HNI 1Q24 EPS of $0.37 (Versus $0.04 LY) Nearly Double Our Estimate of $0.19 on Improved WF Operating Margins, KII Accretion, and Solid RBP Margins Despite Weak Home-Related Demand
HNI posted 1Q24 EPS of $0.37, far exceeding our estimate of $0.19, consensus of $0.18, and 1Q23 results of $0.04 despite a high single-digit organic revenue decline. Accretion from the KII acquisition and management’s initiatives to boost profitability catalyzed the beat. Consolidated gross margin of 39.6% (up 323 bps) and operating income margin of 5.1% (up 371 bps) reflect substantial Y/Y improvement in both segments. In Workplace Furnishings (WF), 1Q24 operating income margin advanced 731 bps to 5.98% even as organic revenue dipped 2.5% versus 1Q23 on productivity improvement, price/cost gains, traction with streamlining and simplification initiatives, and accretion from the KII acquisition. Residential Building Products’ (RBP) operating income percentage fell only slightly (-122 bps) to 14.4%, even as revenue dropped 17.4% in 1Q24, reflecting the challenging conditions related to home improvement spend in the current environment industry wide. WF orders grew in the low single digits Y/Y in 1Q24 (+2%). Encouragingly, orders for contract tracked the improvement in SMB (SMB had been outperforming contract recently). RBP orders fell 12% Y/Y, with repair and remodeling (R&R) still the primary drag (new construction faring better, relatively). Still, the Y/Y percentage decline in RBP orders improved slightly versus 4Q23 (-13.1% Y/Y). Despite a modest seasonal uptick in total debt, debt/EBITDA improved to 1.5x as trailing four-quarter EBITDA increased. Gross leverage remained the same in 1Q24 as in 4Q23 at 1.9x. Guidance for 2Q24 suggests continued margin strength/expansion in both WF and RBP segments as well as continued accretion from the KII acquisition. Management expects organic revenue to be down slightly in WF and down mid-single digits in RBP on a Y/Y basis in 2Q. It guided that KII will contribute $75-80 million of incremental revenue in 2Q24 versus 2Q23. For the full year, it opined that organic revenue growth would turn positive in 2H24 for both segments, with WF seeing FY24 revenue up in the low single digits and RBP full-year revenue flat to down slightly versus 2023. Revised WTR estimates for 2Q24, FY24, and out years and our revised financial model will be published shortly. Figures 1 and 2 attached provide tabular variance analyses of 1Q24 versus 1Q23 and versus our pre-report published estimates.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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