HNI Corporation (HNI)

Q2 2010 Earnings Conference Call

July 22, 2010 11:00 AM ET


Kelly McGriff – Treasurer and VP, IR

Stan Askren – Chairman, President and CEO

Kurt Tjaden – VP and CFO


Mark Rupe – Longbow Research

Budd Bugatch – Raymond James

Josh Chan – Robert W. Baird

Todd Schwartzman – Sidoti & Company

Matt McCall – BB&T



Welcome to the HNI Corporation second quarter results 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, today's conference is being recorded. I would now like to turn the conference over to our host, Kelly McGriff. Please go ahead.

Kelly McGriff

Good morning and thank you for joining us today for the HNI Corporation conference call to discuss second 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 have not 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 on our website 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 today 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 then open the call 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 actual results can be found in the conference call presentation posted on the 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

Good morning everyone. I'll share a brief assessment of the second quarter and provide some thoughts on the outlook. And then Kurt Tjaden, our Vice President and Chief Financial Officer will share the comments with me, he will discuss some of the specific financial details. And then as is our usual practice, we will the end call with questions.

Strengthening demand in office furniture combined with outstanding execution across the businesses drove strong second quarter results. We continue to leverage our cost structure, and network distribution models. We also invested in growth initiatives to drive long-term shareholder value. We delivered significantly improved results over prior year and exceeded second quarter expectations.

Our businesses gained momentum throughout the quarter as the economy and market improved. Office furniture demand improved across the board, the supply driven channel recovered with a 4.7% growth over prior year and we saw a significant turnaround in the contract international businesses, which was up a combined 11.5%.

Our second quarter results reflect the success of our investments in new products. We launched a record number of new products in the recent period and they have been well received by the market. For instances, HNI through Allsteel and HBF won a combined five gold and silver product awards at this year's NeoCon office furniture industry show, which was more than any other office furniture manufacturer and our intent is to continue this momentum.

Other core growth initiatives included investments in new selling capabilities, dealer development programs, sales training programs, ebusiness solutions and many other items there. We anticipate a 12 to 24 month payback on these incremental investments.

Overall, the hearth segment was down 2.3% versus prior year. The hearth new construction channel was up 24% in the second quarter positively impacted by the homebuyer tax credit. The hearth remodel retrofit channel continued to be negatively impacted by challenging retail environment, low fuel prices, fuel oil price, excuse me and the dealership towards our just in time delivery program and a way from early buy dating (ph) programs.

As a result, retail sales in the second quarter were down 22%. However, I continue to be upbeat about the future of our hearth business. We are investing in new products and growth initiatives, the strengthening in our already industry leading market position, our recently announced value oriented product initiatives in entering and there is a form of type channel is an example of how we are expanding hearth's breadth and depth in the marketplace even during these challenging times. Hearth continues to be on track for a significant turnaround from 2009 and will be profitable for year.

So overall, second quarter results are a product of strong execution across all the businesses. Our performance is a reflection of the power of our slick and focused business model. As I said, we continue to reduce cost, improve operations and invest in growth initiatives that we believe will drive long-term shareholder value. And I want to thank our members for their dedication and hardwork during the last quarter and now I will turn it over to Kurt to review the specific numbers for the second quarter and financial outlook for the third quarter.

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