HNI Corp. (NYSE: HNI) reported Q3 EPS of $0.71, $0.25 better than the analyst estimate of $0.46. Revenue for the quarter came in at $507.1 million versus the consensus estimate of $496.5 million.

Third Quarter Highlights

• Strong results in Residential Building Products: Third quarter operating profit increased 27 percent; operating margin expanded 270 basis points; and net sales grew 9.3 percent on a year-over-year basis.
• Solid profits in Workplace Furnishings: Third quarter 2020 operating profit was nearly $17 million, despite a 27 percent year-over-year contraction on the segment’s top line.
• Continued strong cash flow: Third quarter operating cash flow increased $12.7 million or 12 percent versus the prior year quarter despite continued pandemic related top-line pressures. Operating cash flow for the first three quarters of 2020 totaled $143 million, which represents a 24 percent increase compared to the prior year period.
• High-quality balance sheet: Quarter-ending debt levels were $175 million with a gross leverage ratio of approximately 0.9x. Cash totaled $109 million as of the end of the third quarter, representing an increase of $83 million from the second quarter balance.

“Our members delivered another solid quarter in an environment that remains uniquely challenging. And, again in the third quarter, our results demonstrate much of what is unique about HNI. Our diversified revenue streams, our ability and willingness to invest despite ongoing uncertainty, and our cost and expense management efforts combined to deliver strong free cash flow in the third quarter, positioning us well for the future,” stated Jeff Lorenger, Chairman, President, and Chief Executive Officer.

Concluding Remarks

“As we look ahead, we are prepared to confront the continued near-term macro challenges. However, we see longer-term opportunity and signs our strategies are gaining momentum. I am extremely proud of all our HNI members and of the company’s collective perseverance and ability to adapt.

As we emerge from this period, we will do so as a stronger company— well positioned to grow revenue, expand margins, and generate cash flow,” Mr. Lorenger concluded.

Fourth Quarter 2020 Outlook

• Limited visibility and volatile conditions: Pandemic-related uncertainty remains and limits the Corporation’s visibility.
• Workplace Furnishings revenue: Recent order trends suggest year-over-year revenue declines will moderate slightly in the fourth quarter. Additionally, the fourth quarter 2020 benefits from an extra week in the fiscal calendar. Assuming the recent trends continue, the combination of these factors point to fourth quarter revenue declines in the mid-teens on a year-over-year rate basis.
• Residential Building Products revenue: The Corporation believes cyclical strength, secular support, company-specific initiatives, and its strong competitive position support revenue growth acceleration. Recent order trends, housing construction activity, and the fourth quarter’s extra week suggest fourth quarter growth rates in the mid to high teens compared to the prior year quarter.
• HNI decremental margins: The Corporation expects decremental margins for the full year to be less than 20 percent on a consolidated basis. This implies higher decremental margins in the fourth quarter, primarily driven by unfavorable business mix and accelerating investment levels.
• Balance sheet: The Corporation continues to expect strong cash generation and estimates the year-ending debt to be approximately $175 million, consistent with the third quarter balance and the level reported at the end of 2019.

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