HNI - Earnings call transcript Q3 2018

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Operator

Good morning. My name is Kelly and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation Third Quarter Fiscal 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. reminder, is a recorded. As Instructions] today's being conference [Operator Thank you. Mr. begin Herring, your may conference. you

Jack Herring

I Treasurer joining Good Investor Jack XXXX am morning. Herring, HNI our quarter Thank results. discuss Relations and Corporation. you to for us third fiscal for of Director

me earnings any and and that Here unknown our reconciliations posted Jeff presentation, Senior subject and results. are Marshall statements to our actual additional of Lorenger. Web Lorenger, call. the known to historical CFO. differ facts Actual to made and which website statements, strictly made that not on posted factors call risks. The presentation and non-GAAP are President Copies Jeff corporation during site. financial The the during on includes Bridges, President forward-looking our with forward-looking call pleased materially. over CEO; Vice update news this Statements release, are I'm earnings assumes are affect could turn no could results to obligation are

Jeff Lorenger

Jack. the Thanks, some outlook for We'll our of assessment then on thoughts and our for third questions. share quarter quarter. up the the provide We'll open call morning, fourth Good everyone.

pleased overall our are results. We with

an The important us. quarter for was third time

corner We drove and continued cost market on momentum, savings of net our the our BST and benefit. million transition, turned $XX productivity

have providing quarter, rapid last to the focused we market XX% strong XX our returns our in for medium-sized is small business market-leading delivering position. returns business, through have remain we more strong invested results, is while improvement. growing continuous this from seen our focused significantly the our This will enhance and strong profit generating we costs companies, consistent months, become and the In on and over years, selling investments. active, reducing several We has In continue team our last improvement. on customers, strong Our flawless execution the our while to delivered supplies-driven confident shareholders. investments

models customer we accelerated strengthened our while evolving to have channel period, very a business our partners, with and momentum, needs. market our our dynamic During relationships adapting

delivered as expected. business hearth grew sales and Our profit results

be our to that potential softer primarily continue third we last was In track business of profits. contract market delivered Contract and due growth We to we position see XX% for the business, the X% about of in another remains record sales, down did compared year. timing. as excited year quarter on increase, our to

We delayed are sales the seeing cycle. growing taking activity through projects solid are move still The to the a overall and contract being and in funnel. business generally sales longer

our a position in We market maintain have and positive outlook. competitive confidence

operating shareholder our while at to long-term value. We Looking expenses, on third to growth I our path and we feel to for now quarter. profit momentum invest XX:XX:XX this over our our review the quarter. smartly and manage Overall, helping good improve forward below continuing drive call in the able our I'll fulfillment initiatives. financial to were details them expectations, the Marshall? to turn Marshall about some did

Marshall Bridges

Jeff. Thanks,

furniture office impacts net small X.X% sales the year, Furniture segment, sales X.X% grew companies and prior organic versus consolidated quarter X.X%. closing Third total. Office including sales or the from the in increased In X.X% organically divesting increased

in realization construction gains X% the per improved segment, third $X.XX sales increased benefit price $X.XX Jeff? income diluted input share sales sales retail and Office Hearth in of productivity of and quarter. of the X.X%, our compared quarter sales down products business contract offset net segment, the tax Within non-GAAP higher impacts X%, more the XXXX. In X%, change our The to than organically was in total. XX%, costs were business supplies-driven increased increased in sales Furniture our the X% down increased in new or

Jeff Lorenger

Thanks, Marshall.

and savings strong our profit outlook. sales a by quarter productivity gains. solid growth basis. fourth of expecting to expect on to we Overall, X% consolidated primarily also X% shift We're Let's cost growth, organic driven

supplies-driven business, our expect at each we be to for outlook our to business up X% Looking X%.

supplies. past mix our in organically X% contract discussed our business X% grow is We continue to market contract projects. momentum have have see to strong as positive our volatile to we will conditions in Sales and inherently due in the business of high

competing Over to the indicative long-term overall I in that see our for feel growth. prospects significant we growth not can good strength. short-term, or rates we about necessarily competitive continue are market the in our how fluctuations of are our

and expect up the XX%. be We're solid both products. hearth X% to We retail construction business seeing in new will growth

us Marshall to of Marshall? in we on will have some our details what can about front achieve. We I opportunities provide and I'm excited have attractive now outlook.

