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Announces $10.3MM HBF Restructuring; FY24 Numbers Unaffected as Costs in Prior Guidance; $8-9MM Savings Anticipated in FY25, Increasing to $11MM by FY26; No Changes to Our Estimates

After Monday’s market close, HNI announced an intended plant consolidation in which it will close its Hickory, NC furniture manufacturing plant (HBF is part of its Workplace Furnishings [WF] segment) during 1H25 and transfer production to other North American facilities. Management avows that the initiative will improve productivity and strengthen operations but, importantly, will not sacrifice capacity or create disruption to customers who will benefit ultimately from better delivery and logistics coordination. During the balance of 2024 and 2025, HNI will book ~$10.3MM in restructuring, accelerated depreciation, and other charges ($1.5MM non-cash). The actions will not affect FY24 EPS estimates because management, aware of its plans (then undisclosed), included them in its guidance. It targets costs savings of $8-9MM in 2025, rising to $11MM in 2026. For now, we are leaving our out-year EPS estimates unchanged as we reflect how best to model and incorporate savings and synergies. Veteran HNI watchers will see this initiative as further evidence of a leadership relentlessly focused on costs, operating excellence, margin improvement, and shareholder value creation. Even as WF posted EBIT margins of nearly 6% in 1Q24, HNI management continues to seek ways to pare costs and bolster margins. We get the feeling that its short-term goal of double-digit margins for the WF segment may not reflect management’s ultimate goal. HNI’s lean effort, called Rapid Continuous Improvement (RCI), has been key to its strategic and operating discipline for decades. RCI seeks to optimize the company’s production footprint and improve business performance. This production rationalization also leverages HNI’s ‘centers of excellence’ operating concept. While the front end of the HBF operations will remain in Hickory, NC, production will be moved to existing WF segment centers of excellence, bolstering HNI’s ability to leverage fixed costs in production and logistics. Announcing the Hickory consolidation months early highlights management’s attempt to help the 200 HNI production and operations members that are affected by the move. HBF, originally Hickory Business Furniture, was acquired by HNI in 2008. The strategic integration of Kimball International, acquired in June 2023, partially enabled this consolidation initiative. The $11MM in cost savings and production savings announced are on top of the previously announced $35MM in savings and synergies that management identified when KII was acquired. When an additional $4MM of procurement-related synergies (announced along with the restructuring) are included, management gets the total KII-related savings and synergies to $50MM.