HNI Corporation Reports Earnings for Fourth Quarter and Fiscal Year 2021

HNI Corporation today announced sales for the full year ended January 1, 2022 of $2.184 billion and net income of $59.8 million. GAAP net income per diluted share was $1.36, compared to $0.98 in the prior year. Non-GAAP net income per diluted share was $1.63, compared to $1.79 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Fourth quarter sales of $602.9 million were up 7 percent from year-ago levels, and fourth quarter net income was $8.2 million. GAAP net income per diluted share was $0.19, compared to $0.52 in the prior year. Non-GAAP net income per diluted share was $0.43, compared to $0.66 in the prior year.

Fourth Quarter Highlights

• Multiple actions to improve long-term profitability in Workplace Furnishings. Segment profitability in Workplace Furnishings declined in the fourth quarter primarily driven by unfavorable price-cost. During the quarter, the Corporation took several actions to simplify its business and drive long-term profitability:
  • Business simplification. The Corporation implemented plans to exit a small office furniture brand and restructure an eCommerce business—both moves are consistent with the Corporation’s broader business simplification and margin-enhancement efforts.
  • Price-cost. The Corporation also implemented additional price increases across its brands to address inflationary pressures. As a result, the Corporation expects price-cost to be neutral in the first quarter and a positive contributor to second half 2022 profitability.
  • Labor capacity. The Corporation continued efforts to expand capacity, including the start-up of a seating manufacturing facility in Mexico. These efforts are expected to increasingly benefit segment revenue and profit as 2022 progresses.
• High-teens operating profit in Residential Building Products. Production output and revenue in the Residential Building Products segment continued to be negatively impacted by labor availability, supply chain pressures, and COVID outbreaks. Despite these pressures, the segment posted operating profit margin above 18%. For the year, segment operating profit increased 30% to $142 million.
• High-teens operating profit in Residential Building Products. Production output and revenue in the Residential Building Products segment continued to be negatively impacted by labor availability, supply chain pressures, and COVID outbreaks. Despite these pressures, the segment posted operating profit margin above 18%. For the year, segment operating profit increased 30% to $142 million.
• Increased cash deployment aimed at improving shareholder returns. During the fourth quarter, the Corporation paid dividends of $13 million, repurchased $41 million of its outstanding shares, invested $43 million to acquire two companies (Trinity Hearth & Home and The Outdoor GreatRoom Company), and maintained healthy levels of capital expenditures—all aimed at improving long-term shareholder returns. The late-quarter acquisition of The Outdoor GreatRoom Company, a leading manufacturer and supplier of premium outdoor living products, primarily fire tables and fire pits, positions the Corporation to grow and develop a leading position in this fast-growing market.
• High quality balance sheet. Quarter-ending debt levels were $178 million—unchanged from last quarter and approximately flat compared to the same quarter last year. The Corporation’s gross leverage ratio remained low at 1.0x. Additionally, the Corporation ended the quarter with $54 million of cash. “In the fourth quarter, we continued to confront inflationary pressures, supply chain constraints, and labor shortages. Through the dedication and effort of our members, we were able to battle through those headwinds and launch initiatives to improve our long-term profitability, including additional pricing actions, restructuring initiatives aimed at simplifying our business, and the completion of multiple acquisitions,” stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.

Fourth Quarter Summary Comments

• Consolidated net sales increased 7.3 percent from the prior-year quarter to $602.9 million. On an organic basis, sales increased 4.0 percent. The acquisition of Design Public Group (“DPG”) in the fourth quarter of 2020 increased year-over-year sales by $10.9 million and the acquisition of multiple building products companies in 2021 increased sales $7.6 million compared to the prior-year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
• Gross profit margin compressed 490 basis points compared to the prior-year quarter, driven by unfavorable price-cost and $7.6 million of charges primarily related to the strategic restructuring of an eCommerce business in the Workplace Furnishings segment.
• Selling and administrative expenses as a percent of sales decreased 120 basis points compared to the prior year quarter. This decrease was driven by lower core SG&A, lower variable compensation, and higher sales, partially offset by increased freight costs. Included in prior-year quarter SG&A was $1.8 million of one-time costs from exiting workplace furnishings showrooms, driven by conditions related to the COVID-19 pandemic.
• The Corporation recorded $8.2 million of restructuring costs in the current-year quarter, as well as a $5.8 milliongoodwill impairment charge, in connection with efforts to simplify and improve long-term profitability in the Workplace Furnishings segment. Of these charges, $7.6 million was included in cost of sales. In the prior-year quarter, the Corporation recorded net charges of $6.2 million related to the impairment of goodwill and other assets in the Workplace Furnishings segment.
  • Non-GAAP net income per diluted share was $0.43 compared to $0.66 in the prior-year quarter. The $0.23decrease was primarily driven by unfavorable price-cost.

