HNI Corporation (HNI) Earnings

Management highlights

- Overall Quarterly Performance • Non-GAAP EPS was $1.27, up 14% year-over-year, ahead of internal expectations; GAAP diluted EPS was $0.70. Operating profit doubled year-over-year, driven by Steelcase acquisition profits, net price-cost benefits, tariff impacts, legacy network optimization savings, and productivity gains. • An improving demand environment was observed, with internal leading indicators improving further during the quarter. • The company delivered solid results while continuing investments to drive long-term growth. - Steelcase Integration Update • Integration is progressing as planned, with the new leadership team largely in place; the Steelcase president is expected to join in the second half of 2026. • Fully mature total synergies are now expected to reach at least $120 million, up from the original target, with all synergy projections currently limited to Steelcase Americas and excluding any expected revenue synergy benefits. • Net debt was reduced by approximately $100 million in Q2, bringing quarter-end leverage to 2.4x, down from 2.5x last quarter. Management expects leverage to return to pre-acquisition levels within 18 to 24 months of the December 2025 closing. - Market Demand Trends • Workplace: Return-to-office trends are driving improvement; office leasing activity grew for the fourth consecutive quarter, with trailing four-quarter leasing up 27% year-over-year. Net office space absorption was positive for the fourth straight quarter, hitting its highest trailing four-quarter level since 2019, and sublease activity has returned to pre-COVID levels. Bid quotes, large project counts, customer visits, RFPs, and design requests all increased solidly year-over-year, and win rates are improving. • Residential Building Products: Elevated interest rates and affordability concerns continue to pressure new construction, but new single-family permits surprised to the upside with 4% year-over-year growth in June. The segment continues to outperform the overall market, with expected ongoing margin and cash flow consistency.

Guidance

- Full Year 2026: Expects 20% to 25% non-GAAP EPS growth over 2025's $3.46, with accelerating double-digit earnings growth in the second half. Expects low single-digit revenue growth for both segments for the full year, with solid full-year margin expansion for both segments. Full-year net tariff benefit is expected to be approximately 40 basis points. Combined depreciation and amortization (excluding $100 million in purchase accounting impact) is expected to be $170 to $180 million; net interest expense is projected at ~$80 million, with an effective tax rate of 25% to 26%. - Third Quarter 2026: Expects legacy workplace net sales to grow at a high single-digit year-over-year rate; non-GAAP EPS is expected to increase at a mid-to-high 20% rate year-over-year, and Q3 non-GAAP EPS is projected to be approximately 15% above Q4 2025 levels driven by timing of revenue and investments. Residential building products net sales are expected to be roughly unchanged year-over-year. - Second Half 2026: Expects mid-to-high single-digit net sales growth for legacy workplace, with solid year-over-year revenue growth for Steelcase. Expects flattish year-over-year revenue for residential building products, with low single-digit negative volume offset by modest price increases. Both segments are expected to deliver solid margin expansion. - 2027 and Beyond: Expects double-digit non-GAAP EPS growth in 2027, driven primarily by Steelcase synergies and legacy network optimization, with no volume growth from current levels included in projections. Expects cumulative savings of over $70 million in 2027 and more than $150 million when fully mature. The company has multi-year visibility for elevated earnings growth beyond 2027.

Segment performance

Total Q2 2026 net sales increased 121% year-over-year, with organic net sales up slightly overall. 1. Workplace Furnishings: Organic orders increased 5% year-over-year; end-of-quarter backlog was 5% higher than the prior year. Steelcase order growth outperformed legacy workplace trends, and year-over-year segment order growth accelerated above 5% in the most recent five-week period. Total workplace net sales (including Steelcase) are expected to increase 175% to 180% year-over-year in Q3 2026. This segment contributed approximately 65% of total net sales after the Steelcase acquisition. 2. Residential Building Products: Revenue decreased 1.6% year-over-year, with solid growth in the remodel retrofit offsetting ongoing weakness in new construction. Segment orders were flat year-over-year, and grew at a low single-digit pace in the most recent five-week period. Segment operating margin expanded 470 basis points year-over-year to 20.4%, including 150 basis points of net tariff benefit. This segment contributed approximately 35% of total net sales.

Risks & headwinds

- Ongoing macroeconomic and geopolitical uncertainty continues to create volume volatility, particularly in the workplace furnishing segment which faced organic volume pressure from geopolitical issues early in 2026. - Elevated interest rates and housing affordability concerns continue to drive ongoing weakness in the residential new construction market. - New office space supply remains a ongoing headwind for the workplace furnishing segment. - Steelcase's exposure to larger project sizes creates more lumpiness in order and revenue patterns, requiring adjustments to internal forecasting processes. - International Steelcase operations face ongoing macroeconomic headwinds from regional economic weakness and geopolitical conflict in EMEA.

Analyst Q&A

• Q: The company updated language to note Steelcase synergies will be at least $120 million. Why the change, what is being seen in integration, and is there upside to the target? /

  A: The original $120 million target was an analytic estimate produced before closing, based on prior acquisition experience. After seven months of integration work, bottom-up project plans across SG&A, logistics, procurement, and network optimization already identify a larger total potential synergy value, mirroring the pattern from the prior Kimball acquisition. Management will finalize timelines and an updated target over the next 60 days, and expects the final mature synergy total to be higher than $120 million.

• Q: What is driving improved win rates for workplace furnishings across legacy and Steelcase, and is market pricing currently rational? /

  A: Improved win rates are consistent across both legacy HNI and Steelcase businesses, across small/medium and large project segments. The improvement aligns with broader macro industry improvements including rising leasing activity and positive office space absorption, and dealer sentiment is also trending positive. Management notes the market is currently behaving rationally, with no unusual competitive pricing pressure observed.

• Q: Most analysis of the Steelcase acquisition has focused on cost synergies. What is the outlook for long-term revenue synergies, and what early progress has been seen across the combined dealer network? /

  A: Revenue synergies are not included in current synergy projections, but natural opportunities are already emerging organically. The combined product portfolio covers the entire office floor plate, which generates new cross-selling opportunities for dealers, and customer and dealer response at industry events like Design Days was very positive. Management is not forcing accelerated revenue synergy programs during the first transition year, but will consider formal programs once integration is further along, as opportunities become clearer.

• Q: 2027 double-digit EPS growth projections do not include current volume growth from new orders. What is the composition of the projected growth, and does that mean there is upside if current demand strength continues? /

  A: All projected 2027 EPS growth comes from Steelcase cost synergies and legacy network optimization projects, which are already planned and underway. Price-cost is assumed to be neutral, and minimal volume growth is included in the base projection. If current demand acceleration continues, any additional volume growth will translate directly to upside to the 2027 EPS target.