Marshall Bridges

forecasting organic Looking be fourth furniture up consolidated effects X%, are expect We're X% up X%. contract or in to in organically projected furniture sales to total. quarter, X% we're the X% closures be the be or X% to X% to organically X% and when to up we Sales up flat X% including X% Office to to to sales expected to up down in office up business X% our be sales of X% X% business are in to our supplies-driven divestitures. to total.

to be gross sales in retail to hearth XX.X%. to is Non-GAAP expect be XX% and profit hearth million. SG&A, XX% $XXX at to which X% is expected freight We between Non-GAAP margin new XX%. expected to with to construction up sales distribution $XXX be expense, sales million X% products includes XX% X% to up of

driver to non-GAAP diluted for estimate estimate in share sales that outlook lower than earnings primary of $X.XX. Our a the $X.XX per This $X.XX is of The is diluted guidance our compares and previously range to narrowed non-GAAP prior of fourth quarter furniture the of $X.XX. contract of share full-year $X.XX. expected your to business. for to This per in earnings our of $X.XX results

$XXX expected million cash expenditures. million to rate million including now We flow XX.X%. $XX full-year be capital full-year Jeff? of million approximately to tax range the to $XX Our be $XXX expect in is of free

Jeff Lorenger

about prospects and We growth. markets for Marshall. remain our Thanks, positive

questions. I'll operating brands, strong it open have financial our long-term capacity We comments With to and up significant the drive strong complete, those value for for shareholders. platform,

Operator

[Operator Instructions] of Securities. line Your Seaport McCall Matt question comes Global from from the first

line open. Your is

Matt McCall

morning, Good Thanks. everybody.

Jeff Lorenger

morning, Good Matt.

Matt McCall

Jeff, little made you comments think comment about projects on bit you're contract Can some those you shift? we driving new least I you that seeing the talk side, that's we think seeing heard delayed, could said recently. is expand a the on at you what you're commentary have

Jeff Lorenger

Yes, Matt.

to lumpy inherently As cycle. any the slide see growth. is the did It's We're longer quarter still know, through the quarter, out. you business in sales taking strong We basis. go seeing they're mostly project on

and the the a little growth strong in getting are just the well. we still getting is difficult products good, but Overall, our pipe. as little We slowdown about several market quarters, our We active. comps competitive last saw over a still and outlook is seen position, through a like more have the bit

Matt McCall

just where the are next out or sure, the that these the projects been you've business the these I'm - are or being So and making these understand delayed delayed the quarter. in being it's where pushed awarded projects I awards projects being

you're the Just make sure understand using? terminology I

Jeff Lorenger

bit all both; little a it's it's map. Matt, the across Yes, of

are in to decisions busy the things get decisions to are cycle. taking later to taking made, taking sales it's it's are People longer. and get some coming Sometimes the longer just longer cycle,

so, And a it's both. little bit of

Matt McCall

but little segment outlook how than think to lower there guidance, how in quarter, pressures the maybe the hearth in are expected anything and Can a Okay. guidance, in is talk persist, QX about? margin is your the we expected the what's long about beyond to you

Marshall Bridges

driven third in in a in did had realizations. that the was quarter. of more quarter see We excessive vast pressure We as realization and and bit million margin third Yes. net inflationary about the by $X the price pressures than you saw, majority of inflation price hearth

neutral through fourth versus pricing we year. round and some we're as expect and the the which that leverage business. And create prior gap in volume fourth close in We expansion in fourth another to quarter, pushed of we enter the have will growth hearth expecting hearth quarter to the well margin look quarter, good into we the as basically

Matt McCall

tariff Can we give what outlook front? doing and I you to an Last the potential are it? What combat Okay, evaluating to of so think is you impact update spoke that on pressure, neutral on the the XX% what going were your you for XX%. there. about still us the

Jeff Lorenger

Matt, know, Jeff. is this You

to at have time review an impact, on implementing We going pricing know list now have to cases you our to surcharges. tariffs different degrees are actions include and in price the Near-term some they announced we're adjustments and which businesses. various

you know, specifically. you to long-term, on a the we maintain, the cost tariff basis, remain know given price expect Over neutral

