HNI Corporation Q1 2010 Earnings Call
HNI Corporation (HNI)
Q1 2010 Earnings Call
April 22, 2010 11:00 AM ET
Executives
Kelly McGriff – Treasurer and VP, IR
Stan Askren – Chairman, President and CEO
Kurt Tjaden – VP and CFO
Analysts
Mark Rupe – Longbow Research
Chad Belon – Raymond James
Peter Lisnic – Robert W. Baird
Todd Schwartzman – Sidoti & Company
Presentation
Operator
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Ladies and gentlemen thank you for standing by. Welcome to the HNI Corporation first quarter results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Kelly McGriff. Please go ahead.
Kelly McGriff
Thank you, Cathy. Good morning and thank you for joining us today for the HNI Corporation conference call to discuss first quarter 2010 results, which were announced yesterday after the market closed.
My name is Kelly McGriff, Treasurer and Vice President for HNI Corporation. If you haven’t received a copy of the financial new release, please call 563-272-7927 and we will send it to you. The release is also available at our website www.hnicorp.com. We posted a presentation intended to accompany this call to our website. The presentation contains details of our financial performance including the non-GAAP to GAAP reconciliation. It can be found by accessing the webcast link under the investor information section of our website. We encourage you to review this presentation.
Joining me on the line from HNI Corporation are Kurt Tjaden, Vice President and Chief Financial Officer and Stan Askren, Chairman, President and CEO. Stan and Kurt will review the results and open the call up for questions.
Before we begin, please be advised that statements made by the corporation during this call that are not strictly historical facts are forward-looking statements. Forward looking statements are subject to known and unknown risks. Actual results could differ materially from expected results. Additional information concerning factors that could affect the actual results can be found in the conference call presentation posted to HNI Corporation website. The corporation assumes no obligation to update any forward-looking statements made during the call.
I now have the pleasure of turning the call over to Stan Askren. Stan?
Stan Askren
Thank you, Kelly. Good morning, everyone. As Kelly said, I’ll share a brief assessment of the first quarter and provide some thoughts on the outlook. Kurt Tjaden, our CFO, will discuss specific financial details. And at the end we’ll open up the call up for questions.
Overall strong execution from our split and focus business model drove a solid quarter. Our cost reset actions (inaudible) distribution model continued to drive improved performance. The benefits from previous investments in selling models and long-term growth initiatives allowed us to deliver improved results versus prior year and exceed first quarter expectations.
We increased gross margin percentages, reduced SG&A expenses and significantly improved earnings over prior year. Activity levels in our core businesses have stabilized with positive momentum building during the quarter. Sales declines in our office furniture business continued to moderate. Our supply driven channel was down 5% and the remaining office furniture business was down 13%.
Market trends in our hearth business continued to improve significantly. The new construction channel was up 11% over prior year driven by a more favorable housing environment. Hearth remodel/retrofit sales including alternative fuel products were down 15% driven primarily by lower energy prices.
Our operating results reflect strong performance across all businesses. We’re realizing the benefits of actions taken in 2009 and during first quarter of this year, which include resetting our cost structure, investing in selling, marketing and product initiatives and leveraging our split and focus business model.
I’d like to thank our dedicated members for their hard work and their outstanding results for the quarter.
I’ll now turn the call over to Kurt to review some of the specific numbers for the first quarter of 2010. Kurt?
Kurt Tjaden
Thank you, Stan. For the first quarter 2010 consolidated net sales from continuing operations decreased 8.4% to $364 million. During the first quarter, we made a decision to sell two small non-core components of our business, which are presented as discontinued operations in the financial statements. Sales for the office furniture segment decreased 9.3% to $300 million while net sales for the hearth product segment decreased 3.9% to $63 million due to a decline in the remodel retrofit channel, which was partially offset by an increase in the new construction channel.
Consolidated gross margins including restructuring and transition charges improved to 32.8% compared to 30.9% in the prior year quarter.
Total selling and administrative expenses including restructuring and impairment charges decreased $14 million or 10.4% due to cost control initiatives, lower volume related cost, improved distribution efficiencies and lower restructuring and transition cost.
First quarter 2010 included $2.8 million of restructuring and transition cost of which $1.5 million were included in cost dips of sales. Of the $2.8 million in restructuring and transition cost, $2.6 million was associated with the shutdown and consolidation of office furniture facilities net of a $500,000 gain on the sale of a manufacturing facility and $200,000 was related to the restructuring of hearth operations.
We ended the quarter with $43 million of cash. We used $25 million of cash in the quarter compared to generating $6 million in the prior year quarter. I’d like to remind you that the first quarter has historically been our lowest quarter for operating cash flow due to seasonal business patterns and funding requirements.
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