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HNI HNI

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

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation Fourth Quarter and Fiscal Year 2020 Conference Call. [Operator Instructions] Thank you. Mr. your begin may you conference. McCall,

Matt McCall

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

I'm Jeff Lorenger. call Jeff? over pleased to the to Now, turn

Jeff Lorenger

Thanks, thank joining you Matt. and us. for morning, Good

challenging conditions finished to what agile corporation flow year example great and performance is our in about strong the was delivering of quarter. This another the cash continue generation. past adapted, year, kept members Our strong face HNI. A the stayed as solid they our challenging members by unique demonstrate of our

which is million full the $XX million year, of For up we flow, delivered XX% cash from free or XXXX. $XXX

consistent in never million point year. of three paid our I debt a fund despite $XX cut to our XXXX and out the key million line last unchanged we to year-over-year, workplace and As balance the furnishings levels $XX in $XX like we the of million dividend quarterly would we final were pressure quarters accomplished through segment HNI investments QX grow acquisitions, our were all this, and a it at have funding top in dividends paid result, maintained has while while end We XXXX. since our of dividend, of year. able cash continuously

about and profit forward, As optimistic growth. we I'm enhanced to look ability competitive drive our positions

We positioned HNI drivers. a secular growth well cycle, segments from differentiated have to the of and specific recovery trends two business benefit

have and drive I a for shareholder specifically would clear streams diversified segment We growth products about revenue and to to residential revenue opportunities like building value. our talk moment.

the the in we fireplace are and growth and generate products. margins strong are and in market leader hearth new We both operating the in capturing markets. construction We remodeling high-teens

strong with drive fundamentals, by the even home industry. better to this buyers traditionally growth While have those we opportunity undermarketed have greater connecting markets homeowners and in

have business a unique unique opportunities truly with integrated vertically grow. to We

also outstanding have opportunities in workplace We furnishings.

for depth, and well price of wide capabilities. access a given positioned fulfillment We breadth, e-commerce range markets are scenarios, our product point, of range

from fourth fourth for now quarter trends ESG expand from capture on then color some will and commentary and outlook. Marshall the work will positioning to have in some We related heritage to will leverage, opportunity segment. furnishings our to home, on some operational excellence benefit will De-densification our workplace I provide with we De-urbanization highlights around the margins the cover conclude and our I then key efforts. quarter. our

fourth your Finally, the open three quarter. questions. the highlights we key to up from will will with call I start

growth and First, growth. fourth profit of year-over-year segment generated the the impact our quarter or Products Residential revenue in XX% revenue We Building XX% acquisitions. excluding delivered double-digit

in middle up full growth of of been quarter. with year-over-year XX% XXXX delivered XX% year profit a strong quarter the operating retrofit segment basis, this since on also were XX%. Remodel year-over-year have in EBIT sales fourth fourth We growth which the

advantage this market. We take activity ongoing strong and to of continue compete in well

basis. and quarter sales an organic construction in the fourth New accelerated up were on XX%

chain supply with and home buyers propositions strength builders. value and are resonating Our

As third rates the growth experienced were a higher in than the construction of we quarter accelerating new quarter. fourth our activity, result

our expect strong December Orders and grew January. a and to quarter continue. strengthened We in at results further in high-teens the fourth rate

unique growth. model to strong this business provide continues platform in a Our for

we have built strong years, and business retail over strong focusing allowed $XXX service Products the a superior by decade. excellence Building by and to in operational the demand structure. with This Over a million by has profits grow Residential us our centers last and distribution delivering capture integrated on vertically

to than we having less growth. buyers earlier, home new opportunity a see one. In home, feature However, two-thirds even on see as of fireplace a XX% construction, must-have drive by I mentioned but a more as

and home we are investing include, homeowner or hard we influence to remodeling retrofit and driving remodel these are highlights a than estimate direct better understand less To better are buyer for fireplace. a digital that home and the purchase and projects side, take working On the with opportunities, connection we all we marketing. involve Similarly journey. of remodeling this effort X% of their advantage enhanced in

one example quarter an were over X,XXX promotion nearly a small inserts As which fireplace orders. around leads of to converted created

and efforts numbers visitors fresh to of new driving Our our content media offering social are large website.

