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HNI HNI

Participants
Jack Herring Director of Investor Relations
Jeff Lorenger President and CEO
Marshall Bridges SVP and CFO
Budd Bugatch Raymond James
Matt McCall Seaport Global
Kathryn Thompson Thompson Research
Greg Burns Sidoti & Company
Call transcript
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Operator

Good morning. My name is Hollie, and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation Fourth 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 [Operator Instructions].

conference being today's reminder, a call recorded. is As you. Thank Mr. conference. Herring, you your begin may

Jack Herring

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

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

Jeff Lorenger

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

through environment team overall challenges. high challenges, in across the fourth manage growth and our performance sales X% pressures quarter. Inflationary Our we was market the by margin choppy. expansion, organic performed Despite and improved continuing grew to drove the significant remained while board. than and We well earnings multiple these more

to be multiple our future, to finalized our and both we refer to improved successfully As operational we initiative, serve furniture operational forward. and platform made actions customers, I We BST and BST, drive launched efficiency. furniture Transformation look a of our in and Systems providing more completed strengthening costs build changing hearth. business. it. strategic Business or our to to supplies-driven foundation created multi-year back needs, our year, our market significant office capabilities improving that full adapt foundation. our effortlessly office responsiveness business will We our the greater transformations enable to a long-term stable lowering We progress on network, crucial We as

continue a rapidly We opportunity This build growing for capabilities. segment great e-commerce us. our to with is out

We completed our Independent CEO, with to Company, XX the to Askren Board last end retired Directors XX Chairman, the President the including with transition. teams. leadership Chairman, look years planned After Larry as forward of our be Stan was to I I And our of also by appointed long and new lead our at honored working Porcellato. XXXX.

drove also improvement. In addition we these to financial accomplishments,

growth. growth hearth X.X%, All grew our supplies-driven businesses business by sales solid We led organic strong our delivered of in our business. and

profit, per our cost non-GAAP products, launching earnings strong share making key our investments, in and XX%. improved volume build to tax successful savings and capability more our continuing sheet. selling BST capability than solidified our international including our improvements, launch. in rapidly a improved e-commerce We We investments further quick-ship offset Productivity costs adding and markets. fulfillment lower new with balance and associated Our stronger rate while growing

our cash debt was free year ended of flow. of During with million XXXX, we We $XXX debt-to-EBITDA generated times. million and $XXX the X.X ratio

opportunities quarter. I the strong continue business progress will Marshall returns we financial to excited about access fourth businesses, our to capital and I have and We of are feel grow teams our drive about have in have the front the financially now and we to over for and on the to greater our shareholders. significant brands in I'm made details review Marshall? turn to call good the us. pleased some with I'm place.

Marshall Bridges

year. grew sales X.X% furniture quarter organically. X.X% Fourth In versus office prior Jeff. increased the the segment, Thanks, organic consolidated sales

to Hearth organically. increased our in our furniture net products increased sales up retail Non-GAAP Within X% was $X.XX fourth overcome share contract XX%. of segment, efficiency, price gains, we cost supplies-driven improved $X.XX business Sales of X% them construction quarter X%. sales diluted but per X.X%, able in increased with sales office income savings, higher XXXX. business segment the sales productivity were SG&A to compared input and realization. new grew and We costs, on Jeff? experienced the were

Jeff Lorenger

Marshall. Thanks,

the XXXX, tariff environment, including several grow expect For and volatile full-year to negative navigating we profit, demand pressures a impacts. challenges, while inflationary

We fourth potential improve throughout extended concerns around the shutdown. construction, of new trade Market a year. in slowing and and issues this the as weakness the progress the to we the activity slowed start into key early quarter with decline expect economy, slowly part year. demand home the drop general and The metrics, coincided in competence government

volume, result, we levels quarter profitability. first which expect Activity a challenge quarter first low are will recently our recovering. As

the conditions We are will continue, positive dynamic. but be will assuming and trend expect choppy

sales in XXXX, price expect full-year input will Continuing improvements to the X% expecting to For realization higher additional Including demand. we're organic costs, we single-digit low grow growth offset X%. consolidated necessary and and productivity are of now BST are cost our savings These initiatives XXXX drivers learning profit in momentum stability footprint. initial operational in the have curve our growth. gaining through we're key

