HNI (HNI) 22 Feb 242023 Q4 Earnings call transcript

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation Fourth Quarter and Year-End Fiscal 2023 Results Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mr. McCall. sir. ahead, go Please

quarter Jeff morning. Relations today is HNI and Statements joining our and and are President Chairman, you President Good of XXXX Vice Corporation. McCall. posted non-GAAP President, made reconciliations our during to are financial financial on this actual results. Marshall subject and historical pleased are for on fourth discuss and Senior to call that forward-looking website. The Bridges, Investor Corporate are us year-end call. I'm With update My you. includes Lorenger, fiscal during me the additional Matt risks, name Jeff? release and our news not to I'm turn forward-looking Vice Jeff Thank to and CFO. Copies strictly Thank Development facts website CEO; results made news any for unknown The materially. our factors are statements, that could differ obligation posted actual statements could now affect call which results. Lorenger. over the known to no Corporation assumes release

joining morning, for thank you Matt. Good Thanks, and us.

members to Our and the year. outstanding had continue results finish strong a deliver to

an despite fourth year revenue was year share the per For period. by outstanding non-GAAP continued year-over-year driven decline primarily Overall, X% increased versus was This for weakness. XX% quarter, the during XXXX earnings the which was a organic prior quarter. market housing HNI.

support. face in a anticipated deliver with the year, our year, challenges. without plan built growth family, plan history, top improve addition our these acquisition we the a and Kimball in the earnings of the company's to largest benefit XXXX, demand International HNI on the to During we line delivered of we completed challenging of the to Entering margins

XX% and With XX% year EPS the year. a rapidly returns of This to during I'm also leverage We flow, our forward debt by growth gross top than prior finished of revenue proud put was members the strong provide our more in to cash Xx. non-GAAP we reduced EPS past business International non-GAAP significant our resulted that with year. extremely despite decline. shareholders. under This efforts the year-over-year an following on the Kimball XXXX cash flows and strengthen of acquisition organic increased the generated in ratio

Our delivered environment, uneven And company. a exited stronger results. plan excellent despite macro the fundamentally we XXXX

today, highlight topics. key call the On X I will

continued we quarter First, delivered significant year-over-year and Furnishings, margin another improvement here. margin in expect and expansion of Workplace from we profit

are And shareholders. associated the Second, the is synergy we KII International ahead of acquisition million value creation associated to of higher to Kimball synergies our and integration now schedule. addition projection. capture The expect of both significant $XX initial total than with providing the be

order And we market ongoing and Kimball strengthened our sheet, quarter. of expanded completion gross quarters and margins leverage building the we products pressure from weakness Third, improved despite the already was International housing our Xx, fourth, the only during following back line below acquisition. in X top residential trends balance ratio strong

before we will will the to outlook. general comments open questions. with highlights, review Marshall those I some Following call closing our your conclude

the basis another operating non-GAAP first to was as seventh operating fourth results, H&I This Workplace year-over-year profit KI of XXX our drive margin significant margin margin legacy Workplace topic. quarter year-over-year Furnishings initiatives strong when points an delivered and excluding in straight improvement to represents the results. Moving transformation expansion We quarter of expansion profit quarter for Furnishings, continue of X.X%. was

improvement margin continued year-over-year profit expect here. we from forward, and Looking

our plan reminder, profit a of primary First, driving actions: X legacy productivity. Furnishings increased As consists are Workplace we transformation

while profit in funding new in primarily Mexico. better XXXX, help and our growth efficiencies Our facility in focus on lean, investments, cost operational reduction drive our

and mature continued add they Looking outsized of years lean productivity drive efforts. over next help to our investments as our benefits will couple forward, the

improvement benefit price Second, cost our profitability. to continues

pricing Our from within net XXXX actions and quarter. benefit support the expect announced continued fourth to profitability in the pricing we in past strength continued XX months.

corporate-wide Third, We streamlined cost program. savings million we announced our previously have a $XX cost structure.

