HNI CORPORATION REPORTS
STRONG EARNINGS FOR
SECOND QUARTER FISCAL 2014
MUSCATINE, Iowa (July 16, 2014) – HNI Corporation (NYSE: HNI) today announced sales for the second quarter ended June 28, 2014, of $509.1 million and net income of $9.7 million, or $0.21 per diluted share for the quarter. Non-GAAP net income per diluted share improved 39 percent from the prior year quarter to $0.39, which excludes restructuring and impairment charges, transition costs and the gain on sale of air emission credits.
Second Quarter Summary Comments
"We are pleased with our performance and profit growth over prior year. Continued strong hearth business sales growth, overall operational execution and prior year investment returns drove second quarter profit improvement. As expected, the sales increase in our supplies-driven business was offset by a decline in contract office furniture due to strong year over year comparisons. Office furniture businesses generated strong profit growth despite a sales decrease. Our hearth business delivered significant sales and profit growth in both new construction and remodel/retrofit channels," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.
| Second Quarter – GAAP Financial Measures | | | | | | |
Dollars in millions except per share data | | Three Months Ended | | | | |
| | 6/28/2014 | | | 6/29/2013 | | | Percent Change | |
| | | | | | | | | | |
| Net sales | | $ | 509.1 | | | $ | 510.7 | | | | -0.3 | % |
| Gross profit | | $ | 181.1 | | | $ | 174.7 | | | | 3.7 | % |
| Gross profit % | | | 35.6 | % | | | 34.2 | % | | | | |
| SG&A (including restructuring and impairment) | | $ | 165.6 | | | $ | 152.0 | | | | 8.9 | % |
| SG&A % | | | 32.5 | % | | | 29.8 | % | | | | |
| (Gain) loss on sale of assets | | $ | (1.3 | ) | | $ | 2.5 | | | | | |
| Operating income | | $ | 16.9 | | | $ | 20.2 | | | | -16.1 | % |
| Operating income % | | | 3.3 | % | | | 3.9 | % | | | | |
| Net income attributable to HNI Corporation | | $ | 9.7 | | | $ | 11.4 | | | | -15.0 | % |
| | | | | | | | | | | | | |
| Earnings per share attributable to HNI Corporation – diluted | | $ | 0.21 | | | $ | 0.25 | | | | -16.0 | % |
Second Quarter Results
| · | Consolidated net sales decreased $1.6 million or 0.3 percent to $509.1 million. Compared to prior year quarter, divestitures reduced sales $8.1 million. On an organic basis sales increased 1.3 percent. |
| · | Gross margin was 1.4 percentage points higher than prior year primarily due to increased price realization, strong operational performance and higher hearth volume partially offset by lower volume and increased restructuring and transition charges in the office furniture segment. |
| · | Total selling and administrative expenses as a percent of net sales, including restructuring and impairment charges, increased 2.7 percentage points due mainly to restructuring and impairment charges and increased incentive-based compensation. |
| · | During the second quarter, as part of continuing efforts to reduce structural costs, the Corporation made the decision to close an office furniture facility in Florence, Alabama and consolidate production into existing manufacturing facilities. The Corporation also notified its members and the union representing the bargaining unit at its office furniture facility located in Chicago, Illinois of its tentative decision, pending negotiations and consultation with the union, to close the facility and consolidate production into an existing facility. In connection with these decisions the Corporation recorded $4.8 million of restructuring and transition costs of which $3.4 million were included in cost of sales. The Corporation estimates the realignments will save $8.1 million annually beginning in 2015. The tentative decision to close the Chicago facility, along with market factors, was identified as a triggering event for purposes of goodwill impairment testing. The Corporation recognized pre-tax goodwill impairment expense of $8.9 million during the second quarter. |
| · | The Corporation’s second quarter results included a $1.3 million gain on the sale of California air emission credits. Second quarter 2013 included a $2.5 million loss on the sale of a small non-core office furniture business. |
Second Quarter – Non-GAAP Financial Measures
