HNI Corporation (NYSE:HNI) reported strong margin expansion in their Workplace Furnishings segment during the third quarter of fiscal 2023. The company's non-GAAP operating margin expanded 820 basis points year-over-year to 10.7%, driven by a successful profit transformation plan. Despite a decline in revenue, the Residential Building Products business model showed resilience, with expectations of further improvements in profitability due to cost reduction efforts and stabilizing demand trends.
Key takeaways from the earnings call include:
- HNI Corporation reported a strong operating margin of 10.6% from Kimball International (KII), which exceeded expectations and is progressing well in its integration.
- The divestiture of Poppin has been successful, and the company's profit transformation plan, which includes increased productivity, cost savings, portfolio simplification, and price-cost improvement, has been effective.
- The company expects flat organic revenue in the fourth quarter for Workplace Furnishings and further moderation in revenue declines for Residential Building Products.
- HNI Corporation's gross debt to EBITDA at the end of the quarter was 2.2 times, indicating reasonable leverage.
- The company expects a return to historical levels that drove free cash flow per share of over $2 in the third quarter.
- The integration of Kimball International is expected to continue driving earnings accretion and providing opportunities for profit growth.
During the earnings call, Marshall Bridges and Jeff Lorenger of HNI Corporation discussed the company's performance and future plans. They mentioned that productivity improvements would continue, driven by ongoing lean initiatives and investments in Mexico. The company is also focusing on resetting margins and investing in the Residential Building Products (RBP) business.
The integration of Kimball International (KII) was another focus during the call. The company has successfully dispossessed the Poppin division and is now focusing on synergies and team integration. The profitability of Kimball is strong, with expected annual improvements of $10 million related to duplicative corporate costs. They anticipate $25 million in synergies, with $10 million already achieved and an additional $15 million over the next few years.
Overall, HNI Corporation reported an impressive performance in the third quarter, with the successful integration of Kimball International and a strong margin expansion in their Workplace Furnishings segment. The company remains committed to expanding margins in Workplace Furnishings and driving long-term high-margin revenue growth in Residential Building Products.
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