cost and million net drive of savings, investments, our to will $XX the benefit million financial $XX productivity expect year. during of We

earnings long-term our with $X.XX of full made to we growth, Consistent and guidance such the cost products and the productivity capability, diluted combination decision the are We go-to-market as capability. year. continuing growth to range growth, long-term new we for on change and $X.XX per focus and for currently on investments are volume data in make have to digital our profitable modest growth operational Based investments strong long-term share areas practices. the forecasting our savings, of in analytics,

guidance. issue quarterly will forward, Going no longer we

the As quarterly but will outlook press first provide quarter, subsequent calls not a a provide or will outlook we transition, our for in earnings releases.

our some to continue now will financial provide to We to it back turn will details. over outlook I update quarter. Marshall each additional annual

Marshall Bridges

Jeff. Thanks,

growth and of up each expecting to office, approximately businesses, Jeff We're office As we the organic X% are rates year. sales similar supplies-driven X% consolidated with each noted, our X% expecting contract up to have to for full-year be X%. to hearth,

XXXX expected the in from Our XXXX. to is margin profit increase levels gross realized modestly we

to and including expense, will by distribution freight in SG&A, and We investments X%, initiatives. inflation increase X% expect growth driven

For a for results we full of having not the modest negative volume of forecasted income year, $X.XX improved in diluted BST impact are XX.X%. XXXX $X.XX net costs to cost forecasting of primarily share growth. launch driven This savings, tax year, per the and full and rate productivity by the our

the expect million $XX of We $XXX in range to million to expenditures. including $XXX will $XX flow million cash of million, free be capital

Okay.

shift the Let's first to quarter.

this in in and demand noted, late fourth the year. quarter activity the Jeff slowed As part early of

to to are down X%, expect we in to our X% or first to be organically, the to down down supplies-driven to X% X% furniture projected X% X%. down X% to divestitures. Sales in organic including to sales be As of down sales quarter down consolidated X% X% expected be effects result, are business total. Office or a when X%

to are X% or total. sales X% our We in contract office to down forecasting X% in be organically, furniture to down X% business

distribution X%. expect XX%. to margin quarter the sales products first down X% for flat to up X%, new is $XXX million. hearth profit quarter, the be SG&A, is to sales We X% up X%, $XXX be expected to to first million to expected and and expense with approximately hearth retail up to includes Gross of freight for which construction sales be

for to the of income first Our the quarter is $X.XX minus net $X.XX. Jeff? per share in range estimate diluted plus of

Jeff Lorenger

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

Our highly and are capable teams engaged.

dedicated strong and best Our value have to complete, those on members remain We through deliver long tuned strategy term profit and is comments to to the convenient significant it experience right up questions. buying a the improvement. I'll a market open focused customers products, up. for platform drive ramping operating With positions,

Operator

Bugatch, James. come first of line Budd Our from Raymond [Operator the Instructions] question will

Budd Bugatch

us some more maybe used a color I -- to it as maybe environment market hearth slowing. it office, the the Can You talking segments so little different it in in be calling you interesting terms You a and bit little and are helpful. on where several -- about between think would color a slowed? calling dynamic that release give

Jeff Lorenger

of believe we a November, noticeable question. hearth issues, et cetera. the business it slowing in economy, Appreciate cetera, shutdown kind business was -- the kind the primarily time, were slowdown, we the et we that But supplies some pretty government in broad-based at business. on trade the primarily saw construction, and business. it's That's new the in in Beginning home supplies-driven and of hearth concerns hitting the

Budd Bugatch

not -- So contract that the contract saw stayed in office, reasonably…

Jeff Lorenger

we as some had contract deliver come Yeah, is recall, I'd fourth. hit the into in see that the pretty quarter we saw In continuing into projects the projects to in stayed the that contract activity funnel. pushed say the solid, fourth. reasonably. third said And we Overall, and new space, the you

but ticked, supplies slightly that the as not and as not hearth. maybe -- noticeable as So was noticeable the was that

Budd Bugatch

you're Tell those what quarter so for And me with does you dots, if planning would. the variance first about connect that -- then?

