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HNI HNI

Participants
Matt McCall VP, IR and Corporate Development
Jeff Lorenger Chairman, President and CEO
Marshall Bridges SVP and CFO
Greg Burns Sidoti & Company
Reuben Garner The Benchmark Company
Steven Ramsey Thompson Research
Call transcript
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Operator

Good day, and thank you for standing by. Welcome to the HNI Corporation Third Quarter Fiscal 2021 Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded [Operator Instructions]. to McCall, conference and Vice like speaker to Corporate now Matt today, President, would hand over the your Development. I Investor Relations ahead. go Please

Matt McCall

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

Jeff Lorenger

our to our pandemic, for Thanks, the while quarter, In thank on creating constraints members are customers, which experience continue servicing Matt. stayed near-term. you joining we ripple third effects focused the Good and morning, us. from the in

products. in impacted and cost increasingly the to the negatively in difficulties are recovery workplace we input XXXX, availability, given supply results. labor pressures, While building categories disruptions, strength are ongoing actions chain inflation strong tied order furnishings taking, about residential all drove and across Despite ongoing encouraged growth, we we our these

initiatives. secular to well-positioned Our numerous specific two multiple segments HNI from differentiated trends business and benefit are growth

and record of points. challenges. annual deploying cover operational managing We On macro through productivity and have three driving call, key today's cost will savings and I a capital, track effectively

constraints the our addressing second-half negatively are impacting we First, results.

demand the quarter And finally, at and we strong then now As doing will improve. to we September I to dynamics go fourth with on our first discussed XX, workplace update your three generate residential orders address our I we our the strong furnishings to third, continue macro across near-term some growth impacting questions. in growth. business? outlook. continues conclude furnishings business these to will will levels. order businesses. we Workplace will in increased through our are the were profit period, products products And I segment building third orders What XX% quarter were above point. Second, XX% Marshall will deliver year-over-year. higher key up cover continues Residential versus building year prior revenue our the and to XXXX call quarter points, cover X% open the general third our pre-pandemic quarter third in comments. key

demand. capturing are and momentum market have We

and well However, which our addressing. third of prior below quarter levels, our below profit are we potential three was due to was all constraints,

first production The There are has like. as fewer from as It availability. were pool the fast we labor us prevented pandemic. the there simply than people in constraint increasing before would is labor

quarter. this and with This strong from XXX issue, facilities given suppliers. increased experienced the our we are approximately the staffing we ramped as in amplified than or members, have combat steps. production would XX% impacts variant current Our lower several COVID we're up the like at pool, have demand with taking is Along to the Delta third labor temporarily reduced staffing what shortage our the has generating. we To

by is this more being First, manufacturing we're making of efficient. Much driven lean expertise. our our operations

allow XX% us at to instance, layout headcount. that one which of same For our the by the output facilities, location larger and flow, we at are with altering improve will

gains We to automation. productivity pursuing related are also

to labor will facility new demand. Mexico provide help an additional of our source meet Second, in growing

XXX employ once to members, ramped We is expect next fully it location year. up that

continue pools seen and supply to tied inventory is supply shortages less and congestion labor coordination to we and seasonal new we chains, XX-days. That part-time our started efforts to increase many staffing buffers, largely to port up more we our our brings material available, readily at key over availability. improve with programs. members items ability our hire, chain keep second and strengthen move supply limited us and To staffing diversify productive. base, labor to we're levels last assess and where the getting disruptions create suppliers, These capacity. and our made experiencing Third, monitoring with suppliers. have with traction, have the demand facilities to These production aggressively Like efforts are constraint, also

to We stressed expect for on the to supply these will remain as future. we chains continue foreseeable focus efforts

rapid The the million quarter is year, most by dynamic costs across input $XX all in third far Input increased third cost have the ever inflation the categories. course. seen we is the to which compared in inflation prior

freight. cost ocean input increases by led our steel experienced categories All of and

with which actions, responded cumulative benefit will pricing We headwind temporary. our pressures. allow have is these price of offset fully to cost aggressive us Accordingly, the cost

narrow the next and We to quarter it fourth in year. expect early turn positive

agile are moving approach with pricing We more and forward. aggressive a taking

and products difficult We ahead headwinds. increasingly and organic is sources results, of My basis. point XX% are multiple delivered and quarter pressure. key year-over-year an increased Revenue prepared products on segment our building comps environment strong ongoing residential despite the to get an in have of residential third the building manage power in ahead second in market stay to inflationary these

