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HNI HNI

Participants
Jack Herring Treasurer and Director-Investor Relations
Jeff Lorenger President and Chief Executive Officer
Marshall Bridges Senior Vice President and Chief Financial Officer
Budd Bugatch Raymond James
Matt McCall Seaport Global Securities
Greg Burns Sidoti & Company
Steven Ramsey Thompson Research Group
Call transcript
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Operator

Good morning. My name is Heidi, and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation Second Quarter Fiscal 2019 Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. Thank you.

Mr. your begin may you conference. Herring,

Jack Herring

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

with reconciliations and Bridges, CEO; our are Copies our posted Senior President earnings release, CFO. Marshall financial and on are news Lorenger, President presentation Here me of and Jeff Vice and website. non-GAAP

to on that call statements, made not and the historical facts The Actual this to no forward-looking could that earnings subject includes corporation Statements are materially. which are during obligation results. call. factors update results strictly are known affect risk. our unknown The during forward-looking actual any additional made assumes could differ presentation website posted statements

call pleased to to Lorenger. the am Jeff turn Mr. over I

Jeff Lorenger

morning, Jack. Good Thanks, everyone.

assessment then thoughts some of We the will on the up the share open year. questions. the for our our and second for rest quarter provide We'll of outlook call

well quarter. to teams the in Our continue perform second

are improvement our We are a deliver that call, on dynamic to indicated focused would staying targets our half. track on initiatives conditions, profit our we market key key the our on driver last and second delivering On this earnings through be for results productivity in managing some year.

to quarter. second our office the furniture contract are I on double-digit also in ramp-up growth track report in efforts pleased that these We're business, am activity and bearing seeing fruit. order with

We executing market. have in a position strong and are active well an

expectations contract will are our half and result, As raising the generate contract confident business. sales strong half we a second business are our second growth, for

slower-than-anticipated is housing business performing navigating hearth well market. a Our while

market, housing the down driven last were year, create value. by from softer lower to starts. single-family As continues shareholder significant expected, hearth sales Despite hearth slightly

can our penetration. We generate about positions our initiatives we increase growth are market-leading to and with the long-term confident

business business like uncertainty was continue nature. to of primarily has combined business patterns. soft, in remind you with swings our That in owners. this We uncertainty, which short nature and this short-cycle believe would is small sharp I to on weigh inconsistent buying that to impacted concerns in medium-sized led to cycle general our and businesses Second results. quarter and when market, macroeconomic targets demand supplies-driven the negatively small-

Specifically, weakened driving quarterly in shortfall. the mid-April, demand of much

We June. demand did see May improve in and

However, in given good market lowering expectations mid business where With with some far the we are are for heading year, near-term our year. to these what have we second the term. it to we over and and that, Despite details I seen long so our about attractive, supplies-driven will additional the revenue business turn quarter. for we the grow the feel challenges, strategies on this small remains financial Marshall

Marshall Bridges

Thanks, Jeff.

impacts X%, decline year. furniture, with sales X% retail new products. segment in sales up business were X.X% the our of both construction X.X% Second Within the business contract down our decreased and organic In down X.X% sales supplies-driven sales furniture in office Hearth versus a were in decreased organically. and consolidated prior Including similar were and quarter closures sales X.X%. organically. decreased office divestitures, the sales segment,

offset combined line. BST diluted per and million lower $X to $XX to headwind second We compared estimated to drove non-GAAP price EBIT were year, Compared an share income our cost net Jeff? Non-GAAP through of management, able Lower most of was quarter was $X.XX XXXX. realization. in that million. the last volume to cost costs increased bottom $X.XX down input with

Jeff Lorenger

Marshall. Thanks,

to profit expect to continue the drive year, growth. full we For

profit from of efforts. The second and on We of the are deliver to managing our half some results improvement business cost-savings focused challenges markets. primary on our profit commitments the in demand despite driver our productivity

profit million a deliver initiatives on with to track second improvement in half. and net the are confident will are they $XX these $XX We million

the a by we couple relative of factors. Additionally, stronger to driven do anticipate demand half half, second first

business. expect contract in our First, sales strong we

we As intake activity are order I mentioned seeing and contract strong earlier, strong space. in the

As which a for than previously higher the the points half, a contract business. is are double-digit what we projecting back few growth result, in expected we

supplies-driven Second, growth, in we realization will general be stabilization expect higher of up mid-single small demand. offset business to our business driven half, to by second low- and the e-commerce digits price tariffs

more fourth second than comparables ease weighted when Although supplies, in the expected. quarter accelerates. what of prior is e-commerce lower we to are couple growth and points half It we a the it previously is year projecting also

Finally, in hearth, we expect growth. modest

last a while few additional than I'm Marshall turn year. new for financial remains This profit than points home year. We grow to half it construction low improve full now growth, strategies some are and confident to the details. second our previously I our lower to in retail will to nets slower single-digit provide ability seeing demand is which back expected.