Jeff Lorenger

think like good I contract seeing activity overall. I the business said, we're is, there, we're activity good funnel seeing

at We XX% in comping the up, first contract lap space. are quarter

there. that's more on what's So going bit little a

was Our X%. on business the supplies comp plus like more

Budd Bugatch

How backlog bit is up up So little year-over-year flavor. has it just just with into about in or Is the quarter-to-quarter? talk backlog? funnel a business -- give it little a contract that translated us

Marshall Bridges

and activity year. reflect the for our rates order pre-order Our outlook

over We growing, have we're supporting that year. is X% expecting backlog rate for X% to growth activity that The good funnel up XXXX. it's prior

selling-cycle about the confident pretty contract feeling So longer business.

Budd Bugatch

there that two issues impacted structural there years issues supplies ago. us in any or we've And had supplies, no? again structural Are impacting

Jeff Lorenger

it's I good a question. think Budd,

some was you the the any of noise like couple will most channel anyway. I with think noise it that macroeconomic whatever but driven. And little is, of months in unwind two years think in of a is here probably that the dynamics, ago, the for by bit not next part means. experienced I There

Budd Bugatch

what in little or we some talked are versus quantify Talk How to we some expect I seeing persisting. mean, in do quarter And Marshall, other you in me year? and either a the you steel first about about the rollover bit price, commodities. that? cost inflation

Marshall Bridges

Budd, impact roughly for of the tariff. inflation the quarter year, the first negative our expect the we price to net and equal and

So wild is the zero card. year The we're of for and expecting quarter. tariff bit the a a a for price-cost gap first

to amount inflation which tariff. the of price for we're whatever the the total But realize of year, million side, inflation happens So $XX with million $XX with fluctuate expecting reflect... the we'll on will

Budd Bugatch

Offset by price?

Marshall Bridges

the see do the to back by benefit price Yes, half. which of be will we And in exactly. mainly steel expect offset

If spot months. you steel our the lag price by six remember, contracts on

early of the So in see year. we'll inflation still part some the

Budd Bugatch

the because be confused in So now first price between you I going to cost. you've quarter it's and said balanced thought me, roughly

Marshall Bridges

giving you some was the That's color on I correct. just steel.

one think I questions. of that was your

Budd Bugatch

is steel So one.

other net you that abating, are that there so zero? commodities should get So are

Marshall Bridges

We are realization to that to with and we're Steel will net of going to part price be Budd. that see some zero. be going inflation, offset

Budd Bugatch

there is will. What reasonable think I And if like a likelihood tariffs went away, would happen? they

Marshall Bridges

Yes, have of the went end away, tariff. at let's if we of tariffs impact $X from March, million say, about would seen the

$X million $XX So have, you'd total would million, already $XX offset… of that impact million $XX to we million $XX to inflation see the add we'd of and which a to we million

Budd Bugatch

$X million then, right? a quarter

Marshall Bridges

XX%. Yes, at

Budd Bugatch

is, from at me me Explain what corporate Last look fourth as in in the question I segments. happened quarter? the to

Marshall Bridges

that some non-GAAP. for you segment If results out charges at of include look the the we carved

biggest had there taken. the allowance year, million million recovery had $XX roughly we last and on So long-lived impairment of we a is an $X asset thing we've

$XX accounts saw. there $XX a decrease the that majority fourth you there of million million is quarter swing So the in for

those than items. comes more non-recurring from half little So

were BST of The expensing lower roll-off incentive but of other driven didn't year, half really support those we lower in this costs the the have insurance fourth is and comp year, costs. quarter that last by

Budd Bugatch

the What cut basis. a That's what's on chase, a corporate on close an fixed to -- a pretty should basis So How per running? cost do that? or think with about the on annual run basis? corporate period we quarter usually to quarterly

Marshall Bridges

quarter. really million There fourth $XX is the about noise in

a So expecting we're for to $XX the it be year, around million roughly -- million we $XX saying $XX quarter. so were million

