HNI Corporation Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Jeff Lorenger started by noting non-GAAP earnings per share increased more than 40% year-over-year with solid revenue growth in both segments. He discussed the outlook for the remainder of 2025, stating earnings outlook has modestly increased. He also provided details on demand activity and strategies, mentioning investments in growth initiatives for both segments.
• VP Berger provided additional color on the third quarter and updated full-year outlook, talking about revenue projections for Workplace Furnishings and Residential Building Products, and commented on the strong balance sheet, including gross debt leverage and cash flow deployment through dividends and stock repurchases.

Segment Performance

• Workplace Furnishings: Organic net sales increased more than 8% year-over-year. Contract brands had revenue up nearly 15% year-over-year, and SMB brands saw slight year-over-year growth. Non-GAAP EBIT margin expanded 120 basis points year-over-year to 13.1%.
• Residential Building Products: Second quarter revenue increased more than 5% year-over-year. New construction channel was up more than 4%, and remodel-retrofit sales grew over 7%. Segment operating profit grew 20% year-over-year, and segment operating margin expanded 190 basis points to 15.7%.

Guidance

• Earnings outlook has modestly increased from the last quarter call. Expect a fourth consecutive year of double-digit non-GAAP earnings improvement. Workplace Furnishings is expected to have mid-single-digit net sales growth year-over-year, excluding the benefit of an extra week in the fourth quarter. Residential Building Products' net sales are now expected to grow at a mid-single-digit pace, also excluding the benefit of an extra week in the fourth quarter. Third quarter non-GAAP earnings per share is expected to increase slightly from 2024 levels.

Risks

• Workplace Furnishings: Tariff uncertainty spiked during the quarter, causing a demand pause in the hospitality business as many customers tapped the brakes on new projects due to imported product tariff concerns.
• Residential Building Products: Challenging housing market dynamics including elevated interest rates, affordability issues, and weaker consumer confidence impacting new construction and R&R environments.

Question and Answer

Q: Jeff referenced modestly increasing earnings outlook and $0.50 to $0.60 of additional EPS visibility over the next 18 months. Can you elaborate on what's driving the increased visibility or outlook?

A: Jeff mentioned increased confidence in network optimization and synergy work, with first half results and ongoing initiatives driving the modest increase in earnings outlook.

Q: Greg Burns asked about growth investments in Workplace Furnishings and margin profile. Jeff responded about investing in people capacity, streamlining dealer experience, and new products, while VP Berger discussed margin range expectations for Workplace Furnishings around 12% return business.

Q: Steven Ramsey asked about outperformance in Residential Building Products sales. Vincent Paul Berger responded about share gains in new construction and initiatives in remodel side with dealer activity and home improvement retail placement.

Q: David MacGregor asked about volume leverage in Workplace Furnishings and likelihood of upside to EPS savings from Kimball in Mexico. Vincent Paul Berger discussed incremental volume improvement and leaning towards the upper end of the $0.70 to $0.80 EPS savings range.

Q: Brian Gordon asked about large contract customers' feelings on business conditions and CapEx decisions, and RBP volume vs pricing. Jeff Lorenger talked about large contract customers viewing in-office investments as business as usual, and Vincent Paul Berger stated RBP growth is primarily price with some volume.