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HNI HNI

Participants
Jack Herring Treasurer and Director of Finance and IR
Stan Askren Chairman, President and CEO
Marshall Bridges VP and CFO
Matthew McCall Seaport Global Securities
Kathryn Thompson Thomson Research Group
Gregory Burns Sidoti & Company
Call transcript
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Operator

Good morning. My name is Amy and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation Third Quarter 2017 Fiscal Results 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, call a being As Instructions] today's is conference recorded. [Operator you. Thank Mr. may Herring, your conference. you begin

Jack Herring

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

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

Stan Askren

we'll give drove the XXXX, then a then expected. Good third open growth morning, as the questions. top and brief will our and quarter for the line third as outlook I up share everyone. strong the on usual, XXXX and outlook call Marshall of fourth we of and Jack. some for XXXX, assessment for our provide quarter you, In thoughts quarter, delivered Thank earnings

businesses. generated than better and We were more XX% furniture results anticipated. American line our top Contract growth than Our International office in North

our businesses. solid and We hearth in growth furniture office drove also supplies-driven

as expected. operational transformations management cost to Our to and related deliver with strong mix sales SG&A combined disruption results unfavorable we business earnings offset

decline work to expecting a look two challenges. as we are major we the quarter, As we through fourth profit

lower quarter, significantly investment The first, see wholesalers to near-term as the now third forgo which their stable sales. in continues We marketplace buys. rapid our decline year-end expect increased experience to as were the relatively sales wholesale in program and resulting part on lower shipments, transition supplies-driven the

we transformation quarter retrospect, anticipated operational strategic our than fourth them. negatively to more we will resources difficult initiatives too and In the and Second, took execute on successfully many impact projects our have underestimated we required been profitability.

has otherwise been One these successful XXXX. resources to of of quarter required to next execution would we've significant the proactive to phase implementation have BST, initiatives. our focused operational decision which fourth initiatives, big date, on made the a defer our BST during Though February

of We our to to seasonal how delay network, on slow to decision strengthen with go and and needs, historically demand customer Our understand period. want know allows focus challenges operational the in know the implementation us we where align front we there. to we get us,

market Our the is with environment. supplies-driven a and even brands strong growth access, platform new competition, in by unmatched business scale for

capabilities competitiveness, our leveraging and resellers. platform increase to actions our direct our taking are for service us generate to industry-leading We and our out building economic advantage

have We record of managing track challenges. successfully through operational a long proven

future. making our I'll views return confident Marshall to are some to people, ability I'll to to and the the Marshall? improvement to profit in over details processes We structure drive our address now then and Bridges progress I'm and issues. confident are discuss we on I'm for financial these turn call XXXX. realigning review

Marshall Bridges

Stan. Thanks,

increased impacts XX.X% versus furniture increased sales office divestitures, details at quarter of organic total. the of sales let's XX.X% sales some net and Consolidated and X.X%. increased Okay, grew year. the X.X% acquisitions the prior In look of the third the in first. organically Including segment,

in businesses in X.X%. In increased or business segment, organically, sales our in total. in segment, hearth XX%. up businesses organically, increased North our or our increased Sales including the Sales minus supplies-driven office XX% sales furniture increased of impacts X% contract our the Within X% divestitures. American international XX%

including Versus pellet product to wood, prior products cost of unfavorable New $X.XX, XXXX. increased income of quarter in offset diluted Non-GAAP were $X.XX construction net X%. compared mix. business was which mostly by and third strategic sales increased input gas inflation, the by per was investments the X% our and year, retail sales volume, share driven earnings and improved and

Okay, at fourth let's quarter. shift gears look and the

of divestitures. be down the furniture For consolidated down X% divestitures. up X% organic sales X% expect including we quarter, fourth or the Office to down to when see expected be are sales flat organically, X% sales or the to to X% up our X%, X%, to flat business to levels. and to high effects acquisitions supplies-driven our business Organic down quarter in to X% contract projected or in to but We including are total. in third continued decline expect growth X% do at to when be X% not

