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HNI confident about year results

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American professional furniture producer and hearths maker HNI Corporation announced sales of $527.5 million and net income of $17.6 million for the fourth quarter ended December 29, 2012.

For fiscal year 2012, HNI reported sales of $2.0 billion, a 9.3 percent increase from prior year, and net income of $49.0 million, a 6.5 percent increase from prior year.

“We continue to compete well in our markets and delivered solid results for the fourth quarter and full year 2012 in a challenging environment. Our growth investments delivered top-line improvement in the quarter despite considerable economic uncertainty, and outstanding working capital management drove significant cash generation. Office furniture sales growth was led by a solid increase in our supplies-driven business. Continued strong profit growth in our hearth business was led by substantial growth in the new construction channel and strong operational execution. We enter 2013 financially strong, competitively well positioned, and focused on delivering profitable growth,” said Stan Askren, HNI Corporation Chairman, President and Chief Executive Officer.

Fourth Quarter – GAAP Financial Measures
Dollars in millionsexcept per share data Three Months Ended PercentChange
12/29/2012 12/31/2011
Net sales $527.5 $500.3 5.5%
Gross margin $186.0 $178.0 4.5%
Gross margin % 35.2% 35.6%
SG&A $155.6 $148.2 5.0%
SG&A % 29.5% 29.6%
Operating income $30.3 $29.8 1.6%
Operating income % 5.7% 6.0%
Net income attributable to HNI Corporation $17.6 $18.1 -3.0%
Earnings per share attributable to HNI Corporation – diluted $0.39 $0.40 -2.5%
  • Consolidated net sales increased $27.3 million or 5.5 percent from the prior year quarter to $527.5 million. Acquisitions contributed $10.0 million of sales, or 2.0 percent sales growth.
  • Gross margins were 0.4 percentage points lower than prior year quarter primarily due to unfavorable mix, investments to improve operations, new product ramp-up and impact of acquisitions offset partially by higher volume and lower material costs.
  • Total selling and administrative expenses, including restructuring charges, increased 5.0 percent due to volume related expenses, investments in growth initiatives and the impact of acquisitions.
  • HNI’s fourth quarter results included $1.1 million of restructuring and transition costs of which $0.3 million were included in cost of sales. These included costs associated with previously announced shutdown and consolidation of office furniture manufacturing locations. Included in the fourth quarter of 2011 were $1.1 million of restructuring and transition costs net of a non-operating gain on the sale of property.
  • The provision for income taxes for fourth quarter 2012 reflects an effective tax rate of 37.6 percent compared to 33.8 percent in the prior year quarter. The increase is due to the research tax credit being extended in 2013 and other permanent differences.
Full Year – GAAP Financial Measures
Dollars in millionsexcept per share data Twelve Months Ended PercentChange
12/29/2012 12/31/2011
Net sales $2,004.0 $1,833.5 9.3%
Gross margin $689.2 $639.1 7.8%
Gross margin % 34.4% 34.9%
SG&A $601.6 $557.6 7.9%
SG&A % 30.0% 30.4%
Operating income $87.6 $81.5 7.5%
Operating income % 4.4% 4.4%
Net income attributable to HNI Corporation $49.0 $46.0 6.5%
Earnings per share attributable to HNI
Corporation – diluted
$1.07 $1.01
  • Net sales increased $170.6 million, or 9.3 percent, to $2.0 billion compared to $1.8 billion for the prior year. Acquisitions contributed $93.0 million, or 5.1 percent sales growth.
  • Gross margins were 0.5 percentage points lower than prior year due to unfavorable mix, investments to improve operations, new product ramp-up and impact of acquisitions offset partially by increased volume, better price realization and lower material costs.
  • Total selling and administrative expenses as a percent of net sales, including restructuring charges, improved 0.4 percentage points due to higher volume partially offset by investments in growth initiatives and costs associated with acquisitions. Included in 2012 were $3.0 million of restructuring and transition charges compared to $3.3 million in 2011.
  • The provision for income taxes for 2012 reflects an effective tax rate of 37.7 percent compared to 34.8 percent in 2011. The increase is due to the research tax credit being extended in 2013 and other permanent differences.

Cash flow from operations for the year was $144.8 million compared to $134.3 million in 2011. Capital expenditures were $60.3 million in 2012 compared to $31.1 million in 2011.

HNI completed the acquisition of BP Ergo, a leading manufacturer and marketer of office furniture in India.

Office Furniture – GAAP Financial Measures
Dollars in millions Three Months Ended Percent
Change
Twelve Months Ended Percent
Change
12/29/2012 12/31/2011 12/29/2012 12/31/2011
Sales $422.3 $402.4 5.0% $1,687.3 $1,528.1 10.4%
Operating profit $23.5 $32.2 -27.0% $91.8 $99.6 -7.8%
Operating profit % 5.6% 8.0% 5.4% 6.5%
  • Fourth quarter and full year sales for the office furniture segment increased $19.9 million and $159.3 million, respectively. These increases were driven mainly by an increase in the supplies driven channel of the office furniture industry. Acquisitions contributed $10.0 million of sales or 2.5 percent sales growth in the fourth quarter and $93.0 million of sales or 6.1 percent sales growth for the full year.
  • Fourth quarter and full year operating profit decreased $8.7 million and $7.8 million, respectively. Operating profit margin was negatively impacted by unfavorable mix, investments to improve operations, new product ramp-up, investments in growth initiatives and impact of acquisitions. These were partially offset by higher volume, better price realization and lower material costs.

“I remain positive about our markets and our ability to grow sales and increase profits in 2013. We continue to aggressively invest for long-term profitable growth, and I remain confident our investments are delivering shareholder value. Our businesses are strong, competitive, and well-positioned in their markets, and the prospects for our businesses are encouraging,” said Mr. Askren.

HNI estimates sales to be flat to down 5 percent in the first quarter over the same period in the prior year. Page 6 of their uploaded presentation shows an estimation of 3-8% organic decrease of turnover in the furniture segment for Q1 2013 (2-6% in real terms).

For the full year, HNI is updating its estimate of non-GAAP earnings per diluted share to be in the range of $1.25 to $1.45, which excludes restructuring charges and transition costs.

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 remaining focused on its long-standing rapid continuous improvement programs to build best total cost and a lean enterprise.

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