(Reconciled with most comparable GAAP financial measures)
Dollars in millions Except per share data | | Three Months Ended 6/28/2014 | | | Three Months Ended 6/29/2013 | |
| | | Gross Profit | | | Operating Income | | | EPS | | | Gross Profit | | | Operating Income | | | EPS | |
| As reported (GAAP) | | $ | 181.1 | | | $ | 16.9 | | | $ | 0.21 | | | $ | 174.7 | | | $ | 20.2 | | | $ | 0.25 | |
| % of net sales | | | 35.6 | % | | | 3.3 | % | | | | | | | 34.2 | % | | | 3.9 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Restructuring and Impairment | | $ | 2.6 | | | $ | 12.9 | | | $ | 0.18 | | | | - | | | $ | (0.0 | ) | | $ | (0.00 | ) |
| Transition costs | | $ | 0.8 | | | $ | 0.8 | | | $ | 0.01 | | | | - | | | | - | | | | - | |
| (Gain) loss on sale | | | - | | | $ | (1.3 | ) | | $ | (0.02 | ) | | | - | | | $ | 2.5 | | | $ | 0.03 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Results (non-GAAP) | | $ | 184.6 | | | $ | 29.3 | | | $ | 0.39 | | | $ | 174.7 | | | $ | 22.6 | | | $ | 0.28 | |
| % of net sales | | | 36.3 | % | | | 5.8 | % | | | | | | | 34.2 | % | | | 4.4 | % | | | | |
| Office Furniture – GAAP Financial Measures | |
Dollars in millions | | Three Months Ended | | | Percent Change | |
| | 6/28/2014 | | | 6/29/2013 | |
| Sales | | $ | 423.4 | | | $ | 436.2 | | | | -2.9 | % |
| Operating profit | | $ | 18.2 | | | $ | 22.1 | | | | -17.6 | % |
| Operating profit % | | | 4.3 | % | | | 5.1 | % | | | | |
Second Quarter – Non-GAAP Financial Measures (Reconciled with most comparable GAAP financial measures) | |
| | | Three Months Ended | | | | |
| Dollars in millions | | 6/28/2014 | | | 6/29/2013 | | | Percent Change | |
| | | | | | | | | | |
| Operating profit as reported (GAAP) | | $ | 18.2 | | | $ | 22.1 | | | | -17.6 | % |
| % of Net Sales | | | 4.3 | % | | | 5.1 | % | | | | |
| | | | | | | | | | | | | |
| Restructuring and impairment | | $ | 12.9 | | | $ | (0.0 | ) | | | | |
| Transition Costs | | $ | 0.8 | | | | - | | | | | |
| Loss on sale | | | - | | | $ | 2.4 | | | | | |
| | | | | | | | | | | | | |
| Operating profit (non-GAAP) | | $ | 32.0 | | | $ | 24.6 | | | | 30.2 | % |
| % of Net Sales | | | 7.6 | % | | | 5.6 | % | | | | |
| · | Second quarter sales for the office furniture segment decreased $12.7 million or 2.9 percent to $423.4 million. Compared to prior year quarter, divestitures reduced sales by $8.1 million. On an organic basis, sales decreased 1.1 percent driven by a decrease in the contract channel partially offset by an increase in the supplies-driven channel. |
| · | Second quarter operating profit decreased $3.9 million. Operating profit was negatively impacted by lower volume, unfavorable mix and restructuring, transition and impairment charges. These were partially offset by increased price realization, strong operational performance and the loss on sale of a small non-core business in the prior year quarter. |
| · | Second quarter operating profit excluding restructuring, transition and impairment costs and loss on sale of business in the prior year increased $7.4 million or 30.2 percent. |
| Hearth Products | |
Dollars in millions | | Three Months Ended | | | Percent Change | |
| | 6/28/2014 | | | 6/29/2013 | |
| Sales | | $ | 85.7 | | | $ | 74.5 | | | | 15.0 | % |
| Operating profit | | $ | 8.5 | | | $ | 5.7 | | | | 48.8 | % |
| Operating profit % | | | 9.9 | % | | | 7.6 | % | | | | |
| · | Second quarter sales for the hearth products segment increased $11.2 million or 15.0 percent to $85.7 million driven by increases in both the new construction channel and the remodel/retrofit channel. |
| · | Second quarter operating profit increased $2.8 million. Operating profit was positively impacted by increased volume and higher price realization partially offset by increased warranty expense and higher incentive-based compensation. |
Year-to-Date Results
Consolidated net sales for the first six months of 2014 increased $8.3 million, or 0.9 percent, to $961.3 million compared to $953.0 million in 2013. Gross margin increased to 35.0 percent compared to 33.8 percent last year. Net income attributable to HNI Corporation was $20.8 million compared to $12.8 million in 2013. Earnings per share increased over 60 percent to $0.45 per diluted share compared to $0.28 per diluted share for the first six months of 2013.
