HNI reports Q3 2013 net income of US$28.1M, up 15% year-over-year, on sales 3% higher at US$565.7M; profit increase was driven by successful operations and investment returns

Aimee Bellah

MUSCATINE, Iowa , October 16, 2013 (press release) – HNI Corporation (NYSE: HNI) today announced sales for the third quarter ended September 28, 2013, of $565.7 million, a 3 percent increase from the prior year quarter and net income of $28.1 million, a 15 percent increase from the prior year quarter. Net income per diluted share for the quarter was $0.61.

Third Quarter Summary Comments
"We continue to compete well in our markets and are pleased with our sales performance and profit growth over prior year. Strong operational execution and investment returns drove third quarter profit improvement while we continued to invest in new products and operational capabilities to meet changing market demands.

We delivered solid sales and profit growth in our office furniture businesses despite a recent sharp decline in federal government spending. Continued strong profit growth in our hearth business was driven by outstanding operational performance and growth in the new construction and remodel/retrofit channels. We continue to make good progress on our core strategies, improving our competitive position and investing for long-term profitable growth," said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

Third Quarter – GAAP Financial Measures

Third Quarter – GAAP Financial Measures	Three Months Ended		Percent Change
Dollars in millions except per share data	Three Months Ended
Dollars in millions except per share data	9/28/2013	9/29/2012

Net sales	$565.7	$550.9	2.7%
Gross profit	$199.9	$191.3	4.5%
Gross profit %	35.3%	34.7%
SG&A	$154.8	$149.6	3.5%
SG&A %	27.4%	27.2%
Operating income	$45.1	$41.7	8.1%
Operating income %	8.0%	7.6%
Net income attributable to HNI Corporation	$28.1	$24.5	14.7%
Earnings per share attributable to HNI Corporation – diluted	$0.61	$0.53

Third Quarter Results

Consolidated net sales increased $14.9 million or 2.7 percent to $565.7 million. Compared to prior year quarter, divestitures, partially offset by the acquisition of BP Ergo, resulted in a $12.5 million sales decline.
Gross margin was 0.6 percentage points higher than prior year primarily due to higher volume and increased price realization partially offset by new product ramp-up and operation reconfiguration costs to meet changing market demands.
Total selling and administrative expenses as a percent of net sales, including restructuring charges, increased 0.2 percentage points from the prior year quarter due to investment in growth initiatives and higher incentive-based compensation partially offset by higher volume, network distribution realignment savings and lower restructuring charges.
The Corporation's third quarter results included $0.1 million of restructuring charges associated with previously announced shutdown and consolidation of office furniture manufacturing locations. Included in the third quarter of 2012 was $0.8 million of restructuring and transition costs of which $0.2 million was included in cost of sales.

Third Quarter – Non-GAAP Financial Measures
(Reconciled with most comparable GAAP financial measures)

Dollars in millions Except per share data	Three Months Ended 9/28/2013			Three Months Ended 9/29/2012
	Gross Profit	Operating Income	EPS	Gross Profit	Operating Income	EPS
As reported (GAAP)	$199.9	$45.1	$0.61	$191.3	$41.7	$0.53
% of net sales	35.3%	8.0%		34.7%	7.6%

Restructuring and impairment	-	$0.1	$0.00	-	$0.2	$0.00
Transition costs	-	-	-	$0.2	$0.6	$0.01

Results (non-GAAP)	$199.9	$45.2	$0.61	$191.5	$42.5	$0.55
% of net sales	35.3%	8.0%		34.8%	7.7%

Office Furniture – GAAP Financial Measures
Dollars in millions	Three Months Ended		Percent Change
Dollars in millions	9/28/2013	9/29/2012	Percent Change
Sales	$466.2	$467.8	-0.3%
Operating profit	$40.7	$38.4	5.9%
Operating profit %	8.7%	8.2%

Third Quarter – Non-GAAP Financial Measures (Reconciled with most comparable GAAP financial measures)
	Three Months Ended		Percent
Dollars in millions	9/28/2013	9/29/2012	Change