engagements. social to of drive demand. We driven overall and already and efforts These are targeted of also thousands and awareness hundreds impressions media thousands partnering have of influencers with

we new the and reality unique Finally, efforts help visualization make these augmented we our competing tools this than decisions. launching are By imagine combining applications to consumer ever space. are in model, with better possibilities including their mobile-enabled

returns with and continue of XX.X%. of operating to quarter margins full XX.X% financial fourth margins strong drive operating year We

the demand and was profitability solid declined pressure. revenue Our our second highlight year-over-year. XX% our despite subdued Workplace segment for in segment Customer Furnishings revenue quarter remain continued

were still declined progress prior-year million. to as XXXX EBIT of we in non-GAAP the versus non-GAAP and million exceeded profit orders Orders approximately quarter. segment the deliver $XX Segment able excluding period. Furnishings quarter Workplace fourth $XX year through e-commerce improved full XX% fourth the comparable operating in However, we

improving and businesses our are agility activity, that signs rates there signs slow are in improved our our those markets. continue Orders encouraging, these However, focused January increasing position from in November. December customers offices generally initial mid-sized and of demand pre-order competitive contract from to that to order customers in still are and of The and -- trends on although result pattern. October small portion the and larger patterns are holding a particularly and be in order of

expect We late order office late ramping having expect in increased slower reentry but strong first growth until activity around summer timeline. are is timing growth constraints We supplies, the quarter XXXX. customers notwithstanding Workplace reentry see timeframe. to in business uncertain, Orders XX% we in revenue XX% We and with more is our sometime to of indicate the achieved continued versus clarity up the the comparable spring contract This ongoing prior-year Furnishings comparisons. do period. e-commerce prior-year most the conversations there difficult

in differentiation to model business us our market recovers. Our well as compete Furnishings positions Workplace the

the again to competitive and addition our out. Our in from e-commerce advantages. channel markets momentum position the and of given specifically, further helps have unique our Design the along reach. to De-urbanization in trends. differentiators Workplace our the home Furnishings outperform exposure market, These reach in The to mid-sized potential we with business and the business deserving work XXXX. point call market In price in Public e-commerce our position businesses small video access gaming is international market certain to breadth, our benefit from And have unmatched breadth well us

beyond. above respond growth e-commerce ergonomic available and line reasonable drive greatly We products shares. to which market gaining comfort and branded price offer our rates at expected in to These XXXX continue with business points continue superior of our are to are fuel

acquisition the was of highlight closed the Design third Our late quarter In acquisition the Public DPG. of Group. December, we of

We our portfolio. team Design ongoing and digitally strategic initiatives. accelerate to this The are Public native of organization to will at add bring help many excited capabilities our skills the

to provides of over a January level. Approximately customer was strong business residential individual into January like DPG's up didn't previously most XXXX. access XXXX triple-digits XXXX continued and strength revenue Public companies Design comes to activity, Specifically, part this orders The very has we consumers, with set DPG's of in from XX% reach. tied

XXX,XXX of DPG dealers. difficult And an The manufacturer, DPG's gives find rapidly efficient to single us a SKUs to other dealer to platform comes contract furniture dynamic products provide acquisition we previously the and a through niche acquire. portal, adjust through available access trends. shifting were unlike DPG customers often half commercial that of can With from approximately to revenue fashion

home to and around our HNI. is Finally, for tools another This right from work stronger provide Marshall? platform additional our the I great business call some with Design that will now quarter now. Public detail Marshall to fourth adds a make HNI outlook. turn over

Marshall Bridges

Okay.

-- first begin for outlook Products Let's for with Residential first beginning quarter the segment. Building outlook our Residential the quarter our

quarter, we the expect mid-XX% in year-over-year first revenue the growth For rates range.

growth in segment. market previously strong We covered, are Jeff we positioned sustained and momentum, continued as for see to this

Now for let's Furnishings. outlook to shift our Workplace

rate that percentage Furnishings moderation visibility continues will This includes in to mid-sized first to low-teens first high-single the estimated our businesses pandemic-related year-over-year quarter said, which the are say points that being an at seeing to this offices. year-over-year me this That our add segment. first primarily range Public Workplace the to small continued revenue a from focused segment. trends improvement in rate digits decline in we These our revenue driven is X.X by impact will quarter, during the Let indicate Design on growth declines. for uncertainty limit currently acquisition,

to the year profitability profit quarter but is profitable, prior the moving story. levels. first pre-pandemic our view below will first be to we onto move Let's multiple profitability. Overall, expect are There parts quarter current be

side, from our first quarter and Residential put broad-based positive the Building in volume savings annual we productivity the expect higher last On gains. cost benefit place year in typical to Products,

