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HNI HNI

Participants
Matt McCall Investor Relations and Corporate Development
Jeff Lorenger President and Chief Executive Officer
Marshall Bridges Senior Vice President and Chief Financial Officer
Reuben Garner The Benchmark Company
Steven Ramsey Thompson Research Group
Greg Burns Sidoti & Company
Call transcript
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Operator

Good morning. My name is Jason, and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation's Second Quarter Fiscal 2020 Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. Thank you. Mr. your begin may you conference. McCall,

Matt McCall

us on morning. Thank With I'm Corporation. is second are Chairman, and President non-GAAP and Senior President joining are corporation and forward-looking Bridges, McCall. this and name pleased President, Jeff call presentation and Jeff strictly during you. Lorenger, update assumes could Thank forward-looking no today that release, presentation fiscal Copies made earnings of are Actual CEO; our factors Investor over results. the our statements, for additional obligation reconciliations CFO. statements I'm Vice now HNI during risk. are Good that The differ known Vice for Relations any Matt Development, the our our My and not to me call. website. turn posted Statements XXXX to Jeff? Marshall discuss on are historical to you earnings quarter Corporate financial The to includes call could posted subject facts materially. affect Lorenger. results news results. which website made unknown to actual

Jeff Lorenger

morning, Thanks, everyone. Matt. Good

this experience, second us delivered businesses developed We offense, seizing our in by in we have did also job managing We lower Moreover, and market volumes. a challenging focus we our and profitability our me our of on offsetting the future. generating conditions. through and saying where solid and customers aggressively second the great the quarter played benefit to drove better opportunities new costs will that impact operate from Let through managed productivity, start of quarter. ways members much We kept could.

and the with benefits the ability efforts, diversified our better-than-expected to our containment reach results. to breadth channel cost from our the revenue pivot, line contributed quickly price our points, all of streams, combined Our top

slightly these second our items you Moreover, solid the quarter, quarterly share a helped expected we per of profit. told what quarter, in up earnings accomplishment a again, the about a us two first headwinds given quarter given and is HNI. demonstrates, actually of first quarter, is in the This second comes XXXX. year-to-date we told we versus priorities loss in unique combination deliver While the great is our are you call it that we to results Last the pandemic the it we facing when our had response. many half

First members. is the and all HNI health well-being of

while the the strong is term Second our the navigate is on and our long-term by strategies. maintaining successfully balance to remaining sheet, short pandemic in cash focused flow success supporting

far, facilities priorities. So able we were quickly our customers. We and have to to successfully both operate effectively navigated safely adjusted our serve and

we addition, members. for offices, we began multiple safe safety In returning as implemented a all ensure process our to measures to

remains safety Our paramount. members'

flow balance our modest excess level. year strengthened further of free generated also We our prior already and levels cash in debt We sheet. significantly lowered

have We cost structure successfully and a any period. and crisis for to aftershocks weather this the prolonged financial strength

two financial costs, Our demonstrated ability are flex and changes. to we making strength

initially anticipated. pre-pandemic restoring to XX to are levels, earlier than we First, XX their salaries days

balanced the we reductions salary to you our pandemic. recall, If part implemented of temporary as approach

quarter Our and salary happy efforts fronts originally earlier I'm members the second levels multiple are we overdelivered able to quarter. grateful anticipated. for about that on in their restore a than

across view share dynamic. our the we QX, markets we acknowledge and members. I experienced our be a like we what financial and direct are and demand using and we position invest. are note opportunities position result the what are now currently on of efforts experiencing some the picture how notwithstanding, we our that businesses; It see to indication of in Second, That financial to strong to over would our our that actions we crisis our is not an is these continue levels. I thoughts investment the will accelerating are future.

year-over-year QX activity. our First, order

Furnishings, domestic e-commerce is business, recently. in seeing QX. were excluding our Orders down been we what have Here Workplace XX% in

Over the they down past are XX%. weeks, five

uptick remained line seeing with our relatively five E-commerce We and year-over-year orders, a are in the previous have over in have orders up and declines XXX% seasonal constant but what in XX% experienced were up weeks. in are QX generally recessions. we past

in to growth were weeks. deliver moment, We We over strong business are believe consistent up the rates Products and Residential past discussed orders are providing again secular X% quarter, will detail this near continue which and I confident in a will in the last Building see still positive growth term. long QX, five the trends both we tailwinds.