Operator

next will of Matt Our question come Global. line from McCall, Seaport the

Matt McCall

mix QX I'm for good impact, versus just what different across year. and looking the line you more segments the price both go top versus gave on sub-segments? -- detail full any into details volume, the around and Can then some guidance, you So

Marshall Bridges

of your talking are part about first the quarter, You Matt? didn't fourth I question. hear the

Matt McCall

guidance, in the assumed No, what's guidance. in your

to trying the segments said as volume out price I and You figure sub-segments, year, like, willing the just get? and to to up look as full expected I'm is X%. across X% different what specific you're think to

Marshall Bridges

So decent to to we There the across price contract and hearth. expect X% growth, total supplies, amount is organic X% be realization of a there.

million realize X% to growth. -- earlier, to of mentioned tariffs, what in roughly $XX I with X%, $XXX As million need price, which depending up we be that happens to could should

growth year assumptions, non-price excluding in So are of price we businesses. our the assuming growth all but for modest we pretty have

Matt McCall

just some the two X% toward So the should of I I toward, that should and or mix across different about how X% use across think to businesses, than kind skewed rather X% say, supplies I segments, equally to the -- businesses? contract, across think there the X% but

Marshall Bridges

little supplies-driven due to you're right. business a tariff. to more Yeah, the There in is the exposure the bit

away, tariff difference, Matt. the if won't Now, goes probably be much there

So it this supplies of price points what tariff XX%. it be goes But really depends of could business, the does. couple if on tariff the to realization higher in a

Matt McCall

X% And so to the X% X%, price. there's X% to

all with is price. there math So having you seems in the be I'm midpoint like trouble there. Maybe the should volume It said still some there.

volume the you're So that what's using? assumption

Marshall Bridges

bit. little this So a let's maybe unpack

If on the have rest X% of tariff we that to we have settle X% to assumption that XX% is price. tariff year, for So is. the what of

above So that maybe XX%, of to zero, and probably more we'd If if goes the X%. stays the to case. be it will in like price closer midpoint be at we it have tariff X.X%

Matt McCall

more one across the business. just the guess, volume time, I different And

me some You volume different the growth. assumption the Can specifics you're you for around give said segments? assuming

Marshall Bridges

X% that to detail More beyond Matt? X%,

Matt McCall

Yes, segment.

So have new is you and any and what and for just supplies -- contract to there what get do assuming for trying details to? are I'm volume you and furniture

Marshall Bridges

I saying, what getting you You're speakers). after excluding think is price, are (multiple

Matt McCall

yes. volume, Correct

Marshall Bridges

markets. basically for Yes, our it's low single-digit growth all

Jeff Lorenger

Yes.

Matt McCall

think little retail. imply you for you single-digits moderates? give that me the so only retail hearth the bit I So retail low Can does strength around XX%. that that? a You're said up talk more? behind What's assuming about year, more Just detail that,

Jeff Lorenger

in we're We it We're range. that good off seeing. grow think moderates. X% to of the got business. what to it's still X% I a years think coming That's couple in

bit. to it just going it's moderate we're So good growth, see but a

Matt McCall

growth? So what some behind of is it stronger drove what's been XX%, that the that Jeff, or

Jeff Lorenger

The pellet close growth. of to up business, part of Matt, in hearth, strong fourth pretty HNI, small which is quarter. a were pretty only showed some it's XX% XX% We the

are We saw not that same to the XXXX. the up we're but expecting quarter pellet in non-pellet in retail growth business here continue also we our fourth business, through

Matt McCall

go maybe what you more think getting of revenue asked this, when about this said and I to be and in going furniture that to and recovery better. And seeing detail recovery you're seemed Can talking some but comfort you you're you Budd gives things about see you're into both this what QX? hearth post

Jeff Lorenger

the labor well remains are overall market, think, people The in economics, in still and is it the you new invest environment. business people to continue tight. their know, investing working offices, and I as still

confidence think and gives new these us for the business we in it with good. that But a So across it's bit That furniture, of short-term We back same we that's think feel going home for construction that half, business. businesses quarter. the project is our numbers. a hearth the to was so went issue stronger fourth strong in and outlook the little revenue

