HNI Q2 Earnings Call Highlights

Key Points

• HNI’s second-quarter earnings improved significantly: Non-GAAP EPS rose 14% to $1.27, while sales more than doubled year over year due largely to the Steelcase acquisition. Pricing, productivity gains, cost savings and Steelcase profits offset earlier softer volumes.
• Workplace Furnishings demand is strengthening: Organic orders increased 5%, backlog grew 5%, and improving office-leasing and absorption trends support expectations for high-single-digit organic sales growth in legacy Workplace during the third quarter.
• HNI raised its full-year outlook: The company now expects 2026 non-GAAP EPS growth of 20% to 25% and anticipates third-quarter EPS growth of roughly 25% to 30%. Steelcase integration synergies are progressing, with at least $120 million in mature savings expected.

HNI NYSE: HNI reported second-quarter fiscal 2026 non-GAAP diluted earnings per share of $1.27, up 14% from a year earlier, as profit from the Steelcase acquisition, pricing and cost benefits, network optimization savings and productivity gains helped offset softer organic volumes earlier in the year.

GAAP diluted EPS was $0.70. Total net sales increased 121% year over year, reflecting the addition of Steelcase, while organic net sales increased slightly. Chairman, President and CEO Jeff Lorenger said second-quarter results were in line with the company’s expectations and pointed to an improving demand environment, particularly in Workplace Furnishings.

“Our revenue backdrop strengthened in the second quarter, providing increased confidence for the remainder of the year,” Lorenger said. HNI continues to expect low-single-digit revenue growth in both of its segments for the full year and a fifth consecutive year of double-digit earnings improvement.

Workplace Orders and Steelcase Integration

In HNI’s legacy Workplace Furnishings operations, second-quarter organic sales rose slightly from the prior year, supported by small and medium-sized customers. Organic Workplace orders increased 5% year over year, while legacy Workplace backlog ended the period 5% above year-ago levels. Steelcase order growth was slightly stronger than legacy Workplace trends, according to Executive Vice President and CFO VP Berger.

Berger said the year-over-year order-growth rate accelerated above the quarter’s 5% average during the most recent five-week period, with particularly stronger activity in contract business. He said backlog, recent orders and the company’s weighted sales funnel support expectations for high-single-digit organic sales growth in legacy Workplace during the third quarter.

For the full Workplace Furnishings segment, including Steelcase, HNI expects third-quarter sales to rise approximately 175% to 180% from the prior-year period. The company expects Steelcase revenue to increase solidly year over year in the second half and for the business to be modestly accretive both in the second half and for the full year.

Lorenger said external office-market indicators have also improved. He cited four consecutive quarters of growth in office leasing activity, with trailing four-quarter leasing activity up 27% year over year. Net office-space absorption was positive for a fourth consecutive quarter, reaching more than 11 million square feet in the second quarter and nearly 31 million square feet over the trailing four quarters, the highest level since 2019.

The company also reported solid growth in bid quotes, more large-dollar projects, and strong customer visits, requests for proposals and design requests. Lorenger said win rates were improving across both legacy HNI and Steelcase, while describing the marketplace as rational.

Residential Building Products Remains Resilient

Residential Building Products revenue declined 1.6% year over year in the second quarter. Growth in remodel and retrofit revenue was offset by continued weakness in the new-construction channel. Segment operating margin nevertheless expanded 470 basis points from a year earlier to 20.4%, including the net benefit of tariffs.

HNI said it expects modest price-driven revenue growth in the segment during the second half despite ongoing housing-market softness. Berger said second-half residential volumes are expected to decline at a low-single-digit rate, with pricing offsetting the pressure and leaving revenue roughly flat to up slightly.

Lorenger said the company expects to continue outperforming its residential markets through customer-focused initiatives and investments in service, distribution, vertical integration and product development. While he cited continued affordability concerns and elevated interest rates as pressures on new home construction, he noted that June single-family permits rose 4% year over year.

Outlook Calls for Accelerating Earnings Growth

HNI expects third-quarter non-GAAP diluted EPS to increase at a mid-to-high-20% rate from the third quarter of 2025. Berger said Steelcase profit, productivity savings, returning volume growth and price-cost benefits are expected to drive the increase. The company expects third-quarter non-GAAP EPS to be about 15% higher than fourth-quarter EPS, primarily due to the anticipated timing of revenue and investments.

For full-year 2026, HNI raised its earnings outlook to non-GAAP EPS growth of 20% to 25% from 2025’s $3.46. Both the legacy Workplace and Residential Building Products segments are expected to expand margins during the year.

The company said the net tariff impact contributed about 150 basis points to second-quarter operating margin and approximately $0.25 to quarterly EPS. For the full year, HNI expects tariffs to provide roughly 40 basis points of operating-margin benefit.

Synergies, Cost Actions and Balance Sheet

HNI said the Steelcase integration is progressing as planned, with an integrated management office working on projects across selling, general and administrative expenses, logistics, procurement and network optimization. The company now expects total Steelcase synergies of at least $120 million when fully mature, up from its prior expectation of $120 million, though Berger said HNI will further assess project timing and provide an updated target after completing that work.

The company’s current synergy projection is focused on Steelcase’s Americas business and does not include revenue synergies. Lorenger said potential revenue opportunities are beginning to emerge naturally across the dealer network, but HNI has not yet formally programmed those benefits into its plans.

HNI expects Steelcase synergies, cost-management actions and legacy Workplace network optimization initiatives to produce more than $70 million in cumulative savings in 2027 and more than $150 million when fully mature. The company also projected double-digit non-GAAP EPS growth in 2027, an outlook that Berger said assumes neutral price-cost and minimal volume growth.

Free cash flow reduced net debt by about $100 million during the quarter. Debt leverage declined to 2.4 times at quarter-end from 2.5 times in the prior quarter. HNI expects leverage to return to pre-Steelcase acquisition levels within 18 to 24 months of the December 2025 transaction closing.

About HNI (NYSE:HNI)

HNI Corporation, founded in 1944 as the Heating & Novelty Company and headquartered in Muscatine, Iowa, is a leading manufacturer of office furniture and hearth products. Over its history, the company has evolved from producing gas heaters into two primary business segments: Office Furniture and Hearth & Home. HNI's Office Furniture division operates under well-known brands such as The HON Company, Allsteel, Gunlocke and Kimball, offering a comprehensive portfolio of workstations, seating, tables, storage solutions and acoustic products tailored for corporate, education, healthcare and government markets.

In its Hearth & Home segment, HNI designs, manufactures and distributes fireplaces, stoves, fireplace inserts, logs and related accessories.

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