Revising Estimate to Correct Modeling Error(s)
We are revising our recent estimates for HNI to correct a significant error in our understanding of guidance for the contribution to revenue and earnings from the Kimball International (KII) acquisition. We misunderstood the guidance for 2H revenue for KII to be in the range of $340-370 million. That number applies to the full-year contribution, including $52 million already reported. Management expects a 2H contribution in the range of $290-320 million. Our expectations for operating income were likewise mistakenly inflated. There are less significant glitches as well, which we took the opportunity to correct, notably interest expense, which we raised from $8.3 million/quarter to $10.1 million/quarter. We also reversed the adjustment for the sale of Poppin. Those revisions flow into the FY24 model. For FY24, we remain above consensus. For both 1Q and 2Q, we are above consensus estimates, which, to our eye, do not reflect sustainable improvement in legacy Workplace Furnishings margins or KII contributions. While 1Q is seasonally a weak quarter, we expect profits to improve Y/Y on roughly flat pro-forma sales. We present the revised income statements below on both a reported basis and a pro-forma basis.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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