However, rationalized our our to our $XX exceeded of target. run with divested program's we remind you, to And not for plan of we on finally, require total upside expansion growth. XXXX, transformation we Poppin, business margin All as Furnishings our contributing in, of the the our as end our business, across and efforts rate We most savings attractive million we And the markets. that continue half see e-commerce this I workplace the profit focus far opportunity divested China XXXX. margin does corporation, volume we was Workplace will to in offering. continue in furnishings. simplify we

continue related particularly future encouraging demand we a is demand, to position. near to see last workplace stable However, unique our market with quarter. our In trends remains commentary consistent but within given furnishings term, choppy, range the

continue Orders This, where see for to trends were a weeks. levels. their X% also recent have predicted to from from small- to medium-sized along activity for and all and dynamics. Small midsized workplace Legacy return of mid-single-digit to events quarter population we and benefited signals. in has year-over-year in segment are accounted the with consistent The customer contract to rates We contract on mentioned. year unmatched to were up for the lower year-over-year for position. growth were forward. just highs where segment, post-pandemic Looking on back going prepandemic support X% but encouraging have to competitive mid-single-digit orders SMB nearly return XXXX well basis. furniture in the lagging healthy general, believe in XX% in nearly should office pace year. to fourth down overall. grew basis. results pace In the a has acceleration an further are a reached the outperform. hiring. metrics from with the segment we and quarter hybrid larger we and and increased improved tick year-over-year contract, bode will legacy visits X% fourth by the this firms increase are continue up the seeing office in customers The smaller post-pandemic I approximately markets Encouragingly, metros organically need segment companies Switching a to flat the have some continue large office for health shifts benefited and full projected in hiring expirations lease out, in the and business also this secondary Orders to KII's patterns at of for work, companies demand spaces adapt in quarter,

December. offering. attractive first workplace major of trends and still quarter complementary of KII's the during positive year-over-year our a post-pandemic quarter the And choppy. We but of positioning Across continue has to but date all to be grew and continuation these generally encouraged by brands, order XXXX strongest seen uneven nature trends, were in were

capture $X.XX quarter topic. integration and synergy to of operating XX.X%. with in International strong added non-GAAP Both second EPS of my acquisition to and of profit the delivered Kimball a the Moving ahead non-GAAP associated are KII the approximately schedule. margin

XXX the addition, at from tied the cultural markets, now This Each is previous International care opportunities margins fourth This levels decline XXXX. financial continued point the continues several hospitality. is secondary in rate brands in operating recent products million. our achieve profit XX%. cyclical strengthens line margin to profitability. the delivered pressure. near of million XX% record In -- improvement and from continue This year to margin of revenue $XX is expected quarter improved the improvement and reported ahead Furnishings our new higher-than-anticipated Segment total cost of in provides and Workplace is residential a product, exposure to strategic geographies, more trends levels least Kimball despite to $XX pressure building combination communicated than to is support year-over-year expanded and in in benefits ago We procurement as trends to third synergies despite increase primarily our time non-GAAP of confidence to important as quarter. ancillary annual and run housing and accelerate. My products, weakness basis market market $XX a perspective. topic we line. complementary for its addition actions our expect business million The growth namely is well reduction the expectations up demand continued in be a period. from initially the health to top to cost the we represents achieved now initial savings. and

levels. housing segment. This single the quarter. the construction further compared stock fourth of are and demographic year the in improvement on trends macro U.S. trends an to dynamics for demand healthy XX% declines single-family housing orders housing quarter the XX% strong. robust order increased continued demand and were to is headwinds, it an the specifically starts benefit family in and near-term fourth in Importantly, to ago below the growth first soft, fundamentals Overall, half segment will we improvement Despite declined rates to new which pertains Year-over-year construction. retrofit improved remained permits quarter, are supports new showed however, in backdrop growth X% improve the XXXX. Remodel Fourth quarter and as construction the during represents housing moderating. undersupplied, when to remain segment minus activity intermediate turnover. future the point year-over-year. The renovation from orders aging bullish quarter third seen long-term the in

