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Date
Tuesday, October 28, 2025 at 11 a.m. ET
Call participants
Chairman, President, and Chief Executive Officer — Jeffrey D. Lorenger
Executive Vice President and Chief Financial Officer — Vincent Paul Berger
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Takeaways
Non-GAAP Diluted EPS -- $1.10 for the quarter, up 7% year over year and described by management as "modestly ahead of our internal expectations."
Non-GAAP Operating Margin -- 10.8%, expanding 10 basis points year over year in the third quarter and noted as the highest on record for a third quarter.
Total Net Sales Growth -- Total net sales in the third quarter increased 3% organically over the same period a year ago.
Workplace Furnishings Organic Net Sales -- Grew 3% organically in fiscal Q3 2025 (period ended September 27, 2025), with all major brands contributing.
Workplace Furnishings Segment Operating Margin -- Non-GAAP segment operating profit margin in workplace furnishings exceeded 12% in fiscal Q3 2025, increasing 40 basis points year over year (non-GAAP, fiscal Q3 2025); segment benefited from KI synergies, profit transformation, and modest volume gains.
Residential Building Products Segment Revenue -- Remained roughly unchanged, with remodel/retrofit sales growing modestly year over year in fiscal Q3 2025, and new construction revenue declined slightly in fiscal Q3 2025.
Residential Building Products Segment Backlog -- Remodel/retrofit orders rose 7% in fiscal Q3 2025.
Adjusted Workplace Furnishings Backlog -- Up 7% from 2024 in fiscal Q3 after excluding hospitality, according to management statements.
Fourth-Quarter Revenue Outlook -- Both Workplace Furnishings and Residential Building Products are expected to grow at a high single-digit rate in fiscal Q4 2025, aided by an extra fiscal week.
Pricing Actions -- Pricing actions are identified as the primary driver of anticipated growth in Residential Building Products in fiscal Q4 2025.
KI and Mexico Facility Synergies -- Projected to deliver $0.75 to $0.80 EPS over 2025–2026, with recognition expected to be slightly weighted toward 2025.
Steelcase Acquisition Synergies -- Management projected $120 million in synergies and "ultimate accretion to total $1.20 per share when fully mature, excluding purchase accounting."
Tax Rate Update -- Full-year tax rate now expected at 23% for 2025. Second-half tax rate rose 85 basis points to 24.4% over prior guidance.
Net Leverage Guidance -- Post-Steelcase acquisition, anticipated net leverage of 2.1x (initial postclosing), with a target to return to 1.0x to 1.5x within 18 to 24 months of closing.
Industry Dynamics -- Management cited "Office vacancy rates are falling for the first time in seven years," with net office absorption and leasing activity at multi-year highs in major U.S. markets.
Summary
HNI (HNI 0.56%) management reaffirmed the unchanged full-year earnings outlook, projecting a fourth consecutive year of double-digit non-GAAP EPS growth and providing full-year mid-teens-percent EPS growth guidance for 2025. Operational discipline and segment-level margin expansion supported these expectations, with management highlighting ongoing cost savings from KI synergies and the Mexico facility. Pending the Steelcase acquisition, management projected material accretion and rapid deleveraging, citing strong expected free cash flow and strict capital allocation plans.
Workplace Furnishings orders rose 2% after adjusting for hospitality, while adjusted segment backlog at the end of the third quarter increased 7% from 2024.
Remodel/retrofit in Residential Building Products outpaced new construction in fiscal Q3 2025, with order growth accelerated at the end of fiscal Q3 2025.
CEO Lorenger stated, "calendar year 2025 is expected to see the highest net absorption of office space since 2019," positioning the company to benefit from sector tailwinds.
Berger noted product mix and timing of investments affected quarterly margin outcomes but stated, "second half is still unchanged," maintaining steady guidance for the remainder of the year.
Management indicated substantial unit volume in workplace furnishings remains "30 to 35%" below pre-pandemic levels as of the post-COVID cycle, according to Jeffrey D. Lorenger, implying extended cyclical upside as markets normalize.
Industry glossary
Non-GAAP EPS: Earnings per share excluding certain nonrecurring or noncash items, used to present adjusted operational performance.
Operating margin: Ratio of operating income to net sales, reflecting profitability from core business activities.