Workplace more However, lower these rising than we costs positives. and expect offset were Furnishings input volume

more rapid freight, input we and increases outbound Regarding seen challenging we've year. generally, and ocean inflationary costs, steel, environment expect from freight a recently this

time, cost pricing these in the unfavorable implemented have pressures over initiatives actions, price first expect identified but offset quarter. to cost We

last cash sheet our and quarter balance on We of debt quarter flow comments million total some was which with from fourth prior-year levels. Finally the $XXX ended unchanged and expectations.

from XXXX. of of was balance million the which fiscal cash million an represents end Our increase $XXX $XX

balance throughout seen in ratios recent with to a quarters. maintain expect strong line We with leverage sheet XXXX, those in

call We strong opportunistic which flow, also generating ample payments turn Jeff. and continue to M&A the will capacity buyback cash provide investment, over back free continued dividend expect I'll activity. for now and to

Jeff Lorenger

Marshall. Thanks,

multiple energy our Since our emissions at our over many your of been years. for away reduced then, we waste which reduction have and report, take XX% two have want questions, Responsibility to introduced XXX% some actions, we from landfills goal, electricity goals. our Social renewable In facilities. sourcing gas Before of converted XX% began we Scope we XX% greenhouse on over X which our highlights achieved ESG by ongoing initial XXXX, I published which our Corporate ESG of provide

goals reduction aligned signatory also the Agreement We in joined of to we REXXX. Compact of a X% pre-tax became life XXXX to in UN Paris set with donate Global we the emission our quality and science-based aggressive annually operate. communities the the We and profit which improve carbon

for unique Additionally In characteristics talents. I've for and our of ensure Directors female. which and XXXX, each women and initiatives three signed the our everyone, years, CEO for celebrate been by New where of members the Action Diversity of we form HNI's York we recognized is of Inclusion strengthened by XX% have in the a Board community welcoming the we diversity to and women's pledge onboards last our

targets, of recapping grateful conclude proud our that spring, activities ESG with sustainability areas. our ramp which Later and CSR of this are to am extremely to for recent all and report, I I will efforts a continue We planning of number up HNI new to an to the issue expand update along commitments. and initiatives members. include stating across would our our aggressive accomplishments by we ESG like

and I a As we we XXXX have what and we be because company this beyond, performed doubt past look stronger experienced to we'll of how no year.

a differentiated segments, HNI secular recovery to two well-positioned business cycle, the have trends drivers. specific each and from benefit We of

We to expand term. revenue, are generate long well over margins cash positioned grow the and

open up We to call will the now your questions.

Operator

Garner Our Instructions] with Benchmark first Reuben The Company. from question [Operator comes

open. Your line is

Reuben Garner

is there categories more, bit up start either growth Products Products to segment, I the don't fourth off kind the you are can your about think growth been to or put in can with on level certain -- growing hearth you your many the what markets, quarter to Building has is of there exposure faster just paying it guys already accelerate investments in outlook are first talk rate Maybe a we want I that little growth for business? Building the in to the quarter, seeing, of hit

Jeff Lorenger

are are De-urbanization. -- low, noted I -- consumer low, millennials combination. start so trends to Reuben, it's home the Yes supporting, encouraging, think well demographics, are we're is is a secular I'd -- the pretty the the nesting inventory's with benefiting net buying, rates strong, continuing cycle there we're worth

for of be remodel say only and responses markets, units model of new getting effective So buyers very efficient then, upgraded homeowners in fireplace instance. remodel of that they a capturing as many there they I in area, that stoves home In we're them. older one construction where has that's business. have been yet and yes, to said, consider we said, initial to we're our some touch know we XX investments, home million are with and gas at to need the are. there I see as XX% new estimate XX% as and/or and point purchases more And so want out starting And those homeowners our

ago. got in above our are That's selling it our started rates. instance. normal for year and We've R&R dealer we've well So XX now insert showrooms a sales it deployed started that running model, insert

across there we think it's board I So kind a of is there the still. lot headroom of and think

Reuben Garner

the Great. you one of waves And are the your in months, area, and been construction has at I guys the gone lot that? of a kind Can that, chance but guys does penetrate guess hate Google a I to to you say when of of levels. rising, Arizona we've in two-part I follow-up, been benefit through markets weeks Florida, a that have south, may weather there, of -- noticed a the down then a top guess kind the has new been fireplace? already a otherwise maybe I provide, business, kind opportunity, you costs of with here recent Texas, for question, in as like the seen growth think everything the -- part are the has we cold been I -- secondarily, events, at recent markets trends in and roof past when wouldn't going for on be it's for a fireplaces list of seeing guess record to energy some And weather we've

