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HNI (HNI) Q2 Earnings call transcript Jul 25, 2024
AInvestThursday, Jul 25, 2024 9:11 pm ET
2min read
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HNI Corporation, a leading manufacturer and marketer of office furniture and residential building products, recently reported robust second-quarter results for fiscal 2024, highlighting significant growth and profitability. The company's executives, including Vice President of Investor Relations and Corporate Development, Matt McCall, Chairman, President, and CEO, Jeffrey Lorenger, and Senior Vice President and CFO, Marshall Bridges, shared insights into the company's financial performance and future growth prospects during a recent earnings call.

Strong Earnings Growth and Operational Efficiency

The second quarter of fiscal 2024 saw HNI Corporation achieve a non-GAAP EPS of $0.79, a 44% year-over-year increase and a new record result for the second quarter. This growth was driven by the company's strategic initiatives, operational efficiency, and the recent acquisition of Kimball International, which significantly contributed to the company's profitability.

In the Workplace Furnishings segment, operating margin reached a multi-decade high of 11.9%, a testament to HNI's focus on improving profitability. This success is attributed to the company's profit transformation initiatives, including labor and material efficiency gains, and the synergies from the Kimball International acquisition.

Positive Outlook for Both Workplace Furnishings and Residential Building Products

Looking ahead, HNI Corporation is optimistic about the future, with expectations of revenue growth in both segments for the second half of 2024. The company's Workplace Furnishings segment is showing signs of improvement, with a low single-digit revenue growth rate expected for the second half, driven by the SMB and KII businesses.

In the Residential Building Products segment, despite ongoing housing market challenges, the company expects mid-single-digit revenue growth in the second half, thanks to a turnaround in remodel/retrofit activity and new product innovations like electric fireplaces.

Strategic Acquisition and Synergy Realization

The acquisition of Kimball International in May 2023 has proven to be highly accretive, with estimated earnings growth exceeding initial expectations. The combination has provided HNI Corporation with attractive growth opportunities, particularly in the health care and hospitality sectors, and has significantly strengthened the company's market position.

HNI Corporation is also on track to realize $50 million in cost synergies from the acquisition, with a line of sight to $70 million to $75 million in total benefits over the next couple of years. This synergy realization is expected to fuel future profit growth and margin expansion, enhancing the company's earnings visibility beyond 2024.

Market Optimism and Product Innovation

The company's confidence in its future outlook is also reflected in its market positioning and product innovation. HNI Corporation is well-positioned to capitalize on the evolving workplace dynamics, with a focus on designing environments that support hybrid work models. The company's new product offerings, such as the intentional office concept, are designed to address the needs of today's office spaces and are expected to drive future growth.

Financial Strength and Strategic Priorities

HNI Corporation's strong financial position, with a gross leverage ratio of 1.5x, and its ability to generate consistent cash flow provide a solid foundation for future growth and strategic initiatives. The company's focus on reinvesting in the business, funding dividends, pursuing buybacks, and M&A opportunities underscores its commitment to maximizing shareholder value.

Conclusion

HNI Corporation's second-quarter results and outlook for the future are indicative of a company well-positioned for growth and profitability. The company's operational efficiency, strategic initiatives, and market positioning are key drivers of its success, with a focus on product innovation, cost synergies, and a customer-first mindset. With a strong balance sheet and a positive outlook for both the Workplace Furnishings and Residential Building Products segments, HNI Corporation is poised for continued success in the coming years.

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