective of the tax rate applicable to the non-GAAP adjustments.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release include the impacts of acquisitions and divestitures.  The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release include restructuring and transition costs.  The restructuring and transition costs are costs incurred as part of the previously announced closures of the hearth manufacturing facilities in Paris, Kentucky and Colville, Washington and the office furniture manufacturing facility in Orleans, Indiana and structural realignments between office furniture facilities in Muscatine, Iowa and China.  Specific restructuring items incurred include severance and accelerated depreciation.  Specific transition items incurred include production move costs.

This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the fiscal year.  We provide such non-GAAP measures to investors on a prospective basis for the same reasons we provide them to investors on a historical basis.  We are unable to provide a reconciliation of our forward-looking estimate of non-GAAP earnings per diluted share to a forward-looking estimate of GAAP earnings per diluted share without unreasonable efforts because certain information needed to make a reasonable forward-looking estimate of GAAP earnings per diluted share is highly variable and difficult to predict and estimate, and is dependent on future events which are uncertain or outside of our control.  These may include unanticipated charges related to asset impairments (fixed assets, intangibles or goodwill), unanticipated acquisition related costs and other unanticipated nonrecurring items not reflective of ongoing operations.  We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our GAAP earnings per diluted share.

For Information Contact:
Marshall H. Bridges, Vice President and Chief Financial Officer (563) 272-7400
Jack D. Herring, Treasurer, Director of Finance and Investor Relations (563) 506-9783

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SOURCE HNI Corporation