HNI Corporation (NYSE: HNI) is a leading global designer and provider of commercial furnishings, as well as the nation's leading manufacturer and marketer of hearth products. The company operates in two reportable segments: Workplace Furnishings and Residential Building Products.
Financials
In the fiscal year 2023, HNI Corporation reported annual net income of $49.2 million and annual revenue of $2.43 billion. The company generated annual operating cash flow of $267.6 million and annual free cash flow of $188.5 million. These strong financial results demonstrate HNI's ability to execute its strategies and navigate the evolving market conditions.
Recent Quarterly Performance
Looking at the company's most recent quarterly performance, HNI reported second-quarter 2024 net sales of $623.7 million, up 10.7% from the prior-year period. Gross profit margin expanded 360 basis points to 41.9%, driven by improved net productivity and the impact of the Kimball International acquisition. Selling and administrative expenses as a percentage of sales decreased 440 basis points, reflecting the non-recurrence of Kimball International acquisition-related fees and expenses incurred in the prior-year quarter, as well as improved freight and distribution productivity.
Segment Performance
In the Workplace Furnishings segment, net sales increased 16.3% year-over-year to $480.2 million. Organic net sales, which exclude the impact of the Kimball International acquisition, decreased 2.4% due to lower volume in the contract office furniture customer segment, partially offset by increased volume with small-to-medium-sized customers and price realization. Workplace Furnishings operating margin expanded 750 basis points to 11.3%, driven by improved net productivity, favorable impacts from the Kimball International acquisition, and the non-recurrence of acquisition-related fees and expenses.
The Residential Building Products segment reported a 4.6% year-over-year decrease in net sales to $143.5 million, primarily due to housing market weakness, with remodel/retrofit sales declining at a higher rate than new construction. However, the segment's operating profit margin increased 350 basis points to 13.8%, driven by improved net productivity, favorable product mix, and lower core selling, general, and administrative expenses.
Outlook
Looking ahead, HNI expects revenue growth in both segments during the second half of 2024. In Workplace Furnishings, the company anticipates a low-single-digit increase in net sales year-over-year, driven by strength in the small-to-medium-sized business (SMB) and Kimball International (KI) customer groups, partially offset by timing-related challenges in the contract business. In Residential Building Products, the company expects mid-single-digit revenue growth compared to the same period in 2023, as the remodel/retrofit and new construction markets show signs of improvement.
Beyond 2024, HNI has elevated earnings growth visibility, with the company expecting $70 to $75 million in total savings from Kimball International synergies and the ramp-up of its new manufacturing facility in Mexico. Approximately $45 to $50 million of these savings are expected to benefit the 2025 to 2026 period, which the company estimates could translate to over 20% earnings growth from the current year consensus estimate.
Business Overview
HNI's diversified business model, with exposure to both the workplace furnishings and residential building products markets, provides the company with a balanced approach to navigating economic cycles. The Workplace Furnishings segment benefits from the company's strong market position, broad product portfolio, and the strategic advantages gained through the Kimball International acquisition. Meanwhile, the Residential Building Products segment leverages HNI's market-leading position and continued investments in innovation and distribution capabilities to capitalize on the long-term dynamics of the housing market.
Liquidity
The company's strong financial position, with a gross leverage ratio of 1.5x as of the second quarter of 2024, and consistent cash flow generation provide ample flexibility for capital deployment, including reinvestment in the business, dividends, share repurchases, and potential strategic acquisitions.
Conclusion
Overall, HNI's impressive second-quarter results, coupled with its positive outlook and elevated earnings growth visibility, position the company well to continue delivering value to its shareholders. The company's diversified business model, operational excellence, and strategic initiatives suggest that HNI is poised to capitalize on the opportunities in both the workplace furnishings and residential building products markets.