3Q Preview: Looking for Steady Demand in WF Segment, Margins in RBP
HNI reports 3Q23 on Tuesday, October 31 before the market opens, with its earnings conference call scheduled for 11:00 am ET. We expect 3Q23 non-GAAP EPS of $0.64 on consolidated sales of $713 million. Consensus is $0.63 EPS on consolidated sales of $713 million. In 3Q22, HNI delivered $0.71 in non-GAAP EPS on consolidated sales of $598.8 million. We see several key questions: Stability in the demand for office furniture. Results from competitors suggest that demand has bottomed and that a recovery, at least tentatively, has started. For 2Q23, HNI’s Workplace Furnishings (WF) segment sales were roughly in line with our expectations, but still down 12%, excluding acquired revenue. For 3Q23, we forecast the WF segment’s organic revenue comparison (excluding Kimball) to be roughly flat Y/Y ($380 million versus $375.2 million). Residential Building Products (RBP, aka Hearth) segment margin performance. For 3Q23, we expect RBP sales, which are highly correlated with housing activity, to deliver a weak Y/Y comparison. More importantly, management’s challenge will be maintaining margins. We forecast that RBP revenue will be down 20% Y/Y. Irrespective, we have modeled the 3Q23 RBP segment operating margin at 15.9%, down 180 bps versus 3Q22, but still healthy, nevertheless. Management’s progress on the integration of Kimball International will be a third focus. HNI made strong progress in 2Q. Last, we will be interested to see how management views the balance of 2023 and what its “crystal ball” suggests 2024 may portend.HNI provides office furniture and hearth products. The company's Office Furniture segment designs, manufactures, and markets a range of workplace furnishings. The company's portfolio includes panel-based and freestanding furniture systems and complementary products such as seating, storage, tables, and architectural products. The company provides office panel system products, benching, freestanding tables, storage, and social collaborative products. The company's Hearth Products segment manufactures and markets prefabricated fireplaces, hearth stoves, and related products. The company's line of hearth products includes a range of gas, wood, electric, and pellet fueled fireplaces, inserts, stoves, facings, and accessories.
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