Cash used in operations for the first six months of 2014 was $7.0 million compared to $18.2 million for the same period last year. Capital expenditures during the first six months were $51.1 million in 2014 compared to $33.6 million in 2013.
Outlook
"We delivered strong results during the first six months of the year, and I remain positive about our ability to grow sales and profits for the remainder of the year. We continue to aggressively invest for long-term profitable growth, and I remain confident our investments are delivering shareholder value," said Mr. Askren.
The Corporation estimates sales to be up 2 to 6 percent in the third quarter over the same period in the prior year. Non-GAAP earnings per diluted share are anticipated in the range of $0.68 to $0.73 for the third quarter, which excludes restructuring and transition charges. For the full year, the Company is narrowing its estimate of non-GAAP earnings per diluted share to the range of $1.75 to $1.85, which 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.
Conference Call
HNI Corporation will host a conference call on Thursday, July 17, 2014 at 10:00 a.m. (Central) to discuss second quarter 2014 results. To participate, call 1-877-512-9166 – conference ID number 58571139. A live webcast of the call will be available on HNI Corporation’s website at http://www.hnicorp.com (under Investor Information – Webcasts). A replay of the webcast will be made available at the website address above. An audio replay of the call will be available until Thursday, July 24, 2014, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 58571139.
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 also the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces. The Corporation's strong brands, including HON®, Allsteel®, Gunlocke®, Paoli®, Maxon®, Lamex®, HBF® , artcobell™, ERGO®, Heatilator®, Heat & Glo®, Quadra-Fire® and Harman Stove™, 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. More information can be found on the Corporation’s website at www.hnicorp.com.
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 third 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.
Forward-looking Statements
This release contains "forward-looking" statements that refer to future events and expectations. These statements address future plans, outlook, objectives and financial performance including expectations for future sales growth and earnings per diluted share (GAAP and non-GAAP) for the third quarter and full year fiscal 2014. In addition, forward-looking statements may be identified by 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. Forward-looking statements involve known and unknown risks, which may cause the Corporation's actual future results 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, (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; slow or negative growth rates in global and domestic economies or 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; competitive pricing pressure from foreign and domestic competitors; higher than expected costs and lower than expected supplies of materials; higher 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.