an on down and shortages keeping production. are which eye for slow builders, labor land We could

Again revenue [indiscernible] reach our indications benefits. and far. unique And to price rates encouraging reflect thus growth are point channel these recent breadth streams, However, are HNI.

potential are Next, as and we near-term Workplace for secular supportive quarter, provide support. should post-pandemic our we trends discussed that several the Furnishings segment, last we seeing multiple positive trends. In see revenue

trends quickly to life; while our especially momentum. in seeing. their of still and to cyclical mode more resets the from office the floor a demand organizations third, office These work new cases to as assessing with take new currently some tied from work increased is value increased COVID steps. right these generally locations. out pressure, the products positioned smaller than can orientation our we adjust be social demand figuring of to broader near-term benefit growth enough from in nationally. plate separation meaningful office physical are and home to and platform, won't gain maintaining the trends next options uniquely construction given more HNI of many require these with now satellite natural brands. offset return time to minimal increased second, Customers are create of will are environment; them a which Generally, and distancing to architectural Most First, will for time trends

position Residential and specifically Building develop. Products However, in our to competitive advantage segment, take national In opportunities HNI reflect trends is market large particularly order well secular as the the these positive with positioned our strong builders. of they

In positive secular should support demand housing tied and rates work-from-home support cyclical trends, going and addition, and low to and mortgage forward. elevated inventory, patterns trends all de-urbanization, nesting record low provide

about secular to our We to turn I position. the then back Building segment. are over results Residential will some come cyclical initiatives give the Products thoughts. call current strength, company-specific our now concluding second within financial opportunities discuss I Marshall our excited Marshall? and and quarter will and

Marshall Bridges

was net Consolidated of down diluted Jeff. $X.XX. XXXX. non-GAAP reported the Thanks, share the from second income in was we $X.XX That per quarter

benefit below year. income deleverage quarter of a Second X.X%. consolidated sales million prior decremental the of Including of sales were the down year on decline range $X.X organic of million, versus rates or which which the targeted versus non-GAAP means That's prior operating cost benefits our $XXX sales XX%, acquisitions, XX.X% includes was well declined decreased actions. XX.X%.Consolidated margin our

impact the generate the did were pressure, job non-GAAP volume. income of Given first the million $X.X Furnishings operating limiting of our top In XX.X% declining segment. great in a line able quarter the segment, sales decreased Workplace we of to members circumstances, year-over-year. Despite the

million Residential including was Sales X.X% X.X% that the organically While decreased in down Products acquisitions. $XX.X our Building when is decremental from margin the and year-over-year prior segment in only XX%. quarter, year the

QX, compared $XX.X and the up in XX.X% year prior versus $XX.X operating retrofit sales Within the XX% and the year. X% we and higher organically, Despite and prior segment, margin the remodel Operating revenue profit expanded margin pressure profit new totaled were to delivered of year-over-year year-over-year. million from products the down construction in million operating declined residential in quarter of was operating XXXX. period, XX.X%, sales second

due For volume. second year-over-year, to down HNI, overall, quarter is points profit was margin primarily XX.X%. gross This XX basis

second tax Our rate was outlook. quarter earnings by high, year our XX.X%. This driven to was full changes non-GAAP abnormally

charges note forward. the quarter levels only was to GAAP difference We excludes between quarter non-GAAP the more tax. should of tax the Non-GAAP from expect first to the that impact I we that rate tax in and XXXX. return recorded EPS EPS normalized moving onetime second

overall, So results second strength our again our platform. demonstrated operating of the quarter

Okay.

debt from and million quarter the had $XXX second shift which the than talk quarter, lower was of first quarter. debt, was total about down and liquidity prior end At Let's the and year levels. million $XX the we now $XXX in million our

the debt-to-EBITDA in X.X. our covenant of well perspective, net is ratio agreements. last gross from QX X.X a year. From X.X ratio X.X leverage debt leverage below leverage gross times of loan or gross existing down Our was in last and X.X our remains This quarter

million teams Our cash the Free nice job a the we of for flow was $XX balance $XX managing have quarter cash generating than done in second of XXXX. generated the sheet double flow. second million, more the quarter and

debt covenants. flow This a will quickly ability low and expect cost variety our we strong ratio, our levels our scenarios. maintain Given within structure, free adapt well remain our leverage means we financial flexibility in cash to of to

cash We net significantly below and project expect we flow to be reduce year's dividend. above $XX year-end million our last will debt level, free

