HNI Corporation (HNI) Bundle
Understanding HNI Corporation (HNI) Revenue Streams
Understanding HNI Corporation’s Revenue Streams
Net Sales: Consolidated net sales for the third quarter of 2024 were $672.2 million, a decrease of 5.5% compared to net sales of $711.6 million in the prior-year quarter. The decline was driven by a 5.9% decrease in the workplace furnishings segment and a 4.4% decrease in the residential building products segment.
Year-over-Year Revenue Growth Rate: For the first nine months of 2024, consolidated net sales increased by 7.4% compared to the same period last year, with net sales amounting to $1,883.9 million versus $1,754.2 million in 2023.
Revenue Breakdown by Segment
| Segment | Q3 2024 Net Sales (in million) | Q3 2023 Net Sales (in million) | Change (%) | 9M 2024 Net Sales (in million) | 9M 2023 Net Sales (in million) | Change (%) |
|---|---|---|---|---|---|---|
| Workplace Furnishings | $505.1 | $536.8 | (5.9%) | $1,425.1 | $1,249.5 | 14.1% |
| Residential Building Products | $167.1 | $174.8 | (4.4%) | $458.8 | $504.7 | (9.1%) |
| Total | $672.2 | $711.6 | (5.5%) | $1,883.9 | $1,754.2 | 7.4% |
Contribution of Business Segments to Overall Revenue
In the first nine months of 2024, the workplace furnishings segment contributed approximately 75.7% to total net sales, while the residential building products segment accounted for about 24.3%.
Significant Changes in Revenue Streams
The decline in revenue in the third quarter of 2024 was influenced by the divestiture of the Poppin business, which resulted in a year-over-year sales decrease of $7.7 million in the workplace furnishings segment. Additionally, the residential building products segment faced pressure due to reduced home remodeling activity in a softer housing market.
In contrast, the acquisition of Kimball International in the second quarter of 2023 positively impacted the overall revenue, providing a favorable contribution of $228.0 million to net sales for the first nine months of 2024.
Overall Revenue Growth Analysis
The overall revenue growth for the first nine months of 2024 reflects a combination of strategic acquisitions and price realizations across most customer channels, despite the challenges posed by volume declines in legacy businesses and the impact of the divestiture of Poppin.
A Deep Dive into HNI Corporation (HNI) Profitability
Profitability Metrics
Analyzing the profitability metrics of the corporation reveals significant insights into its financial health. Below is a detailed breakdown of key profitability metrics including gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
For the third quarter of 2024, the corporation reported the following:
- Gross Profit: $278.8 million, representing a gross margin of 41.5%.
- Operating Income: $68.9 million, yielding an operating margin of 10.2%.
- Net Income: $47.5 million, translating to a net profit margin of 7.1%.
In comparison, the third quarter of 2023 showed:
- Gross Profit: $285.3 million, with a gross margin of 40.1%.
- Operating Income: $56.8 million, with an operating margin of 8.0%.
- Net Income: $37.8 million, yielding a net profit margin of 5.3%.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Gross Profit | $278.8 million | $285.3 million | -2.3% |
| Gross Margin | 41.5% | 40.1% | 1.4% |
| Operating Income | $68.9 million | $56.8 million | 21.3% |
| Operating Margin | 10.2% | 8.0% | 2.2% |
| Net Income | $47.5 million | $37.8 million | 25.8% |
| Net Profit Margin | 7.1% | 5.3% | 1.8% |
Trends in Profitability Over Time
In the first nine months of 2024, consolidated net sales increased by 7.4% to $1,883.9 million compared to $1,754.2 million in the same period of 2023. The net income attributable to the corporation for this period was $101.2 million, or $2.09 per diluted share, compared to $26.5 million, or $0.60 per diluted share in the first nine months of 2023.
Comparison of Profitability Ratios with Industry Averages
The corporation's gross margin of 41.5% in Q3 2024 compares favorably to the industry average of approximately 30-35%. The operating margin of 10.2% is also above the industry average of around 8-10%. In terms of net profit margin, the corporation's 7.1% surpasses the typical range of 5-7% for the sector.
Analysis of Operational Efficiency
Operational efficiency has improved, as indicated by the reduction in selling and administrative expenses as a percentage of net sales, which decreased to 31.0% in Q3 2024 from 31.4% in Q3 2023.
Additionally, restructuring and impairment charges fell significantly, from $5.3 million in Q3 2023 to $1.6 million in Q3 2024, a decrease of 69.6%. This indicates better cost management and operational productivity.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Selling & Administrative Expenses (% of Net Sales) | 31.0% | 31.4% | -0.4% |
| Restructuring & Impairment Charges | $1.6 million | $5.3 million | -69.6% |
Debt vs. Equity: How HNI Corporation (HNI) Finances Its Growth
Debt vs. Equity: How HNI Corporation Finances Its Growth
As of September 28, 2024, HNI Corporation's total debt stood at $345.4 million, with long-term debt comprising $294.5 million and current maturities of debt at $50.9 million.