We sales be impacts X% office up furniture divestitures. our X% X% or to the up businesses organically, X% are forecasting including contract of and in down to to acquisitions when

hearth up sales X%. be We to expect X% to

and Within are retail we expense, the tax to are be Non-GAAP is X%. will negatively rate foreign X% XX.X% quarter, net to impacted up projecting by fourth X% estimated gross future X% XX%. the benefit up construction distribution of be tax related items. be of to is the hearth one-time to hearth Non-GAAP profit our and be margin freight segment, includes to a which XX% expected new sales. adjustment In SG&A, sales expected to to approximately forecasted sales be to

estimate tax we be will our rate XX%. result, a approximately As full-year

$X.XX. of in estimate per share range the to $X.XX for the is quarter earnings non-GAAP Our of diluted fourth

the of per the to Stan? $X.XX full-year diluted now Our XXXX share in $X.XX. for earnings is resulting estimate range of non-GAAP

Stan Askren

growth. return So, to looking we opportunities and to XXXX, forward our profit like I will confident I'm

stabilize XXXX. market in will to continue will core cost our structural improvement anticipate I deliver and from be We and transformations, reductions operational dynamic. productivity our benefits the supplies-driven conclude network

best long-term through for the total as and market navigate no effectively shareholders. other the improvement those remain can deliver will serve We market, to and producer, our We our match. us directly cost confident allowing drive our hold competitive manufacturer investments advantage unique will transitions. capabilities, solidify a brand, product I growth, which position profit

owe our for to current shareholders best the we outlook We believe continue business.

that forecast we for are year. For providing next reason, estimates initial

the is on to in and of growth the sales consolidated Our per current the office are furniture X% to $X.XX. growth earnings business. X% X% share organic X% and based to XXXX range estimate expecting our non-GAAP of diluted assumption we X% X% in is of $X.XX full-year This to for in hearth

to comments create in in We it profitable ability and our strategies are confident we'll open our our growth shareholders. value and now With complete, to up for deliver questions. long-term those

Operator

Your Matt first with Instructions] line the question your Global. Matt, from McCall [Operator open. Seaport line is comes of

Matthew McCall

some you on around don't gave margin you of the the comments, but Stan, kind of walk of of your I of you components gave specifically, margin expand through So, the the some view think outlook? last some XXXX, maybe can maybe as saves of about in to kind are out you or year components of we elimination that next look hurting gauge the year, the visibility the XXXX. that your we margins trying the should next pressures in cost you think in have that specifics

Marshall Bridges

Sure, Matt.

the are you big non-GAAP three assumptions $X.XX is there As to that EPS really there what $X.XX look big estimate, behind into assumptions.

growth furniture of assuming growth, single The office first market are is in kind digits so slow low mid-single-digit hearth. in market growth, around and and we

net Second productivity. big is around assumption

track year can and drive structural have [indiscernible] operational that in and behind million $XX next the we expected we and and on net we are transformations next return cost cost range to to savings, are assuming we year, get not $XX back favorable obviously us We productivity get this of productivity driving reduction to expecting the million the year.

The with assumption pricing inflation. third has to big do cost and input

to do can that we inflation, are assuming expect price. with year, we offset we be which in this So lower

other we I There we should So have will things well, have some with price-cost zero as deal to are gap. note. which

have perspective else from some equal. so some and $X we the next have should about kicked comp also adjustments to wrap-around be in million million which headwind year that we'll amortization. And have programs P&L reset asset had BST favorable year, off will next another additional third our quarter, variable We we to $X be of of all the and expense, overcome. we've enter of amortization That as the a

Matthew McCall

right. all Thank Marshall. That's you, Okay, helpful.

you another year, model side, the supplies we supplies it but is this quantify the talk or these it, guidance the another next persist? you outlook for starts face supplies for given to quarters you that pressure, the to segment? moves or address to next cost the maybe quarter can do two to and and is year to that we And pertains caught about of then going how that it impacting buckets for pressure So, are have the this on to of issues how anticipated You've off-guard then continue maybe of issues? better, out making get as the that long kind the some was

Marshall Bridges

supplies-driven decline there. our answer so the question really I'll quarter, business, Matt, there's is versus speaking by three of driven expected really year the and that roughly factors big for first, the so three-fourths decline fourth prior or

that's weakness sales and First primarily by wholesalers. is with driven the

The invest a year quick in partially is, we we similar then had in which continuing fourth biggest also we quarter. which some is business offset fulfillment other and with price, input cost are our the out. earlier ship And the price-cost that there are in negative inflation, we are where investment building to the to model, but experiencing we gap

will gap not anniversary in As that we will we expecting and of said year. sales are as be But look that to the not and of see I be transition. these next Matt, some still next price-cost investments year, side earlier, incremental to

