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HC

HNI CORP (HNI)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 was resilient on profitability despite a soft top line: GAAP EPS was $0.79 (vs. $0.48 YoY) and non-GAAP EPS was $0.87 (vs. $0.98 YoY); management said Q4 EPS “surpasses expectations” due to accelerated productivity gains .
  • Revenue declined 5.5% year over year to $642.5M; gross margin expanded 30 bps to 40.5% and GAAP operating margin rose 400 bps to 8.5% on lower restructuring/impairment vs. prior year, while non-GAAP operating margin was 9.3% .
  • Outlook: double‑digit EPS growth expected in 2025; full‑year net sales growth projected low‑to‑mid single digits in both segments; Q1 2025 guide calls for WF sales down low‑to‑mid single digits and RBP up mid‑single digits with a temporary $3–$4M tariff drag that is expected to be recouped over the balance of 2025 .
  • Balance sheet/cash flow remain strong; 2024 operating cash flow exceeded $225M, leverage at 1.1x, and combined buybacks/dividends of $129M; quarterly dividend declared at $0.33 per share (payable Mar 5, 2025) .

What Went Well and What Went Wrong

What Went Well

  • Productivity and margin execution: Q4 GAAP operating margin expanded 400 bps YoY to 8.5% and gross margin rose to 40.5% despite lower volume; non‑GAAP operating margin was 9.3% . CEO: “non‑GAAP EPS totaled $3.06, up 15% from 2023… consolidated operating margin… highest level since 2005” .
  • Workplace Furnishings profitability: GAAP operating margin improved 470 bps YoY to 6.6% on lower restructuring/impairment; non‑GAAP margin of 7.7% remained healthy, with synergies and productivity offsetting volume pressure .
  • Orders/backlog indicators: WF orders +2% YoY; RBP orders +8% YoY; backlog up double‑digits YoY with return‑to‑office momentum building—supporting 2025 sales growth expectations .

What Went Wrong

  • Top-line softness: Q4 revenue fell 5.5% YoY to $642.5M, with both segments contracting; SMB transactional demand was particularly soft on macro uncertainty and election‑related “hangover” .
  • Non-GAAP EPS decline YoY: $0.87 vs $0.98 prior year, driven by lower sales volume despite offsets from productivity, price‑cost, lower variable comp, and reduced interest expense .
  • Tariff headwinds near‑term: management guided a Q1 price‑cost drag of $3–$4M as backlog shifts under new tariffs; mitigation via surcharges, supplier concessions, and productivity expected to neutralize full‑year impact .

Financial Results

Consolidated Performance (GAAP and non-GAAP)

MetricQ4 2023Q3 2024Q4 2024
Net Sales ($USD Millions)$679.8 $672.2 $642.5
Gross Profit Margin % (GAAP)40.2% 41.5% 40.5%
Operating Income ($USD Millions, GAAP)$30.7 $68.9 $54.6
Operating Margin % (GAAP)4.5% 10.2% 8.5%
Diluted EPS (GAAP)$0.48 $0.98 $0.79
Diluted EPS (Non-GAAP)$0.98 $1.03 $0.87
Effective Tax Rate (GAAP)0.0% 23.1% 22.5%

Notes: Q4 non‑GAAP operating income was $59.7M (vs. $66.1M prior year), and non‑GAAP operating margin 9.3% (vs. 9.7% prior year) .

Segment Breakdown (Q4)

Segment MetricQ4 2023Q4 2024
Workplace Furnishings Net Sales ($USD Millions)$490.7 $462.9
Workplace Furnishings Operating Income ($USD Millions, GAAP)$9.5 $30.7
Workplace Furnishings Operating Margin % (GAAP)1.9% 6.6%
Workplace Furnishings Operating Income ($USD Millions, Non-GAAP)$40.4 $35.7
Workplace Furnishings Operating Margin % (Non-GAAP)8.2% 7.7%
Residential Building Products Net Sales ($USD Millions)$189.1 $179.6
Residential Building Products Operating Income ($USD Millions, GAAP)$42.1 $39.8
Residential Building Products Operating Margin % (GAAP)22.3% 22.2%
Residential Building Products Operating Income ($USD Millions, Non-GAAP)$42.1 $39.8
Residential Building Products Operating Margin % (Non-GAAP)22.3% 22.2%

KPIs and Demand Indicators

KPIQ3 2024Q4 2024
Workplace Furnishings Orders YoY+1% +2%
Residential Building Products Orders YoY+3% +8%
Workplace Furnishings Backlog YoYn/aDouble‑digits
Workplace Pre‑order/Sales Funnel YoYn/aMid‑ to high‑single digit increase