Debt Levels
The company has a mix of long-term and short-term debt. The long-term debt includes a term loan of $200 million that was initially borrowed to finance the acquisition of Kimball International. In addition, there are fixed-rate notes of $50 million due in 2025 and $50 million due in 2028. The revolving credit facility also plays a significant role, with $46 million drawn against a total capacity of $425 million.
Debt-to-Equity Ratio
As of September 28, 2024, the debt-to-equity ratio is calculated at 0.41, which is lower than the industry average of approximately 0.75. This indicates a balanced approach to leveraging debt and equity, aligning with industry standards while maintaining a prudent financial strategy.
Recent Debt Issuances and Credit Ratings
HNI Corporation has engaged in recent debt issuances, primarily to fund the acquisition of Kimball International. The term loan agreement, which was amended in May 2023, reflects a commitment to maintaining financial flexibility. The company has received a credit rating of Baa3 from Moody's, indicating a moderate credit risk level.
Balancing Debt Financing and Equity Funding
The company has effectively balanced its debt financing with equity funding. As of September 28, 2024, total equity was reported at $846.9 million, up from $761.8 million the previous year. This increase in equity supports the company's growth initiatives while allowing for strategic debt management.
| Debt Type | Amount (in millions) | Due Date | Interest Rate |
|---|---|---|---|
| Term Loan | $200.0 | March 2028 | Variable |
| Fixed-Rate Notes | $50.0 | May 2025 | 4.2% |
| Fixed-Rate Notes | $50.0 | May 2028 | 4.4% |
| Revolving Credit Facility | $46.0 | June 2027 | Variable |
This structured approach to financing through a combination of debt and equity allows HNI Corporation to pursue growth opportunities while maintaining a manageable risk profile.
Assessing HNI Corporation (HNI) Liquidity
Assessing HNI Corporation's Liquidity
Current Ratio: As of September 28, 2024, the current ratio was calculated at 1.56, indicating that the company has $1.56 in current assets for every $1.00 of current liabilities.
Quick Ratio: The quick ratio stood at 0.82, suggesting that the company has $0.82 in liquid assets for every $1.00 of current liabilities, highlighting a potential liquidity concern as it falls below the industry standard of 1.0.
Analysis of Working Capital Trends
Working capital for the company as of September 28, 2024, was $148.3 million, reflecting a year-over-year increase from $130.5 million as of September 30, 2023. This increase indicates improved operational efficiency and a better liquidity position.
Cash Flow Statements Overview
Operating cash flows for the first nine months of 2024 were $175.5 million, compared to $162.5 million for the same period in 2023. This increase is attributed to enhanced net productivity and the full-year impact of the Kimball International acquisition:
| Cash Flow Type | 2024 (Nine Months) | 2023 (Nine Months) | Change |
|---|---|---|---|
| Operating Cash Flow | $175.5 million | $162.5 million | +$13 million |
| Investing Cash Flow | -$43.2 million | -$62.8 million | +$19.6 million |
| Financing Cash Flow | -$75.6 million | -$50.3 million | - $25.3 million |
Potential Liquidity Concerns or Strengths
The company maintains a revolving credit facility with a borrowing capacity of $425 million, of which $46 million was outstanding as of September 28, 2024. This indicates a strong ability to access liquidity if needed. However, the quick ratio being below 1.0 raises concerns about immediate liquidity to cover short-term obligations.
Additionally, the total debt as of September 28, 2024, amounted to $345.4 million, with long-term debt at $294.5 million. The interest expense for the first nine months of 2024 was $22.1 million, compared to $17.5 million in the same period of 2023, reflecting increased borrowing costs due to higher interest rates.
Is HNI Corporation (HNI) Overvalued or Undervalued?
Valuation Analysis
Price-to-Earnings (P/E) Ratio
The P/E ratio for the company is currently 23.4, reflecting a higher valuation compared to the industry average P/E of 18.5.
Price-to-Book (P/B) Ratio
The P/B ratio stands at 2.1, which is above the sector average of 1.5, indicating a premium valuation based on book value.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 12.7, suggesting the company is valued higher than the industry median of 10.2.
Stock Price Trends
The stock price has demonstrated the following trends over the last 12 months:
- 12-month high: $52.75
- 12-month low: $35.50
- Current stock price: $48.00
Dividend Yield and Payout Ratios
The company has declared a dividend of $0.98 per share for the first nine months of 2024. The dividend yield is approximately 2.04%, with a payout ratio of 46.5%.
Analyst Consensus on Stock Valuation
According to recent analyst ratings:
- Buy: 6 analysts
- Hold: 4 analysts
- Sell: 1 analyst
| Metric | Current Value | Industry Average |
|---|---|---|
| P/E Ratio | 23.4 | 18.5 |
| P/B Ratio | 2.1 | 1.5 |
| EV/EBITDA | 12.7 | 10.2 |
| Dividend Yield | 2.04% | N/A |
| Payout Ratio | 46.5% | N/A |
Key Risks Facing HNI Corporation (HNI)
Key Risks Facing HNI Corporation
The financial health of the company is influenced by several internal and external risk factors. These risks can significantly impact its operational performance and overall market position.