Backlog: Summation of unfulfilled customer orders still to be delivered, indicating forward sales visibility.
Net absorption: Square footage of office space leased minus space vacated, measuring net change in occupied commercial real estate.
Synergies: Cost savings or incremental earnings expected from mergers, acquisitions, or operational integration.
Full Conference Call Transcript
Jeffrey D. Lorenger: Thanks, Matthew. Good morning, and thank you for joining us. I am going to divide my commentary today into three sections. First, I will provide some comments about our third quarter results. Non-GAAP earnings per share increased 7% year over year, driven by a record third quarter non-GAAP operating margin. Next, I will discuss our expectations for 2025. Our full-year earnings outlook is unchanged from what we provided on last quarter's call. We continue to anticipate a fourth consecutive year of double-digit non-GAAP earnings improvement. Finally, I will provide additional detail about recent demand activity and how we see our markets playing out in the fourth quarter and as we move into 2026.
Following those highlights, Vincent Paul Berger will provide additional color around our fourth quarter outlook. He will also comment on the strength of our balance sheet, both currently and what we anticipate after the completion of the pending acquisition of Steelcase. I will conclude with some closing comments, including some additional thoughts on our Steelcase transaction before we open the call to your questions.
We will begin with the third quarter. Our members delivered another strong quarter despite ongoing tariff-driven volatility and continuing macro uncertainty. The positive momentum of our strategies, the benefits of our diversified revenue streams, our focus on items within our control, and the merits of our customer-first business model continue to deliver strong shareholder value. For the quarter, we delivered non-GAAP diluted earnings per share of $1.10. EPS grew 7% versus last year, which was modestly ahead of our internal expectations. Total net sales in the third quarter increased 3% organically over the same period a year ago, and profit margins in the third quarter were strong. Our non-GAAP operating margin expanded 10 basis points year over year to 10.8%.
This non-GAAP EBIT margin was the highest on record for the third quarter.
In the workplace furnishing segment, organic net sales increased 3% year over year, fueled by growth across all major brands. We delivered similar organic growth rates in our brands focused on small and medium-sized businesses and on contract custom. From a profitability perspective, workplace furnishing's non-GAAP segment operating profit margin expanded 40 basis points year over year and exceeded 12%. Third-quarter profitability benefited from our profit transformation efforts, recognition of KI synergies, and modest volume growth. In residential building products, third-quarter revenue was roughly unchanged versus the prior year period. New construction revenue was down slightly, while remodel retrofit sales grew modestly year over year. We delivered this top-line performance despite continued challenging housing market dynamics.
As we continue to compete well, our internal growth and investments are bearing fruit. Consistent with expectations discussed on last quarter's call, third-quarter segment operating profit margin contracted year over year, driven by continued investment. However, segment operating margin still came in at a strong percent. Despite expectations of ongoing uncertainty, we remain encouraged about the opportunities tied to the broader housing market, and we continue to invest to grow our operating model and revenue streams. A consistently strong profit margin in this segment is evidence of the business's unmatched price point breadth and channel reach, along with the benefits of its vertically integrated business model and overall operational agility.
To summarize, our third-quarter performance demonstrates the strength of our strategies and our ability to manage through varying macroeconomic conditions while remaining focused on investing for the future. We expect strong results to continue, driven by our margin expansion efforts and continued volume growth. That leads to my comments about our outlook for the fourth quarter.
Overall, we expect our margin expansion efforts and continued revenue growth will support ongoing year-over-year EPS improvement, all while we continue to invest to drive future growth. In workplace furnishings, segment orders increased 2% after the estimated impact of prior quarter pull-forward activity and hospitality. We are again excluding hospitality from our adjusted order growth and backlog metrics, as the business has experienced meaningful tariff-related volatility over the past two quarters, which has temporarily skewed results. Adjusted orders from contract customers performed better than those from small to medium-sized businesses. Our adjusted segment backlog at the end of the third quarter was up 7% from 2024.
I will discuss our outlook for our workplace markets, including hospitality, more in a moment.