year, of as So limited provide earning we the guidance. our visibility the and to rest and our forward sales ability pandemic look to the has

will we we thoughts what share few However, expect. on a

strong First, scenarios. as and maintain our variety do cash a feel generate under just free sheet I confident strong to covered, ability flow in our we balance of

due third quarter seasonality. we ahead track of second Second, XXXX levels, quarter expect and to primarily sales profit to

the is just We're continue the the estimate half. second mix of acceleration pressure we That's than restorations, in quarter. we higher decrementals or over less business investment decremental the time. expecting believe XX% appropriate in second to Third, to impact deleverage salary margin achieved and favorable what

result, call we now decrementals the range expect of full for turn XX% over a year to As back the in XXXX. be to I'll the Jeff.

Jeff Lorenger

were quarters pandemic, the delivering years the in In recent to up Marshall. investments leading returns. Thanks, made

and balance that our profitable and our also You additional pre-COVID results of only be flow demonstrated can quickly revenue, great Then sheet margin the cost actions strategic this cash will but what to our our we is our our in took we strategic during trends. support Not quarter HNI. pandemic about support as able adjust to structure see momentum framework. cash QX additive flow growth were on evidence recent indicate past more to

Our our members forward. remain optimistic, and thoughtful, nimble going pandemic-driven our will help successes businesses and

for up We questions. your will now the open call

Operator

Benchmark. Garner the [Operator comes Your first question Instructions] from from of line Reuben The

line Your is open.

Reuben Garner

starting Good Maybe Is you changes do returning what made that? while. maybe in things? giving that's e-commerce talk is with you the acceleration a levels can it everybody. and you traditional just maybe compensation about confidence than most that? to it you sounds of more and gives there, the in two Products to pre-COVID the the Or morning, office to your like Thank still the are segment confidence Building the It on some the the to the there that you. in growth investments, there restore pressures

Jeff Lorenger

I good Well, Reuben, think, question. it's a yes,

is well given performing see are the we our think I businesses or strong, we're the balance believe cash sheet we is environment. strong, flow

we projections, our it so see the we And the members all hard, Marshall Workplace of across don't we Building, have went and just worked actually; platforms. in all kind confidence businesses Furnishings, have as as Residential a e-com, through our have

felt that confident strongly and that move, it's maintain members, pull invest And and and can we our so forward investment in the should we we're we're that. right we confident that

Reuben Garner

issues. if connection Are we'll these what that guess, talk see going? you're And it of having it, missed initiatives? savings when, the combination is and But I'm I Are it Is can the investment can they up? I you Where you two? sorry, accelerating? about Where growth? investments show

Jeff Lorenger

investments, across marketing. the play. still of putting we are We're e-commerce They accelerating just We're more productivity that everything operational in kind It's digital initiatives capability, product, business, new all had behind from Yes. them. Reuben.

Reuben Garner

Okay.

the margins side, expectation that takes in quarter. puts then talked about in an were on Building front? you strong release, On Can the And Products margin you forward the and your talk there? orders revenue returning see obviously you think early I declines last now the going Any your about is things expect it third as quarter? to the that might other growth, think can positive to about too in business. return revenue to soon With as that growth very

Marshall Bridges

but are more Reuben, question. quarter, a as Residential be of the There Building just Products, is The in positive demand outlook order good it's and supply around constraints, concerns well. availability, Yes. recently we're labor there. second here growth land, sort we've seeing for it seen

not I'm but acceleration Products be could there a positive, outlook So or Residential is not a the pause our term. in near maybe for rapid Building

Jeff Lorenger

Yes, Reuben, this is Jeff.

the remodel of I reporting think and actually above online pre-COVID more consumer is digits, now levels traffic in-store traffic with motivated thing is that are buyers. the dealers retro, double other

to can't of lot seeing who penned buyers motivated seeing instead, So what been and find the new we're decided because supply, who kind they're a believe, we're have a nesting also the of we low And of remodeling. move-up in remodel. home people

positive both of on the remodel So there, on got phenomenons going we've demand kind two side. drivers

Reuben Garner

think, I the that from the me, Or performance second of your quarter? for Congrats the return that's on in between there the elements most you'll the pullback of to through were second one the that luck businesses fair Last delta and back helpful. was and the margin quarter why within is it assume decremental mix and very comp investments on in more to in That's targeted and Great. the levels, year. the the helped margin. any reductions, Is that was normal rest That's quarter range? the for the me. good front there the navigating

