HNI Corporation (HNI) Monday announced sales for the second quarter ended July 1, 2017 of $514.5 million and net income of $13.8 million. GAAP net income per diluted share was $0.31 compared to $0.64 in the prior year.

Summary Comments
"We continue to manage through a dynamic environment in our office furniture businesses. Our second quarter results were consistent with our prior announcement. Office furniture sales were negatively impacted by shipment timing and a greater than anticipated decline in the wholesale channel. We continue to aggressively respond to the changing environment by investing in new products and selling capabilities and advancing initiatives around quick ship, direct fulfillment. Though a short-term negative profit impact, our response to these shifts will make us stronger in the long term as we become closer to our customers, delivering unmatched value," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

Second Quarter Summary Comments

Consolidated net sales decreased $22.0 million or 4.1 percent from the prior year quarter to $514.5 million. On an organic basis, sales increased 0.1 percent. The net impact of acquisitions and divestitures of small office furniture companies decreased sales $22.5 million compared to the prior year quarter.
GAAP gross profit margin decreased 300 basis points compared to the prior year quarter primarily driven by input cost inflation, deeper discounting, and product mix. Non-GAAP gross profit margin, which excludes restructuring and transition costs, decreased 260 basis points compared to the prior year quarter.
Selling and administrative expenses increased as a percentage of sales due to strategic growth investments and prior year non-repeating adjustments, partially offset by the impact of divestitures, lower incentive based compensation, and the impact of stock price change on deferred compensation.
The Corporation recorded $3.4 million of restructuring costs and $4.3 million of transition costs in the second quarter in connection with previously announced facility closures and structural realignments. $7.3 million of these charges were included in cost of sales. Specific items incurred include accelerated depreciation and production move costs.

Second quarter office furniture net sales decreased $21.7 million or 5.1 percent to $406.4 million. On an organic basis, sales increased 0.2 percent. Increases in the North American contract and international businesses were offset by a decrease in the supplies-driven business. The net impact of acquisitions and divestitures of small office furniture companies decreased sales $22.5 million compared to the prior year quarter.
Second quarter office furniture GAAP operating profit margin decreased 530 basis points due to input cost inflation, deeper discounting, strategic growth investments, and product mix, partially offset by the impact of divestitures and lower incentive based compensation. Excluding restructuring and transition costs, non-GAAP operating profit margin declined 440 basis points.

Second quarter net sales of hearth products decreased $0.4 million or 0.4 percent to $108.0 million. Increases in the new construction and retail pellet businesses were offset by a decrease in the retail wood/gas business.
Second quarter GAAP operating profit margin of hearth products increased 200 basis points due to structural cost reductions and favorable operational performance. Excluding restructuring and transition costs, non-GAAP operating profit margin increased 110 basis points.

Outlook
"We expect stronger demand in the second half. Our contract office furniture businesses continue to drive strong growth. Demand in our supplies-driven office furniture business is stabilizing, and we are seeing solid growth in our hearth business. We are in the midst of multiple transformations positioning our supplies business for long-term success, driving further business simplification, and improving our operational cost structure. I am confident our growth together with our demonstrated record of cost reduction will drive long-term profit improvement," said Mr. Askren.

The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.35 to $2.55, which excludes restructuring and transition costs. Full year organic sales are expected to be up 2 to 5 percent. Including the impacts of acquisitions and divestitures, full year sales are expected to be down 2 percent to up 1 percent. This compares to prior guidance of non-GAAP earnings per diluted share of $2.40 to $2.70 on organic sales growth of 2 to 5 percent. Delayed cost savings and competitive pricing pressure are primarily driving the reduced outlook.

For the third quarter, organic sales are expected to be up 7 to 10 percent. Including the impacts of acquisitions and divestitures, third quarter sales are expected to be down 1 percent to up 2 percent. Non-GAAP earnings per share are anticipated to be in the range of $0.76 to $0.86 for the third quarter, which excludes restructuring and transition costs.