construction increasingly As segment I orders in the comps despite in XX% year-over-year. R&R. mentioned the channel retrofit increased earlier, difficult remodel new outpaced Growth slightly channel,

a the building price And to continue was earlier. lead costs I discussed factors result, times be have by segment as negative. impacted and extended three Our product

the more to worked of members the an hard than our and However, EBIT operating production XX%. year-over-year profit, XX% output levels, more and service maintain than and business generated margin

optimistic As we and remain for about the remodel look retrofit forward, we prospects construction. new both

housing supported supply imbalance a continue will is building business grow a remodel by support both organically have to the we favorable outstanding and cycle demographic prolonged and activity. we stated Long-term also retrofit. remodeling construction As in de-urbanization and opportunities. products support. trends and trends demand have And, housing residential unique opportunity previously, provide category trends Nesting our to and elevated secular an new

In acquisitions. have enhance opportunities we through addition, position strategic to our

to integrated we annual regional model Trinity further Hearth rapidly-growing earlier As month, a and generates this serve acquired large employs Southwest as Home, distribution approximately headquartered and and metro an will region. Trinity a Trinity Dallas of And area. example, installing business XXX strengthens unique vertically the the approximately $XX distributor million in our act it hub better members. revenue infrastructure.

to and family. HNI We're own joined excited XX the Home locations. have Hearth Trinity Following this acquisition, now we Fireside

Our major quarter. we growth year-over-year third up orders each continues at total, order demand are least to during of the and key XX% furnishings increased point, the in all basis furnishings quarter workplace seeing month In workplace third and across channels. on recover year-over-year XX% with a growth

Although earlier demand constraints three was strong, drove the profit year-over-year a discussed decline.

As I previously as profitable XXXX, these return to growth. to noted, and look expect we addressing driving constraints, we we are into

to We increasing increasing taking strengthening pressures. and are the actions capacity, our inflationary our offset chains aggressive and ongoing supply pricing

our in expect recovery. revenue also growth the and ongoing We XXXX, elevated supported by backlog strong

strategic access and workplace have continued driving point breadth, multiple outperformance. initiatives reach. market aimed investing businesses in furnishings Our price at channel we’re And unmatched

office, unique with and education, customers. have segments of to small We the to fast-growing exposure market, home mid-sized including

competitive re-entry, from outlook. existing from Our de-urbanization position to turn with benefit now home work provide differentiators will over trends. along our as office our the to investments some Marshall? detail quarter well call around and Marshall, I fourth

Marshall Bridges

Okay.

growth. our Let's fourth for outlook revenue start quarter with

growth prior quarter to fourth both are expected consolidated to impact In percent the the mid expect expect We of percent in range revenue In digit in the output products, grow expect segments to we the range quarter, to a we our furnishings, building including and acquisitions. workplace chain Labor digit fourth year on basis, percent high-single digit including quarter. including rates range limit in growth supply residential high-single compared the acquisition acquisitions. in issues in the again, year-over-year year-over-year impacts. mid-single

profitability. fourth cover let's Next, quarter

the faced We to third margin we in expect the the continue quarter. pressures fourth in quarter

earnings share and be we quarter. operating result, reported third added to the a below per in we what As expect just profit

As increased approximately the trends, price combination our we of we workplace estimate Jeff supply are points for chains look as XXXX, of are increasingly profitability first-half. From mentioned addressing levels, particularly costs. seasonally strengthened order XXXX, lower in we furnishings and we million to strength, headwind. be earlier, backlog perspective, will capacity revenue In optimistic. cost a The a $XX price

a price of deficit. expect and we XXXX’s year, Next recover cost much positive

earnings to and margins in XXXX. profitability, recover expect we result, a As

and for year. were leverage our on cash that debt ending last buyback balance approximately comments and was gross cash than lower X.X, was will the levels third our quarter turn approximately dividend growth continued up $XXX flow the quarter. payments, over investment, some now activity. quarter ample I'll flow end provide Quarter ratio at back slightly from from of The third sheet last expectations. and M&A And modestly the to Finally, million, call quarter, Jeff. of capacity and the unchanged projected last opportunistic