Marshall Bridges

Great. I'm outlook. around going to the year some cover of our details full

of diluted range flat the to and We has We're to is expect closures and sales per contract organic in X% supplies-driven or up year up share X% organic full X% to now including Our to expected be up contract divestitures. sales up When the will including X% closures and business, income when X% now office our of to forecasted X% be narrowed impacts year of furniture sales In and $X.XX we consolidated sales business to full be to X%. $X.XX. net expecting in to are will X%. be divestitures, X%. down our impacts expect the up

sales now to hearth, will X%. In be up expect flat we

we move results Jeff? quarter. quarter back mentioned, Jeff the fourth in will of and sales As with year those the as we third the outpacing profit improvements better half our expect become through progressively

Jeff Lorenger

Thanks, Marshall.

said, expand front increasing some opportunities confident of navigate. shareholders. about headwinds us business, grow drive We our I have short-term to for the value the and in remain That to profits

focused our creating customers. complete, are up for on model and those We it comments I'll experiences strengthening questions. With our effortless operational open for

Operator

you. Thank

Raymond James. go Please Bugatch comes Budd with Your first from of question the ahead. line

Budd Bugatch

questions. Thank taking morning. you my Good for

half, us international, was a give or of overall guess could You talked what maybe I feel nine the about X% order times you up the strong X% for quarter second the was the with up during in growth in [ph]? growth contract second contracting because just

Jeff Lorenger

Budd, question. Yes. good

orders quarter second double digits second quarter. were in The up the

Budd Bugatch

range, That's Could a you hone in of kind bit? that maybe Jeff. a large

Jeff Lorenger

Budd, is sales the We're what expecting half consistent low with of Yes. in contract. which teens, terms per we're in the second in

Budd Bugatch

has higher backlog got So to be year-over-year, right? significantly

Marshall Bridges

been building That's first correct. It's through half. the

Budd Bugatch

first basis, to And it year-over-year on you quarter want at basis or how second sequentially does or year-over-year, that versus quarter look? a look however

Marshall Bridges

in up it's It's the Yes, double Budd. substantially, digits.

Budd Bugatch

half? throughout in to Okay. And expect delivered be the that the or quarter do second most that is of third scheduled you deliveries

Marshall Bridges

the for is of contract be to the stronger quarter but actually in It's third expected second terms half, throughout year-over-year growth.

Budd Bugatch

see In What stabilize of about some to I'm helpful. supplies, supplies better. that That's navigate. get stabilization? still confused I'm confused. confidence And will and short-term you the on talked why you Okay. headwinds you kind to can gives

Jeff Lorenger

a Yes. question. Budd, good that's

some we recover seen But I in is really in kind stabilization. June. that believe a have May the hit and We We stabilized. little of brakes It started And headwinds. it stop, say volatile, demand why saw has recovery to late April. that's

eased area. also through were e-commerce of up momentum the quite quarter one is quarter's XX% quite we in a comparables a candidly, the business, which supplies platform And Last our bit. channel. bit three, have the in supplies fourth year, in We

offset price-driven X.X%, we to In That's got that eases. were And half. about in then so growth up finally, the fourth more than second higher quarter, points we running half tariffs. the the only first two

Budd Bugatch

fourth is in trying again, should the better, supplies, comment in a So here? the markedly to see that turn little still too just to that can quarter, you Or pinpoint way think that quarter. it? but third the issues about some Is

Marshall Bridges

Budd, in But comp, I the expecting see supplies. the because fourth a quarter. quarter be we're the improvement that better of in basis still we'll rates quarter think growth improved. year-over-year on third third will in But lower

Budd Bugatch

And to up year-over-year? in you expect those supplies the quarter third be

Marshall Bridges

probably We'll I'm sure not flattish. so No, be roughly about it.

implies the mid-single digits half, to our guidance for the For half. second back low

Budd Bugatch

Okay. you construction for about the were outlook, retail improving All construction hearth Again, And the what retail will talked second that issues? improve similar on the in over to right. retail the was me quarter, down. down comfort but products slow products What gives lastly, hearth. you

Jeff Lorenger

are to had activity had also remodel the And second the Yes. been space. unwind would ... have that the the Add in a actually, contract to X% levels quarter. we that and furniture issue normalized, up, little Budd, inventory QX similar in been ramping also about it's an story. The up