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HNI CORPORATION
Unaudited Condensed Consolidated Statement of Operations
| | | Three Months Ended | | | Six Months Ended | |
(Dollars in thousands, except per share data) | | Jun. 28, 2014 | | | Jun. 29, 2013 | | | Jun. 28, 2014 | | | Jun. 29, 2013 | |
| Net Sales | | $ | 509,143 | | | $ | 510,698 | | | $ | 961,344 | | | $ | 952,995 | |
| Cost of products sold | | | 328,010 | | | | 336,040 | | | | 625,039 | | | | 630,555 | |
| Gross profit | | | 181,133 | | | | 174,658 | | | | 336,305 | | | | 322,440 | |
| Selling and administrative expenses | | | 155,288 | | | | 152,078 | | | | 300,498 | | | | 296,634 | |
| (Gain) loss on sale of assets | | | (1,346 | ) | | | 2,460 | | | | (9,746 | ) | | | 2,460 | |
| Restructuring and impairment charges | | | 10,282 | | | | (35 | ) | | | 10,254 | | | | 121 | |
| Operating income | | | 16,909 | | | | 20,155 | | | | 35,299 | | | | 23,225 | |
| Interest income | | | 146 | | | | 158 | | | | 216 | | | | 310 | |
| Interest expense | | | 2,187 | | | | 2,725 | | | | 4,389 | | | | 5,393 | |
| Income before income taxes | | | 14,868 | | | | 17,588 | | | | 31,126 | | | | 18,142 | |
| Income taxes | | | 5,203 | | | | 6,189 | | | | 10,445 | | | | 5,564 | |
| Net income | | | 9,665 | | | | 11,399 | | | | 20,681 | | | | 12,578 | |
| Less: Net income (loss) attributable to the noncontrolling interest | | | (40 | ) | | | (22 | ) | | | (120 | ) | | | (251 | ) |
| Net income attributable to HNI Corporation | | $ | 9,705 | | | $ | 11,421 | | | $ | 20,801 | | | $ | 12,829 | |
| Net income attributable to HNI Corporation common shareholders – basic | | $ | 0.22 | | | $ | 0.25 | | | $ | 0.46 | | | $ | 0.28 | |
| Average number of common shares outstanding – basic | | | 45,019,783 | | | | 45,412,668 | | | | 45,029,148 | | | | 45,283,716 | |
| Net income attributable to HNI Corporation common shareholders – diluted | | $ | 0.21 | | | $ | 0.25 | | | $ | 0.45 | | | $ | 0.28 | |
| Average number of common shares outstanding – diluted | | | 45,867,927 | | | | 46,109,563 | | | | 45,843,118 | | | | 45,891,246 | |
Unaudited Condensed Consolidated Balance Sheet
| Assets | | Liabilities and Shareholders’ Equity | |
| | | As of | | | | As of | |
(Dollars in thousands) | | Jun. 28, 2014 | | | Dec. 28, 2013 | | | | Jun. 28, 2014 | | | Dec. 28, 2013 | |
| Cash and cash equivalents | | $ | 29,278 | | | $ | 65,030 | | Accounts payable and | | | | | | |
| Short-term investments | | | 2,852 | | | | 7,251 | | accrued expenses | | $ | 396,203 | | | $ | 407,799 | |
| Receivables | | | 238,076 | | | | 228,715 | | Note payable and current | | | | | | | | |
| Inventories | | | 128,377 | | | | 89,516 | | maturities of long-term debt | | | 35,702 | | | | 484 | |
| Deferred income taxes | | | 14,855 | | | | 16,051 | | Current maturities of other | | | | | | | | |
| Prepaid expenses and | | | | | | | | | long-term obligations | | | 3,089 | | | | 3,301 | |
| other current assets | | | 26,037 | | | | 26,665 | | | | | | | | | | |
| Current assets | | | 439,475 | | | | 433,228 | | Current liabilities | | | 434,994 | | | | 411,584 | |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | Long-term debt | | | 150,064 | | | | 150,091 | |
| | | | | | | | | | Capital lease obligations | | | 46 | | | | 106 | |
| | | | | | | | | | Other long-term liabilities | | | 68,804 | | | | 67,543 | |
| Property and equipment – net | | | 278,439 | | | | 267,401 | | Deferred income taxes | | | 69,366 | | | | 68,964 | |
| Goodwill | | | 278,125 | | | | 286,655 | | | | | | | | | | |
| Other assets | | | 164,233 | | | | 147,421 | | Parent Company shareholders’ | | | | | | | | |
| | | | | | | | | | equity | | | 437,028 | | | | 436,328 | |