Marshall Bridges

cold you're certainly as Sure, but is well growing Yes. weather -- Reuben. product product actually the other to weather to really as responds fast lines if alluding that helpful, The is right category now. the not

that because fireplace, to where cold high a it seen but think of opportunities sure the it's not five, about in hits, think years there lot energy trigger I'm not So the weather thing geographies, and six now. people the the there. to ago right warmer a ran are of I from we've regard In prices. I'm opportunities seeing sure really it we're benefit

and it's be as cold just options think People recent upside other for we digesting their move really more house. I events may forward. these reconsidering

Reuben Garner

markets -- business kind think guess geographical you business; back, maybe perspective, I of from Great. reopen over small you -- easier had And headquarters customers, a have the looking little or Workplace in smaller certainly the smaller Thanks, the it Marshall. benefiting shifting a your it's bringing it return offices, bouncing I truly we normal? to is small the already back get smaller can mentioned office then, quicker anticipated, people to you a the is to than guys a parse just than smaller is out it are office some of Google presence to from

Jeff Lorenger

of sum think both. I Yes,

to we're are small are with of smaller, in active, benefiting we're businesses some the in trends we're positioning kick more in, think starting some our businesses I the definitely more getting the think channel it's is it's markets of are medium -- in, ease channel and I De-urbanization major smaller I easier the dealer of extent thing interest some urban than opening for still it's and it's as well, network, it in early kind satellite think but sure. to exposure, centers it's is offices, that active,

Marshall Bridges

customers business that set Ruben, of has a general. different in

got a Just public we're education, little seeing strength well. areas little exposure some those more as and in a sector more

Reuben Garner

Design of interesting any you way -- to the Public one pretty into sneak Can sort number it in help for. looking you the today next targets if you're it more, categories what out a are and as acquisition, years? can maybe that of guys business seems across quantify Perfect. you few could I is And the like then, Group what look different

Marshall Bridges

we're about Yes, to $XX Reuben it for year, million revenue. I million add the to expecting mean $XX of

So it on that's of It's growth is. big how trajectory. kind pretty a high

we So expect move we years. larger it than in to be forward other

Reuben Garner

thanks start and I'll Great. XXXX. pass it and And year the on ended congrats on guys. to

Jeff Lorenger

you. Thank

Operator

Thompson with Steven question is from Our next Ramsey Research.

is line open. Your

Steven Ramsey

or good start Maybe what Are And is alleviating frame doing -- the being Hey, morning. frame maybe time the time any beyond manage that? orders are to or down projected I'll is maybe of slowing to time there the challenges being Resi in next the quarters segment this couple fulfilled, certain mitigate dynamic? issues orders challenges. chain placed of from you the with supply

Marshall Bridges

with own up not Yes. new side longer, our remodel the but Steven, basically Products seeing get the side, terms, major better bit, lead demand -- in are a We're very pretty construction seeing stressed chains any the competition. normal, certainly times pulling in maybe in in Residential are the our general, to a we're Building little a than it, still keep bit there. on disruptions few supply we're strong, retrofit products able but is basically particularly it's we're segment

a we're pretty doing well it's major So issue. there, just not

Jeff Lorenger

would that of lot stress we we point. tack waiting you -- not been I just have we without been that to on construction, they in already other not Marshall I mean, our and busy, at I to We've able stuff. categories, Yes, a new are if builders demand operate. but capture this see our the model, bit, way a would on -- operating have definitely

Steven Ramsey

M&A take purchase to up continue intention of meaningful a is advantages capture still into dealers, continue XXXX? on to a XXXX in investments is focus, that that kind -- that opportunity? meaningful as acquire of I to for Excellent, maybe okay. arbitrage to an increase And it then Resi, investment is then of secondly And you it's that actual likely still turn to purchasing, to in dollar investment know spending

Marshall Bridges

Yes.

expense the especially ramp and continuing Steven, Building side, investments segment. in Products invest Residential we On are the up to operating

and We it's connect investment year, P&L the million last had $XX this year homeowner. of efforts add the so expect we these to to in about what homebuyer double the to with

we're of actions always In we look M&A, be for going three what we think that's terms create for to looking continually where distributors for. out we're that -- acquired XXXX value, our speak kind I in looking to opportunities, other smaller thing but of we'd the ways and

Steven Ramsey

e-commerce thinking that Workplace home is be great. demand you to forward? do expect case then from contract play e-commerce channel in the out things of still or main on Do a support demand? driver as Okay, the you going way meaningful And work type think demand, e-commerce more the will office more still

Jeff Lorenger

Yes.

the you point the though, position work think to What I we from this is large as still got in I innings. home clearly gaming would I pretty segment. a that think tell have early in

not why will a home, from work it work although of that. from out home, probably it's call So it, turn it's into not but from home, lot maybe

got think there, got price we're it's steps So reach. we've well -- -- and breadth, I model point operating we and reach product we've distribution that got that positioned

where accelerated before has pandemic. was in pre-pandemic were strong we e-commerce our we that and post business and So -- are

Steven Ramsey

Great. That Thanks. me. does it for

Jeff Lorenger

Thanks.