Jeff Lorenger

Marshall. Thanks,

by profit our to look that drive our we remain up stating wrap businesses as and we me Let about forward, optimistic growth. ability

revenue Our members continue to environment, momentum. allowing the to maintain us post-pandemic effectively our manage through

expanding our is Our furnishings on in margins. workplace focus

revenue focus Our driving products margins. is building growth, in maintaining while above market residential on strong

for conclude working I'm proud to would move expand past extremely revenue, described. is everyone stating particularly we efforts of to the constraints As the I thankful hard margins of flow. recent well-positioned and so overcome do we'll grow all given we cash headwinds, members, to HNI and the increased like have by how

call will open the We up to questions. now your

Operator

Sidoti comes Instructions] with [Operator first from Greg of you. question Company. Our & the Thank Burns line

Greg Burns

morning. Good

-- workplace and with the seeing the of on trends they of start order to of early both order seeing you're fourth want And side quarter the the quarter? then, they business. part Just the How you're the throughout how how trended sides secondly that throughout the on the patterns, to in quarter business. what you're

of shift indicate forward, we're opportunities, in you’ve indicators value, might change forward like given number Thank there in what project going you're dollar seeing opportunities terms demand So in change of any that you. or mockups, any a pipeline COVID? like seeing, with seen

Marshall Bridges

sure, Yeah, Greg.

and Let's start workplace furnishings. with orders

segment, we their versus quarter. year For down the pretty orders you at were you up just click third prior each look XX% if the individual to consistent. for the business, And the were components,

growth rates rates pretty similar related noise had small well to So contract offices. business, exited of we through the were There the the And pretty the midsize increases, as growth quarter the saw we focused there. some the whole price were business similar quarter to the on timing we that quarter but similar. rate to as in for

in And growth was products, was about construction up XX% trajectory. orders a It no there. new low were feels In year, more. pretty XX% prior up versus there's decent. So the residential change remodel/retrofit building little range

through New construction consistent has started the to off. really remodel/retrofit was quarter, taper

good. remains in to That just off. year tapering intake some against dollar we're up the period. tougher of starting It's the comps issue an not prior it's Now come

So given the growth saw rate early expect, rates this. is last the slowing growth might year we as and late we

a you to normally we have it now, disruptions when less customers As now, probably that that here their little Greg. seeing. forward-looking we're would front focus relates there, and dealers have are dealing that the I the overall delays we out a maybe that have shifted bit given The on the chain than to and and indicators, just construction little with visibility right tell more bit supply

we So, is I'm be to and not strengthening do have What continues that. great of contract business that see we is strong. SMB sure view

Greg Burns

I the should of on or mentioned we get you workplace Because How Okay. you pandemic bit focus can that what improving the see your were guess, on And a margins goal -- is think where business. starting business in to? to improvement a hit. before know little of I side think ‘XX about you the

of chain wanted to time, think aspirations and that and just get issues some are you inflation you for can the supply your I if margins improve? So what where for get feel a segment over the

Marshall Bridges

improving cost this which we cost workplace help price two Long-term, year. can proximately next million we year, at $XX the levers XXXX short-term, year. cost. the get will basis we in can workplace price major we headwind XXXX negative about a we've points back is We're a in margin. believe margins And Price out And XXX we that the us is, Greg, big recover looking Yeah. furnishings. furnishings. one got timeframe of are add can majority first next that the the at of to for In think that

there. lever second just the big The out the is short-term capturing in it’s volume

continues demand extended, are backlogs Our to run.

we with capacity points have, another and capacity our get the some volume As there. expansion can we we do increase more of margin maybe capture XXX productive get basis

to underway committed we're to subsequent some underperforming course, improve we've annual got years, cost We've initiatives. our into expanding savings look you margin. got businesses. As efforts of And ongoing

Greg Burns

Okay.

to digit back it would referenced looks of be So ‘XX, XXXX, in kind for X like high that single of that so number kind you're like a range XX when like you and of range?

Marshall Bridges

Yes.

Greg Burns

Thank Okay. you. All right.

