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HNI HNI

Participants
Jack Herring Director of Investor Relations
Jeff Lorenger President and CEO
Marshall Bridges SVP & CFO
Budd Bugatch Raymond James
Matt McCall Seaport Global
Brian Biros Thompson Research Group
Call transcript
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Operator

Good morning. My name is Julie, and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation First Quarter Fiscal Year 2019 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

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

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

Jeff Lorenger

Good comments. share our for the would start couple thoughts the provide questions. of morning, up call everyone. and year. opening for with on outlook of rest to the the of I We'll then first some open our like quarter We'll a assessment

First earnings has since release. not much our last changed

note The to for that out our members. I the impressed first and to our would as outlook dedicated like quarter continue played profit year I improvement we expected generally also is by unchanged. be

face job cover dynamic on now our our conditions. progress making our the have first a are and of quarter. the improving We teams done businesses in initiatives nice I'll

to lower with slow the after from better cost. start. improved generally conditions offset throughout volume anticipated, As quarter the impact a We of able much were demand

front feel be us. of Our of the dynamic good in opportunities with I pockets markets our momentum continued and about but uncertainty, to

by supplies decline some down first a each furniture Transactional X%. that starting processes business, The which through which businesses slow me driven the typically quick of cycle. was started quarter. business, Let the color nearly order in supplies-driven year improved is was quarter, that very order of the the on a in how main performed generally small the our with portion transactional office on and give

of in small-to-midsized positive business are parts e-commerce other the and growth projects. good with The supplies-driven

business We the but transactional and transactional macroeconomic business sentiment as order items responds the in will supplies trend of dynamic. are continue encouraged confidence supplies we factors to Overall, performance. our portion continue The resolution, contract improve. furniture the office we continue supplies-driven portion and with by improves, strengthen. such see the to should remain recent overall tariff see expect conditions be soft as Shifting to the quickly does business we solid to to transactional business,

prior two-year of for the quarter. strong While on organic quarter, X% year this was basis, during sales top growth the first compounded was comparison. rate a On our a down were plus X%

difficult demand We us. give on growth housing new and and we to slow profits in have continued in conditions. In the confidence levels market more The and hearth, grew single-family us first despite orders declining contract that ahead quarter have been a our run consistent we of activity sales permits. with good the construction business,

but slowly, improved the quarter. through started business retail Our

that, particularly Marshall signals strong financial over for that improve progress in and I'll details We year, additional have to it continue first market Marshall? some a we back to through turn the see the position the as on demand With quarter. will half.

Marshall Bridges

Thanks Jeff.

products in sales of Within Including consolidated headwind office segment, divestitures, grew business to the sales bottom our were line. million. increased $XX of organic costs X% benefits to an We diluted savings to the with in our compared cost was X%. down sales productivity new price versus In volume closures sales offset million impacts prior organically. realization, segment the first through $X.XX increased increased was decreased quarter of quarter of year. down Hearth $X.X hearth, sales Lower business X.X% share X% XXXX. were in decreased X.X%. drove down were per year, combined estimated Compared sales income live. X.X%. furniture retail Within First the organically. furniture, and Jeff? most able were and the our input Non-GAAP net and $X.XX non-GAAP to sales our not construction repeating of improvements, go down EBIT supplies-driven contract last and that office X% X.X% sales BST

Jeff Lorenger

Marshall. Thanks

profit to to drive million expect the be our unchanged. full realizing will investments. improvement we year, of of The to productivity our and million net remains $XX profit growth profit outlook For of continue driver primary $XX

track that to see Overall, are to goal. for to on due we We less deliver topline year the bit a two expect full factors.

