HNI Corporation (HNI) today announced sales for the second quarter ended June 30, 2018 of $543.6 million and net income of $18.6 million. GAAP net income per diluted share was $0.42 compared to $0.31 in the prior year. Non-GAAP net income per diluted share was $0.44 compared to $0.42 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.

Summary Comments

"Our strong sales momentum continued during the second quarter. Results were better than expected in both our Hearth and Office Furniture businesses. The investments we've made in product, selling, and fulfillment capabilities are paying dividends. I'm pleased with our quarterly results and our progress driving long-term shareholder value," said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.

Second Quarter Summary Comments

Consolidated net sales increased $29.1 million or 5.7 percent from the prior year quarter to $543.6 million. On an organic basis, sales increased 8.4 percent. The net impact of closing and divesting small office furniture companies decreased sales $13.2 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 110 basis points compared to the prior year quarter. A decline of 30 basis points was primarily driven by increased input costs partially offset by improved price realization. This decline was more than offset by a 140 basis point increase due to lower restructuring and transition costs.
Selling and administrative expenses as a percent of sales increased 20 basis points compared to the prior year quarter. This increase was primarily due to impacts from the Business Systems Transformation initiative and strategic investments, partially offset by higher sales and the impact of closing and divesting small office furniture companies.
Restructuring and impairment charges as a percent of sales increased 10 basis points compared to the prior year quarter. This increase was due to charges incurred in connection with previously announced closures.

Second quarter office furniture net sales increased $17.4 million or 4.3 percent from the prior year quarter to $423.9 million. On an organic basis, sales increased 7.8 percent driven by increases in the supplies-driven, North American contract, and international businesses. The net impact of closing and divesting small office furniture companies decreased sales $13.2 million compared to the prior year quarter.
Second quarter office furniture GAAP operating profit margin was flat to prior year. A decline of 140 basis points was due to increased input costs, the Business Systems Transformation initiative, and strategic investments, partially offset by improved price realization and the impact of closing and divesting small office furniture companies. This decline was offset by a 140 basis point increase from lower restructuring and transition costs.

Second quarter hearth products net sales increased $11.7 million or 10.8 percent from the prior year quarter to $119.7 million driven by increases in the new construction and retail businesses.
Second quarter hearth products GAAP operating profit margin increased 240 basis points. Of this increase, 130 basis points were driven by higher sales volume and improved price realization, partially offset by increased input costs and higher incentive based compensation. The remaining 110 basis points increase was due to lower restructuring and transition costs.

Outlook

"We expect to continue generating solid top-line growth in the second half of 2018. I like our competitive position and am excited about our opportunities to grow the business and deliver improved earnings for our shareholders. In the short term, we are experiencing additional headwinds from increasing input costs and timing related to our cost savings and productivity initiatives," said Mr. Lorenger.

The Corporation expects full year organic sales to be up 6 to 8 percent. Including the impact of closing and divesting small office furniture companies, full year sales are expected to be up 3 to 5 percent. 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. This compares to prior guidance of non-GAAP earnings per share of $2.40 to $2.70. The impact of rising input costs and the slower ramp up of cost savings and productivity initiatives are the primary drivers of the reduced earnings outlook.

For the third quarter, the Corporation expects organic sales to be up 4 to 7 percent compared to the same quarter last year. Including the impact of closing and divesting small office furniture companies, third quarter sales are expected to be up 1 to 4 percent. Third quarter non-GAAP earnings per share are anticipated to be in the range of $0.80 to $0.90, which excludes restructuring and transition costs.