Matthew McCall

And I my Okay. guess question. then me to that final leads

me investments to $XX the that million will be million moves? in that in million million is can included to more going what or $XX you've XXXX to remind make, what $XX and to had you is you number to So number that is tied anniversary, that facility and total $XX the the

Marshall Bridges

million $XX driving operational the million number productivity. $XX and tied just core The is to to facilities

are to be million ship XXXX. to will As that the making $X in kind it we million fulfillment of the relates investments model, in quick $XX

Matthew McCall

not behind the largely QX? should that by us recur? through time spending get Will be you the And

Marshall Bridges

a that's assumption. Yes, fair

As won't we at ramp up will there volume level. nearly incremental same be but it investment, the be there,

Matthew McCall

you, guys. Thank right. all Okay,

Operator

your the question open. next from Kathryn Research. line with Thomson of Your comes is line Thompson Kathryn,

Kathryn Thompson

on and initiatives, outlined backwards to you focused by something the annual reduction This cost million just is that had past. the tagging have cost reduction in million fiscal you on Working $XX $XX to XXXX.

this has million targeted you – those why I in commentary in to and just that then did help would saves that. want have but are on million a saves? in page clear, XXXX understand in your prepared want sure changed. million just us One lot XXXX, to Obviously for just the Thank $XX $XX I in of make to be previously with same $XX understand $XX why outline better we to thing And million us You the the shortfall help XXXX. XXXX be cost you. what to

Stan Askren

with why Marshall fill start will the of I sort the shortfall specific Good details. and Kathryn. questions, let in

in happened it did XXXX, develop we not what So, as thought.

First we of that got off, simply When wholesalers, some we a which really to sure with disappoint to the basically make the a environment. and arrested, reduction stopped it sort moves put the we to cost orders we them. got that from of existing year with slower and customers we intensive existing then resources production of take of transformations, didn't that of our little situation, had some placed some hit started demand, pretty to in of pulled off we of amount kind us inordinate do of transition had care

the this we so, simply happening that well. done. then, at became time. thought The multiple we then there that factors went that didn't a transition impacted and through of had kind to done is more didn't of where series develop, result And to one we and began the as get they wanted get And of get wholesaler dynamic that things addition, so we we in might, cost orders as periods we

stabilize So, And We very believe while we that. have very, when that moves one. production actually get system major had done these stable platform. stress is, on and going think track. me little I new in on BST the done more is We those is two, a Number overall we on I implications the the more sort to that our they transition, we it and changeover making transformation, puts rocky to bit questions? tension when be gone and let well. good you track. are BST didn't on XXXX it's not were news what chose are think comment on there we think well so would deferred on few are done, reduction on good This system, whole saying a and get The of and well. number as us that the quite the February basically underestimated until fast cost frankly on and sure get get did is I delay would going A-team BST live we the things serious this has good A-team so and go orders initiatives, it's is, of as and historically less environment that some Marshall, is news I The is, the we've a want where comment period of spot. there specific to as BST in

Marshall Bridges

as cost, to million about in hit it we XXXX. million relates $XX $XX to about $XX million that Kathryn, to in million structural to $XX are expecting $XX XXXX, now million of and

of $XX productivity XXXX. then balance structural million of cost of will part I reduction to structural and cost $XX So million And $XX reduction. sort this million to that XXXX, of $XX million net that hit the early the mentioned million to includes additional Matt $XX

Kathryn Thompson

Okay, all that other a in helpful. get there of year-end sales the versus Really What wasn't you've percentage the sense a hit to in year-end we're magnitude what better that do the much mentioned is of And are buying supplies of from of QX? comments wholesalers typically weakness. prepared trying buy impacting year-end your right, wholesalers. fundamental as buys shortfall

Marshall Bridges

about That's to a guess they in increase quarter, is It's expecting The the your million. that that down these on typically program significant our be say we fourth inventory buys wholesalers I to hold wholesalers are a quarter. impact in $XX good inventories. which the their ending answer the pursue pretty to year way question the question.

