HNI Corp CEO Discusses Q1 2012 Results - Earnings Call Transcript

HNI Corp (HNI)

Q1 2012 Earnings Call

April 19, 2012 11:00 AM ET

Executives

Derek Schmidt - VP, Corporate Finance

Stan Askren - President and CEO

Kurt Tjaden - VP and CFO

Analysts

Budd Bugatch - Raymond James

Matt McCall - BB&T Capital Markets

Peter Lisnic - Robert W Baird

Todd Schwartzman - Sidoti & Company

Presentation

Operator

Good morning. My name is Sarah and I will be your conference operator today. At this time, I would like to welcome everyone to the HNI Corporation First Quarter Fiscal 2012 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions). And as a reminder, today’s conference call is being recorded. Thank you.

Mr. Schmidt, you may begin your conference.

Derek Schmidt

Good morning, and thank you for joining us today for the HNI Corporation conference call to discuss first quarter 2012 results, which were announced yesterday after the market closed. My name is Derek Schmidt, Treasurer and Vice President of Corporate Finance for HNI Corporation. If you have not received a copy of the financial news release, it is available on our website, www.hnicorp.com.

A presentation intended to accompany this call has also been posted to our website under the Investor Information section. We encourage you to review this presentation as it does contain details of our financial performance, including the non-GAAP to GAAP reconciliations.

Joining me today 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 then open up 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 to 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

Thank you Derek. Good morning everyone. We will share our sentiment of the first quarter of 2012 and then provide some thoughts on our outlook for second quarter and full year 2012. We'll then open the call up for questions.

We're pleased with our improved performance over the prior year. All segments delivered solid sales growth and our operating results reflect strong execution of our split and focused business model. Performance in our Office Furniture supply driven business was particularly strong as organic growth at 10% exceeded expectations. We're executing well and encouraged by the improving trend in this market. Likewise demand in our contract and international businesses remain robust with 9% top line growth. So we're excited with the fact that both of these segments of office furniture performing well at this point.

Our Hearth business continues to deliver strong performance. Sales and new construction increased 16% as housing starts improved. Remodel and retrofit sales decreased 6% as unseasonably warm weather adversely impacted short term demand for our alternative fuel products.

I'll now turn the call over to Kurt to review specific financial data for the first quarter. Kurt?

Kurt Tjaden

Thank you Stan. So as a reminder, the first quarter 2012 includes results related to Sagus which we acquired in November of last year. So for the first quarter 2012 consolidated net sales increased 12.4% to $445 million or 8.5% on an organic basis. Sales for the office furniture segment increased 14.3% to $379 million or 9.7% on an organic basis and net sales for the Hearth product segment increased 2.4% to $67 million. Consolidated gross margins decreased to 33% compared to 34% in the prior year quarter due to higher material cost, unfavorable mix and the impact of the Sagus acquisition which was partially offset by higher volume and improved price realization. Importantly excluding Sagus consolidated gross margins were in line with the prior year quarter results.

As a percent of net sales, total selling and administrative expenses including restructuring and impairment charges improved 1.3 percentage points due to higher volume and lower restructuring and impairment charges, partially offset by increased fuel costs, investments in growth initiatives, higher incentive based compensation and acquisition related cost. We ended the quarter with $57 million of cash on the balance sheet. We used $28 million of cash in the quarter compared to $22 million in the prior year quarter. I will remind you the first quarter is typically our lowest quarter for operated cash flow due to business seasonality and funding requirements.

Stan Askren

Looking forward we entered the second quarter with strong momentum and are well positioned to deliver solid sales and profit growth for the year in both segments. I'm encouraged by the recent stabilization in the economy, improving conditions in our core markets and strong performance of our businesses. We continued to identify and aggressively pursue attractive investment opportunities for long term profitable growth.

Strong growth in our supply driven business is expected to continue to accelerate, driven by investments in selling, product development and branding. Our Office Furniture contract brands continue to compete well in the markets. Year-over-year growth rates within the contact channel are expected to flatten against strong prior year comparisons in the second quarter.

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