MUSCATINE, Iowa - HNI Corporation (NYSE: HNI) today announced sales for the third quarter ended September 27, 2014, of $614.7 million and net income of $33.6 million, or $0.74 per diluted share. Non-GAAP net income per diluted share improved 33 percent from the prior year quarter to $0.81, which excludes restructuring and transition costs.

Third Quarter Summary Comments

"We delivered strong results which exceeded our sales and profit expectations for the third quarter. Both our office furniture and hearth products segments increased sales and operating margins. Performance in our hearth business was outstanding, led by continued double-digit growth in both the remodel/retrofit and new construction channels and strong operational execution. Office furniture sales growth accelerated, led by our contract business," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

Third Quarter – Financial Performance

(Dollars in millions, except per share data)

Three months ended

9/27/2014

9/28/2013

Change

GAAP

Net Sales

$614.7

$565.7

8.7%

Gross Profit %

35.8%

35.3%

50 bps

SG&A %

27.0%

27.3%

-30 bps

Restructuring & impairment charges %

0.2%

0.0%

20 bps

Operating Income

$52.7

$45.1

16.9%

Operating Income %

8.6%

8.0%

60 bps

Net Income %

5.5%

5.0%

50 bps

EPS – diluted

$0.74

$0.61

21.3%

Non-GAAP

Gross Profit %

36.4%

35.3%

110 bps

Operating Income

$57.6

$45.2

27.4%

Operating Income %

9.4%

8.0%

140 bps

EPS - diluted

$0.81

$0.61

32.8%

Third Quarter Summary Comments

  • Consolidated net sales increased $49.0 million or 8.7 percent to $614.7 million. Compared to prior year quarter, divestitures reduced sales $2.0 million. On an organic basis sales increased 9.0 percent.
  • Non-GAAP gross margin improved 110 basis points from prior year primarily due to increased volume, better price realization and strong operational performance, partially offset by unfavorable mix and investments in operations.
  • Selling and administrative expenses, as a percentage of sales, decreased 30 basis points due to volume, partially offset by strategic investments, higher incentive-based compensation and timing of expenses.
  • During the third quarter, as part of the Corporation's ongoing strategy to reduce structural costs, it made the decision to close a small international office furniture manufacturing facility. In connection with closures announced earlier this year and this decision, the Corporation recorded $4.9 million of restructuring and transition costs with $3.9 million included in cost of sales.

Office Furniture – Financial Performance

(Dollars in millions)

Three months ended

9/27/2014

9/28/2013

Change

GAAP

Net Sales

$488.6

$466.2

4.8%

Operating Income

$42.8

$40.7

5.1%

Operating Income %

8.7%

8.7%

-

Non-GAAP

Operating Income

$47.6

$40.8

16.7%

Operating Income %

9.8%

8.8%

100 bps

  • Sales increased $22.4 million or 4.8 percent to $488.6 million. Compared to prior year quarter, divestitures reduced sales by $2.0 million. On an organic basis, sales increased 5.2 percent driven by growth in the supplies-driven and contract channels.
  • Non-GAAP operating profit increased $6.8 million or 16.7 percent. Increased volume, higher price realization and strong operational performance were partially offset by unfavorable mix, investments in operations, increased incentive-based compensation and timing of expenses.

Hearth Products – Financial Performance

(Dollars in millions)

Three months ended

9/27/2014

9/28/2013

Change

GAAP

Net Sales

$126.1

$99.5

26.7%

Operating Income

$23.8

$14.4

65.1%

Operating Income %

18.9%

14.5%

440 bps

  • Sales increased $26.6 million or 26.7 percent to $126.1 million driven by increases in both the new construction and the remodel/retrofit channel.
  • Operating profit increased $9.4 million or 65.1 percent due to increased volume and higher price realization partially offset by investments in growth initiatives, higher incentive-based compensation and timing of expenses.
  • The Corporation acquired Vermont Castings Group, a leading manufacturer of free standing hearth stoves and fireplaces, after the end of the Corporation's fiscal third quarter.

