HNI Corporation Reports Strong Sales Growth For First Quarter Fiscal Year 2018

MUSCATINE, Iowa, April 20, 2018 /PRNewswire/ -- HNI Corporation (NYSE: HNI) today announced sales for the first quarter ended March 31, 2018 of $505.1 million and net income of $2.5 million.  GAAP net income per diluted share was $0.06 compared to $0.11 in the prior year.  Non-GAAP net income per diluted share was $0.10 compared to $0.26 in the prior year.  GAAP to non-GAAP reconciliations follow the financial statements in this release.

This news release is being issued earlier than previously scheduled to coincide with the announcement of the leadership change communicated today.  As previously scheduled, HNI Corporation will host a conference call on Tuesday, May 1, 2018 at 10:00 a.m. (Central) to discuss first quarter fiscal year 2018 results.

Summary Comments
"First quarter results exceeded our expectations led by strong organic sales growth.  All of our businesses,  supplies-driven, contract, and Hearth, performed well and delivered significant top-line improvement.  We achieved a significant milestone with the successful go-live of our Business Systems Transformation initiative.  This, combined with the completion of our operational transformations, makes us a stronger company, well positioned to drive long-term profitable growth for our shareholders," said Stan Askren, HNI Corporation Chairman and Chief Executive Officer.

First Quarter Summary Comments

• Consolidated net sales increased $27.4 million or 5.7 percent from the prior year quarter to $505.1 million. On an organic basis, sales increased 8.6 percent. The net impact of closing and divesting small office furniture companies decreased sales $12.4 million compared to the prior year quarter.
• GAAP gross profit margin decreased 140 basis points compared to the prior year quarter. Of this decline, 270 basis points were driven by unfavorable business and product mix and input cost inflation, partially offset by higher sales volume. This decline was partially offset by 130 basis points due to lower restructuring and transition costs.
• Selling and administrative expenses primarily increased due to impacts from the Business Systems Transformation initiative, partially offset by cost management and the impact of closing and divesting small office furniture companies.
• The Corporation recorded $1.3 million of restructuring costs and $1.3 million of transition costs in the first quarter in connection with previously announced closures and structural realignments. Of these charges, $1.3 million was included in cost of sales. Specific items include severance and production move costs.
• The Corporation released a valuation allowance for certain foreign tax items in the first quarter, which resulted in a favorable effective tax rate.

• First quarter office furniture net sales increased $20.9 million or 5.8 percent from the prior year quarter to $380.9 million. On an organic basis, sales increased 9.7 percent driven by increases in the North American contract, supplies-driven, and international businesses. The net impact of closing and divesting small office furniture companies decreased sales $12.4 million compared to the prior year quarter.
• First quarter office furniture GAAP operating profit margin decreased 190 basis points. Of this decline, 310 basis points were driven by impacts from the Business Systems Transformation initiative, input cost inflation, and unfavorable business and product mix, partially offset by higher sales volume. This decline was partially offset by 120 basis points due to lower restructuring and transition costs.

• First quarter hearth products net sales increased $6.5 million or 5.5 percent from the prior year quarter to $124.2 million driven by increases in the new construction and retail businesses.
• First quarter hearth products GAAP operating profit margin increased 380 basis points. Of this increase, 80 basis points were driven by higher sales volume. The remaining 300 basis points was due to lower restructuring and transition costs.

Outlook
"We continue to project solid top line growth and strong productivity improvement in 2018.  We are seeing increased inflationary pressures.  While we are working to offset these cost increases, they will have a negative impact on our results, particularly in the second quarter.  We continue to be excited about our competitive position and expect to deliver solid profit improvement for the year," said Mr. Askren.

The Corporation continues to expect full year organic sales to be up 5 to 8 percent.  Including the impact of closing and divesting small office furniture companies, full year sales are expected to be up 1 to 4 percent.  The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.40 to $2.70, which excludes restructuring and transition costs.  This compares to prior guidance of non-GAAP earnings per share of $2.40 to $2.80.  The impact of rising input costs is primarily driving the reduced earnings outlook.

For the second quarter, the Corporation expects organic sales to be up 4 to 7 percent compared to the same quarter last year.  Including the impact of closing and divesting small office furniture companies, second quarter sales are expected to be up 1 to 4 percent.  Second quarter non-GAAP earnings per share are anticipated to be in the range of $0.28 to $0.38, which excludes restructuring and transition costs.

Conference Call
HNI Corporation will host a conference call on Tuesday, May 1, 2018 at 10:00 a.m. (Central) to discuss first quarter fiscal year 2018 results.  To participate, call 1-877-512-9166 – conference ID number 3179229.  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, May 8, 2018, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 3179229.

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: 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; changes in raw material, component, or commodity pricing; market acceptance and demand for the Corporation's new products; the Corporation's ability to successfully execute its business software system integration; the Corporation's ability to achieve desired results from closures and structural cost reduction initiatives; the Corporation's ability to achieve the anticipated benefits from integrating its acquired businesses and alliances; 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; the impact of recent 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.

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 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.  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.  In first quarter 2018, the effective tax rate applied to non-GAAP items was adjusted to exclude a one-time tax impact of releasing a valuation allowance.

The sales adjustments to arrive at our non-GAAP organic sales information included in this earnings release excludes the impact of closing and divesting small office furniture companies.  The transactions excluded for purposes of our other non-GAAP financial information included in this earnings release for both years presented 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 in China and between office furniture facilities in Muscatine, Iowa.  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 next quarter and full fiscal year.  We provide such non-GAAP measures to investors on a prospective basis for the same reasons we provide it 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, Senior 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