Moving to residential building products, orders in the third quarter increased 2% year over year. Remodel retrofit orders outperformed and were up mid-single digits from third-quarter 2024 levels, while new construction orders were down low single digits. Overall, year-over-year segment order growth accelerated toward the end of the quarter. Builder sentiment has weakened in recent months and continues to reflect the impacts of elevated interest rates, ongoing affordability issues, and weaker consumer confidence. Housing trends have broadly followed builder sentiment, with permits moving lower. Despite expectations of ongoing uncertainty and headwinds, we remain encouraged about the opportunities tied to the broader housing market, and we continue to invest to grow our operating model and revenue stream.
I will finish by making a few comments about our markets and provide additional detail around our elevated EPS growth. On our last few calls, we highlighted an increased focus on investing to drive growth in both segments. Our 2025 to date revenue strength and encouraging leading indicators have provided added support for our growth initiatives and investments. As we look at our workplace furnishing segment, we are encouraged about the developing fundamentals of this business. The macro and industry drops have shown consistent improvement in recent months. Return to office data appears to be indicating an inflection.
The council card swipe data following Labor Day reached post-COVID highs, with Class A buildings in the top 10 markets approaching 98% peak day occupancy. Further, in a recent KPMG survey, nearly 80% of CEOs surveyed now expect employees to be full-time in office over the next three years. This is up from fewer than 40% in the April 2025 survey.
And according to CBRE, nonviable space is being converted at record levels. This positively impacts our business in two ways. First, it results in more forced moves as landlords encourage current tenants of this nonviable space to relocate. Second, it will accelerate the expected Class A square footage shortage, which will either drive the addition of new space or increase investment in upgrading existing Class B space. Each of these dynamics results in more furniture events. Finally, calendar year 2025 is expected to see the highest net absorption of office space since 2019. Historically, absorption has been an important indicator of office furniture demand.
JLL estimates more than 6 million square feet was absorbed on a net basis in 2025 alone. This compares to total negative net absorption of more than 150 million square feet over the past five years.
Office vacancy rates are falling for the first time in seven years as we enter what JLL has deemed a new office growth cycle. In New York City alone, businesses leased 23 million square feet of additional office space during the first nine months of 2025. This is the largest amount of new work rented for that period in two decades. In total, 18 of the largest US markets are exceeding pre-pandemic leasing activity over the past year. The macro and industry backdrops are clearly improving, and we expect our contract business to disproportionately benefit from these trends as much of the industry growth cycle to date has been in secondary and tertiary markets.
Finally, I will comment on our hospitality business. As I mentioned earlier, compared to our other businesses, this vertical has seen more tariff-related demand volatility over the past few quarters. Despite this pressure, we expect revenue in this business to be relatively flat in 2025 overall. We have seen recent improvement in preorder activity, and our pipeline continues to build, pointing to a solid growth year in 2026. Looking ahead, we believe we are particularly well-positioned to benefit as the workplace furnishings market continues to improve. We have strong market positions and offer compelling value to our targeted customers with a diversified portfolio of brands.
Moving to residential building products, we believe in the positive long-term market fundamentals. We continue to perform well despite an ongoing soft new construction environment, and we acknowledge the market-driven revenue recovery will take some time. We are, however, optimistic about our opportunities to increase revenue through our growth initiatives. Specifically, we continue to invest in developing market-leading new products that offer customers more options and features. We are driving new programs to increase homeowner and homebuyer awareness of their fireplace options, ensuring our products are considered in all remodel and new construction projects. We are strengthening our already strong relationship with builders across the country, helping them deliver the best overall value to the homeowner.
Encouragingly, we are outperforming the market in this segment despite still being in the early days of each of these initiatives. While we invest in growth, we will continue to deliver high-margin results and strong profits in this business. Longer term, single-family housing remains undersupplied, and demographics will support additional demand growth. The results of our ongoing investments, which will enhance our connection to customers and build on our leading brands, will fortify our position of strength in the industry.
Finally, and importantly, we continue to have elevated earnings visibility this year, and our outlook for 2025 revenue continues to include full-year growth in both segments. Our outlook for 2025 earnings reflects expectations for mid-teens percent EPS growth. In addition to increased profits and volume growth, KI synergies and the ramp of our Mexico facility are expected to continue to drive significant savings. These two initiatives are expected to contribute a total of $0.75 to $0.80 of EPS in the 2025-2026 period. I will now turn the call over to Vincent Paul Berger to discuss the outlook for the remainder of 2025 and our balance sheet. VP?