Full Year Summary Comments

• Consolidated net sales increased 11.7 percent from the prior year to $2.184 billion. On an organic basis, sales increased 9.3 percent year-over-year. The acquisition of DPG in the fourth quarter of 2020 increased yearover-year sales by $34.9 million and the acquisition of multiple building products companies in 2020 and 2021 increased sales $12.4 million compared to the prior year.
• Gross profit margin compressed 220 basis points compared to the prior year. This decrease was driven by unfavorable price-cost, partially offset by higher Residential Building Products volume and improved net productivity.
• Selling and administrative expenses as a percent of sales decreased 130 basis points compared to the prior year. This decrease was driven by higher Residential Building Products volume and lower core SG&A, partially offset by increased freight costs, the return of costs related to temporary actions taken in the prior year, and higher investment spend. Included in current year and prior year SG&A was $1.4 million and $6.8 million, respectively, of one-time costs driven by conditions related to the COVID-19 pandemic.
• The Corporation recorded $8.2 million of restructuring costs in the current year, as well as a $5.8 million goodwill impairment charge, in connection with business simplification actions taken in the Workplace Furnishings segment. Of these charges, $7.6 million was included in cost of sales. In the prior year, the Corporation recorded net charges of $38.8 million related to impairments of goodwill, intangibles, and other assets in the Workplace Furnishings segment.
• Non-GAAP net income per diluted share was $1.63, compared to $1.79 in the prior year. The $0.16 decrease was due to unfavorable price-cost along with the return of costs related to temporary actions taken in the prior year and higher investment levels, partially offset by higher Residential Building Products volume, improved net productivity, and lower core SG&A.

Fourth Quarter Orders

• Order growth in the Workplace Furnishings segment moderated during the fourth quarter. When excluding eCommerce and normalizing for the extra week in the fiscal fourth quarter 2020, fourth quarter orders grew six percent year-over-year after increasing 41 percent year-over-year in the third quarter. The Corporation attributes the sequential moderation to timing and uncertainty created by the Omicron variant.
• Orders in the Residential Building Products segment, normalizing for the extra week in the fourth quarter of 2020, increased four percent compared to an elevated prior-year period in which orders grew 20 percent, also adjusted for the extra week.

Fourth Quarter Summary Comments – Workplace Furnishings

• Workplace Furnishings net sales increased 7.7 percent from the prior-year quarter to $394.0 million. On an organic basis, sales increased 4.7 percent year-over-year. The acquisition of DPG in the fourth quarter of 2020 increased sales by $10.9 million compared to prior-year quarter.
• Workplace Furnishings GAAP operating profit margin compressed 360 basis points versus the prior-year period. On a non-GAAP basis, segment operating margin compressed 230 basis points driven by unfavorable price-cost, partially offset by reduced variable compensation and improved mix.
• The Workplace Furnishings segment recorded $7.9 million of restructuring costs in the current-year quarter, as well as a $5.8 million goodwill impairment charge, in connection with strategic actions to drive business simplification and improve long-term profitability. The prior-year quarter included net charges of $6.2 million related to the impairment of goodwill and other assets as well as $1.8 million of one-time costs from exiting workplace furnishings showrooms, driven by conditions related to the COVID-19 pandemic.