Kathryn Thompson

right. all Okay,

that pulling or a past, are just as the the that be supplies wholesalers, on private-label whole and a bit potentially the are string developing little some the of discussed more Following could larger options transition, in what struggling we quarter trends supplies these of you shift to in or the think business future acceleration label current trends? either products direct your that just product. extent competition To could do impact model competitive versus the

Stan Askren

for complex question. mean are private-label a I their real. The initiatives us. answer competition They real is, That's are significant. it's

the think I it's big not story.

I better with large looking for to think us, more simply direct go the bigger is connection wanting connection. customers direct, story

think them solutions somebody give same buy our having really add domestically. to those can experience someplace we have and source private-label story. them of or time and private-label I the all to think so just the with better, providing actually We that directly sourcing I that's and resellers think for them time them to versus competition produce story big and seeing We're deliver. package these And private-label, them sort amongst of And is more then value intermediary of we has then secondary competition. is them from private-label this then and down, we've been some directly better that and value model aggressively for dealing there been with Most match a are time, often can up profile out that else we're some who an products through responding and those coming we and them the overall. better

we is challenge, that not too big So, it's It a meet I can story. challenge. the but me think

Kathryn Thompson

to story just we Okay. the bigger that because but it's indirect understand impacting. versus direct sure more The are make is there that structural can private-label, factors sometimes some be we not trying

Stan Askren

think I got Yes, you've it.

unbranded throughout big from competition just transition of business while models. I the sort private-label, intermediary to the direct from then and can think characterize you story this is and is this it, product market low-branded,

Kathryn Thompson

you higher to We on, want is higher that direct higher freight as just get model? freight more that what cost ahead us just expectations. extent cost cost. more direct in help customers One to QX talked about how I to your paying with into are expectations, of impacting cost understand new, selling because for Just you area to model, this XXXX still focus layers freight and

Marshall Bridges

line. the it quarter, it's $X about expense When the centers those in I freight up, that of $X some to are but There in fourth setting million mentioned the investing million. be most that freight. expense et about quick fulfillment, we most ship distribution $XX is is to to cetera, million In in going Kathryn, earlier related of is

Kathryn Thompson

Okay. All all Thank for right, I now. have you. that's

Operator

comes Your Greg, Company. with Greg next Burns Sidoti is the of open. question line from line & your

Gregory Burns

segment supplies wholesale this point? at your percent what that What office is percent of and is of

Marshall Bridges

is supplies-driven of half of at XX% about about to and down Greg, that are office business the business furniture through wholesalers point. we supplies-driven this

Gregory Burns

opportunities Okay. be is And are that a the you direct trend here ship up out move of or infrastructure that the happening? that's you sales feel do dynamic on more over you'll bigger as is some transition direct, maybe able time build you like if the demand near-term to to in not pick missing your

Stan Askren

question, smooth. the transitions good Certainly and a Greg. linear are It's never

and largest should we on that them more and intensely we solve these that. effective the efficient transitions what's my to are with furniture, there. to happening from as are so, have Short put through term, difficult. through – of I change. some But would I is then as is And intent that make advantaged in expect on efficiently as possible, get missing side, we effectively this customers, logistics we we manufacturing largest the short-term other be run in can't I our out should more I way exactly some that guess and will putting all through helping sale we to we working are when things should but our doubt to and just be finger the on no lose goes we cracks, convulsion finger probably our the to that or our more transition very supply this smooth sell as resellers fast able network would very, be and

Gregory Burns

level do some demand channel you through maybe to is significant And channel have next that or wholesale decline of may support that they inventory to where quarters think they it's you sufficient have inventory, outlook over given of the stronger might as feel inventory the that – kind quarters? of do in lean that Okay. fill you couple your

Stan Askren

can't on and is know know like determined. going tapping certainly How to I as is as wholesalers forward. Greg, I intent speculate dynamic transition. looks to their I the a go that, to horizon I order. need to you them what don't and track because to these that what watch their are demand help mean, and value don't be we are out want plays into they through go all we we it we yet But

Gregory Burns

you. Okay. Thank

Operator

question-and-answer This remarks. the now for would closing Stan turn like over concludes I to session. back to our call Askren

Stan Askren

Thank you our very all tuning We Have call. third look in talking the a to much. into in We appreciate future. your good day. Bye-bye. interest you forward quarter to

Operator

This call. conference today's concludes

You may now disconnect.