Breaking our tariffs in much our we beginning demand second, around down we new changed modestly First, hearth not our in assumptions office the outlook adjusted has since business. picture, the and have lower of expecting our construction growth furniture year. are

the retain While a invest talent in indicators attract The these business, to our continues right uncertainty In and the believe the we in factors as market part suggest driven direction. transactional markets see continues Employers and employment are tight, macro business, hearth also We their aggressive. of the supporting remain factors signs war the the that and second improved they the strong, half. office persists, office demand finding brightest. to year. need environment supplies drive particularly for relatively in of the we many spaces best for furniture progress will stronger go are demand through to be to

have support out ability in year. demographics softer by the and result far that half expect second growth. point a belief, grow new and of the to housing being would generate driven our home we This with to supply as the construction of year. it improving to some annual half inflation been combination housing I all slightly the expected confident profit improve as continues our that like the so of will demand, Marshall? lower in to this however, permits tempered I'll in is It single-family improvement our has year timing hearth than our market second year full along provide of Our investment Marshall for savings, half. details. turn to back I and to additional now in back levels financial is cost am strategies the profit consistent last in year. with long-term

Marshall Bridges

some details Okay, our of let's the first full-year outlook. cover around

the diluted $X.XX. or consolidated of organic up per divestitures. to of and closures Our X% X% remains full-year in be now including to X% to income forecasted $X.XX expect We up X% net the share range to sales impacts when

reduced in tariff by hearth modestly on to and impact growth assumptions our no mentioned, meaningful sales outlook line. I the Jeff change new lower business. driven is our like bottom has note tariff As construction would assumptions our in

will We continue to now X% will When also are expected in divestitures, expect including contract up closures to business our expecting sales supplies-driven we the X% up lower will We're sales to in flat sales In of the sales volume hearth, by costs. to will up to be X%. in business, our grow X%. to lower offset expect In X%. impacts expect X% X%. organic be be be and contract hearth we furniture office

our second for to sales shift the quarter. outlook let's Okay,

realization organic of $X sales costs. by divestitures The to required expect second approximately higher up X% million. by impact quarter We offset be to reduce will will sales input X% price driven

Second expected up digits in quarter hearth forecasting sales flat-to-down digits. single business low-to-mid furniture and in office sales be are be low-single our we're to to Jeff?

Jeff Lorenger

I'll increase the profits business, it in questions. open excited the front to Thanks of and With opportunities Marshall. value greater grow us about shareholders. comments I'm for complete, for up our those drive

Operator

We'll Bugatch now Raymond question Instructions] question-and-answer comes James. from begin with go [Operator Your Please ahead. the session. first Budd

is line Your open.

Budd Bugatch

I to of profit taking outlook, gain in second make sure Thank question. you my year? the be you that Good did all the I of Is want the will half the Jeff morning. for say what… profit understood

Jeff Lorenger

Budd. correct that's Yes,

Budd Bugatch

second So that…? last earned $X.XX right, is earnings quarter quarter than as lower for year's $X.XX, you're I or adjusted, see so the second looking in you

Jeff Lorenger

give formal slightly We is what the some on general, seeing. we talked quarter, seeing We're organic X% Let you driven. me X% color growth, flat about to on giving color drivers give mostly some price what not to but of we're most that second can are which the guidance, is negative. maybe product Budd. we're In

roughly and expect So productivity flat on than negative prior again that is year, product to less slightly prior flat. non-price volume ramping with to are our up the investments and other be drivers offset quarter year. or still versus We're more the the in

Budd Bugatch

you're say primarily? for just up do or have that you're you ramping you right So that's accounting in the any BST is it system now productivity, closing in that when nodes

Jeff Lorenger

and lower investments, disruption and ramps closures. a on node productivity, is I year, I of more not productivity quarter it's load and second. gets in the in rest the get get second in to cost BST streamlined couple Budd. the investment big think piece then the net cost second Yeah, little the back that's and It's than savings of the it's a It's really the think higher and the continue a is that lot untangled things, untangled, to half starting big real

Budd Bugatch

did And cost in that…? QX? what How realization was price

Jeff Lorenger

realization about of the total impact of Yeah, million million tariffs. quarter the which price had approximately inflation, in $XX $XX of first includes we against