and demand in we solid areas encouraging summary, improved unique have our opportunities the owned category the the product continue to order online trends awareness, dynamics fundamentals, for segment. during In remain invest of the wholly innovation, quarter the footprint. addition long-term capabilities to growth long-term distributor new to installing market intermediate of expansion and In the and

fourth We million million strong from the already We sheet. of quarter XXXX. repaid the further quarter. half second Finally, $XXX fourth key in and our of my $XX point in debt strengthened the balance

we debt gross X.Xx. million of result, quarter fourth in the a As leverage total with and $XXX ratio ended a

of Xx, quarters ratio below of leverage only is speaks the our gross provide This us to following substantial flexibility. strong cash to Kimball characteristics acquisition and back the with International. Our continues flow financial company X

XXXX. I to turn outlook the call Following those to summary XX will now Marshall our discuss over comments, for Marshall?

Thanks, Jeff.

demand outlook. our with start Let's

rate organic at building revenue a low single-digit XXXX and both in Workplace expect products. residential to We Furnishings grow

impact this of products, conditions Furnishings, in the International, growth add to we partially demand of to remodel the retrofit. million incremental remain building second of offset XXXX. Kimball in residential assumes that the will those we first softness line million to $XXX outlook experienced In expect new XXXX, Workplace in KII half expect to revenue be in Shifting $XXX to For half. generally in construction by occur with

to also to from and Furnishings Workplace From the driven Kimball overall is We perspective, solidly by of accretion XXXX year-over-year, be solidly year expansion expected to full non-GAAP an in expect EPS primarily earnings. increase accretive margin International earnings continued KII. benefit

share per increase margin expansion International earnings For the offsetting than more outlook. year-over-year our on non-GAAP to quarter XXXX, top first from of details Kimball line we expect macro-driven first and accretion with few pressure. A quarter

Workplace be We the expect of versus to low quarter the digits Furnishings in down single XXXX. revenue first same organic quarter

Although a support our higher line seeing growth the for to positive full fourth quarter. point year first modest outlook. our first mix after of is seeking quarter orders the would growth quarter, delivery segment, a but the first in quarter business This are headwind does top we in project it

period. Shifting the International $XXX reflects the the $XXX quarter expect impact Products, And elevated to the down first This year-over-year. the to ago be to For quarter, from in revenue. first of Building unwinding backlog we in sheet. million Kimball year the revenue primarily we balance to in mid-teens low expect to million Residential add

to leverage capacity expect flow deleverage and strong generation during consistent will and improve Low capital sheet XXXX. We substantial cash our for deployment. balance provide already further

pursuing deployment share for in M&A are priorities call over cash dividends opportunities. I'll Jeff. the buybacks current back and the business, reinvesting to now Our and turn funding

Thanks, Marshall.

year-over-year expansion years. Before non-GAAP the past take and profitability overall, few excess I per to the XXX perspective, grown wanted and turbulent points coming to a call questions, we and strategies over of quarters. of addition have the or our highlight workplace less we $XXX for non-GAAP our of XXX initiatives this than points, million continued supportive and furnishing macro operating segment X-year backdrop. In of our more your of From driven margin than proper basis a and XX% XXXX transformation period expect more share moment accomplishments in have and levels margins to operating more over than XXX% the consistently a earnings has margin a basis improvement corporation despite open in specifically, couple growth profit from profit than expanded KII

of In addition, and now from Kimball integration synergy are higher. the expectations our accretion $XX International million schedule, ahead are and

Products, Building financial benefits combination confidence in quickly structure we to housing finally, Our reset accelerate. And XXXX. to strategic continues in and the to respond adjusted in Residential cost our the

strategies, the near levels, pressure, despite while quarter our As driven macro to brands to growth we margin invest in and line top expanded fourth continue operating profit platforms. in leading a the result, record our operating