Operating profit as reported (GAAP)	$40.7	$38.4	5.9%
% of Net Sales	8.7%	8.2%

Restructuring and impairment	$0.1	$0.2
Transition costs	-	$0.6

Operating profit (non-GAAP)	$40.8	$39.2	4.0%
% of Net Sales	8.8%	8.4%

Third quarter sales for the office furniture segment decreased $1.6 million or 0.3 percent to $466.2 million. Compared to prior year quarter, divestitures, partially offset by the acquisition of BP Ergo, resulted in a $12.5 million sales decline. On an organic basis sales increased 2.3 percent driven by growth in both channels of the Corporation's office furniture segment.
Third quarter operating profit increased $2.3 million. Operating profit was positively impacted by higher volume, increased price realization, network realignment savings and lower restructuring charges. These were partially offset by new product ramp-up and operation reconfiguration to meet changing market demands.

Hearth Products
Dollars in millions	Three Months Ended		Percent Change
Dollars in millions	9/28/2013	9/29/2012	Percent Change
Sales	$99.5	$83.1	19.8%
Operating profit	$14.4	$9.1	58.7%
Operating profit %	14.5%	10.9%

Third quarter sales for the hearth products segment increased $16.4 million or 19.8 percent to $99.5 million driven by increases in both the new construction and the remodel/retrofit channels.
Third quarter operating profit increased $5.3 million. Operating profit was positively impacted by increased volume, higher price realization and lower input costs partially offset by investments in growth initiatives and higher incentive-based compensation.

Year-to-Date Results
Consolidated net sales for the first nine months of 2013 increased $42.2 million, or 2.9 percent, to $1.52 billion compared to $1.48 billion in 2012. Gross margin increased to 34.4 percent compared to 34.1 percent last year even with increased investments related to growth and manufacturing capability reconfiguration. Net income attributable to HNI Corporation was $40.9 million compared to $31.4 million in 2012. Earnings per share increased to $0.89 per diluted share compared to $0.68 per diluted share for the first nine months of 2012.

Operating activities generated $88.0 million of cash during the first nine months of 2013 compared to $80.8 million of cash for the same period last year. Capital expenditures during the first nine months were $59.6 million in 2013 compared to $44.7 million in 2012.

Outlook
"Despite near-term political uncertainty, I remain confident in our strategies to drive profit improvement while simultaneously investing for long-term profitable growth. We will achieve our objective of growing sales and solidly increasing profits in 2013," said Mr. Askren.

The Corporation estimates sales growth to be flat to up 3 percent in the fourth quarter over the same period in the prior year. For the full year, the Corporation is narrowing its estimate of non-GAAP earnings per diluted share to the range of $1.35 to $1.40, which excludes restructuring charges, transition costs and a loss on the sale of a business.

The Corporation remains focused on creating long-term shareholder value by growing its business through investment in building brands, product solutions and selling models, enhancing its strong member-owner culture and remaining focused on its long-standing rapid continuous improvement programs to build best total cost and a lean enterprise.

Conference Call
HNI Corporation will host a conference call on Thursday, October 17, 2013 at 10:00 a.m. (Central) to discuss third quarter 2013 results. To participate, call 1-877-512-9166 – conference ID number 65147219. A live webcast of the call, and a replay of the webcast, will be available on HNI Corporation's website at http://www.hnicorp.com (under Investor Information – Webcasts). An audio replay of the call will be available until Thursday, October 24, 2013, 10:59 p.m. (Central) by dialing 1-855-859-2056 or 1-404-537-3406 – Conference ID number 65147219.

About HNI Corporation
HNI Corporation is a NYSE traded company (ticker symbol: HNI) providing products and solutions for the home and workplace environments. HNI Corporation is the second largest office furniture manufacturer in the world and is also the nation's leading manufacturer and marketer of gas- and wood-burning fireplaces. The Corporation's strong brands, including HON®, Allsteel®, Gunlocke®, Paoli®, Maxon®, Lamex®, HBF® , artcobellTM, Midwest Folding ProductsTM, ERGO®, Heatilator®, Heat & Glo®, Quadra-Fire® and Harman StoveTM have leading positions in their markets. HNI Corporation is committed to maintaining its long-standing corporate values of integrity, financial soundness and a culture of service and responsiveness. More information can be found on the Corporation's website at www.hnicorp.com.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.