HNI Corporation (HNI) Monday announced sales for the third quarter ended September 29, 2018 of $611.1 million and net income of $39.9 million. GAAP net income per diluted share was $0.89 compared to $0.84 in the prior year. Non-GAAP net income per diluted share was $0.90 compared to $0.82 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

"We are pleased with our overall results for the third quarter. Our supplies-driven business grew 12 percent in the quarter while delivering strong profit improvement. We also successfully made it through the majority of our BST transition and generated over $10 million dollars of net productivity and cost savings. I like our market positions and feel good about our path to increasing long-term shareholder value," said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.

Third Quarter Summary Comments

Consolidated net sales increased $11.7 million or 1.9 percent from the prior year quarter to $611.1 million. On an organic basis, sales increased 4.6 percent. The net impact of closing and divesting small office furniture companies decreased sales $15.0 million compared to the prior year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.
GAAP gross profit margin increased 130 basis points compared to the prior year quarter. Of this increase, 40 basis points were driven by productivity gains and improved price realization, partially offset by increased input costs and lower volume in the contract office furniture business. The remaining increase of 90 basis points was due to lower restructuring and transition costs.
Selling and administrative expenses as a percent of sales increased 110 basis points compared to the prior year quarter. This increase was primarily due to higher incentive based compensation, strategic investments, amortization from the BST investment, and the impact of stock price change on deferred compensation, partially offset by higher sales and the impact of closing and divesting small office furniture companies.
In the third quarter 2017, the Corporation recorded a $6.0 million nonrecurring gain from the sale and license of a previously acquired intangible asset and an $0.8 million gain on the sale of a closed facility.
The Corporation's effective tax rate has declined to 21.9% for the quarter from 33.3% in the prior year quarter. This decrease is due to the enactment of the Tax Cuts and Jobs Act in 2017. Net income per diluted share benefited from the lower tax rate.
Third quarter office furniture net sales increased $6.4 million or 1.4 percent from the prior year quarter to $471.7 million. On an organic basis, sales increased 4.7 percent primarily driven by growth in the supplies-driven business, partially offset by a decrease in the contract business. The net impact of closing and divesting small office furniture companies decreased sales $15.0 million compared to the prior year quarter.
Third quarter office furniture GAAP operating profit margin increased 130 basis points. Of this increase, 20 basis points were driven by productivity gains, improved price realization, and the impact of closing and divesting small office furniture companies, partially offset by increased input costs, lower volume in the contract business, strategic investments, and amortization from the BST investment. The remaining increase of 110 basis points was due to lower restructuring and transition costs.

Outlook
"We expect strong profit growth in the fourth quarter driven by productivity gains and cost savings. We continue to see inflationary pressures, including impacts from the new tariffs, and are taking action to offset them. We are forecasting lower contract volume than we previously expected, which will impact our fourth quarter results. I continue to have confidence in our competitive positions and market momentum. I am excited about opportunities to grow our businesses and deliver improved earnings for our shareholders," said Mr. Lorenger.

The Corporation estimates full year non-GAAP earnings per share to be in the range of $2.35 to $2.45, which excludes restructuring and transition costs. This compares to prior guidance of non-GAAP earnings per share of $2.35 to $2.55. The impact of lower fourth quarter contract office furniture volume is the primary driver of the narrowed earnings outlook.

For the fourth quarter, the Corporation expects organic sales to be up 5 to 8 percent compared to the same quarter last year. Including the impact of closing and divesting small office furniture companies, fourth quarter sales are expected to be up 2 to 5 percent. Fourth quarter non-GAAP earnings per share are anticipated to be in the range of $0.91 to $1.01, which excludes restructuring and transition costs.