Although remain revenue committed indicators high-margin to and we and expand growth uniquely the building of near-term remain, we products. I drive workplace In leading core long-term, members. to improving, high-margin HNI are summary, want margins strategies residential in are housing drive continuing as thank growth positioned to in dynamics to all furnishings stabilizes. our

strong Our reflect their dedication XXXX stakeholders. to and results effort, focus collective in our

your open will We now questions. the to call

[Operator Instructions].

of Your Company. with Garner Reuben first Benchmark question line the is from the

you put of in kind -- Kimball, means of there, carrying growth to start. earnings pieces to the 'XX, on XXXX. A if lot last kind kind and be I growths year. grow initiatives that Thanks for in in bridge? over us solidly Can the [indiscernible] all Marshall, of solidly with tell productivity savings a savings us moving know too. kind Maybe you you some the you could color together, EPS of said from would And help had of what organic that growth and of helpful,

our that's we'll say are Yes. growth. have drivers legacy the in expecting X the And of third when in double-digit growth it. solidly, EPS EPS half objective think The the year and high continued single consecutive low of Furnishings, to to I Look, of expansion growth Ruben, be digits that our there margin we big roughly say Workplace would we're teens.

continued a full getting accretion from the from year other is KII. half the The

are those the major X drivers. So

profitability We also improved from building will some see residential products. in benefit

in And 'XX cost of helps first or price savings least the guys 'XX? is to there you part any remaining benefit that over, in carry at

our driver major and Furnishings our growth The That's profit levers there. -- major price is of cost. the profit Absolutely. the productivity in continued legacy Workplace

the and are as little that's expecting well. this disportionate certainly, we favorable for So to a bit to half year, first be the

get to of to And through framework. Can walk on questions then clarify, could Products if break a just those be kind QX, expectations points how single-digit The do within start And low that framework year. that segment. growth given single-digit couple particularly just of high Okay. kind and I market you X. in X outlook And us the clear, very down a to kind maybe Building of growth there is of of your of you end kind to the kind want the Residential you encouraging, assumptions. to

we're be new year. Yes. remodel for We're the expecting construction digits to flattish. retrofit, up in the then mid-single to be expecting And

to we the where And on the the year. we you're We're for start the to comp off better low year. improve little retrofit, remodel so that's expect slower issue through get we average growth get Reuben, to do right, on But a to the to year. bit year-over-year to through do going we due expect that single-digit alluded And call. growth that

benefit to trade destocking which won't inventory is repeat in XXXX, we're in that we items the going XXXX. of from some One had

start later the be think get in And going year, that solid comps to all to we the anniversary improve. and easier growth as year. we pretty will construction new the So is

trajectory So really little in back remodel to change in getting the half. driven less the bad, retrofit, get the is a by starting better

to more Okay. in. going And sneak I'm one

Obviously, of growth? profit number. look of the a go of that you segment, forward? residential the of of we going quarter. Is can something kind margin ways back pretty kind historical more fourth to there? Anything the to kind performance generate Or onetime in reinvesting that your On big for

go we're road quarter. can't to quarter it The is quarter usually the margins been achieve a for in the I investing expand were expand, will has quarter Yes, quarter per we remain margin still probably the our where normal -- I in in -- quarter we always a those to looking traditionally historically. reason the the but And fourth and there's always quarter fourth think it Ruben, see don't to us anyway, I fourth highest any think fourth fourth down back strong nothing se. pattern extraordinary will but high.

with the line is next of Greg from & Your Company. question Burns Sidoti

-- in really on residential business. product margins building of side the job The the the nice

and sustain? of we there. things starts to you growth? you to up the going are about bit look to intend we firming these As something -- into ] Are revenue Do growth a support forward? little margin on levels side next reaccelerate [ to that revenue business starts could How should margins give back think

is Greg, [ ] margins in for the we high the the to teens Our that goal is there here, and taking. hold drive that believe growth

a in year, in is And margins our there's quarter we'll the think mentioned I answer, Fourth level. to prior usually so as of high highest. for kind that be in the And business. teens seasonality that Jeff the

may where bit think we're So down drive really are the them want to from we growth. go be. but or little I relatively margins up They a trying to here,

