Q3 2025 Earnings Call: Contradictions Emerge on Steelcase Synergies, SMB Market Recovery, and Residential Building Products Growth

Date of Call: October 28, 2025

Financials Results

• Revenue: Total net sales increased 3% organically year-over-year; Workplace Furnishings organic net sales +3% YOY; Residential Building Products revenue roughly unchanged YOY
• EPS: $1.10 non-GAAP diluted EPS, up 7% YOY
• Operating Margin: Non-GAAP operating margin 10.8%, up 10 basis points YOY; Workplace Furnishings segment operating margin >12% (expanded 40 bps YOY); Residential segment operating margin ~18% (contracted YOY due to investment)

Guidance:

• Q4: Workplace Furnishings revenue expected to increase high single-digits organically (divestitures reduce growth by <100 bps); Residential Building Products revenue expected to increase high single-digits.
• Full-year 2025 EPS outlook unchanged; expect mid-teens percent EPS growth and a fourth consecutive year of double-digit non-GAAP EPS growth.
• KII synergies + Mexico ramp expected to contribute $0.75–$0.80 of EPS in 2025–26 (c.$45–50M savings); Steelcase synergies targeted at $120M with $1.20 ultimate accretion when fully mature.
• Post-close net leverage initially ~2.1x, targeted return to 1.0–1.5x within 18–24 months; dividend to be maintained.

Business Commentary:

* Strong Financial Performance: - HNI Corporation reported non-GAAP diluted EPS of $1.10 for Q3, with a 7% year-over-year increase, exceeding internal expectations. - This growth was driven by a record non-GAAP operating margin expansion of 10 basis points to 10.8%.

• Office Furniture Market Recovery:
• In the Workplace Furnishings segment, organic net sales increased by 3% year-over-year, with growth across all major brands.

• The recovery is attributed to improving macroeconomic conditions, increased return to office activity, and conversion of nonviable space.

• Residential Building Products Stability:

• Residential Building Products revenue was roughly unchanged year-over-year, with remodel retrofit sales growing modestly.

• The segment's stability is due to strong price point breadth, channel reach, and operational agility despite a soft new construction environment.

• Steelcase Acquisition Outlook:

• The pending acquisition of Steelcase is expected to generate synergies of $120 million and ultimate accretion to earnings of $1.20 per share.
• The strategic fit, financial benefits, and cyclical timing are the key reasons for anticipation of a successful integration.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted: "Non-GAAP diluted earnings per share of $1.10. EPS grew 7% versus last year" and a "record third quarter non-GAAP operating margin"; they reiterated the full-year outlook is unchanged and said "we continue to expect the fourth consecutive year of double-digit non-GAAP EPS growth," and described the Steelcase deal as strategic with $120M synergies and $1.20 accretion.

Q&A:

• Question from Gregory Burns (Sidoti & Company, LLC): That $1.20 of accretion from Steelcase that you just mentioned, is that considering just the synergies that you've already outlined? Or is that...
  Response: Yes — the $1.20 accretion reflects the previously disclosed $120M of synergies converted to per-share accretion based on the current share count.

• Question from Gregory Burns (Sidoti & Company, LLC): Okay. So that's just your initial outlook, maybe there's potential upside to that if you get your hands around the business and drive additional savings.
  Response: The $120M target is a number we're confident in; we will use a disciplined integration process and may pursue incremental upside if it becomes available.

• Question from Gregory Burns (Sidoti & Company, LLC): Okay. And then where are you in terms of the $0.75 to $0.80 from KII and Mexico? How much have you gotten so far and what remains?
  Response: We expect $45–50M of savings from KII/Mexico across 2025–26 (targeted split roughly half/half), with some timing shifted toward 2026, but we still expect the stated amount to materialize.

• Question from Gregory Burns (Sidoti & Company, LLC): Where are we in terms of volume, like relative to maybe where we were pre-pandemic? Like where are we in terms of industry-wide volumes?
  Response: Volume remains meaningfully below pre-COVID levels — management estimates roughly 30%–35% down on a volume basis (pricing/tariff-adjusted), implying substantial upside if volumes recover.

• Question from Reuben Garner (The Benchmark Company, LLC, Research Division): Can we kind of give us a compare and contrast about your full year guidance? I guess, what's embedded in the fourth quarter now versus maybe how it looked a few months ago? It looks like maybe the top line is a little higher, but there's some more cost in there as well. Can you just kind of give us the breakout of that?
  Response: Q4 revenue for both segments is in line with prior expectations (high-single-digit with extra week), but margin pressure vs prior quarter is driven by product-mix/timing (more project-driven lower-margin systems), timing of investments moving into Q4, higher insurance-related SG&A, and a higher second-half tax rate (24.4%) leading to a ~23% full-year tax rate; overall second-half outlook unchanged.

• Question from Reuben Garner (The Benchmark Company, LLC, Research Division): On the residential building products side, how much runway do you have on that front? If we're looking at kind of a flattish environment next year, do you think you can still grow above and beyond the market on the volume side?
  Response: Yes — management expects to outperform the market via investments in new products, increased homeowner/builder programs, channel expansion (big-box, wholesale), and service/vertical initiatives that are already producing early volume gains.

