MUSCATINE, Iowa -- HNI Corporation today announced sales of $458.9 million and income from continuing operations of $15.6 million for the third quarter ended October 2, 2010. Net income per diluted share from continuing operations for the quarter was $0.34 or $0.35 on a non-GAAP basis when excluding restructuring and impairment charges. For the third quarter earnings per share was impacted $0.04 by a negative tax adjustment related to a valuation adjustment allowance.
Third Quarter Summary Comments
"Double-digit growth in the office furniture contract and international business drove a three percent increase in sales over third quarter 2009. We are encouraged by the success of our investments in selling, marketing and new product initiatives. Our hearth business was profitable for the quarter and is on track to be profitable for the year, despite challenging consumer demand. While weak small business confidence during the quarter impacted the supplies driven channel, I am confident our investments have positioned this business for future growth," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.
Third Quarter Results - Continuing Operations
* Consolidated net sales increased $12.7 million or 2.8 percent to $458.9 million.
* Gross margins were 1.8 percentage points lower than prior year primarily due to increased material costs and higher mix of lower margin products in the office furniture segment partially offset by higher volume and cost reduction initiatives.
* Total selling and administrative expenses as a percent of net sales, including restructuring charges, improved 0.9 percentage points due to higher volume, distribution efficiencies and lower restructuring charges partially offset by higher fuel costs and investments in selling, marketing and product initiatives.
* The Corporation's third quarter results included $0.7 million of restructuring and transition costs associated with shutdown and consolidation of production of office furniture manufacturing locations. This included accelerated depreciation and transition costs of $1.0 million in cost of sales net of a $0.3 million reduction in restructuring expenses. Included in 2009 were $6.3 million of restructuring and transition charges of which $1.6 million were included in cost of sales. Third quarter 2009 also included a non-operating gain of $0.3 million.
* The Corporation estimates additional charges related to various restructuring initiatives will impact pre-tax earnings by $1.2 million over the remainder of 2010.
* The effective tax rate for third quarter 2010 was 44.6 percent compared to 33.7 percent in third quarter 2009. The increase is due primarily to expiration of the research tax credit in 2010 and reduction in the anticipated capital gain from the sale of a closed manufacturing facility negatively impacting capital loss carry-forward utilization.
Consolidated net sales for the first nine months of 2010 increased $2.8 million or 0.2 percent, to $1.221 billion compared to $1.218 billion in 2009. Gross margins increased to 34.6 percent compared to 34.1 percent last year. Income from continuing operations was $17.1 million compared to $7.7 million in 2009. Earnings per share from continuing operations increased to $0.37 per diluted share compared to $0.17 per diluted share last year.
Cash flow from operations for the first nine months of 2010 was $49.1 million compared to $135.9 million last year. Capital expenditures were $18.7 million in 2010 compared to $10.9 million in 2009. The Corporation repurchased 654,664 shares of its common stock at a cost of $17.8 million during the first nine months of 2010. There is approximately $145.8 million remaining under the current repurchase authorization.
The Corporation completed the sale of a small, non-core business in the office furniture segment during the third quarter. A pre-tax charge of $0.6 million was recorded at the time of sale. The Corporation previously recorded $2.7 million of pre-tax charges during the first half of the year to reduce the assets held for sale to fair market value. In addition, the Corporation sold a small, non-core component in the hearth products segment during the first quarter. Revenues and expenses associated with these business operations are shown as discontinued operations for all periods presented in the financial statements.
* Third quarter sales for the office furniture segment increased to $387.4 million. The change was driven by an increase in contract and international channels offset by a decline in the supplies driven channel.
* Third quarter operating profit decreased $6.0 million. Operating profit was impacted by lower price realization, higher mix of lower margin products, increased fuel costs and investments in selling, marketing and product initiatives. These were partially offset by higher volume, improved distribution efficiencies, cost reduction initiatives and lower restructuring and transition costs.
* Third quarter sales for the hearth products segment decreased $0.5 million driven by a decline in the new construction channel partially offset by an increase in the remodel-retrofit channel.
* Third quarter operating profit increased $1.2 million. Operating profit was positively impacted by better price realization and lower restructuring costs partially offset by lower volume and higher material costs.
"We remain optimistic about the office furniture market. We expect our investments in selling, marketing and product initiatives to drive improvements across the business. We see sales momentum continuing in our contract and international businesses and anticipate near-term growth in the hearth and supplies driven channels. I am confident our businesses are financially strong and strategically positioned for long term growth," said Mr. Askren.
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 remaining focused on its long-standing rapid continuous improvement programs to build best total cost and a lean enterprise.
HNI Corporation will host a conference call on Thursday, October 21, 2010 at 10:00 a.m. (Central) to discuss third quarter results. To participate, call the conference call line at 1-800-288-8968. A replay of the conference call will be available until Thursday, October 28, 11:59 p.m. (Central). To access this replay, dial 1-800-475-6701 - Access Code: 173126. A link to the simultaneous webcast can be found on the Corporation's website.
Non-GAAP Financial Measures
This earnings release contains certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as 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. Pursuant to the requirements of Regulation G, the Corporation has 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 from continuing operations (i.e., EPS), excluding restructuring and impairment charges, transition costs and non-operating gains. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Management believes this information is also useful for investors.
HNI Corporation is a NYSE traded company (ticker symbol: HNI) providing products and solutions for the home and workplace environments. HNI Corporation is the second largest office furniture manufacturer in the world and is also the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces. The Corporation's strong brands, including HON(R), Allsteel(R), Gunlocke(R), Paoli(R), Maxon(R), Lamex(R), HBF(R) , Heatilator(R), Heat & Glo(TM), Quadra-Fire(R) and Harman Stove(TM) have leading positions in their markets. HNI Corporation is committed to maintaining its long-standing corporate values of integrity, financial soundness and a culture of service and responsiveness.
Statements in this release that are not strictly historical, including statements as to plans, outlook, objectives and future financial performance, are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Words such as "anticipate," "believe," "could," "confident," "estimate," "expect," "forecast," "hope," "intend," "likely," "may," "plan," "possible," "potential," "predict," "project," "should," "will," "would" and variations of such words and similar expressions identify forward-looking statements. Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual results in the future to differ materially from expected results. These risks include, without limitation: the Corporation's ability to realize financial benefits from its (a) price increases, (b) cost containment and business simplification initiatives for the entire Corporation, (c) investments in strategic acquisitions, new products and brand building, (d) investments in distribution and rapid continuous improvement, (e) ability to maintain its effective tax rate, (f) repurchases of common stock, and (g) consolidation and logistical realignment initiatives; uncertainty related to the availability of cash and credit, and the terms and interest rates on which credit would be available, to fund operations and future growth; lower than expected demand for the Corporation's products due to uncertain political and economic conditions, including the recent credit crisis, slow or negative growth rates in global and domestic economies and the protracted decline in the domestic housing market; lower industry growth than expected; major disruptions at key facilities or in the supply of any key raw materials, components or finished goods; uncertainty related to disruptions of business by terrorism, military action, epidemic, acts of God or other Force Majeure events; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials (including steel and petroleum based materials); higher than expected costs for energy and fuel; changes in the mix of products sold and of customers purchasing; relationships with distribution channel partners, including the financial viability of distributors and dealers; restrictions imposed by the terms of the Corporation's revolving credit facility and note purchase agreement; currency fluctuations and other factors described 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, whether as a result of new information, future events or otherwise, except as required by applicable law.
SOURCE HNI Corp.
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