Marshall Bridges

little Thanks, drivers the half two saw Yes, quarter in and of you restoration Reuben. three the of decrement be them. Yes. margins second salary second hit higher than The there's the and investments. a really of the return in acceleration why of we will the

business mix. is item The third

half the unfavorable a little second compared We are business to the mix quarter. in second seeing bit

Operator

the comes of Steven question line Ramsey Research from Thompson next from Your Group.

open. Your line is

Steven Ramsey

Good in the Or that drivers, orders? setting the competitive the driver. you maybe Where a morning. as pricing workplace, discussed to varied pricing this then fine Was is up? up previously has placed maybe e-commerce? holding actuals environment? expectation? can How in second a And guess you through due go are for shaped I aside versus

Marshall Bridges

So These place pricing last the pricing primarily pretty far, tariffs got in has year. middle next that well. Steven, put of the previously to held up relate are that actions implemented

we're those. So still anniversarying

Jeff Lorenger

commercial XXs. vertical in that down us, general, a kind in same had your little I'd customers of of education of just all was we Yes, segment, a us, stronger a strong low Core verticals question, Steven. what season anticipated. strong relatively that across are think And range, the we had education we on But was anticipated. kind say above in I kind that for than for probably

Steven Ramsey

or the Great. is QX past does And education due? help benefit, market in then that that

Marshall Bridges

in it It's Steven, at of that's shipped all QX. that and happens where we've order most season is pretty it. and marginal period a once, over

Steven Ramsey

in And flipping of e-commerce side. kind I XX% If sales X% just then past. was I that the growth dilutive the still remember a headwind in What QX? the is was as to we kind with And Great. scaling is or it forward of right, continuing, to in or midterm? workplace e-commerce segment margin go the maybe for strong it guess, it of up

Marshall Bridges

Yes.

basis, of Workplace As the Furnishings, HNI, a it Steven, trailing actually. X% of it's relates of about on it's XX-month to mix workplace

it Your to the And sort is other It of are sort of a question our different about economic where profit. it's phase. growth there going, margins so accretive model, has different involved. in we're the still

Jeff Lorenger

in going positive lot were quarter second but business a We able the keep and Yes. growth. now to also pushing we're investing be the to is deliver, to

Steven Ramsey

housing from there the April Is Great. of And on a second question side I lack the a guess, residential in headwind then, the business. half just of May? starts the and in

Jeff Lorenger

and it's Because That's April, XX% a XX-day year-over-year, lag. about question. were great usually May, permits down a

healthy backlog there's the pretty a Now in side well. permits as up XX% is, and were June flip

I So retro stronger remodel is think. that's earlier, and commented than remodel, we as

it's we fairly be be, there. all out going could given the it to but smooth demand think So

Steven Ramsey

me. Great. And last one quick for

kind the more of On acquisitions any side, of making on the the or can discuss distributors And opportunistic strategic in challenging residential it of there. the was context market? these? color just Or you

Jeff Lorenger

question. Good Yes.

those, deal see We we had when a was done. to we get to distribution and opportunity can add really we we that. And network, if have them an strong order it the take

out operating for So levels, it profitable, solid a adds to that expands and network platform our network. got it operating it business. enhances platform great really the out and We've just the that's service

to of on So lookout for we that. kind the do opportunities are always

Steven Ramsey

thanks Excellent,

Jeff Lorenger

you. Thank

Operator

question from Sidoti. line Burns from of Greg next the Your comes

line open. Your is

Greg Burns

the your the up quarters across backlogs space, stand? your given the at seen, quarter. production the over that Good exiting it issues elevated being of occurred Where morning. quarter? the notably do the We've backlog Was second end

Jeff Lorenger

were we consistently second pretty quarter. the operationally during Greg, open

order that commensurate really backlog those activity that we is experience our we've you shipment had. didn't with So issues of the And any mentioned. operational and

normal So the there's out there. of nothing

Greg Burns

take some you mentioned then give in And just on that opportunities your this market better you're a What you of were mentioned remarks, those? operating. us also color more maybe then quarter. prepared ways exactly you bit advantage able Could And and some those? new of little to