Matt McCall

XX% XX%. our Can mean numbers numbers notes - you the put the - I around What a had behind of from, think, the perspective? we what's XX% dollar that? what's on you know, was from kind any assumption

Marshall Bridges

tariff assess It's what Matt, of to around where directly to obviously a moving that you from. chain bit, we sourcing need want your decisions a supply XX% [ph] can make change, source kind number as with

that it's decisions. impact, said that know potential offset pricing know but is a into you you goods of as expect You you around, we speaking, actions build roughly move XXXX. those pressures said, to those to sold a Jeff know, with XX% taking can know, cost of enter it's And XX% we number as

Matt McCall

Okay.

and hearing a the there. environment what seeing little finally housing and single-family what some way Okay. names? from talk out you the And very then from trends expected of and about just Can the the markets housing getting kind these love of the you're trends treat me, is you're given perspective

Jeff Lorenger

This Matt. is Jeff Yes, again.

still we look indicators the know, You at, growth. see we

day. some are mixed the team and slower position. You same in know in seeing of and our are we look is the given every permits signals, It our market some you still data confident but at confident activity builders

maybe So see there mix. we and we bit a growth our little still position albeit like still

Matt McCall

So, growth indicators or that you around slowdown hearing - referencing you about you industry the is know the macro actually talk where mentioned, expectations? it the permits, your data or are slower customers you're basically is

Jeff Lorenger

more think confident. Matt, the to on is the a side, pretty of feel bit still both, they talked I we macro it's builders, mean, I

trends and we a that inventory out favorable lot I are affordability there. think have of everyone there's headwinds, but not mortgage still pretty some recognizes rates demographic and

all out it good. dramatically to how doesn't be feel So, it may it's like just but plays it slightly be determined, less bad,

Matt McCall

Got it.

Thank all. Okay. you

Jeff Lorenger

Matt. Thanks,

Operator

from James. Raymond comes Beryl of the Bugatch line from question next Your

Your line open. is

Beryl Bugatch

Good Marshall. Jeff. morning, Good morning, Jack. morning, Good

said read that you tariff $XXX means That of a subjected way you Marshall, import goods put now that? have that XX% some product Let sold me potentially million to to million try Is you to just the together, impacted. $XXX be the is cost numbers probably potential could of XX% impact, to and tariff.

Marshall Bridges

Yes. correct. that's But

Beryl Bugatch

Okay.

Marshall Bridges

decide again the in discuss the And - that's around where beginning that said in number the we move to this after on after source a depending implemented this as from Matt, year. can I with of things is

Beryl Bugatch

you importing $XXX million makes imports? are what So, put that that up some million of color to to $XXX that

Marshall Bridges

great That's question. Yes. a

more Asian action, two-thirds a competitors that across some and than competes brought the the from is with pretty product you lot supplies-driven in seeing pricing we're the is of So, what of importers And a China. of that lot against business associated is consistently there. And know is business. supplies-driven

there's So a…

Beryl Bugatch

What does raising prices? that mean, they're

Marshall Bridges

Yes, yes.

Beryl Bugatch

Okay. I'm sorry.

Marshall Bridges

Yes.

at in than from China. there's of does in look goods. combination business you a businesses. goods have is some That's supply's different components other what come If The our finished that finished that

Beryl Bugatch

you're $XXX is of supplies-driven. close about saying So it a to million

Marshall Bridges

bit the a that's but than maybe Yes, actually, ballpark. more that in

Beryl Bugatch

greater us growth rate you what contract in $XXX of you can saw give an right, order Matt's office? idea million. kind for than All question, To of Okay. maybe

Jeff Lorenger

say generally disclose activity is and don't No, What strong. that. we would our sales still Beryl, growing the following I don't is is we

Beryl Bugatch

deliver. understand funnel but sales end it from timing Jeff, got going do kind us that to I the order issue, how orders to give the we if at salesman to of get and it to And delivery? backlog think a to you're that some then that comfort Well, goes backlog goes I of really

