MUSCATINE, Iowa, July 21, 2016 -- HNI Corporation today announced sales for the second quarter ended July 2, 2016 of $536.5 million and net income of $29.0 million. GAAP net income per diluted share improved 23 percent from the prior year quarter to $0.64. Non-GAAP net income per diluted share, which excludes restructuring and transition costs and a nonrecurring gain, improved 28 percent from the prior year quarter to $0.68.

Second Quarter Summary Comments

"We are pleased with our strong results for the second quarter driven by outstanding operational execution in both our office furniture and hearth products segments. Our investments are generating significant financial returns. We remain focused on driving long-term shareholder value," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

Second Quarter Summary Comments

The Company

Consolidated net sales decreased $31.7 million or 5.6 percent to $536.5 million. The acquisition and divestitures of small office furniture related companies increased sales $6.5 million compared to the prior year quarter. On an organic basis, sales decreased 6.7 percent.
GAAP gross margin increased 260 basis points compared to prior year driven by strong operational performance, favorable material productivity and price realization, partially offset by lower volume. Non-GAAP gross margin increased 340 basis points.
Selling and administrative expenses, as a percentage of sales, increased 90 basis points due to the impact of lower volume and higher incentive based compensation partially offset by cost reductions at the operating segments and corporate.
The Corporation recorded $2.0 million of restructuring costs and $3.5 million of transition costs in the second quarter in connection with previously announced closures and structural realignment. $4.9 million of these charges were included in cost of sales. Specific items incurred include severance, accelerated depreciation and production move costs. The Corporation also recorded a $2.0 million nonrecurring gain. Restructuring charges for the prior year quarter were favorable $0.6 million due to lower than anticipated post-employment costs. The Corporation also recorded $1.3 million of transition costs in the prior year quarter in connection with previously announced closures, acquisition integration and structural realignment. These transition costs were included in cost of sales.

Office Furniture

Second quarter sales decreased $22.5 million or 5.0 percent to $428.1 million. Sales for the quarter decreased in our North America contract and International businesses partially offset by an increase in our supplies-driven channel. The acquisition and divestitures of small office furniture related companies increased sales $6.5 million compared to the prior year quarter. On an organic basis, sales decreased 6.4 percent.
Second quarter GAAP and non-GAAP operating profit increased due to strong operational performance, favorable material productivity, price realization, and cost reductions. These were partially offset by lower volume, higher incentive based compensation and strategic investments.

Hearth Sales

Second quarter sales decreased $9.2 million or 7.8 percent to $108.4 million. Growth in the new construction channel was more than offset by a decrease in the retail channel.
For the quarter, GAAP operating profit declined due to impact from previously announced closures, lower volume, and higher incentive based compensation. These were partially offset by strong operational performance, favorable material productivity, and cost reductions. Non-GAAP operating profit, which excludes the impact of a previously announced closure, improved 200 basis points.

Outlook

"I am very pleased with our strong performance in the second quarter. Our office furniture and hearth businesses are executing well and we continue to make significant investments to drive long-term shareholder value," said Mr. Askren.

The Corporation estimates sales to be flat to up 3 percent in the third quarter over the same period in the prior year, including impacts of acquisitions and divestitures. Non-GAAP earnings per share are anticipated to be in the range of $0.90 to $0.95 for the third quarter and $2.80 to $2.95 for the full year, which excludes restructuring and transition costs and a nonrecurring gain.