Operator

Sidoti. Burns with Greg Our is next question from

open. Your line is

Greg Burns

we year? reopening of you half touch workplace of or that the broader this Could upon gives as kind highlight or just anything you're the in optimism that part that get morning. the middle Good the to of confidence of second you seeing

Jeff Lorenger

the ramp for activity, Yes, back they I that's are than early, -- bid are RFP three even say. I gives four but months -- are would levels some were. starting requests, conversations that to seeing sure, -- up. it's we months higher the us The ago, in mean Greg, go uptick

we're real think in processes is it re-entry about been and engage people and point are any -- we're to have thinking seriously a -- time And to so it's and we starting are re-enter that over one there we're avoid all all it's and -- tell having, event the would a furniture a one I that it's you that's clear the map, pretty fits to going size conversations changes approach.

cetera, on positioned of and so to -- for going every think enterprise the different, how of office, but we're are their for it's furniture doubt for business culture going variety is outcomes lead are depend they all et stakeholders, to event, all their create it's well and to good. which value those I no a that's

Greg Burns

guidepost pieces if equation. moving maybe of you side expect lot on voided could 'XX a you P&L to just much full for back How obviously, do nice the we -- you come we margins margin in incremental of And year, about the cost in and cost the the or Okay. the in should for the if about get think quarter, first but improvement how think 'XX? potential

Marshall Bridges

$XX Greg, contributors of we Yes, it measures, had million, year approximately were the and $XX by cost reductions salary XXXX, in of main $XX furloughs that our reduced and million temporary about there. last million, do to

that's So not that multiple hit parts, that will positive so but $XX moving back sort cost of XXXX. P&L the in million will or there only -- the come is

productivity, cost in So to and have and around some expect to we add another and productivity costs. other year comp we normalization a variable XXXX year we're we good in very strong XXXX insurance had going our also

together, input to the point, deal with. course of going that's be rising it's net all at to So we roughly this neutral cost had

multiple it's of directly, parts. other $XX to well that how goes the out plays see moving So it kind through into flow but hard doesn't million

Greg Burns

And All construction in new split products remodel? Okay. and right, of thanks. residential residential is building the the what then revenue between

Marshall Bridges

It's the approximately between evenly split two.

Greg Burns

Okay, you. Thank right. all

Operator

Benchmark is question Garner Company. with Our from Reuben next

line is Your open.

Reuben Garner

guys. Thanks,

in it get thing? will of or of levels kind through the quarter to second year drag initiatives do assuming kind a Just inflation then -- you a first starting back mentioned and couple And neutral follow-ups, -- in quantify the persist, the maybe would progress you you be that? of cost your pricing quick -- the can they actions the do quarter, cost price a Marshall is that your current of more

Marshall Bridges

actually rapid Yes. August, than steel basically was increases what especially Ruben, it seen that. last double these more we've

first by quarter expect the cost we're half, in and basis, some but to some during and our roughly initiatives So cost And first cost on the will second a second little price we cost a bit going in neutral less quarter. actions the pricing see place, negative headwind price quarter. in -- so our we be do the

Reuben Garner

Okay. And Greg's follow-up margin then, a to incremental margin or full outlook. year

of that that lot takes volume out whatever the puts a the kind kind price think does is of growth cost going So those and you maybe apply the business of we come less neutral normal of to mean first to pressures margins have, have that we the would in contribution year? part

Marshall Bridges

Reuben, our In levels growth situation the opportunities much you term, is Residential volume Products, have. reasonable talked investment the we our will and begin the out margins expand Furnishings XXXX. is to in a depending that the that, there, over I on margin goal would Workplace Building point to expand long hopefully about we that's and to goal in assumption. so

the Our is that goal top the margins, we And line. hold really drive margins there strong have. to very

Reuben Garner

got Thank Marshall. it. appreciate I it. Yes you

Operator

questions And back Lorenger, turn Jeff to will no I at time. this there further the over you. call are

Jeff Lorenger

Thanks a week. See and day time. you great you. joining today. great Have everybody for us next Thank a

Operator

This today's concludes call. conference

now may disconnect. You