Jeff Lorenger

Greg. Thanks,

Operator

Our line with Garner Benchmark next question comes the Reuben The of Company. from

Reuben Garner

Thank you. Good morning, everybody.

like sounds what $XX all-encompassing to than optimism supply Does it? that of some is is headwind think we're price $XX a away cost the surrounding putting $X material all mentioned the sort right. encompass away? things little XXXX. think my that that I figure of with, parts And there XXXX as other I Or about purely a -- bridge chain costs? together of it if million is going for drag any And include guess, So, is million that Marshall, other that you over math an goes share

Marshall Bridges

include doesn't chain costs your of related to to like things and kind disruptions materials, freight, disruption any input our costs. Reuben, include wages, classic supply that. It input productivity Yeah,

typically that I seasonality the to think to explained of price capacity, to the volume and backlogs used and we're Greg the year next in a capacity next first-half. the big then leverage levers workplace furnishings, and what have. you off two not we look in isn't lot growth as as due demand recovery cost expand year use going we I And to the is just see pent-up the is also of

Reuben Garner

it's be. to Mexico allow into much you're seating that I other capacity that to add And long facility. in Or, rate, you some think question need capacity you that that How thing? And But sorry is said mentioned, there's product of where where for a the for perspective into put additions. sit want XX% Is think your to you about Great. Can number a that nicely environment, better normal capacity? Jeff, secondarily, a that utilize just you the I most? you short feeds does next going my does the the such just operation? more categories? Where facilities in question. to the U.S. then the of if normally winded kind production you

Jeff Lorenger

it's you increase nature We're network, I opposed It's a relieve range business. it's of the so shifting productivity, it thing. level lovers, to XX% it's production what the the Reuben, Marshall’s levels over point output pressure can it's XX% a yeah, first-half overall additional the loading its operation, in somewhere the is will enhanced as for XXXX multiple Yeah, tell to that hiring, about on Mexico positive the capacity kind Mexico, XXXX cyclical of looking to from output standpoint. around,

So, it's those of but not kind just items. isolated all in it's Mexico,

Reuben Garner

And next going to productivity kind to pressure that great. parameters? the an your to of you be having is That's there Or, are CapEx by spending Okay. on increase investment normal make year? much? Is this incremental certain within what

Marshall Bridges

In obviously, just what some and it's to dramatic which Reuben, the have change. most Mexico capital labor, more, intensive most a not do we facility capacity spending. have access bit expansions is little is a our going utilize of it's be. is The but as as capacity in not would normal trying to we're

Reuben Garner

reconfigure normalization, think the return side, last how how Okay. furnishing three kind seeing And I from unknown Is in products prior it of up types recent be to friendly on it it catch then much a Or, demand, tough I things COVID? on buckets, you more to some there's of way how by to the workplace right the what they investors, But that better and sense spending the to much tell is know, from or, question. guess, you or is of the of guys is now, this returning skepticism year for surge factors? about is COVID I much going to being were this there a are of ordered? we're are the any just from can forward? those other office

Jeff Lorenger

Reuben, that's question. a great

particularly seeing business it's their both think life people and we're is forward ramp with think education, up I segments, I moving SMB with some businesses well. doing to candid, be are their and

the that's post-COVID I that's really there. I delayed, those. as online, for in businesses Office out been major just reentry metros those still so hit think So has demand don't has reconfiguration well. do coming yet think

lot discussion operating a hybrid environment. is in hear still think the talent, that TBD I I those, a and war we as that out. about companies of for demand think In figure

of be And would I that's So, return to scenario war of in couple about to of there's there's how the chapters seen top auger as played out. lot And segments characterize going discussions this nice out as, order strong we've talent. you on then and the play another hybrid, of return patterns. through companies and certain that's a kind or our driving that layer and for business to underway still office

Reuben Garner

I'm going more sneak in. to one

fuel any I haven't chance while. that current homes one? your costs seen the different that from demand a Hearth in do in an if in the this in have I or folks uptick think And heat energy pretty the ‘XX you something a was capacity to there ways in of that, their Back We guess, secondarily, kind we a see given looking winter. for boost like then to like in was area ’XX, environment? big service surge and business had it

Marshall Bridges

we it’s would seen necessarily we We is. a great expect always I run given talking high Reuben. question, the about haven't yet. business. say, Yes, that enjoy pellet it Yeah, would energy how to

across seen. So the pretty capacity I we business. And tight Hearth to guess, be it are in remains

that. capture for that's year. have a upside So, into next to figure we're to potential go we going as to how us But out all

Reuben Garner

Great. Thanks, guys.