| | | | | | | | | | Noncontrolling interest | | | (30 | ) | | | 89 | |
| | | | | | | | | | Shareholders’ equity | | | 436,998 | | | | 436,417 | |
| | | | | | | | | | Total liabilities and | | | | | | | | |
| Total assets | | $ | 1,160,272 | | | $ | 1,134,705 | | shareholders’ equity | | $ | 1,160,272 | | | $ | 1,134,705 | |
Unaudited Condensed Consolidated Statement of Cash Flows
| | | Six Months Ended | |
| (Dollars in thousands) | | Jun. 28, 2014 | | | Jun. 29, 2013 | |
| Net cash flows from (to) operating activities | | $ | (6,992 | ) | | $ | (18,229 | ) |
| Net cash flows from (to) investing activities: | | | | | | | | |
| Capital expenditures | | | (51,122 | ) | | | (33,619 | ) |
| Other | | | 17,560 | | | | 762 | |
| Net cash flows from (to) financing activities | | | 4,802 | | | | 43,055 | |
| Net increase (decrease) in cash and cash equivalents | | | (35,752 | ) | | | (8,031 | ) |
| Cash and cash equivalents at beginning of period | | | 65,030 | | | | 41,782 | |
| Cash and cash equivalents at end of period | | $ | 29,278 | | | $ | 33,751 | |
Business Segment Data
| | | Three Months Ended | | | Six Months Ended | |
| (Dollars in thousands) | | Jun. 28, 2014 | | | Jun. 29, 2013 | | | Jun. 28, 2014 | | | Jun. 29, 2013 | |
| Net sales: | | | | | | | | | | | | |
| Office furniture | | $ | 423,423 | | | $ | 436,169 | | | $ | 781,792 | | | $ | 802,001 | |
| Hearth products | | | 85,720 | | | | 74,529 | | | | 179,552 | | | | 150,994 | |
| | | $ | 509,143 | | | $ | 510,698 | | | $ | 961,344 | | | $ | 952,995 | |
| | | | | | | | | | | | | | | | | |
| Operating profit (loss): | | | | | | | | | | | | | | | | |
| Office furniture | | | | | | | | | | | | | | | | |
| Operations before restructuring and impairment charges | | $ | 28,524 | | | $ | 22,092 | | | $ | 44,989 | | | $ | 30,948 | |
| Restructuring and impairment charges | | | 10,282 | | | | 35 | | | | 10,254 | | | | (121 | ) |
| Office furniture – net | | | 18,242 | | | | 22,127 | | | | 34,735 | | | | 30,827 | |
| Hearth products | | | 8,481 | | | | 5,699 | | | | 20,189 | | | | 9,290 | |
| Total operating profit | | | 26,723 | | | | 27,826 | | | | 54,924 | | | | 40,117 | |
| Unallocated corporate expense | | | (11,855 | ) | | | (10,238 | ) | | | (23,798 | ) | | | (21,975 | ) |
| Income before income taxes | | $ | 14,868 | | | $ | 17,588 | | | $ | 31,126 | | | $ | 18,142 | |
| | | | | | | | | | | | | | | | | |
| Depreciation and amortization expense: | | | | | | | | | | | | | | | | |
| Office furniture | | $ | 12,472 | | | $ | 9,304 | | | $ | 21,971 | | | $ | 18,127 | |
| Hearth products | | | 1,158 | | | | 1,372 | | | | 2,334 | | | | 2,765 | |
| General corporate | | | 1,298 | | | | 1,073 | | | | 2,647 | | | | 1,946 | |
| | | $ | 14,928 | | | $ | 11,749 | | | $ | 26,952 | | | $ | 22,838 | |
| | | | | | | | | | | | | | | | | |
| Capital expenditures (including capitalized software): | | | | | | | | | | | | | | | | |
| Office furniture | | $ | 16,348 | | | $ | 13,017 | | | $ | 29,836 | | | $ | 22,949 | |
| Hearth products | | | 1,187 | | | | 1,051 | | | | 2,698 | | | | 1,665 | |
| General corporate | | | 10,894 | | | | 4,758 | | | | 18,587 | | | | 9,005 | |
| | | $ | 28,429 | | | $ | 18,826 | | | $ | 51,122 | | | $ | 33,619 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | As of Jun. 28, 2014 | | | As of Jun. 29, 2013 | |
| Identifiable assets: | | | | | | | | | | | | | | | | |
| Office furniture | | | | | | | | | | $ | 756,888 | | | $ | 754,695 | |
| Hearth products | | | | | | | | | | | 266,617 | | | | 266,171 | |
| General corporate | | | | | | | | | | | 136,767 | | | | 124,011 | |
| | | | | | | | | | | $ | 1,160,272 | | | $ | 1,144,877 | |
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News Release