Outlook
"We enter the fourth quarter with solid momentum in our hearth and office furniture businesses, and remain on track to grow sales and significantly increase profits in 2014.  We continue to aggressively invest for long-term profitable growth, and I remain confident our investments are increasing shareholder value," said Mr. Askren.

The Corporation estimates sales to be up 13 to 17 percent in the fourth quarter over the same period in the prior year, including sales from the recently acquired Vermont Castings Group.  For the full year, the Corporation is raising its estimate of non-GAAP earnings per diluted share to the range of $1.95 to $2.00, which includes the Vermont Castings Group acquisition fourth quarter results and excludes restructuring and impairment charges, transition costs and gain/loss on sale of assets.

The Corporation remains focused on creating long-term shareholder value by growing its business through investment in building brands, product solutions and selling models, enhancing its strong member-owner culture and continuing to execute its long-standing rapid continuous improvement discipline to build best total cost and a lean enterprise.

About HNI Corporation

HNI Corporation is a NYSE traded company (ticker symbol:  HNI) providing products and solutions for the home and workplace environments.  HNI Corporation is a leading global office furniture manufacturer and is the nation's leading manufacturer of hearth products.  The Corporation's strong brands have leading positions in their markets.  More information can be found on the Corporation's website at www.hnicorp.com.

HNI CORPORATION

Unaudited Condensed Consolidated Statement of Operations

 

(Dollars in thousands, except per share data)

Three Months Ended

Nine Months Ended

9/27/2014

9/28/2013

9/27/2014

9/28/2013

Net Sales

$614,690

$565,706

$1,576,034

$1,518,701

Cost of products sold

394,758

365,835

1,019,797

996,390

Gross profit

219,932

199,871

556,237

522,311

Selling and administrative expenses

166,216

154,641

466,714

451,275

(Gain) loss on sale of assets

-

-

(9,746)

2,460

Restructuring and impairment charges

987

115

11,241

236

Operating income

52,729

45,115

88,028

68,340

Interest income

110

158

326

468

Interest expense

1,971

2,826

6,360

8,219

Income before income taxes

50,868

42,447

81,994

60,589

Income taxes

17,372

14,398

27,817

19,962

Net income

33,496

28,049

54,177

40,627

Less:  Net income (loss) attributable to the noncontrolling interest

(92)

(45)

(212)

(296)

Net income attributable to HNI Corporation

$33,588

$28,094

$54,389

$40,923

Net income attributable to HNI Corporation common shareholders – basic

$0.75

$0.62

$1.21

$0.90

Average number of common shares outstanding – basic

44,689,819

45,317,912

44,916,038

45,295,115

Net income attributable to HNI Corporation common shareholders – diluted

$0.74

$0.61

$1.19

$0.89

Average number of common shares outstanding – diluted

45,611,099

46,089,580

45,758,502

45,951,775

 

Unaudited Condensed Consolidated Balance Sheet

Assets

Liabilities and Shareholders' Equity

(Dollars in thousands)

As of

As of

9/27/2014

12/28/2013

9/27/2014

12/28/2013

Cash and cash equivalents

$29,678

$65,030

Accounts payable and

Short-term investments

5,652

7,251

   accrued expenses

$445,262

$407,799

Receivables

277,267

228,715

Note payable and current

Inventories

116,864

89,516

   maturities of long-term debt

1,263

484

Deferred income taxes

16,862

16,051

Current maturities of other

Prepaid expenses and

   long-term obligations

3,358

3,301

   other current assets

22,234

26,665

      Current assets

468,557

433,228

      Current liabilities

449,883

411,584

Long-term debt

166,050

150,091

Capital lease obligations

16

106

Other long-term liabilities

70,738

67,543

Property and equipment – net

285,479

267,401

Deferred income taxes

72,558

68,964

Goodwill

277,858

286,655

Other assets

166,899

147,421

Parent Company shareholders'

   equity

439,530

436,328

Noncontrolling interest

18

89

Shareholders' equity

439,548

436,417

      Total liabilities and

Total assets

$1,198,793

$1,134,705

        shareholders' equity

$1,198,793

$1,134,705

 

Unaudited Condensed Consolidated Statement of Cash Flows

Nine Months Ended

(Dollars in thousands)