Budd Bugatch

crystal How and will $X what think year? the to So what's do -- the ball good today? your you it say for million be you do

Jeff Lorenger

to it positive. Yeah, for do year, expect be the we

for $XX expecting realization our outlook we price in of than of to realization it to million mainly price mentioned million was comments, is total the but Our call $XX to million lower cost bit tariffs little inflation. million $XX a $XX as against due we're

Budd Bugatch

much that does year? And Okay. through ratably happen pretty the

Jeff Lorenger

actually our it increases. we It's start price year, as does. anniversary it's fourth consistent to the some through in less of quarter pretty the Yeah, tariff-driven although

Budd Bugatch

Okay. the change contract office and some the the nice in in we can we you that do guess the of some make now? And the right have incoming kinds I flow? notable that? see Where What's we do and -- comfort backlog? is order any growth What's supply-driven or growth those side How looks get side. even there in

Jeff Lorenger

I'll Yeah, slow into stronger We seen couple and mean business built started the the side, quarter get things. as Budd this supplies we've to get in the I the quarter. One I started think it's quarter. -- stronger has a look the through say and

projecting. the funnel, we're On same thing. levels, rates the contract We're support seeing side, backlog growth activity order

sales the stronger side, partners, demand still a pointing with channel back hearth half. customers, indicators are the teams On to

retail, on the So hearth up. of traffic, et store visits, things we're and -- comment retail like should The side. ramping the website cetera on on all feeling are the retail I side

across the and the way. it's feels like generally demand the right on it we're to in need board, continue So to that's We kind banking of it. improve where heading

Budd Bugatch

very Thank Good you Good luck luck the the year. on right. the quarter. All second of Okay. much. rest on

Operator

Seaport Global. go with McCall Your next Matt Please ahead. question comes from

Your line is open.

Matt McCall

morning, Good everybody. you. Thank

Jeff Lorenger

Good morning, Matt.

Matt McCall

So you for talked the gave you be Can that be from year? the Jeff, the savings, like remind $XX price million pricing just if to you as going it those are no recognized took full to year to progress they're each the about Marshall? good, of talked you of just going also to the through be cost sounds benefits midpoint that's about cost cost, you how productivity, talked you us about I the expected BST. what and the

Marshall Bridges

includes $XX productivity So which driver -- to back productivity is year the about so for that and benefits net being half Jeff drive less that to Matt to is in the a year. of $XX is like million BST from That occur alluding will using first and -- million the was we that. the the things the for what big talked investments

to first benefit As the cost, we in some have relates price it quarter. did

$X benefit million. quarter, the smaller second a million in and somewhere between expect We $X

of will fourth flat and Third balance we the know on it based then quarter quarter the now. be in what roughly

Matt McCall

meaning in to price Flat QX. equal is cost

Marshall Bridges

Yes.

Matt McCall

Okay.

$X productivity what combination the had buckets? had a in those will you then million remainder million is $XX the is $XX two you there, $XX of said million to QX So $X you that to and $X obviously cost benefit, and million show and up of million -- million savings

Marshall Bridges

sort we put productivity Yes. the place of less to net that of in drive it's savings, those things. cost investments basically

Matt McCall

no-BST, I BST, my the million Okay. was around somewhere brain. what got the notes $XXX in then my And probably

the what's BST year. So hit last

Marshall Bridges

improvement million that Yes. year. $X majority A quarter. in first the the of we expect an full BST to be was for

Matt McCall

nothing understand in moved maybe that given but to that the trying metric, higher some talking has you've office you're me Obscure that of but focused the netting on Okay. to you're cost savings. that it's in and these is and divested about is Can with furniture the investments productivity and productivity that it, just savings noticed assets hard given things. I'm what and that and do that understand are you that benefit that out cost maybe what of I