Jeff Lorenger

Reuben. Thanks,

Operator

Research. Ramsey of comes Our next Thompson question from line the Steven with

Steven Ramsey

that like to through? pricing maybe better And go much guidance QX being than QX. start shipments? how the about Are QX QX cost? better that thinking and of that how items? through other what sequentially It below, that but I'm driving you higher flowing with of production is then secondly, sales morning. looks there is And sales good much Is is at are profits if Can Hey, dynamic? or sales. price

Marshall Bridges

Yes, it’s Steven. good question, a

answer second of try Let question part me first. the to your

that fourth look moving quarter, the but third at lot together conditions as offset as So, to be there's you other. net same, will relates it parts said a of generally the we each quarter, basically

and walk both sub is your I’ll I So through of think them the questions. maybe answer

So, on going cost. see positive side, to the we price are better

to up continues ramping and that increase, going narrow though inflation is pricing gap. Our even to we're

volume sequentially. That's improvement building produced an more related we in improve production really Also, shipping the earlier. products that's in So tight sequentially. We're said will earlier on residential as the to inventory pretty year.

So those negatives. offset basically two positives get by three

one quarters is increase is small. It's of there allocated but fewer some pretty $X the those costs year-over-year should first quarter corporate the in also more how quarter is We're in $XX this overhead. the there, going a is about days, seasonal increase were that holidays. million the We in see uptick each those just production The still third -- so got has fourth to flow. million,

will are lower excluded. bit starting to the see the so unit going healthy. chains particularly up productivity, and then secondly, a workplace little lower still have price furnishings not the to New furnishings back supply we're business And being two lastly, related facility, to And one volume, then Mexico in factors, workplace

together, at on pretty all we're which including net segment. looking depends and similar profitability the volume your picture, price So

Steven Ramsey

right labor? way. egg, factored of sooner that other maybe is bridge supply is And out one maybe a on about thinking the chicken tailwind is better? supply than to get this your and which XXXX? about side not greater How helpful. labor to or of into kind much very improving break is thinking that constraint as it's the profit, some improvement, then And And, to another, it or Okay, so these of getting one better, things

Jeff Lorenger

well such Steven, supply bit question. of a We has the watch think an chicken us. Yeah, of through this good pressure a and day, just rippled and like The every chains I labor a is it as egg. kind

continue on and kind making in progress we is two to tandem. tell have some to would balance of those both to what we're So I try you, things

as the should of ahead way anyway. to well runs other, going one if not or as really candidly, could net it's it out, So,

in X:X, working at it's both both people and but -- But some XXXX it really we're So levers. they we the like kind improve watch both on daily. we stability chain, as those of hard of improvement improvement as get fronts. supply expect the into we've at first to And I we said, do kind And same need of rate. seen stabilization and

Steven Ramsey

known great. And for the will this will that last in procurement time one efficient. Okay, inventory we inventory. more being and permanently more in the in to therefore supply think is talked then change And just for world hold chain HNI is companies extremely situation and people many from me, in,

if current guess on So side will the I you how other inventory you as contemplate managing issues? it, working change of and capital the

Jeff Lorenger

have, different, And some I Yeah, that's be ahead. if we some carrying that. we absolutely play that our can business think sized think great that medium we question. even you have a will model, to about do of runners kinds build got And we Candidly, high business no of we the we're buffers. small, more

And to balance use sheet that change so, the will time. over we definitely dynamic appropriately

going of on entering reset just a in Now, do overnight. But kind the to it its inventory. won't business maybe is we're a in expectations have time permanent period, period to here, think happen which versus I

we're that's those I some year. and leverage as into that to point playing – going of we get next think be

Steven Ramsey

you. Helpful. Thank

Jeff Lorenger

Thank you.

Operator

Mr. the question-and-answer Lorenger the for concludes portion now today's call. of closing This to back I call over turn remarks. will

Jeff Lorenger

you. to and joining Have Thank a Thanks. you day thanks us Awesome. soon. talk everybody, for great Again, today. we'll

Operator

This Thank concludes call. for today's participating. conference you

now may disconnect. You