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HNI: 2Q24 Adjusted EPS of $0.79 Beats WTR Estimate of $0.62 by $0.17; Guidance Strong with 2H24 Improving Revenue Growth and Record EPS; Out-Year Outlook Also Improved

Before the opening Thursday, HNI reported strong 2Q24 earnings results. Diluted GAAP EPS of $0.75 compared with a reported GAAP loss of $0.30 in 2Q23 due to acquisition costs from acquiring Kimball International. More importantly, non-GAAP EPS beat our $0.62 estimate (and consensus of $0.61) due to a strong performance from the Workplace Furnishings (WF) profit transformation and continued excellent profit performance from HNI’s market leading Residential Building Products (RBP) segment. The only blemish on the report that investors could “pick at” would be revenue, which was still below forecast, albeit modestly. The $623.7 million in reported revenue missed our estimate by $7.6 million ($5.2 million in WF and $2.4 million in RBP) but was 10.7% above the $563.5 million reported in 2Q23, primarily because of the Kimball International acquisition. The detailed gross profit and expense control in the consolidated report was impressive. Adjusted gross profit beat our dollar estimate by nearly $10 million, landing at 42% versus 38.2% last year and 203 bps better than our 40.0% estimate. Similarly, consolidated expenses appeared well controlled though slightly higher than our estimate. In summary, the adjusted operating margin significantly beat our estimate, landing at 9.0% versus our 7.4% estimate. Irrespective of the slight revenue miss, management guided revenue growth in 2H24 in both segments with 4Q24 growth better than 3Q24 for each. Management expects RBP to grow at a mid-single-digit pace in 2H24 and WF at a low-single-digit pace. Notably, orders in RBP were up 4% Y/Y. It further expects strong earnings and forecasted 2024 EPS to be at an all-time high. On its call, management seems likely to evidence optimism about years beyond 2024 into 2026. It noted additional synergies that should accrue from both Kimball and its new Mexican facility. Not surprisingly, HNI’s balance sheet remains strong. Gross leverage was 1.5x at the end of 2Q24, down from 1.9x at the end of 1Q24, reflecting modestly lower debt and better earnings. Management will host its earnings call at 11:00 am ET today. As of now, HNI shares are up ~8% in today’s trading. Our new estimates and model will be available after the call. Our current estimates are still shown nearby and will be refreshed. Our variance analysis is attached to this note. We look for additional color and, perhaps, specific guidance details on each segment during the call.