Marshall Bridges

from think the material there's impact assets. on the any office don't I investments furniture

probably I accounting on reasons rules more change balance the general you're there's there that. think what the up in assets Matt sheet to is for picking the in related and

Matt McCall

Okay. what impact? quarters. Well, specifically maybe and are you the flow How next does talk about it the little the bit doing. a three What's through investments

Marshall Bridges

broad Yeah productivity and and the year. of to ramp down is second there quality our mean we doing. do as based. Matt, general quarter are back improve the in get and kind I to into the operational flow peak then labor we investments pretty big what half There's no of single and item investments just expect the that we're classic

Jeff Lorenger

our in digital marketplace. streamline to customers kind I'd say other to the to thing connect we the and invest is continuing connectivity to better analytics of Matt are

our and the well. analytics it's we've as investments traditional you ramped operational digital know, but So investments up also

Matt McCall

Is you're effort. analytics an or up to behind you from where or of a Jeff, behind catch you're more perspective that you're trying area a is leadership thought it digital

Jeff Lorenger

I tough or question, that's a Yeah behind would. Matt. leadership

to is time. receptive the how patterns met right we the we're meeting buying timing want these to for and and business the they and is customers in them want think right our be and be that right we're to I marketplace behaviors such where the at marketplace are and

kind I of trend So on feel we're Matt. there right

Matt McCall

builder that giving this some from about or just your this, I with confidence? things curious to and commentary again customers. last at you may specifically the your bigger of it half guess but about Are and question back hearing more the it of the Budd conversations looking that but we from outlook same a had, that's And I is year, I you perspective. it customers looking you're feelings have Okay. housing I hear think macro, supply asked you're improved What are demand wanted at your I'm your is your

Jeff Lorenger

Well, that's yeah good question. Matt,

I in look probably I that discrete that drivers and it's certain we beginning talk the has I of we look that to if more both the and year. channel macro and think maybe sales since and way geographic customers dialogue are partners the step mean teams back. all at at, remained but consistent also you regions

Matt McCall

to Consistent be there in some that is half appears the supposed second acceleration.

Jeff Lorenger

Correct. Yes.

Matt McCall

all. you Thank right. All Okay.

Jeff Lorenger

you. Thank

Operator

ahead. Your go Stephen Research Ramsay with next Thompson question comes Please from Group.

Your line is open.

Brian Biros

Stephen. was played This for deeper how dig that start and that Thank out is questions. QX with in the and also for and want specifically. actually into the the taking to Brian the Biros in my on channel year for of of construction you the QX new given construction kind rest you new for I if could QX little environment in outlook a

Marshall Bridges

Brian. new a Yeah tad in we show growth were to just in business able X% first over construction the quarter some hearth

more that previous as do starts in second first We on permits -- the the in Jeff are seeing Matt to that second quarter question business. and on expecting that our half. be We're that are the than housing mentioned have market the slow. rebound a the of from activity, in we expect will an to impact The headwind slowing

Brian Biros

jump it. -- played quarter. big steady on month. you. just mentioned one QX the the kind a for details Got out from a how just was demand there if We demand more in level. growing appreciate some if Thank was you compounding, each It of Any of more or month And kind insight it. provide kind was of into that the to you month throughout

Marshall Bridges

in demand that quarter. call last first very our on slowly the started said We

we of late year. levels. of last was the we rebound as and sort we of And sequentially move know the the a So in did see from those quarter full January that slow carryover fourth quarter you saw through middle activity was very from

change really So it's build. rapid been step a not pretty a up or been steady

Brian Biros

Understood. you. Thank

Marshall Bridges

Thank you.

Operator

will over Lorenger I closing Mr. call the now to back turn for remarks.

Jeff Lorenger

Yes. everyone. Thank you,

interest us we thank talk and with your in always, Have continued to Corporation. As Thanks. a HNI great for time taking day. you

Operator

you may now today's and conference participation Thank your call. concludes for you This disconnect.