HNI Corporation (NYSE: HNI) today announced sales for the full year ended December 28, 2019 of $2.247 billion and net income of $111 million. GAAP net income per diluted share was $2.54, compared to $2.11 in the prior year. Non-GAAP net income per diluted share was $2.59, compared to $2.41 in the prior year. GAAP to non-GAAP reconciliations follow the financial statements in this release.
Fourth quarter sales of $616 million were up 3% from year-ago levels, and fourth quarter net income was $48 million. GAAP net income per diluted share was $1.10, compared to $0.73 in the prior year. Non-GAAP net income per diluted share was $1.12, compared to $0.97 in the prior year.
Highlights
Fourth quarter non-GAAP operating margin expanded 80 basis points year-over-year, driven by solid cost control.
Fourth quarter free cash flow exceeded expectations, strengthening the Corporation’s financial flexibility.
Fiscal year 2020 guidance assumes relatively stable domestic end markets, benefits of annual productivity and cost savings, and significant investments in future growth and margin expansion.
Fourth Quarter Summary Comments"Our teams delivered a strong fourth quarter. We generated our best top line growth rate of the year and expanded operating margins despite choppy demand and tariff challenges. Our annual productivity and cost savings initiatives continue to gain momentum and drive improved profitability. Overall, our results show the performance our organization can drive and I am optimistic about what we can accomplish in the future," said Jeff Lorenger, HNI Corporation, Chairman, President, and Chief Executive Officer.
Fourth Quarter Summary Comments
Consolidated net sales increased $18.0 million or 3.0% from the prior-year quarter to $616.1 million. On an organic basis, sales increased 3.9% or $23.1 million year-over-year. The net impact of divesting several small office furniture companies decreased sales $5.1 million or 0.9% 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 expanded 60 basis points compared to the prior-year quarter. On a non-GAAP basis, gross profit margin expanded 50 basis points year-over-year, driven by price realization and net productivity, partially offset by lower volume and higher input costs.
Selling and administrative expenses as a percent of sales decreased 50 basis points compared to the prior-year quarter. This decrease was primarily due to lower core SG&A spend and leverage from higher net sales, partially offset by higher variable compensation.
The Corporation recorded $1.2 million of restructuring costs in the fourth quarter in connection with structural realignments in the office furniture segment. In the prior-year quarter, the Corporation recorded $0.9 million of one-time costs associated with previously announced facility closures and structural realignments, as well as a $13.1 million impairment of goodwill, intangibles, and long-lived assets.
Non-GAAP net income per diluted share was $1.12 compared to $0.97 in the prior-year quarter. The $0.15 increase was due to price realization, net productivity, and lower core SG&A spend, partially offset by lower volume and higher input costs.
Full Year Summary Comments
Consolidated net sales decreased $10.9 million or 0.5% from the prior year to $2.247 billion. On an organic basis, sales increased 0.5% year-over-year. The net impact of closing and divesting several small office furniture companies decreased sales $23.1 million or 1.0% compared to the prior year.
GAAP gross profit margin expanded 10 basis points compared to the prior year. On a non-GAAP basis, gross profit margin was flat year-over-year as price realization and net productivity were offset by lower volume and higher input 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 improved SG&A efficiency.
The Corporation recorded $2.6 million of costs in the current year in connection with structural realignments in the office furniture segment. In the prior year, the Corporation recorded $4.6 million of costs in connection with previously announced facility closures and structural realignments, as well as net charges of $13.4 million related to impairments of goodwill, intangibles, and long-lived assets.
Non-GAAP net income per diluted share was $2.59, compared to $2.41 in the prior year. The $0.18 increase was due to price realization, net productivity, and improved SG&A efficiency, partially offset by lower volume and higher input costs.
Fourth Quarter Summary Comments - Office Furniture
Office furniture net sales increased $19.8 million or 4.6% from the prior-year quarter to $449.4 million. On an organic basis, sales increased 5.9%, driven by increases in the supplies and contract businesses. The net impact of divesting several small office furniture companies decreased sales $5.1 million or 1.3% compared to the prior-year quarter.
Office furniture GAAP operating profit margin expanded 530 basis points versus the prior-year period. On a non-GAAP basis, segment operating margin expanded 200 basis points year-over-year, driven by price realization, net productivity, and lower core SG&A spend, partially offset by lower volume, higher input costs, and unfavorable product mix.
Full Year Summary Comments - Office Furniture
Office furniture net sales decreased $8.9 million or 0.5% from the prior year to $1.697 billion. On an organic basis, sales increased 0.8% primarily driven by growth in the contract business. The net impact of closing and divesting several small office furniture companies decreased sales $23.1 million or 1.3% compared to the prior year.
Office furniture GAAP operating profit margin expanded 160 basis points. On a non-GAAP basis, segment operating margin expanded 80 basis points year-over-year, driven by price realization, net productivity, and improved SG&A efficiency, partially offset by lower volume and higher input costs.
Fourth Quarter Summary Comments - Hearth Products
Hearth products net sales decreased $1.8 million or 1.1% from the prior-year quarter to $166.7 million.
Hearth products operating profit margin expanded 240 basis points. On a non-GAAP basis, segment operating margin expanded 220 basis points, driven by price realization, net productivity benefits, and lower variable compensation, partially offset by lower volume.
Full Year Summary Comments - Hearth Products
Hearth products net sales decreased $2.0 million or 0.4% from the prior year to $549.8 million.
Hearth products GAAP operating profit margin expanded 60 basis points. On a non-GAAP basis, segment operating margin expanded 30 basis points year-over-year, driven by price realization, lower variable compensation, and improved SG&A efficiency, partially offset by lower volume and higher input costs.
Outlook
The Corporation estimates full year 2020 sales to be $2.30 billion to $2.35 billion, represents growth of 2.5% to 4.5% versus the prior year. Full year non-GAAP earnings per diluted share is expected to be in the range of $2.60 to $2.90.
"Looking ahead to 2020, we expect solid revenue growth in both Office Furniture and Hearth Products. Our key markets are showing greater stability; our e-commerce efforts are driving growth; and our recent investments are generating results.
We expect higher volume and our annual productivity and cost savings initiatives to drive improvement in gross profit margin. In line with our long-term strategy, we are increasing our level of investment in key go-to-market initiatives. As a result, operating margin expansion will be less robust over the near-term. These initiatives will support top line growth, margin expansion, and free cash flow generation in the coming years. I am optimistic about the results we can drive in the future," said Mr. Lorenger.