American professional furniture maker HNI Corporation, announced sales for the second quarter ended June 28, 2014, of USD 509.1 million. This is 0.3% lower than Q2 2013: USD 507.5 million.
Net income amounted to USD 9.7 million, or $0.21 per diluted share for the quarter, a 16% decrease compared with the same period of last year )$0.25 per share).
Non-GAAP net income per diluted share improved 39% from the prior year quarter to $0.39, which excludes restructuring and impairment charges, transition costs and the gain on sale of air emission credits.
“We are pleased with our performance and profit growth over prior year. Continued strong hearth business sales growth, overall operational execution and prior year investment returns drove second quarter profit improvement.
As expected, the sales increase in our supplies-driven business was offset by a decline in contract office furniture due to strong year over year comparisons. Office furniture businesses generated strong profit growth despite a sales decrease.
Our hearth business delivered significant sales and profit growth in both new construction and remodel/retrofit channels,” said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.
Consolidated net sales decreased USD 1.6 million or 0.3% to USD 509.1 million. Compared to prior year quarter, divestitures reduced sales USD 8.1 million. On an organic basis sales increased 1.3%.
Gross margin was 1.4 percentage points higher than prior year primarily due to increased price realization, strong operational performance and higher hearth volume partially offset by lower volume and increased restructuring and transition charges in the office furniture segment.
Total selling and administrative expenses as a percent of net sales, including restructuring and impairment charges, increased 2.7 percentage points due mainly to restructuring and impairment charges and increased incentive-based compensation.
During the second quarter, as part of continuing efforts to reduce structural costs, HNI made the decision to close an office furniture facility in Florence, Alabama and consolidate production into existing manufacturing facilities. HNI also notified its employees and the union representing the bargaining unit at its office furniture facility located in Chicago, Illinois of its tentative decision, pending negotiations and consultation with the union, to close the facility and consolidate production into an existing facility.
In connection with these decisions HNI recorded USD 4.8 million of restructuring and transition costs of which USD 3.4 million were included in cost of sales. HNI estimates the realignments will save USD 8.1 million annually beginning in 2015.
The tentative decision to close the Chicago facility, along with market factors, was identified as a triggering event for purposes of goodwill impairment testing. HNI recognized pre-tax goodwill impairment expense of USD 8.9 million during the second quarter.
HNI’s second quarter results included a USD 1.3 million gain on the sale of California air emission credits. Second quarter 2013 included a USD 2.5 million loss on the sale of a small non-core office furniture business.
Office furniture segment results
Second quarter sales for the office furniture segment decreased USD 12.7 million or 2.9 % to USD 423.4 million. Compared to prior year quarter, divestitures reduced sales by USD8.1 million. On an organic basis, sales decreased 1.1% driven by a decrease in the contract channel partially offset by an increase in the supplies-driven channel.
Second quarter operating profit decreased USD 3.9 million. Operating profit was negatively impacted by lower volume, unfavourable mix and restructuring, transition and impairment charges. These were partially offset by increased price realization, strong operational performance and the loss on sale of a small non-core business in the prior year quarter.
Second quarter operating profit excluding restructuring, transition and impairment costs and loss on sale of business in the prior year increased USD 7.4 million or 30.2%.
First half year 2014 results
Consolidated net sales for the first six months of 2014 increased USD 8.3 million, or 0.9%, to USD 961.3 million compared to USD 953.0 million in 2013.
Gross margin increased to 35.0%t compared to 33.8% last year. Net income attributable to HNI Corporation was USD 20.8 million compared to USD 12.8 million in 2013.
Earnings per share increased over 60% to $0.45 per diluted share compared to $0.28 per diluted share for the first six months of 2013.
Cash used in operations for the first six months of 2014 was USD 7.0 million compared to USD 18.2 million for the same period last year. Capital expenditures during the first six months were USD 51.1 million in 2014 compared to USD 33.6 million in 2013.
“We delivered strong results during the first six months of the year, and I remain positive about our ability to grow sales and profits for the remainder of the year. We continue to aggressively invest for long-term profitable growth, and I remain confident our investments are delivering shareholder value,” said Mr. Askren.
HNI estimates sales to be up 2 to 6% in the third quarter over the same period in the prior year. Non-GAAP earnings per diluted share are anticipated in the range of $0.68 to $0.73 for the third quarter, which excludes restructuring and transition charges.
For the full year, HNI is narrowing its estimate of non-GAAP earnings per diluted share to the range of $1.75 to $1.85, which excludes restructuring and impairment charges, transition costs and gain/loss on sale of assets.
HNI ‘remains focused on creating long-term shareholder value by growing its business through investment in building brands, product solutions and selling models, enhancing its strong member-owner culture and continuing to execute its long-standing rapid continuous improvement discipline to build best total cost and a lean enterprise.’