• Question from Reuben Garner (The Benchmark Company, LLC, Research Division): Can you talk about any risks out of the gate as you're integrating Steelcase? And if we did see an acceleration in demand, what gives you confidence you'd participate in that upswing while putting the two companies together?
  Response: Integration will preserve dealer partnerships, brand distribution, and sales forces; cultures align and the plan keeps front-end businesses separate while pursuing cost synergies, which management believes minimizes disruption and lets them participate in demand acceleration.

• Question from Brian Biros (Thompson Research Group, LLC): On the residential side, sales were flat, orders grew 2% and really accelerated at the end of the quarter. Can you parse out why orders grew and what drove the acceleration into the quarter end?
  Response: Acceleration was driven by remodel/retrofit demand (remodel/retrofit orders up ~7%) and backlog growth (backlog +13%), supporting high-single-digit Q4 expectations and unit volume growth in Q4.

• Question from Brian Biros (Thompson Research Group, LLC): On the Workplace segment, how much of the opportunity reflects return-to-office versus non-office verticals?
  Response: Both contribute, but non-office verticals (education, healthcare) have been relatively stronger to date; return-to-office is in earlier innings but improving and expected to benefit contract business over time.

Contradiction Point 1

Synergy Expectations from Steelcase Acquisition

It involves differing expectations regarding the financial benefits from the Steelcase acquisition, which are crucial for investor expectations.

Is the $1.20 accretion from Steelcase based solely on the synergies outlined? - Gregory Burns (Sidoti & Company, LLC)

2025Q3: That $1.20 of accretion from Steelcase is based on the $120 million synergies we initially outlined. The share count works out to about $1.20 in accretion. - Vincent Berger(CFO)

What's driving the improved visibility and earnings outlook? - Reuben Garner (The Benchmark Company, LLC, Research Division)

2025Q2: The HNI acquisition of Kimball International, which we announced in May of last year, provides a great opportunity for long-term growth. In addition to the synergy opportunities that we've already outlined, this acquisition will generate $120 million in operating synergies by 2027. - Vincent Paul Berger(CFO)

Contradiction Point 2

SMB Market Recovery

It involves differing perspectives on the recovery of the small and medium business (SMB) market, which impacts revenue projections and market positioning.

How much of the Workplace segment's opportunity by sector reflects return-to-office versus non-office verticals? - Brian Biros (Thompson Research Group, LLC)

2025Q3: We see potential in both areas, with verticals being particularly strong. Volume growth has accelerated in the last 2 quarters. - Jeffrey Lorenger(CEO)

Is the SMB business showing signs of life different this time? - Gregory John Burns (Sidoti & Company, LLC)

2025Q2: I don't know that it's a traditional pattern in that respect because I say our contract business is performing well right now. - Jeffrey D. Lorenger(CEO)

Contradiction Point 3

SMB Orders and Market Trends

It highlights differing perspectives on SMB orders and market trends, which could impact investor expectations and strategic planning.

How do current industry-wide office volumes compare to pre-pandemic levels? - Gregory Burns (Sidoti & Company, LLC)

2025Q3: We're likely down 30% to 35% on volume due to pricing actions and tariffs. Even if it returns half of that, there's still significant opportunity for mid-single-digit volume growth for years. - Jeffrey Lorenger(CEO), Vincent Berger(CFO)

What were SMB order numbers last quarter, and have there been any changes in order patterns or buying activity? - Greg Burns (Sidoti)

2025Q1: SMB orders were down 5%. We expect orders to pick back up, as orders started to improve over the last five weeks. - Jeff Lorenger(CEO)

Contradiction Point 4

Residential Building Products Growth Expectations

It reflects different expectations for growth in the residential building products segment, which is crucial for forecasting and strategic planning.

Can you continue to outperform the residential building products market in volume? - Reuben Garner (The Benchmark Company, LLC, Research Division)

2025Q3: Given our investments, we can outperform the market. We're already outperforming with new construction orders and retail. We're positioned to stay ahead of the demand curve. - Jeffrey Lorenger(CEO)

What were SMB order numbers last quarter? Have there been any changes in order patterns or buying activity? - Greg Burns (Sidoti)

2025Q1: Our funnel looks good. Backlog is encouraging. - Jeff Lorenger(CEO)

Contradiction Point 5

Volume and Market Recovery

It involves differing perspectives on the recovery of industry-wide volumes and market conditions, which could impact revenue forecasts and investor expectations.

How do current industry-wide office space volumes compare to pre-pandemic levels? - Gregory Burns (Sidoti & Company, LLC)

2025Q3: We're likely down 30% to 35% on volume due to pricing actions and tariffs. Even if it returns half of that, there's still significant opportunity for mid-single-digit volume growth for years. - Vincent Berger(CFO)

Are you seeing signs of improvement or stabilization in the SMB business? - Greg Burns

2024Q4: The SMB side is flattish. We are well-positioned and expect revenue upside towards the back half of the year as stabilization occurs. - Jeffrey Lorenger(CEO)