Industry Competition
The company operates in a highly competitive environment, facing pressure from both established players and new entrants. In the third quarter of 2024, net sales decreased by 5.5% to $672.2 million compared to $711.6 million in the prior-year quarter, indicating potential impacts from competitive pressures in both the workplace furnishings and residential building products segments.
Regulatory Changes
Changes in regulations related to manufacturing, environmental standards, and labor laws can affect operational costs and compliance requirements. As the company expands its operations, it must adapt to varying regulatory landscapes, which could impose additional costs or operational restrictions.
Market Conditions
Fluctuations in economic conditions, including housing market dynamics and consumer spending, pose risks. For instance, residential building products sales fell by 9.1% in the first nine months of 2024, primarily due to lower demand from the existing home channel.
Operational Risks
Operational risks include disruptions in supply chain management and manufacturing processes. The company recorded restructuring and impairment charges of $1.6 million in Q3 2024, aimed at addressing factory consolidation initiatives.
Financial Risks
Financial risks encompass interest rate fluctuations and debt management. The net interest expense for the third quarter of 2024 was $7.1 million, down from $9.4 million in the same quarter last year, reflecting lower average outstanding borrowings. However, the total debt as of September 28, 2024, stood at $345.4 million.
Strategic Risks
Strategic risks arise from potential misalignment between the company’s long-term goals and market realities. The acquisition of Kimball International in June 2023 increased net sales by $228 million in the first nine months of 2024, but the company must effectively integrate this acquisition to realize its full potential.
Mitigation Strategies
The company has implemented several strategies to mitigate these risks, including diversifying its product offerings and investing in operational efficiencies. For example, the gross profit margin improved by 250 basis points in the first nine months of 2024 due to enhanced operational productivity.
| Risk Factor | Description | Recent Impact |
|---|---|---|
| Industry Competition | Pressure from established and new entrants | Net sales decreased by 5.5% in Q3 2024 |
| Regulatory Changes | Compliance with varying regulations | Potential for increased operational costs |
| Market Conditions | Fluctuations in economic conditions | Residential products sales down 9.1% YTD 2024 |
| Operational Risks | Supply chain and manufacturing disruptions | Restructuring charges of $1.6 million in Q3 2024 |
| Financial Risks | Interest rate fluctuations and debt management | Net interest expense of $7.1 million in Q3 2024 |
| Strategic Risks | Misalignment in long-term goals | Acquisition increased sales by $228 million YTD 2024 |
Future Growth Prospects for HNI Corporation (HNI)
Future Growth Prospects for HNI Corporation
Analysis of Key Growth Drivers
The acquisition of Kimball International in June 2023 significantly bolstered HNI Corporation's market position. This acquisition contributed approximately $228.0 million to net sales in the first nine months of 2024, driving a 14.1% increase in the workplace furnishings segment compared to the prior year.
Additionally, HNI has been focusing on product innovations, particularly in the workplace furnishings segment, where operational productivity improvements have led to a 250 basis points increase in gross profit margin, reaching 41.0% in the first nine months of 2024.
Future Revenue Growth Projections and Earnings Estimates
HNI Corporation reported consolidated net sales of $1,883.9 million for the first nine months of 2024, representing a 7.4% increase year-over-year. Analysts project that the company's revenue could further benefit from ongoing demand recovery in both workplace and residential markets, with expectations for continued price realization across various customer channels.
Net income attributable to HNI Corporation for the first nine months of 2024 increased to $101.2 million, or $2.09 per diluted share, compared to $26.5 million, or $0.60 per diluted share, in the same period of 2023.
Strategic Initiatives or Partnerships that May Drive Future Growth
HNI's strategic initiatives include continued investment in technology and digital assets, with capital expenditures projected to be approximately $60 million to $70 million for the full year 2024. This investment aims to enhance operational efficiencies and customer experiences, positioning the company to capitalize on emerging market trends.
Competitive Advantages that Position the Company for Growth
HNI Corporation benefits from robust operational productivity, as evidenced by a 470 basis points increase in operating margin in the first nine months of 2024. The company also maintains a strong balance sheet, with $846.9 million in total equity as of September 28, 2024, providing a solid foundation for future investments.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Net Sales | $672.2 million | $711.6 million | (5.5%) |
| Net Income | $47.5 million | $37.8 million | 25.8% |
| Gross Profit Margin | 41.5% | 40.1% | 140 bps |
| Operating Margin | 10.2% | 8.0% | 220 bps |
The company's ongoing focus on strategic acquisitions and operational improvements, alongside favorable market trends, positions HNI Corporation for sustained growth in the competitive landscape of workplace furnishings and residential building products.
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Article updated on 8 Nov 2024
Resources:
- HNI Corporation (HNI) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of HNI Corporation (HNI)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View HNI Corporation (HNI)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.