Budd Bugatch

what sure not know I'm I understand that I unwinding means don't is? what

Marshall Bridges

lowering There's sales our distribution it some although of there's bit, We've there. inventory a made de-stocked. in the the system still out had result demand changes some that and

Jeff Lorenger

that went offline Yes, took had we wholesale a relationship, direct. we Budd, and

stuff selling more so but of And day-to-day basis. a didn't on that just it's through repeat,

Marshall Bridges

disproportionately weighted four remind year. to last just the the everyone, And months to channel is of the retail

a first in make second in can and big changes quarter. these So growth rates small the the difference

Budd Bugatch

much. very balance. helpful. luck That's you All Good on thank the right,

Jeff Lorenger

Thanks, Budd.

Operator

Global with ahead. comes You next from Seaport Securities. McCall question of Please the go line Matt

Matt McCall

Thank you. Good morning, everybody.

Jeff Lorenger

Matt. morning, Good

Matt McCall

So start the does takeout, benefit, Jeff, maybe And layer to memory. in I me the more cost in the the takeout. you you're with I'll said $XX timing of maybe, cost Marshall, Forgive million what my half? the around back of back that, the then that specifics half? $XX how Remind doing million specifically, think,

Marshall Bridges

pretty benefit saying We're a $XX bit consistent little feel but Yes. we've $XX $XX This deliver well back million. little to as maybe we're year. in to hit for a well. It's that's fourth million Matt, the going We're million we're that all million be quarter, and like the some for to now. is right get going third to year, to We schedule. to investments doing of expecting quarter the of the ahead there'll the in what way productivity net $XX been half. with

Matt McCall

Okay.

the million, $XX it's talking I What that makes been it number million, $XX the range range, So million $XX still to do know that's $XX million? it expect to million $XX $XX – you've you What about with makes million? so

Marshall Bridges

we a do how It really progress just is much wide how of This with execution and initiatives. those to deliver on things. they has range

there down occur go that that that So probably we're are in can from or there. to I but cause us middle the things more of think range, up

Matt McCall

Okay.

and the mentioned in more? making you assume just experience involved effortless us again, improving that's more maybe that for you some us there's effortless? You experience, you're in there? I tell doing Jeff, think tell just you Can I it talked it about the about investment Can release, customer. the what

Jeff Lorenger

of a customers' they a and of in make spending really us. on, lot order our met are got easier then And to lot want customers lot with to we're pushing on meeting and process their we forward it's those interact but customers a mean, to that, And really that. organizing with it we're interact our spending time understanding we've ourselves around time in investment on tools to the journeys process. behind I Yes, be early in purchasing where

Matt McCall

million $XX does it of investments, that about talk net that any or – you – that to $XX of when investments, make having around of million investment Marshall, you're So net does is effort? to inclusive

Marshall Bridges

Matt. includes our is, as it investments investments as well that the referencing. digital analytics Yes, Jeff It is go-to-market

Matt McCall

Okay.

So I the missed outlook.

said outlook? I retail flat what hearth was new you up in year think X%, versus full to the but

Marshall Bridges

for – hearth? the In

Matt McCall

Yes.

Marshall Bridges

Yes.

year X%, products expect New construction X% X% for X% full up hearth full be to outlook minus and in we plus for retail the to is to year.

Matt McCall

in what customers? What's general? understand But I maybe some new broadly improvement. just know outlook, outlook easier And your the QX. broader maybe you I I mean back some builder the definitely the I think, expectation, housing hearing for maybe comps half housing of side, for a the the starts in into get just in and on from lot with but are the

Jeff Lorenger

say year, looks the permit strong half. than thought like it's data had would we second to more some Matt, rebound home than the as anticipated that going I has going been Yes. market the not people earlier to new has, be. it mean the it it in was I'd more as in

kind is little had about maybe down, people we're be rebound to bit it's what that it's be, and to than delayed business, be to hearing you going we're So is flat longer a to the of still our going talking anticipated. to for going

Matt McCall

rebound, anticipated Jeff, what's you talk to view heard? interesting those that thoughts any but there's still that you that builders, on the As really Anything delaying it? an is

Marshall Bridges

And Matt, I the bit back of it's at the a continued new think softness when in it's of construction housing pretty so in has permits, you a to down, our that. the still view half. kind new decent more supporting our little construction channel look – relationship

Jeff Lorenger

than people we a they Matt, think gotten three, months have ago. little more cautious, four to overall them as I talk were

Matt McCall

you Any is? than – talking why hear What mean they pulled are more a different the… anything that come curious little color if rates rates about on just back bit. have I back to

Jeff Lorenger

really. Not

really. Not Matt. hear, we what hear probably You

I think…

Matt McCall

Yes, fair. that's

thank Okay, guys. you,

Jeff Lorenger

Thanks.