Marshall Bridges

preorder to confident uptick support that Jeff X% to pretty activity. well growth seen from X% in good in rate activity the feel funnel we as a here that support order rate anticipating quarter we're but the Yes, orders recent business in said and fourth and the contract as have the we

be going but going to because may there happen still assessing that's obviously other as XXXX a hit on to how As that's things there we're into well. out. that that but positive, what we next a still be out, assessing going look is other how plays may this delay that Obviously there is year positive plays we're

Beryl Bugatch

backlog contract, if in correct it's most mean backlog pretty within weeks the in movement and still? quick got that four in you of the I side. a typically it's Is contract that delivered

Marshall Bridges

It weeks, couple Four right. could is. But now. you're it a generally weeks be more

Beryl Bugatch

a got configured? people put so backlog most the going mean in Yes, I be specification of bonafide to really it's it don't how

Marshall Bridges

Correct.

Jeff Lorenger

Yes, right on.

Beryl Bugatch

right. third that of is hearing the on unfavorable million Okay. looking you idea at this All we I like in distribution variance a get take Can the freight. SG&A and and fourth we've an $X.X think look which quarter that? freight it had been all right, what quarter you all When represents you're will about

Marshall Bridges

Yes, in seen as There and part which talked you've about the that throughout some of fulfillment investment that the still is freight to we third I to. last and quarter think you're seen alluding in cost but there distribution the our do have ship year. with has what quick incremental inflation which we well year

there of and with productivity and shipping much the carrier for distribution be we're well the to fourth the some we a from getting of where lot quarter, we're freight prior in line pretty as some anniversary inflation For levels we're starting rates. as expecting quick the year had

Beryl Bugatch

place last year, pretty quarter were we fourth Yes, the well in right? in

Marshall Bridges

there's bit well, but for little a most always correct. incremental there that's more part Pretty the

Beryl Bugatch

Okay.

And causing What's other the think was incentive? quarter of year. any expense for you accrual so the and had the SG&A What's I last - $X.X requisite? expense. talked then fourth increased the million that don't incentive side about the you

Marshall Bridges

as those levels. now we're our relates third given the to so to normalized quarter anniversarying down more year took where last really we're so Yes, we results, resetting programs

that's still the We'll that So some fourth as but what's quarter not increase much. causing of see in that there.

Beryl Bugatch

million the incentive $X bulk is that So comp of delta accrual?

Marshall Bridges

as That's accruals in on stock growth some SG&A we and talked initiatives there. a the investments, there then comp incentive also the price And programs. an fulfillment There's related compensation got well deferred in also the we've to Yes. as go-to-market mark-to-market about that earlier. and

Beryl Bugatch

Okay.

like of areas a of nearer energy And been in we other energy us much side breakpoint unfortunately that to starts to that it is I One cost rise? what the the get about heating where know a but business where as, change attractive. reduced to get it's hasn't used be looks as can costs the talked of for fraction reflect hearth been you as rise,

Marshall Bridges

Yes.

Beryl Bugatch

energy From cost as analyst, rise? it's fortunately energy

Marshall Bridges

suppose XX% fourth I - X% That's that of in I growth that We've the is Yes. referring there. I'd business. as roughly is expecting question which fourth business embedded growth business retail think small, half enter what HNI from quarter pellet for pellet is our of the estimate the pretty here. No. growth. roughly of so from but you're that products our of to this seen there the is trajectory coming that some very gave we pellet in say the are total decent we it's we're to quarter XX% and about excited we pretty

Beryl Bugatch

a where delta right. all That's That's from bid, Okay, interesting. right? we

Marshall Bridges

that's low growth relatively year dollar been so right. here it's the but for Yes, last or

Beryl Bugatch

year for do us know it's get to recognition offline fourth some And third think with Okay. or we giving been can of have new revenue Can you that part those baselines last okay? and I Jack through contracts. quarter are I fourth, if what the supplies those disclosure, as and numbers in where,

Marshall Bridges

they'll queues in Yes. get And our those. be we case We continue as to can in file.

Beryl Bugatch

much. Thank Good right. very on fourth balance year. luck all on it. the the Okay, quarter and the you of Appreciate

Jeff Lorenger

Thanks, Beryl.