9/27/2014

9/28/2013

Net cash flows from (to) operating activities

$74,807

$83,487

Net cash flows from (to) investing activities:

   Capital expenditures

(81,748)

(55,107)

   Other

17,596

1,151

Net cash flows from (to) financing activities

(46,007)

(34,422)

Net increase (decrease) in cash and cash equivalents

(35,352)

(4,891)

Cash and cash equivalents at beginning of period

65,030

41,782

Cash and cash equivalents at end of period

$29,678

$36,891

 

Business Segment Data

Three Months Ended

Nine Months Ended

(Dollars in thousands)

9/27/2014

9/28/2013

9/27/2014

9/28/2013

Net sales:

   Office furniture

$488,612

$466,213

$1,270,404

$1,268,214

   Hearth products

126,078

99,493

305,630

250,487

$614,690

$565,706

$1,576,034

$1,518,701

Operating profit:

   Office furniture

$42,753

$40,696

$77,488

$71,523

   Hearth products

23,785

14,409

43,974

23,699

   Total operating profit

66,538

55,105

121,462

95,222

       Unallocated corporate expense

(15,670)

(12,658)

(39,468)

(34,633)

   Income before income taxes

$50,868

$42,447

$81,994

$60,589

Depreciation and amortization expense:

   Office furniture

$12,427

$9,257

$34,398

$27,384

   Hearth products

1,121

1,274

3,455

4,039

   General corporate

1,264

1,201

3,911

3,147

$14,812

$11,732

$41,764

$34,570

Capital expenditures (including capitalized software):

   Office furniture

$13,542

$13,689

$43,378

$36,638

   Hearth products

1,691

1,133

4,389

2,798

   General corporate

15,394

6,666

33,981

15,671

$30,627

$21,488

$81,748

$55,107

As of

9/27/2014

As of

12/28/2013

Identifiable assets:

   Office furniture

$771,385

$722,697

   Hearth products

281,765

255,978

   General corporate

145,643

156,030

$1,198,793

$1,134,705

 

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures.  A "non-GAAP financial measure" is a numerical measure of a company's financial performance that excludes or includes amounts different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flow of the company.  We have provided a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures used within this earnings release are:  gross profit, operating income, operating profit and net income per diluted share (i.e., EPS), excluding restructuring and impairment charges, transition costs and gain/loss on sale.  Non-GAAP EPS is calculated using the Corporation's overall effective tax rate for the period.  We present these measures because management uses this information to monitor and evaluate financial results and trends.  Management believes this information is also useful for investors.  This earnings release also contains a forward-looking estimate of non-GAAP earnings per diluted share for the fourth quarter and full fiscal year 2014.  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 because certain information needed to make a reasonable forward-looking estimate of GAAP earnings per diluted share for the full fiscal year is difficult to predict and estimate and is often dependent on future events which may be 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 non-recurring items not reflective of ongoing operations. 

 

HNI Corporation Reconciliation

(Dollars in millions, except per share data)

Three Months Ended 9/27/2014

Three Months Ended 9/28/2013

Gross Profit

Operating Income

 

EPS

Gross Profit

Operating Income

 

EPS

As Reported (GAAP)

$219.9

$52.7

$0.74

$199.9

$45.1

$0.61

  % of net sales

35.8%

8.6%

35.3%

8.0%

Restructuring and Impairment

$2.4

$3.4

$0.05

-

$0.1

$0.00

Transition costs

$1.5

$1.5

$0.02

-

-

-

Results (non-GAAP)

$223.8

$57.6

$0.81

$199.9

$45.2

$0.61

  % of net sales

36.4%

9.4%

35.3%

8.0%

 

Office Furniture Reconciliation

(Dollars in millions)

Three Months Ended

Percent

9/27/2014

9/28/2013

Change

Operating profit as reported (GAAP)

$42.8

$40.7

5.1%

  % of Net Sales

8.7%

8.7%

Restructuring and Impairment

$3.4

$0.1

Transition Costs

$1.5

-

Operating profit (non-GAAP)

$47.6

$40.8

16.7%

  % of Net Sales

9.8%

8.8%

Source: HNI Corporation

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