Full Year Summary Comments – Workplace Furnishings

• Workplace Furnishings net sales increased 5.0 percent from the prior year to $1.434 billion. On an organic basis, sales increased 2.4 percent year-over-year. The acquisition of DPG in the fourth quarter of 2020 increased sales by $34.9 million compared to prior year.
• Workplace Furnishings GAAP operating profit margin expanded 40 basis points. On a non-GAAP basis, segment operating margin compressed 190 basis points year-over-year, primarily driven by unfavorable price cost, partially offset by improved net productivity.
• In 2021, the Workplace Furnishings segment recorded $7.9 million of restructuring costs and a $5.8 million goodwill impairment charge in connection with business simplification actions, as well as $1.4 million of one time costs from exiting workplace furnishings showrooms driven by conditions related to the COVID-19 pandemic. The prior year included net charges of $38.8 million related to the impairment of goodwill and other assets as well as $5.2 million of one-time costs as a result of the COVID-19 pandemic.

Fourth Quarter Summary Comments – Residential Building Products

• Residential Building Products net sales increased 6.5 percent from the prior-year quarter to $209.0 million. On an organic basis, sales increased 2.6 percent year-over-year. The acquisition of building products companies in 2021 increased sales $7.6 million compared to prior-year quarter.
• Residential Building Products operating profit margin compressed 430 basis points, driven by unfavorable price-cost and reduced volume due to labor and supply chain constraints, partially offset by lower variable compensation.

Full Year Summary Comments – Residential Building Products

• Residential Building Products net sales increased 27.3 percent from the prior year to $750.4 million. On an organic basis, sales increased 25.2 percent year-over-year. The acquisition of building product companies in 2020 and 2021 increased sales $12.4 million compared to prior year.
• Residential Building Products operating profit margin expanded 40 basis points primarily driven by higher volume, partially offset by unfavorable price-cost.

Concluding Remarks

“I remain optimistic about our opportunities to grow earnings and revenue. During the year we took, and will continue to take, actions to improve our long-term profitability. We ended the year with a strong balance sheet and significant capacity to further deploy capital.In 2022, HNI is celebrating its 75th anniversary. In 1947, we began as a manufacturing enterprise to employ America’s veterans returning from World War II with the principles of treating everyone equally and respectfully. These founding principles along with a shared relentless focus on our customers have allowed HNI to grow into a leading global family of brands across two industries. As we enter the next 75 years, our focus on members and customers will remain as will our ambition to be a good corporate citizen supportive of our communities and the environment,” Mr. Lorenger concluded.

Fiscal Year 2022 Outlook

Capacity additions and benefits from pricing actions are expected to drive strong revenue growth and accelerating profit improvement as 2022 progresses.

• Workplace Furnishings revenue: pricing benefits, backlog normalization, and assumed market improvements are expected to drive revenue growth rates in the high teens to low twenties for 2022.
• Residential Building Products revenue: pricing benefits, inorganic revenue from acquisitions closed in 2021, and continued benefits from multiple growth initiatives are expected to fuel growth rates in the high teens for 2022, on top of 25 percent organic growth generated by the segment in 2021.
• Seasonality: earnings seasonality is expected to be more weighted to the back half of 2022 than in recent years when approximately 70 percent of total profit was generated during the second half.
• First Quarter 2022: the Corporation expects first quarter profitability to be below levels generated in the comparable prior-year period. On a sequential basis, the benefit from reduced price-cost pressure is expected to be more than offset by continued headwinds from labor availability, supply chain constraints, and COVID impacts, typical seasonal softness in the eCommerce and International Workplace Furnishings businesses, and investment in additional Workplace Furnishings capacity.
• Balance Sheet: the Corporation expects to maintain a strong balance sheet throughout 2022. Low leverage and continued free cash flow generation are expected to provide ample capacity for continued investment, dividend payments, M&A, and share buyback activity.

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About HNI Corporation

HNI Corporation (NYSE: HNI) is a manufacturer of workplace furnishings and residential building products, operating under two segments. The Workplace Furnishings segment is a leading global designer and provider of commercial furnishings, going to market under multiple unique brands. The Residential Building Products segment is the nation’s leading manufacturer and marketer of hearth products, which include a full array of gas, electric, wood, and pellet-burning fireplaces, inserts, stoves, facings, and accessories. More information can be found on the Corporation’s website at www.hnicorp.com.

Contact:

Marshall H. Bridges – Senior Vice President and Chief Financial Officer – (563) 272-7400
Matthew S. McCall – Vice President, Investor Relations and Corporate Development – (563) 275-8898

Source: HNI Corporation