Investor Presentation 4th Quarter 2016
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Investor Presentation 4th Quarter 2016
Forward Looking Statements This presentation contains "forward-looking" statements based on current expectations regarding future plans, events, outlook, objectives and financial performance, expectations for future sales growth and earnings per diluted share (GAAP and non-GAAP). Forward-looking statements can be identified by words including “expect,” “believe,” “anticipate,” “estimate,” “may,” “will,” “would,” “could,” “confident” or other similar words, phrases or expressions. Forward-looking statements involve known and unknown risks and uncertainties, which may cause the Corporation's actual future results and performance to differ materially from expected results. These risks include but are not limited to: general economic conditions in the United States and internationally; unfavorable changes in the United States housing market; industry and competitive conditions; a decline in corporate spending on office furniture; changes in raw material, component or commodity pricing; future acquisitions, divestitures or investments; the cost of energy; changing legal, regulatory, environmental and healthcare conditions; the Corporation’s ability to successfully complete its business software system implementation; the Corporation’s ability to implement price increases; changes in the sales mix of products; the Corporation's ability to achieve the anticipated benefits from closures and structural alignment initiatives; and force majeure events outside the Corporation’s control. A description of these risks and additional risks can be found in the Corporation's annual and quarterly reports filed with the Securities and Exchange Commission on Forms 10-K and 10-Q. The Corporation undertakes no obligation to update, amend or clarify forward-looking statements.
Investment Considerations
Long Term Value Creation
Leading Market Positions Breadth and Depth
Operational Excellence Financial Strength
23
Market Leader
Office Furniture Hearth
#2 Market Position #1
77% $2.3B 23%
Sales
64% $232M 36%
Operating Profits*
$2.58
EPS*
4
* See non-GAAP reconciliation on page 19
Sales Channels
Office
Furniture
77%
Hearth
23%
Office Furniture Hearth
Supplies
Driven
Retail
New Non-Pellet
Construction
Contract &
Other
Retail
Pellet
5
Market Drivers
Office Furniture
Corporate Profits CEO Confidence
80
70
10 year average
60
Billions of Dollars (nominal)
50
40
30
20
10
3Q07
3Q08
3Q09
3Q10
3Q11
3Q12
3Q13
3Q14
3Q15
0
3Q07
3Q08
3Q10
3Q11
3Q13
3Q14
3Q16
3Q09
3Q12
3Q15
Source: U.S. Department of Commerce
Source: The Conference Board
Small Business Confidence Private Non-Residential Investment
10.2
110
9.1
8.8
8.1
7.9
Percentage change from 1 yr. ago
105
5.0
3.8
1.5
1.1
100
15 yr. avg: 96
95
90
85
80
(15.8)
3Q08
3Q09
3Q10
3Q12
3Q13
3Q15
3Q16
3Q07
3Q11
3Q14
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: U.S. Department of Commerce
Source: National Federation of Independent Business
6
Seasonally Adj. Annual Rate (K)
Degree
-4
-2
6
8
0
2
4
Average
-
200
400
600
800
1,000
1,200
1,400
Jun-13
Sep-07
Aug-13
Source: U.S. NOAA
Oct-13
Sep-08
Dec-13
Feb-14
Sep-09
Source: U.S. Census Bureau
Apr-14
Jun-14
Aug-14 Sep-10
Oct-14
Dec-14 Sep-11
Feb-15
Apr-15 Sep-12
Jun-15
Aug-15 Sep-13
Variance from Average
Oct-15
US Temperatures
Dec-15 Sep-14
Feb-16
Single Family Housing Starts
Apr-16 Sep-15
Jun-16
Aug-16 Sep-16
Dollars per Gallon
$0
$1
$2
$5
$3
$4
60
70
80
90
50
100
110
120
130
2007
2007 99.6
2008
2008 92.8
Source: U.S. EIA
2009
Source: Hanley Wood
2010 2009 84.8
Heating Oil 2011 2010 85.4
2012 2011 83.0
2013 2012 84.2
2007 Peak
Oil Prices
2014 2013 92.1
2015 96.2
2014
Crude-Brent
2016F 101.2
2015
Residential Remodeling Index
2017F
2016F 104.9
$0
$30
$60
$90
$120
$150
Dollars per Barrel
Hearth
Market Drivers
7
Breadth and Depth
Brands Distribution
Tuned and tailored Broadest coverage
Products Price Points
Solutions for every need High to low
8
Split and Focus
House
Of
Brands
Leverage
Member Owner Culture with Lean
9
Market Coverage
Office Furniture
North America
Supplies--Driven Channel Contract Channel
Retail Commercial Contract Image
Retail less
than 1%
HNI
Brands
Asian Imports
Key Global
Competitors Steelcase
Haworth
Herman Miller
Knoll
Core, sweet spot
10Market Coverage
Hearth Products
New Construction Channel Remodel/Retrofit Channel
Installing Distributors Specialty Dealer DIY
HNI
Brands ` `
`
`
Innovative Hearth Products (IHP)
Napoleon
Key
Competitors Travis
Niche Competitors
Core, sweet spot
11Operational Excellence / Lean Culture
SELECTED EXAMPLES
Announced ongoing structural
Structural
cost take out, $35 – $40M of
Cost
annual savings by 2018
Lean culture drives best Core
Leverage scale, capabilities,
and capital to drive rapid
total cost Productivity
continuous improvement
Never finished Business
Understand
Simplify
Process Standardize
Improvement Flow
12Long Term Value Creation
13Mid-Term Financial Targets
TOP-LINE GROWTH PROFIT LEVERAGE OPERATING MARGIN
4 - 5% * 25 - 30% 12%
