HNI Corporation (HNI) today announced sales for the second quarter ended June 29, 2019 of $526.0 million and net income of $15.8 million. GAAP net income per diluted share was $0.36 compared to $0.42 in the prior year. Non-GAAP net income per diluted share was $0.38 compared to $0.44 in the prior year.

Second Quarter Summary Comments

"Our teams are performing well - managing through dynamic market conditions while staying focused on our key initiatives. Our efforts to drive operational efficiencies are on-track and bearing fruit. We are seeing strong momentum in our contract business. Our hearth business is executing well while navigating a slower housing market. We continue to see inconsistent demand in our supplies-driven business, which negatively impacted the quarter. We are confident in our ability to deliver profit improvement in the second half," said Jeff Lorenger, HNI Corporation President and Chief Executive Officer.

Second Quarter Summary Comments

Consolidated net sales decreased $17.6 million or 3.2 percent from the prior year quarter to $526.0 million. On an organic basis, sales decreased 2.3 percent. The net impact of closing and divesting small office furniture companies decreased sales $5.0 million compared to the prior year quarter. A reconciliation of organic sales, a non-GAAP measure, follows the financial statements in this release.

Gross profit margin decreased 40 basis points compared to the prior year quarter. This decrease was driven by lower volume and higher input costs, partially offset by price realization and improved operational performance.

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 lower sales volume, partially offset by lower Business System Transformation costs and freight expenses.

The Corporation recorded $0.9 million of restructuring charges in connection with a structural realignment in the office furniture segment. In the prior year quarter, $0.8 million of restructuring and impairment charges were recorded in connection with previously announced facilities closures.
Non-GAAP net income per diluted share was $0.38 compared to $0.44 in the prior year. This $0.06 decline was due to lower sales volume and higher input costs, partially offset by price realization and improved operational performance.
Office furniture net sales decreased $14.4 million or 3.4 percent from the prior year quarter to $409.5 million. On an organic basis, sales decreased 2.2 percent primarily due to a decrease in the supplies-driven business. The net impact of closing and divesting small office furniture companies decreased sales $5.0 million compared to the prior year quarter.
Office furniture GAAP operating profit margin decreased 10 basis points. Lower sales volume, higher input costs, and investments were fully offset by improved price realization, operational performance, Business System Transformation costs, and freight expenses. Higher current year restructuring charges drove a 10 basis points decrease.
Hearth products net sales decreased $3.2 million or 2.7 percent from the prior year quarter to $116.5 million with decreases in both the new construction and retail businesses.
Hearth products GAAP operating profit margin decreased 210 basis points for the quarter. Of this decrease, 280 basis points were driven by lower sales volume, higher input costs, and investments, partially offset by price realization and lower core SG&A spend. This decline was partially offset by a 70 basis points increase due to restructuring and impairment charges and other one-time costs incurred in the prior year quarter.

Outlook

The Corporation expects full year organic sales to be up 1 to 4 percent. This compares to the previous organic sales growth expectation of up 2 to 6 percent. The change is primarily driven by lower sales in the supplies-driven business. Including the impact of closing and divesting small office furniture companies, full year sales are expected to be flat to up 3 percent. The Corporation's estimate of full year earnings per diluted share has narrowed and is expected to be in the range of $2.50 to $2.70 versus the previous guidance range of $2.50 to $2.90.

"As we look at the second half of the year, our operational cost efforts are ramping up and will deliver significant benefits. We are also seeing improved second half demand, driven by strong sales growth in our contract and e-commerce office furniture businesses. We expect our supplies-driven business to stabilize in the second half. Our hearth business will deliver modest growth as strength in our retail products channel is partially offset by slow new construction sales.

We are focused on strengthening our operational excellence position and creating effortless experiences for our customers through deepening customer insights. We remain confident in our strategies and continue to invest in critical capabilities to drive long-term results," said Mr. Lorenger.