HNI Corporation Q3 FY2025 earnings call

• Third quarter: Non - GAAP earnings per share increased 7% year - over - year driven by a record third quarter non - GAAP operating margin. Members delivered strong quarter despite tariff - driven volatility and macro uncertainty. - Fourth quarter expectations: Full year earnings outlook unchanged from last quarter's call, continue to anticipate fourth consecutive year of double - digit non - GAAP earnings improvement. - Workplace Furnishings: Macro and industry backdrops improving, return to office data indicating inflection, KPMG survey shows more CEOs expect full - time in - office, CBRE shows non - viable space conversion at record levels. - Residential Building Products: Believe in positive long - term market fundamentals, continue to invest in growth initiatives like developing new products, increasing homeowner awareness of fireplace options, and strengthening relationships with builders.

Workplace Furnishings: Organic net sales increased 3% year - over - year. Non - GAAP segment operating profit margin expanded 40 basis points year - over - year and exceeded 12%. Residential Building Products: Third quarter revenue was roughly unchanged versus the prior year period. New construction revenue was down slightly, while remodel retrofit sales grew modestly. Segment operating margin still came in at a strong 18%.

• Full year earnings outlook unchanged from last quarter's call, continue to anticipate fourth consecutive year of double - digit non - GAAP earnings improvement. - Fourth quarter Workplace Furnishings: Expected to increase at a high single - digit rate year - over - year organically, impact of divestitures reduces organic revenue growth rate by a little less than 100 basis points. - Fourth quarter Residential Building Products: Projected to increase at a high single - digit rate compared to the same period in 2024, pricing actions primary driver of growth. - KII synergies and Mexico facility ramp: Expected to contribute $0.75 to $0.80 of EPS in 2025 - 2026 period. - Steelcase acquisition: Expect synergies to reach $120 million and ultimate accretion to total $1.20 per share when fully mature, excluding purchase accounting.

• Tariff - driven volatility and continuing macro uncertainty. - Insurance - related pressure year - over - year. - Product mix timing issue with more project - driven business and systems drawing lower margin in the short term but with ancillary products to come later. - Timing of investments where some slid into the fourth quarter and are part of saved in the third quarter.

Q: That $1.20 of accretion from Steelcase that you just mentioned, is that considering just the synergies that you've already outlined? Or is that...

A: Yes, Greg, that's the $120 million that we talked about on the investor call back in August. That number has not changed. And just the way the share count works, that now converts to about $1.20 in accretion.

Q: Okay. So that's just your initial outlook, maybe there's potential upside to that if you get your hands around the business and drive additional savings.

A: Greg, I think for that -- I think just one comment there. That's a number that we're really confident in. And we're going to use our disciplined integration process. And once we get in there and if there's more, we'll look for more. But that's what we're on record for right now.

Q: And where are you in terms of the $0.75 to $0.80 from KII and Mexico? How much have you gotten so far and what remains?

A: Yes. We had said that $45 million to $50 million would be recognized between '25 and '26. We had mentioned kind of splitting it half and half. We're seeing a little bit more come forward of '26 in the last quarter here of '25. So I would tell you, maybe a little bit more in '25 and '26. But I think more importantly, to Jeff's point on visibility, we do see the $45 million to $50 million coming through.

Q: Can we -- can you kind of give us a compare and contrast about your full year guidance? I guess, what's embedded in the fourth quarter now versus maybe how it looked a few months ago? It looks like maybe the top line is a little higher, but there's some more cost in there as well. Can you just kind of give us the breakout of that?

A: Yes, I can walk you through that, Reuben. Starting with revenue, I think it's probably -- if I look at Workplace and Residential revenue, it's mostly actually in line with prior expectations. Both are expected to be in the fourth quarter, up high single digits with the extra week. So I think where we're seeing a little bit of the pressure is the product mix. When we look at what's come through in backlog and the pipeline, there's more project - driven business and systems. So that's really a timing issue. It draws a little bit lower margin, but on the backside of that comes other business that goes with that with ancillary products that will come probably in Q1. So a little timing there. I think the second part of our Q3 beat is going to be timing of investments. Some of it slid in the fourth quarter or into the fourth quarter, and it's part of that actually saved in the third quarter. So those are going to come back. I think the key there is our second half is still unchanged. So I think you got a little bit going between the 2 quarters. And I think a couple of other things to mention. Jeff mentioned, I mentioned insurance - related pressure year - over - year. That's hitting us on the SG&A side. And I think we probably need to update our tax rates. Our second half tax rate is now at 24.4%. That's about 80 bps higher than we talked about prior in the year that gets us to a full year tax rate of 23%. So when you boil that all together, the back half is really not changing. It's got a little bit of timing and dealing with some onetime expenses.

Q: On the resi side, I guess, sales were flat. Orders grew 2% and really accelerated at the end of the quarter, it sounds like. So I guess can you just parse out maybe like why orders grew and if there's anything to call out really that drove the acceleration into the quarter end?

A: Yes. And are you talking about the resi side or Workplace, Brian, just to make sure I'm...

Q: Sorry, the resi side.

A: Yes. Yes. You kind of nailed it. So the -- if you look at orders for the quarter, we're up 2% for the segment. The actual remodel retrofit was up 7%, and it actually was accelerating as we went through the quarter. We actually grew backlog to 13%. So that's given us confidence in the high single digits for the quarter. The backdrop of everything that Jeff just talked about is supporting that, which is allowing us to outpace the market. We're starting to see good signs for a retail season in most of the country outside the West Coast. All those support our high single digits with the extra week. So when we look at that business for the full year, I think it's more important, we're going to grow mid - single digits in a very tough market that didn't grow. And although most of it will be price, we actually are going to show unit volume growth in the fourth quarter and a bit for the full year.

Q: On the Workplace segment, the opportunity set there, maybe by sector, is there a way to think of how much that reflects return to office compared to non - office verticals?

A: So yes, I think that's -- it's pretty hard to parse that. I think it's some of both. The verticals have been holding up well. You look at education, you look at health care. Obviously, federal government is in kind of in a weird spot right now. But I think the return to office stuff, if I had to say, is probably in the earlier innings definitely than some of the other vertical plays. But we do see some of those verticals as we look out into the future that's still staying strong. But I'd say verticals have been a little stronger than return to office and return to office is just really getting going.