Operator

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

Your line open. is

Greg Burns

so realizations total in we quarter? us had remaining, I When $XX $XX that expect can full you to of the I about that at savings you're, the targeting? to embedded let million you get know cost guide, what's in million you morning. just was Good terms do maybe number know XQ look million $XX been the fourth and the you've think

Marshall Bridges

Yes.

cost billion a net productivity to savings for between back. expecting the We're take the in to benefit quarter. step It So, million $XX and there. fourth $XX relates gains just

I on about Some that Greg, think talked cost the is of structural was takeout you're driven $XX ago years million $XX by, three what referring to we to, million. two, that

we be the that's mentioned get million last that number. that we that quarter, $XX sort in years of good to And projects, on lot cost that in basis. place. $XX a benefit we just a we're million structural small cost what through addition typically, to historically seeing at, $XX few is grinding of all it in the the to ago of a Some getting is But million of been million to will $XX good savings out of back takeout, fourth tranch we daily are after embedded

Greg Burns

headwinds Okay, leverage that we offsetting some that been place? about like look the you of of XXXX, then initiatives get you great. in have to these be going you some it these margin guess or And of fourth is incremental based ongoing you do more I beyond quarter discussing on into you've - some kind feel

Marshall Bridges

Yes.

got productivity to we've up headwinds savings there are that gain if be all side, - of yet and momentum a mixes is on determined. the So how of lot there cost and but out

earlier, does got help said the got offset we've next inflationary and pressures, we the sure on margins that pricing exactly we've we view As a what I'm but tariff we yet. not year momentum, do have think actions to

Greg Burns

Thank you. great. Okay,

Operator

Your next Thompson Kathryn Research question line comes Group. of from from Thompson the

is open. line Your

Steven Ramsey

been Good were line were Steven on Kathryn. Ramsey growth takeout out top talk strategic morning. more making - past is focused or of year for in than focused, two? they release, cost the can growth investments This press you kinds the The in different that these, they about you the investments called you've or

Jeff Lorenger

selling really ongoing capacity and is our on getting improvements, where are out relative on where international. gas referring investment This always kind daily projects, capability the investments referenced and of small side many but the - growth day-to-day, Those in we're on back to Marshall as to on we're you're international. Jeff. release mostly Steven. the called investments focused we the Yes. There's sale cost

Steven Ramsey

you cost XX% is XX%? that XX% and to not about out, the And impact? that inflationary are Great. is - you goods pressures aside can XX% tariffs the more talk - of sold only maybe you about to called intrinsic just Thinking from impacting

Marshall Bridges

to we have, XX% are sort seeing that possibly XX% so when of subject inflation could better, pressures, the Well to it's a that's tariffs, sure. not exposure to of we the that's and any for mean Chinese amounts - they're getting relates

If view quarter, inflation guidance, have quarter expecting don't a range We turn impact in we're we going it $XX tariff $XX the year, to including the fourth from slow any. don't that's in what the in to include a of down you next fourth that's out but great total expecting expect at look million. we're million of to how our

Steven Ramsey

this And right. just an maybe step broader of back then - All kind like intangible - more question. of

As if has outlook both you there's movement things side and cost think of the your and about given markets confidence all your business various visibility the having an line visibility end demand/top changed just in much so of side at in in things? on

Jeff Lorenger

we months. know, and look slide at we parts versus you projects know had pretty have the contract has it's - board Stephen, talked looks this good same I last kind question. year. entered I out there think, you we've you visibility like pure side, Yes. out was reassessed Jeff. That's supplies versus visibility it that mean but dynamic you know similar probably contract on a it's of - you now, right obviously standpoint, to know, in XX what more where the across than about dynamic from know the about, the is and don't it's the we been it seen the a we we some But when

Steven Ramsey

you. Thank Great.

Operator

there no call the at questions are this closing for Lorenger over Mr. time. remarks. to I further And turn back

Jeff Lorenger

and joining to much, everybody I'd Okay, day. a and today Thanks. like thanks for have so us great thank

Operator

today's conference this concludes And call.

disconnect. now may You

HNI (HNI) 23 Oct 182018 Q3 Earnings call transcript