So seasonal unusual where there's in in That's perspective. to right we number. be fourth nothing a want with on line quarter the

that customers? more the market those that might moving or that sense Are Okay. their [ anything maybe the And -- there intent -- a intent the of on office on your conversations having market of the business, the upgrading pipeline pickup then going with be you're to in seeing on you there? that seeing get getting that there market maybe in you to project are or any just conversations ] you -- relative there general Are offices how are side spend the ahead? in activity the or with contract part would customers

Greg. Look, are signs and improvement it seeing a we're -- we seeing bit, stabilize there, Yes. for positive that's some

choppy. still it's think I

I with which subsegments just people to see we do in and stuff, state those and has are encouraging, we not to local care day-to-day refreshes. strength aside, Porter all business we're showing say, projects, -- metrics as would small hospitality, particularly strength. exposure suggest health but some are an starting strengthened. will project small However, education and have are

The that's know have other have this there's really are moving a kind events. C And it's thing kick have we -- is But our lot leasing eye talking happening to I customers the I lot that -- dynamic at it's whether we it's and CRE and whole an of out B what's now I think looking and think been on of we're people stopping a things. been but the people to of kicking owners on side kind pull from about we're of a to speculation there a space, with event. the of and is trigger can, are been people open having A to can letting a furniture or furniture

to believe we our to a is So and it and that do be But albeit going to Because my positive midterm, to generate be in in strength, that's demand in plays space. the outlook that as to start unlock that start -- space more to grind it a gas. well. space, to going that demand that plays some contract slow I will believe in

is Thompson with Your Ramsey Research Group. Steven next from question of line the

that to of I continue thought. line wanted

You've got similar dynamics with home and down and existing sales leasing remodel. in the workplace repair then side slowing

you up focus how how the in term? near to Or maybe does resi shaping product demand for that on impact sales, guys maybe So building it see you the home historically? existing

That's good question. Yes. a

a think, dynamic. -- I look, similar we it's

once on definitely impact R&R of that People having business. move. is are so -- they remodel an some kind of You But right. the

space. road, at there an to continue look I upside has the We unlock So as down it see to clearly will impact. we start but things that think

that possible got activity. find space efforts place the our a to of possibilities campaigns and drive efforts exploring digital have lot they people some with We've because decided of focused as on awareness we of what's to Now in of replacement in of drive home. inserts some for stay to maybe who area well a can't

So we're way as leverage working that well.

residential Okay. does that segment expect to with at That's this leaning into dollars in natural going new you yet constraints the Curious that some thinking about. campaigns back more where just imply more it's high are product on share the investment investment growth amidst seem teens, aside driving for slow R&R from helpful. if dollars about of year target to and then the And gaining growth, combined construction as the if you drop? R&R that's talked or margin

category, platforms, of efforts awareness updating We've got to the homeowner, both. all investing digital ongoing. relative It's to awareness, the product homebuyer addition platforms. we're in product investments I consumer some product that platforms, we mean in modernizing have in electric

you're same assuming workplace second gap the closes Okay. outperforming or keeps saying the their widens it potential further? environment the the contract of half Or guess I is stays, degree? to that SMB

going mean is -- point by a best have our think at to that's or Look, decelerate. don't points. outperform it will I to it's reason I percentage this guess accelerate several continue to

probably best its at going assumption XX what I been the to last doing kind it's is point it this our think just months. of maintain maintains --

question next with the is Your Bugatch Tower Research. Water line from Budd of

to a where in where of earnings that, it -- X/X normal half half. see and I unusual the the of your guess we that really see we've How question typical first of mostly seasonality back of second come from a X/X and I years the earnings have Marshall? do second couple a the to Are of impacted events the out seasonality you gets kind we revenues. is and period