Operator

will line Kathryn Our question Research. of from the Thompson next Thompson, come

Kathryn Thompson

for you taking thank today. Hi, questions my

and on logistics, the think how and XXXX, trends but is pricing business while library focusing we're throughout -- your are of that industry you terms of should our that, necessarily XXXX? may the been feedback has a with seeing in seen the in improvement from First, availability, What an about structure. improved cost this in in you've getting not just we has transportation challenge contacts the

Marshall Bridges

different It's year. We're all that Marshall. seeing environment. dramatic a seen really not change not much is we've This in

subject. on give I of really if lot a know don't So that we color can

Kathryn Thompson

of color you your of impacts a put near and or just the range to shift in pricing range little tariff differently, terms the it maybe you and But gave the put that how commentary prepared know end the Q&A EPS I more tariff upward? does lower guidance. bit in does the postponed the high

Marshall Bridges

realize price, lack to with goes the to the regards have offset tariff that impact. price to if expecting expecting presence In it. to have the won't any we with We're go but not along tariff tariff of the the won't EPS, so realizations, more the we're cost away, material we the or tariff of

a basically all -- So expecting it's net are we there scenarios. in neutral

Kathryn Thompson

trends? know the supplies to more swings but historically, in sensitive that which has hearth sentiment change, as And does based on the I what is historic And two trends, future versus that to and now overall economic given you're supplies between noted, how is that business, you And similar to, sensitive? or what more and seeing between been different, business? right hearth the speak

Jeff Lorenger

is Jeff. Kathryn, this Well,

quickly business question, more would it's supplies business understand market, little so longer Let operates bit lot and a it's of lack the selling I your more, like small and me economic a business, fairly customers, which I of cycle. -- a where a for housing, sensitive overall than reacts I is better both little mean, cycle it short think term, a if say I to up down contract it's trends. a the

I'm -- responding mean I what directly, to not that's think so And that's sure your question I'm asked, I hearth... you but

Kathryn Thompson

Go ahead.

Marshall Bridges

But to factor, responds much element that macroeconomic maybe very not construction home to directly the others. new but as

Operator

the Sidoti Our Burns, of will from come next line & question Company. Greg

Greg Burns

morning. Good

the mentioned $XX have what but to? impairment might million related goodwill You this, was

Marshall Bridges

a about had million impairments. Yes, furniture of We have small goodwill approximately office $XX it million. $XX did a related wasn't million company. We $XX to impairment

Greg Burns

much a you at expand And lower cost expected, and know a your price of along completed projects savings but year, also didn't you the lot passed you of beginning the gross as fourth increases. margin were as then bit the quarter, expected. some what terms of I little the kind the than aiming in And for for came of gross in think margin

what understand year. What are view gross to margin positives next thought the guiding this to to just up for Thanks. you of earlier to divergence year, the wanted still your the offsets in and kind some of end where you're I drive? you're hoping to So

Marshall Bridges

there's profit the probably going Yes, line. in three on factors gross

cost, is the price So, right. the first

earlier factors. in talked how quarter, actually about XXXX. when we had the we we So all you price cost price positive have cost expect In the zero to fourth account

about $XX million million price. of $XX including had we tariff, realized inflation, So about the of list total we and

million by were had mix, gap we discounts. was million So which little $X we then about price offset cost did But deleverage lower be. the positive in but productivity from that $X we actually also our some too. which that than caused benefited a realize productivity also we expected We not fourth lowered the challenged volume, initiatives We about which quarter. the was to volume zero, expected basically to better business and

As we productivity a of look to of in run line the good is with and pretty achieved into million net we $XX year, next cost run that where from second mentioned about savings Jeff rate. feel are million $XX half. the rate in earlier, The we productivity we investments

is guidance So of think we're our solid XXXX I reflective it. we about where and that feeling are pretty

Operator

I'd have time, in At questions for like conference Lorenger this we over closing to further Mr. comments. to turn no the the now queue.

Jeff Lorenger

time Thanks. Have day. Corporation. Yes, thank a in for great your interest and HNI you for today your

Operator

again, like to we'd on Once thank you conference call. participating today's for

disconnect. may You now