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Workplace Furnishings Net SalesQ1 2025n/aDecrease low‑to‑mid single digits YoY New
Residential Building Products Net SalesQ1 2025n/aIncrease mid‑single digits YoY New
Non‑GAAP EPSQ1 2025n/aSlight decrease including tariffs; modest increase excluding tariffs New
Tariff Price‑Cost DragQ1 2025n/a~$3–$4M temporary drag; expected to be recouped over 2025 New
Consolidated Net SalesFY 2025Positive 2025 outlook without quantification (Q3 call/release) Low‑to‑mid single‑digit growth in both segments Maintained/Quantified
EPS GrowthFY 2025Elevated visibility beyond 2024; no explicit FY25 growth rate Double‑digit EPS growth expected New explicit target
DividendsOngoing“Maintaining longstanding dividend” $0.33 per share declared Feb 11, 2025; payable Mar 5, 2025 Maintained

Earnings Call Themes & Trends

TopicQ2 2024 (10-Q/PR)Q3 2024 (Call/PR)Q4 2024 (Call/PR)Trend
Return‑to‑office momentumEarly signs, profit focus in WF Order funnel up >10%; 2025 outlook positive More conversations/activity; case‑by‑case execution; supportive of demand Improving
SMB transactional demandQ2: SMB outpaced contract orders Customers delaying short‑cycle purchases SMB soft; “flattish” early 2025; expected to recover later in 2025 Soft near‑term
Tariffs & mitigationn/an/aQ1 drag $3–$4M; surcharge pricing enables faster pass‑through; plan to fully offset FY impact Manageable with actions
Mexico facility & KII synergies$70–$75M savings, visibility beyond 2024 $45–$50M to 2025‑2026; synergies raised $0.70–$0.80 EPS over 2025‑2026; split roughly evenly Building/Executing
Residential remodel vs new constructionQ2: remodel/retrofit weak; margins up Q3: remodel declined faster; margins up Q4: remodel declined faster; orders +8%; Q1 2025 RBP sales up mid‑single digits Stabilizing with remodel rebound
Backlog/ordersQ2: WF orders flat; normalized RBP +4% WF orders +1%; RBP +3% WF orders +2%; WF backlog double‑digits; RBP orders +8% Strengthening
SG&A/investmentsSG&A down YoY; profit transformation SG&A down as % of sales; buybacks Investing for growth; SG&A % to rise modestly in 2025 Investment phase

Management Commentary

  • “In the fourth quarter, non‑GAAP EPS was $0.87… better than we anticipated… productivity drove more financial benefit… limited the decremental margin to only 17%” .
  • “We anticipate a fourth consecutive year of double‑digit non‑GAAP earnings improvement [in 2025]” .
  • “Mexico and KII synergies… will drive a total of $0.70 to $0.80 of EPS growth through 2026… divided roughly equally over the next 2 years” .
  • “Our plan is to fully offset any tariff‑driven inflationary pressures… we’re going to surcharge it, which we can move in a week or two fairly quickly” .
  • “You can consider 40‑plus percent incremental margins on the top line growth… while still investing” .

Q&A Highlights

  • Growth investments in WF: expand selling capabilities, simplify customer experience, increase product development and digital connectivity; lean into health, education, hospitality verticals .
  • Residential acceleration drivers: organizing around the consumer, adding selling capacity across national and own distribution, raising category awareness, robust product pipeline; aim to defend high‑teen margins while investing .
  • SMB demand outlook: currently “flattish”; expect upside in 2H 2025 as macro stabilizes; SMB can pause quickly in disruptions but rebounds quickly as well .
  • Tariffs pricing mechanics: shift to surcharges for speed/flexibility; expect full‑year offset post temporary Q1 drag; supplier concessions and productivity support .
  • WF incremental margins: ~40%+ on volume growth even while investing, indicating strong operating leverage .

Estimates Context

  • S&P Global consensus estimates were unavailable at the time of analysis due to data access limits; consequently, formal Street beat/miss comparisons are not provided. The company stated Q4 EPS “surpasses expectations,” which refers to management expectations rather than confirmed Street consensus figures .
    Values retrieved from S&P Global are unavailable for this report due to API limits.

Key Takeaways for Investors

  • Near‑term softness but improving indicators: Q4 volume was weak, yet WF/RBP orders and backlog trends point to returning sales growth in 2025; watch SMB rebound and contract project timing as catalysts .
  • Margin durability: GAAP margins expanded materially on lower restructuring/impairment; non‑GAAP margins remain robust, supported by productivity, synergies, and price‑cost, underlining downside protection .
  • 2025 framework: double‑digit EPS growth with low‑to‑mid single‑digit sales growth, tariff drag recouped after Q1, and incremental savings from Mexico/KII underpinning earnings visibility through 2026 .
  • Operating leverage: management’s ~40%+ incremental margin comment suggests attractive earnings sensitivity to volume when demand improves, even while investing .
  • Tariff strategy: surcharge pricing, supplier concessions, and productivity initiatives should mitigate tariff inflation over 2025; monitor timing of surcharge adoption and customer acceptance .
  • Capital deployment: strong cash generation and low leverage support continued dividends and buybacks; dividend at $0.33 per share reinforces shareholder returns .
  • Trading lens: stock may react to confirmation of order/backlog translating to revenue in Q2‑Q3 2025, evidence of SMB recovery, and clarity on tariff offsets; downside risks include prolonged macro uncertainty delaying project conversions .