Annualized EBIT Leverage
REASONS TO BELIEVE
Attractive
Operational
Proven Track Breadth and Financial
P Record P Markets /
Leading P Depth P Excellence /
Lean Culture
P Strength
Positions
* Assumes modest economic growth
14Path to 2X Earnings
Other Modest Growth
Businesses $0.30 - $0.40
$35-$40M of annual
Structural Cost cost savings
Benefits
$0.40 - $0.50
1.2M Single Family
Hearth housing starts
New Construction
$0.75 - $1.00
North America GDP plus Inflation
Office Furniture $0.75 - $1.00
15Financial Strength
Operating Cash Flow
$350
Significant cash flow generation $300
• Economic profit focus/alignment $250
$ in millions
$200
$150
$100
Solid financial position $50
$-
• Conservative leverage: Debt/EBITDA 1.0x
2016F
2007
2008
2009
2010
2011
2012
2013
2014
2015
Dividends
Committed to strong dividend
$0.28
• Sustainable and increasing
$0.26
$0.24
$0.22
$0.20
$0.18
$0.16 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
16Current Outlook
4Q’16 FY16
Outlook Outlook
Non-GAAP EPS Non-GAAP EPS
HNI $0.81 to $0.91 $2.60 to $2.70
Earnings Per Share (PY $0.91) (PY $2.58)
Office Furniture Down 1 to 4 Down 4 to 5
Net Sales percent percent
Hearth Up 1 percent to Down 4 to 5
Net Sales down 2 percent percent
17Non-GAAP Financial Measures
This presentation includes certain non-GAAP financial information as defined by Securities and Exchange Commission Regulation G.
Pursuant to the requirements of this regulation, reconciliations of this non-GAAP financial information to HNI’s financial statements as
prepared in accordance with GAAP are included below and throughout this presentation. HNI’s management believes providing
investors with this information gives additional insights into HNI’s financial performance and operations. While HNI’s management
believes that the non-GAAP financial measures herein are useful in evaluating HNI’s operations, this information should be considered
supplemental and should not be considered in isolation or as a substitute for, or superior to, financial information prepared and
presented in accordance with GAAP. In addition, these measures may be different from non-GAAP financial measures used by other
companies, limiting their usefulness for comparison purposes.
To supplement our condensed consolidated financial statements, which are prepared and presented in accordance with GAAP, we use
the following non-GAAP financial measures within this presentation: organic sales, gross profit, operating income, operating profit, and
net income per diluted share (i.e., EPS). These measures are adjusted from the comparable GAAP measures to exclude the after-tax
impacts of the selected items as summarized in the table below. Non-GAAP EPS is calculated using HNI’s overall effective tax rate for
the period.
The sales adjustments to arrive at our non-GAAP organic sales information included in this presentation include the impacts of
acquisitions and divestitures. The transactions excluded for purposes of our other non-GAAP financial information included in this
presentation include restructuring and transition costs and the accelerated depreciation in conjunction with the announced donation of
a building. The restructuring and transition costs are costs incurred as part of the previously announced closure of the hearth
manufacturing facility in Paris, Kentucky and structural realignments between office furniture facilities in Muscatine, Iowa. Specific
items incurred include severance, accelerated depreciation and production move costs.
This presentation also contains a forward-looking estimate of non-GAAP earnings per diluted share for the fiscal year. We provide
such non GAAP measures to investors on a prospective basis for the same reasons we provide them to investors on a historical basis.
We are unable to provide a reconciliation of our forward looking estimate of non-GAAP earnings per diluted share to a forward-looking
estimate of GAAP earnings per diluted share without unreasonable efforts because certain information needed to make a reasonable
forward-looking estimate of GAAP earnings per diluted share is highly variable and difficult to predict and estimate, and is dependent
on future events which are uncertain or outside of our control. These may include unanticipated charges related to asset impairments
(fixed assets, intangibles or goodwill), unanticipated acquisition related costs and other unanticipated nonrecurring items not reflective
of ongoing operations. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact
on our GAAP earnings per diluted share.
18Non-GAAP Reconciliation
(Dollars in millions, except per share data) Segment Operating Profits HNI Consolidated Results
Office Hearth Corporate Income Before
Furniture Products Total Unallocated Income Tax EPS
As reported (GAAP) $136.6 $78.2 $214.8 ($57.6) $157.2 $2.32
Restructuring and Impairment Charges $11.6 $0.9 $12.6 - $12.6 $0.19
Transition Costs $3.3 $1.4 $4.7 - $4.7 $0.07
Operating profit (non-GAAP) $151.6 $80.4 $232.1 $80.4 $174.5 $2.58
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