to Yes. But back believe seasonality. normal the we we're absolutely

have seasonality. we think were the but XXXX XXXX, I acquisition through in had aside, there we XXXX, normal

seasonal time XX% any XXXX as But of the range. back normal kind clean first comparing back you're profit in the follow to against XX% you those there's said, of some pattern, being should noise. and the XXXX we're roughly years, So in half, both half the now,

than out come period went you stronger this of you've into it. And

to of balance -- the KII furniture leasing now. like you you you'd going forward term think that I Do strategically Jeff and Your pretty to is events. anything longer maybe that events alluded terms the right sheet accelerating after see What now on? do what see good comment in

of the on in right KII driving the line and workplace Budd expansion, we Residential see the top now. we're We're lots driving Building Products in path benefits growth high-margin integration profit the of segment. furnishings, margin on expansion runway with driving

feel of we have not at we and we -- not we're anything we no, like add now got a lot of to moment. what right needed So runway this necessarily feeling

I right, think Yes, that's Budd.

think believe got and a are we our a of ground. got are focused. on lot we've in to got investing KII. we the dry business integrating teams but the I plow We've -- We've lot powder

And so but that's -- all good.

And be you operationally that the things I where thinking in with was KII, still we I guess, area want that you overweighted rural what and to about, are geographically markets. into are the

you a I As to their alluded metro think in the little to Marshall, if people firmer see be in a back be to businesses office. for strength you gain start the on Do more to markets? way requirement some

nice we still the I the participate stuff well. look, -- have mean, we the side. It's on chunk we as of Budd, Yes. some have a have contract there, and just there of business we other

well So been we're talked forward. it. piece and do now will competing of believe on happening focused going We're that's why what's compete we business. about we And a that for our area. well It's big

that benefit metros. will furniture -- as we those So in major as events unlock

And for seeing costs on a the going cost Okay. bit waterways and a about, me. are at concerning. on Anything a side, there. little in people I have on maybe canals anything be residential last of out some that seeing least might you for little you're the what's worrisome side that lot the talked issues, the know

normal wages, the like all. from the to For some do primarily normal year, merits the we inflation Budd expect see

That even moment. issue a We a are little And freight the definitely are maybe bit at expect the the little the that pressure. with inflationary pressure an a part year. is in deflationary pretty And first realization. of price seeing stable, we of to offset commodities

the again cost $XX favorable XXXX, expect do we speaking, range. So in in million price roughly

follow-up is Stephen Ramsey question Research next from a Thompson with Group. Your

Just wanted talked carry much with good of segments. things circle a these of the drivers XXXX? growth Clearly, just in runway how into there's to helping XXXX, something broad array earnings across back you both of to happening about, Marshall,

curious you months. the of So the drivers next some XX about how beyond think

of of on got runway, particularly we've think lot the we Stephen, side Yes, productivity a things.

profitability new primarily mentioned that made in think a his operational our in some Jeff facility in Mexico. actually XXXX I XXXX, $XX about that's comments to million. that investments And in headwind we of

And investments and million in total, in generate return including of the $XX 'XX a Mexico. and little mature begin bit 'XX in $XX and the All pay a off 'XX, those as million range. to investments they'll to

$XX big from million that's where right are we a So now. least at pretty swing of

of to the type keep that's from profit got volumes. us growth we've in of with of lot of runway So indicative front driving a help not

Yes, Steven.

Furnishings to as we can margin mean, we everything said, Workplace volume to volume margins to expansion we we are 'XX. going obviously continue As I we doing visibility plans place we But the mean in growth. expand -- that we're looking without I continue can have in profit capture much and as we're growth can. at in 'XX and

the for turn there remarks. to further I now Lorenger any call back questions. no appear Mr. will time, to at this be And closing

joining the Thanks, great taking Great. today a time. us and Have for everybody, day.

Thank joining appreciate call. today's you for your We participation. all

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