Operator

Your next question Burns Company. comes from Please the ahead. line Sidoti with & go of Greg

Greg Burns

related? market- with that Good of the Or related morning. completely macro maybe is you're terms anything impacts any share in else from there seeing macro Is market In that changes the besides affecting or business, of there your acquisition consolidation weakness might business? is be the wholesale supplies Thanks. ascendance?

Jeff Lorenger

see almost the that. around that have this to a person talked at point. up April, data partners Yes, the to all on all able brakes, the haven't but I been hitting channels, always Yes, we Greg. channel we we mean can the instance, when for similar there about Not slowdown. and movement specifics our customers we there's any talked our about pick

at our this point. that's view best So

Greg Burns

you. Thank Okay.

Operator

Research the Please question next your And with comes go Thompson from Group. of Steven ahead. Ramsey line

Steven Ramsey

kind you builders, can And does of growing Hi, what talk hearth it the sluggish I direct retailer business? environment guess targeting? increasing or this of channel about easier it penetration, about you're make tougher or Is to or good of portion penetration? type gain dealers the morning. talking penetration,

Marshall Bridges

good Steven. a That's question,

interested as aspects to all we're we category when of on as lower-price-point do existing about the trying about by talked we've It's of So penetration a it opposed initiatives to bigger days penetration well about in as ongoing fireplaces better the out. both of better a fireplace inserts talked gas to and large promote the we have in we of terribly the build have a age fireplace as reasonably home We're which making But retail starts homeowner the market, they market, sure – a putting also educate large get there. and have not are trying a share they and these benefits of work mix homes, to later. in market. got replacing grow trying to to trying we've that

Steven Ramsey

year? freight of pressures out facility year, far the you positive now Great. guys the past negative have years, kind consolidation go? that the – logistics, you be played has And And that hit you pressures versus to would switching costs or last how before as last logistics or the describe over conducted as does few to

Marshall Bridges

cost, less they have than relates been pressures, seen expected. it As freight to year-over-year have we but we

if So we're it you competitive it's pleased view, But look a a at still by that. pretty from marketplace. high

Steven Ramsey

Thanks. Thank you. That does it me. for

Operator

Raymond go James. the from ahead. of Budd And we have line Bugatch a follow-up with Please

Budd Bugatch

slide and of see Yes. Marshall, I'm year-over-year. the can in on F&D results kind looking the the at second you quarter improvement

we It's excluding walk that. But non-GAAP going on flat lower Can So basis the F&D, point what's XX pretty see there? through significantly us revenues. wrong the of on a you going kind way.

Marshall Bridges

Yes.

So we having – BST about we cost. the freight first. talked of I'll are answer Where benefits

were live. went those We're year of seeing we as also of last better freight Some kind hit as we there. productivity some inefficient

management. we there, SG&A, inflation some inflation to relates it as wage are So by your offset cost seeing typical

So that's why it's basically flat.

the In than it's benefit freights, from a fact, other the volume.

Budd Bugatch

on the $XX of that what's million half, geography this in And P&L? back to million the of $XX the productivity

Marshall Bridges

There predominantly than of sold. freight, a hits quarter but some less that it. it's benefit It's in goods cost is of

Budd Bugatch

of I a show Okay. in up, going the that things you've your investments? – mean is investments in Where you going initiatives maybe SG&A. or growth of other much going that? that invest And Is to some got? to that after up is flow-through to are show you it how

Marshall Bridges

cost and I'm for of say number sure roughly question. but in a two in have Budd, equal not a I precise they're categories. That's goods good investments both roughly those SG&A The I'd are Yes. sold. you,

Budd Bugatch

of that $XX to the how million? are So much what's investments? $XX net And those flow-through million

Marshall Bridges

the million. range, it'll $XX But closer million million total. productivity $XX $XX investments $XX be in net net $XX to be million to will $XX That in the will to to to and the million million be

Budd Bugatch

$XX the is to million to productivity $XX So million flow-through P&L? net the

Marshall Bridges

that And Correct. number. ramp that Yes. in we're and up Exactly. seeing feel confident

Budd Bugatch

Okay. Thank very you much.

Marshall Bridges

Thank you.

Jeff Lorenger

Thanks.

Operator

there to as to no the closing queue, like Lorenger are I'd the back further comments. in And questions turn for call Mr.

Jeff Lorenger

everyone. you, Thank

in this HNI your appreciate a Have we with for always, time day. spending great interest As continued morning. and us

Operator

And call. concludes today's conference this

You may disconnect. now