HNI Corporation fitoday announced sales for the full year ended December 29, 2018 of $2,258 million and net income of $93 million. GAAP net income per diluted share was $2.11 compared to $2.00 in the prior year. Non-GAAP net income per diluted share was $2.41 compared to $1.97 in the prior year.
Fourth quarter sales were $598 million and net income was $32 million. GAAP net income per diluted share was $0.73 compared to $0.77 in the prior year. Non-GAAP net income per diluted share was $0.97 compared to $0.47 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.
Fourth Quarter Summary Comments
“Our teams performed well in the fourth quarter – delivering significant earnings growth and margin expansion. We are managing through multiple challenges, including continued inflationary pressures, tariff impacts, and choppy demand. Our organization is responding well, and I am optimistic about what we can accomplish in the future,” said Jeff Lorenger, HNI Corporation, President and Chief Executive Officer.
Fourth Quarter Summary Comments
Consolidated net sales increased $13.8 million or 2.4 percent from the prior year quarter to $598.1 million. On an organic basis, sales increased 5.4 percent. The net impact of closing and divesting small office furniture companies decreased sales $17.1 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 240 basis points compared to the prior year quarter. Of this increase, 140 basis points were primarily driven by improved price realization and productivity partially offset by input cost inflation. The remaining increase of 100 basis points was due to lower restructuring and transition costs.
Selling and administrative expenses decreased 220 basis points primarily due to increased efficiency, lower Business System Transformation costs, the impact of closing and divesting small office furniture companies, and lower incentive based compensation, partially offset by increased strategic investments.
The Corporation recorded $0.3 million of restructuring costs and $0.6 million of transition costs in the fourth quarter in connection with previously announced facility closures and structural realignments. Of these charges, $0.6 million was included in cost of sales. The Corporation also recorded a $13.1 million impairment of goodwill, intangibles, and long-lived assets.
Full Year Summary Comments
Consolidated net sales increased $82.0 million or 3.8 percent from the prior year to $2,257.9 million. On an organic basis, sales increased 6.6 percent. The net impact of closing and divesting small office furniture companies decreased sales $57.6 million compared to the prior year.
GAAP gross profit margin increased 100 basis points compared to the prior year. Input cost inflation partially offset by improved price realization, productivity and cost savings drove a decline of 20 basis points. This decline was more than offset by a 120 basis point increase due to lower restructuring and transition costs.
Selling and administrative expenses as a percent of sales decreased 30 basis points compared to the prior year. This decrease was primarily due to increased efficiency and the impact of closing and divesting small office furniture companies, partially offset by Business Systems Transformation investment costs, increased strategic investments and higher incentive based compensation.
The Corporation recorded $2.3 million of restructuring costs and $2.3 million of transition costs in 2018 in connection with previously announced facility closures and structural realignments. Of these charges, $2.3 million was included in cost of sales. Specific items include severance, accelerated depreciation, and production move costs. The Corporation also recorded net charges of $13.4 million related to impairments of goodwill, intangibles, and long-lived assets.
Fourth Quarter Summary Comments
Fourth quarter office furniture net sales increased $0.6 million or 0.1 percent from the prior year quarter to $429.6 million. On an organic basis, sales increased 4.3 percent driven by increases in the supplies and contract businesses. The net impact of closing and divesting small office furniture companies decreased sales $17.1 million compared to the prior year quarter.
Fourth quarter office furniture GAAP operating profit margin increased 640 basis points. Of this increase, 200 basis points were driven by improved price realization, reduced spending, lower incentive based compensation, and the impact of closing small office furniture companies, partially offset by lower volume and input cost inflation. The remaining increase of 440 basis points was due to lower nonrecurring items, which include restructuring and impairment charges, and transition costs.
Full Year Summary Comments
Full year office furniture net sales increased $45.4 million or 2.7 percent from the prior year to $1,706.1 million. On an organic basis, sales increased 6.4 percent driven by increases in the supplies and contract businesses. The net impact of closing and divesting small office furniture companies decreased sales $57.6 million compared to the prior year.
Full year office furniture GAAP operating profit margin increased 160 basis points. Input cost inflation, amortization and implementation costs from the Business Systems Transformation initiative, and strategic investments were partially offset by improved price realization, productivity and cost savings, and the impact of closing and divesting small office furniture companies, driving a decline of 40 basis points. This decline was more than offset by a 200 basis point increase due to lower nonrecurring items, which include restructuring and impairment charges, and transition costs.
Fourth Quarter Summary Comments
Fourth quarter hearth products net sales increased $13.2 million or 8.5 percent from the prior year quarter to $168.5 million driven by increases in the new construction and retail businesses.
Fourth quarter hearth products GAAP operating profit margin increased 140 basis points. Of this increase, 70 basis points were driven by improved price realization and higher sales volume, partially offset by input cost inflation. The remaining increase of 70 basis points was due to lower restructuring and transition costs.
Full Year Summary Comments
Full year hearth products net sales increased $36.6 million or 7.1 percent from the prior year to $551.8 million driven by increases in the new construction and retail businesses.
Full year hearth products GAAP operating profit margin increased 40 basis points. This 40 basis points increase was primarily driven by higher sales volume, productivity and cost savings, and improved price realization, partially offset by input cost inflation and higher incentive based compensation.
Outlook
"Looking to 2019, we see a dynamic environment with pockets of uncertainty. Late in the fourth quarter and early this year, market activity generally slowed. We expect demand will start slowly and improve throughout 2019. We continue to see pressure from inflation and tariff impacts. Despite these pressures, we expect to grow profits through productivity and cost saving efforts while continuing to invest in new capabilities. I remain excited about our members, opportunities, and market position,” said Mr. Lorenger.
For the first quarter, the Corporation expects organic sales to be down 2 to 4 percent compared to the same quarter last year. Including the impacts of closing and divesting small office furniture companies, first quarter sales are expected to be down 3 to 5 percent. First quarter diluted earnings per share are anticipated to be in the range of $(0.02) to $0.04.
The Corporation estimates full year 2019 organic sales to be up 3 to 7 percent. Including the impacts of closing and divesting small office furniture companies, full year sales are expected to be up 2 to 6 percent. The Corporation estimates full year diluted earnings per share to be in the range of $2.50 to $2.90.