Jeff Lorenger

healthy Yes, up And nimble very went our deliver for have a we and partnered workplace tipped their with Greg. products platform kind we product offense. tipped some agile, rapid on e-commerce We of home culture. employees. programs. some What teams. of is we have to We up We our we the customers, response to aggressive up through closed-loop e-com and tipped sites them some

just what look they pivoted on to of continue we the things I'm business. agile kind to. used those better time and referring those culture of some and is, so quickly, continue. seized and ways like We point new day that's for opportunities, this, on. a And our In The do

And some continue of those will the go. and we we long-lived, things on are with as

Greg Burns

And of in but Okay. in What's the wholesale now the to how think home? strategy capture that you're work-from-home your e-commerce websites then capitalizing market e-commerce I direct-to-consumer branded and opportunity, it's through you strategy, about your mostly right work do from on you approaching HNI talk just can pipeline? play terms whether OFM, like have on a more it's

Jeff Lorenger

got kind the above. of of We've all great. Yes,

a the have then BXB, them help that also really and a robust work BXC. existing base right across on capitalize have initiatives and home goes the our dealer that platform help third-party through also some more brands We But now resellers, do to the trends. businesses office across direct we

fronts. of on in-flight all things got we've So kind

Greg Burns

are distribution significant some why more highlight Okay. on shift have And just maybe might but work the HNI capitalize maybe market maybe might the that successful points, in could be working advantages that? you more to hybrid of what market does you from the if some of your a in thinking where then And shifts over the toward becomes you think the maybe that others price I'm direction? maybe market, home model reasons if

Jeff Lorenger

Yes.

We have points. great price

We office the home. have We're video space, in broad for competitor small strong a distribution in the game space already channels.

advantage got a to we good distribution, to allow work we've And from So this. going channels price start the be all our of take think us are in our home. points, of

And from may thing burn in candidly, out, work-from-home think a hearing is people robust office and kind of develops, maintain The thing at working that we home. more we we're plays a getting well. lot out people other a as lot office about see, are this as the of as working

think, we a it's well. So and industry for really our strength over that's positive to be time, going as play the to

Greg Burns

at in a little those an with cancellations, conversations. And conversations lastly, implement need Are pushed with Are your orders seeing just you could up? And in but us seeing guess, plan Okay. out? more if color uptick I conversations in open then them in you what customers, least formulating mostly an seeing kind it's then, some things to bit are showing uptick you interest your you pipeline? they maybe clients, mentioned of you on give once being that

Jeff Lorenger

A couple things there. of cancellations not been seen uptick. Greg. Yes, One, have minimal. really we It's

approach some office. delays. availability push. residential the on on not project construction, seen That's so either in the taking cases, to building it's a it's But labor fact that's or And to that, delaying, workplace customers driven resulted push we've side. in the just on some the return wait-and-see Now and mostly some surprisingly, mostly new that's

Greg Burns

with having you're conversations the customers? around Just

Jeff Lorenger

Yes. yes, Yes, sorry.

have and do medium term. around Sorry, the that. need you front, decide. as long conversation robust, exploration and And conversations going to on of home on what And net-net, term, how near-term people the Yes, think on early whatnot slowed how in going as movement to wait bit return I kind But for there's term stage have do a on in the forgot more not there also it's there a near wouldn't office be that lot screening, well. upticks say office trigger. to still spacing, the then of But obviously, play of and movement then it's up rates program. early create infection to been They the really events down for the because that It's pull earlier, going out, will I partitions, of a safely, there's to yet. I I and hurry office more of lot to there's will people there's a said be kind the conversations. lot us furniture Greg. and

be I driver demand to a over that's think going positive time. So

are they we we're of other lot because And starting our play more of with The see of less of becoming well little just of that businesses. that markets think challenges thing a a bit is to I with kind kind in elevators little the and thing. transportation, public some have markets a smaller those active

real a been as for positive that's us well. so And

play becoming this I also think for out. see they're to going how So early adopters us is to

good there some as get we'll well. So learnings

Operator

I'll There the over are for Mr. no to further comments. closing Lorenger questions. turn call

Jeff Lorenger

So thank everybody. you,

but to near-term a confident feel continue we to Just definitely dynamic we conditions remains The positively quick encounter. uncertain, comment. environment and whatever navigate our ability in

Our levels restore to salary reflect recent and moves this confidence. investments accelerate

the So a and want to soon. there this with look performance, again, to forward Have great to you members out I all you say, just great thank we to day. talking HNI

Operator

now That conference you call, concludes disconnect. today’s may