MUSCATINE, Iowa – Workplace-furnishings maker HNI Corp. saw its stock jump more than 10% after reporting first-quarter earnings Monday, May 8, that beat Wall Street’s expectations.
In the first quarter, ended April 1, HNI’s sales fell 16% to $479.1 million from $572.3 million a year ago, the company announced in its earnings report.
Net income was $1.6 million in the quarter, compared to $14.2 million a year ago. GAAP net income per diluted share was $0.04, compared to $0.33 in prior year.
HNI’s stock rose $1.90 in trading Monday to close at $27.12 a share, up from the previous close of $25.22.
“Our actions to drive profit expansion in Workplace Furnishings are delivering results, as reflected in our better-than-expected first quarter profitability,” Jeff Lorenger, HNI chairman, president and CEO, said in the news release. “Demand trends in Workplace Furnishings are also encouraging with higher-than-anticipated order growth across our businesses.”
According to HNI, net sales in its Workplace Furnishings segment decreased 15.1% from prior-year quarter to $299.6 million in the first quarter.
Organic orders in the segment increased 13% versus the same period a year ago benefitting from what HNI said was pull-forward activity associated with price increases that became effective during the quarter.
The first quarter marked the fourth consecutive quarter of year-over-year profit improvement in Workplace Furnishings.
Meanwhile, Mr. Lorenger said the company’s Residential Building Products “performed largely as expected as we adjusted to softer housing-related demand conditions and held operating margins above 15% for the 11th straight quarter.”
The Residential Building Products segment saw net sales decrease 18.2% year-over-year. It attributed higher interest rates and economic uncertainty for negatively impacting the segment demand. However, the company said productivity savings, cost reduction actions, and continued price-cost improvement offset nearly half of the volume-related profit pressure.
Organic orders in the Residential Building Products segment decreased 37% compared to the prior-year period, versus a positive 27% year-ago comparable. Orders in the remodel/retrofit channel were weaker than those in the new construction market during the quarter.
HNI’s acquisition of a residential building products company in the second quarter of 2022 increased sales $1.5 million compared to the prior-year quarter.
Looking ahead, HNI said it expects weaker macroeconomic conditions to continue to impact Workplace Furnishings demand and profitability on a year-over-year basis through the second quarter. In Residential Building Products, HNI expects a weak housing market to result in year-over-year revenue and profit pressure persisting through the remainder of 2023. However, the rate of decline is expected to moderate in the second half primarily due to a return to normal seasonality and less challenging year-ago comparables.
HNI now forecasts it will generate approximately 80% of its annual profit in the second half of 2023, compared to approximately 60% in the second half of 2022. It also expects second quarter 2023 operating income to exceed first quarter 2023 levels.
“We are well positioned for both the current environment and the long-term,” Mr. Lorenger said in the statement. “In Workplace Furnishings, our profit improvement actions will continue to drive results.”
The earnings report comes two months after HNI announced an agreement to acquire Kimball International in a cash and stock transaction valued at approximately $455 million. The transaction has cleared antitrust review and is expected to close in early June. It still awaits customary closing conditions and is pending approval by Kimball shareholders at a special shareholder meeting on Wednesday, May 31.
“Our combination with Kimball International will create a market leader uniquely positioned for the post pandemic environment with expertise in both secondary geographies and ancillary products,” Mr. Lorenger said in the earnings release. “These capabilities and market positions are becoming increasingly important due to population migration and hybrid work trends.”
He added that HNI remains committed to its core strategies and focused on driving long-term growth. “We continue to have unique opportunities to grow our business through driving category awareness, leading product innovation, and expanding our owned installing-distribution footprint. The mid- and long-term fundamentals of the housing market are strong. The market is undersupplied, and demographic trends support demand growth.”
