HNI 2026 Q2 Earnings Call

My name is Matt McCall. I am Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our second quarter 2026 results. With me today are Jeff Lorenger, Chairman, President, and CEO, and VP Berger, Executive Vice President and CFO. Copies of our financial news release and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements, which are subject to known and unknown risk. Actual results could differ materially. The financial news release posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward-looking statements made during the call. I am now pleased to turn the call over to Jeff Lorenger.

Jeff? Good morning. Thank you for joining us.

Second quarter demonstrates the focus of our members, indicates an improving demand environment, and supports expectations of stronger 2026 earnings growth. Through focused cost management and the net benefits of price cost and productivity, we were able to deliver second quarter results that were in line with our expectations. Encouragingly, our internal leading indicators improved further in the quarter. The positive momentum of our strategies, both revenue and cost-focused, the benefits of our diversified revenue streams, the merits of our customer-first business model, and the integration of Steelcase are delivering significant shareholder value. We continue to expect a strong year in 2026, with a fifth straight year of double-digit earnings improvement and revenue growth in the low single digits in both segments. On today's call, I will break my comments into three sections. First, our quarterly results. Again, we delivered solid second quarter earnings with EPS in line with our expectations.

Second, our back half outlook. Our revenue backdrop strengthened in the second quarter, providing increased confidence in the full-year outlook. Third, our outlook beyond 2026. We have numerous sources of margin improvement and EPS visibility. We project double-digit EPS growth again next year. We have multiple years of elevated earnings growth visibility beyond 2027. Following my comments, VP will provide more details about the second quarter, our outlook, cash flow, and balance sheet. I will close with some additional commentary before we open the call to your questions. I will start with some highlights from the second quarter. We continued to effectively manage the middle of the income statement and were able to deliver solid second quarter results. Non-GAAP EPS was $1.27 and was up 14% year-over-year.

Versus the second quarter of 2025, the addition of Steelcase profit, price cost, including the net impact of tariffs, legacy network optimization savings, and productivity benefits combined to double operating profit on a year-over-year basis. Revenue was in line with our expectations in both segments, with Workplace up slightly and Building Products down slightly. Encouragingly, as we expected, second quarter orders strengthened. I will provide more color on the order patterns in a moment. In the legacy Workplace Furnishings businesses, second quarter net sales were up slightly year-over-year on an organic basis, consistent with commentary we provided last quarter. Growth was fueled by our businesses focused on small and medium-sized customers. Affirming industry backdrop became more apparent during the quarter.

In 2026, we expect stronger organic revenue growth in the back half and solid year-over-year margin expansion in legacy Workplace while we continue to invest to drive future growth. The integration of Steelcase is going well, and synergy capture and accretion are progressing as expected. A new leadership team is largely in place, and we expect the president to be on board in the second half. We continue to expect modest accretion in 2026 and now expect total synergies will reach at least $120 million when fully mature. In Residential Building Products, revenue decreased 1.6% versus the prior year period. This was consistent with our expectations communicated on the first quarter call. Revenue from the remodel retrofit business increased solidly but was more than offset by continued market-driven weakness in the new construction channel. In both markets, our members continued to deliver strong relative performance.

Second quarter segment operating margin expanded 470 basis points year-over-year, including net benefits of tariffs, reaching a strong 20.4%. Our unique operating model continues to deliver strong profit margins. Despite expectations of ongoing housing uncertainty, we remain encouraged about opportunities tied to the broader markets. We continue to invest to grow our operating model and revenue streams. In summary, the strength of our strategies and our ability to manage daily uncertainty through varying macroeconomic conditions, all while remaining focused on investing for the future, was evident in the second quarter results. That leads to my comments on our outlook for the second half of 2026. Our revenue backdrop strengthened in the second quarter, providing increased confidence for the remainder of the year.

In addition to improving organic revenue growth rates, the Steelcase acquisition and operational productivity gains are expected to continue driving strong results in the second half. From a segment perspective, beginning in our legacy workplace businesses, we expect volume growth to return in the third quarter, driving mid-to-high single-digit net sales growth in the second half. Our segment outlook is supported by external industry metrics and by internal pipeline data. Specifically, in addition to strengthening orders in the quarter, pre-order metrics all remain highly active, including project funnel, bid quotes, and design requests. For Steelcase, after a market soft patch to start the year, we saw pre-order activity and order momentum accelerate in late Q1 and continue in the second quarter. We expect second half revenue to increase solidly year-over-year. We project Steelcase will be modestly accretive in the second half and for the full year.

In Residential Building Products, our structural changes to organize around the customer, along with our growth investments, are expected to drive continued market outperformance. For 2026, we expect modest price-driven revenue growth in the second half, despite expectations of ongoing housing market softness. From a profit perspective, we project both our legacy Workplace Furnishings and our Residential Building Products segments will solidly expand margins in 2026. Moving on to my third point, our outlook beyond 2026. We have multiple sources of margin improvement and EPS growth visibility. We project double-digit EPS growth again next year, driven primarily by expected synergies from Steelcase and legacy network optimization projects. Beyond 2027, we have numerous years of elevated earnings visibility driven by multiple factors. During the quarter, we continued to smartly manage costs across all our businesses as we continue to navigate ongoing geopolitical and macro dynamics.

Benefits associated with these cost management actions are in addition to the previously announced $30 million of legacy Workplace Furnishings network optimization savings and the synergies associated with the integration of Steelcase, which, as I stated earlier, are on track and now expected to be at least $120 million. The combination of our disciplined cost management, Steelcase synergies, and ongoing legacy network optimization projects continue to support our earnings visibility story. Of note, additional items may provide incremental benefits. For context, our current synergy projections are focused on the Steelcase Americas business only, and we are assuming no benefits from revenue synergies. In addition, our outlook for double-digit EPS growth next year does not rely on improved volume from current levels. Now I will turn the call over to VP.

VP? Thanks, Jeff. I'll start with some additional comments about the second quarter.

GAAP diluted EPS for the second quarter was $0.70. On a non-GAAP basis, diluted EPS totaled $1.27, which was ahead of our internal expectations. The net tariff impact on operating margin in the quarter was about 150 basis points, and we expect approximately 40 basis points of benefit for the full year. From an EPS perspective, the net tariff benefit in the second quarter was approximately $0.25. Organic volume in the quarter was negatively impacted by geopolitical pressures to begin the year, especially in the Workplace Furnishings segment. However, the addition of Steelcase profit, price cost benefits, including the net impact of tariffs, expense control, and productivity savings offset the volume softness and continued investments in initiatives aiming to drive future growth. Total net sales in the quarter increased 121% overall.

From an organic standpoint, net sales were up slightly on a year-over-year basis. Moving to Q2 orders and backlog. In the Workplace Furnishings segment, organic orders in the second quarter increased 5% compared to the prior year period. Legacy order growth rates from small to medium-sized customers and from contract customers were comparable in the quarter. Legacy Workplace Furnishings backlog also ended the quarter 5% higher than the year ago period. Steelcase order growth was slightly better than legacy Workplace Furnishings trends. Over the most recent five-week period, the year-over-year segment order growth rate accelerated above the 5% average in the second quarter. Orders in the Residential Building Products segment were mostly unchanged compared to the second quarter of 2025. Solid remodel retrofit order growth essentially offset modest declines from the new construction channel. However, both segments continue to outperform the respective markets.