Vincent Paul Berger: Thanks, Jeff. I will start by discussing our outlook for revenue and profit. Beginning with the top line, fourth-quarter revenue in workplace furnishings is expected to increase at a high single-digit rate, reducing the year-over-year organic revenue growth rate in workplace furnishings by a little less than 100 basis points. The benefits of our order and backlog growth, along with an extra week in our fiscal year, are expected to drive solid revenue growth in the fourth quarter. Residential building products' fourth-quarter net sales are also projected to increase at a high single-digit rate compared to the same period in 2024. Pricing actions are expected to be the primary driver of growth.
However, we also expect borrowing capacity will continue to provide us with significant financial flexibility. Moreover, while we expect our initial post-closing net leverage to approximate 2.1 times, we continue to project our debt levels will return to our targeted range of 1 to 1.5 times within 18 to 24 months of closing. In the meantime, we remain committed to the payment of our long-standing dividend and continuing to invest in our business to drive future growth. I will now turn the call back over to Jeff.
Jeffrey D. Lorenger: Thanks, VP. During the third quarter, we remained financially disciplined, managing the middle of the income statement to drive profit improvement while pursuing revenue growth. As we look forward, several positive secular trends and our HNI-specific initiatives will help offset macro-related risk and continued tariff-driven volatility. We will remain focused, conservative, and ready to adjust as required. As a result, our earnings outlook for the full year is essentially unchanged, and we continue to expect the fourth consecutive year of double-digit non-GAAP EPS growth. This outlook demonstrates the benefits of a stronger-than-expected third quarter, our ongoing visibility story, and our proven ability to manage through changing economic conditions.
Before we take your questions, I wanted to provide some thoughts on the pending Steelcase acquisition. As we approach the closing, we are excited about the future of bringing together our combined capabilities to create new career growth opportunities for our team members, deliver more value for our customers and dealer networks, and further support and invest in the communities in which we operate. The deal is right from a strategic, financial, and cyclical perspective, and our two companies are highly complementary on many fronts. We currently expect synergies to reach $120 million and ultimate accretion to total $1.20 per share when fully mature, excluding purchase accounting.
As VP highlighted, our anticipated strong free cash flow will help us quickly deleverage our balance sheet. The addition of Steelcase will further strengthen the tenets of the HNI investment thesis, and we are positioned for continued success. We have elevated earnings growth visibility for several years, broad and diverse product and market coverage in workplace furnishings, market-leading positions in residential building products, and we continue to invest to drive growth. All this is supported by our strong balance sheet and the ability to generate continued free cash flow. I want to thank each HNI member for their continued dedication and congratulate them on another excellent quarter. We will now open the call to questions.
Operator: And now opening the floor for the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. Your first question comes from the line of Greg Burns of Sidoti & Co. Your line is now open. Good morning.
Gregory John Burns: That $1.20 of accretion from Steelcase that you just mentioned, is that considering just the synergies that you've already outlined, or is there potential upside to that if you get your hands around the business and drive savings?
Jeffrey D. Lorenger: Yeah, Greg, that's the $120 million that we talked about on the investor call back in August. So that number has not changed. Just the way the share count works, that now converts to about $1.20 in accretion.
Gregory John Burns: Okay. So that's just your initial outlook. Maybe there's potential upside to that if you get your hands around the business and drive savings. Okay, great. Thanks for that. That's just one comment there. That's the number that we're really confident in. We're going to use our disciplined integration process, and once we get in there, if there's more, we'll look for more. But that's what we're on record for right now. Okay, great. Thanks. And then where are you in terms of the $0.75 to $0.80 from KI and Mexico? How much have you gotten so far? What remains?
Jeffrey D. Lorenger: Yeah, we had said that $45 to $50 million would be recognized between '25 and '26. We had mentioned kind of splitting it half and half. We're seeing a little bit more come forward of '26 in the last quarter here and into '25. So I would tell you, maybe a little bit more in '25 than '26, but I think more importantly, to Jeff's point on visibility, we do see the $45 million to $50 million coming through.
Gregory John Burns: Okay. And you gave us a lot of data points around some of the positive industry-level fundamentals in the office space. We've seen kind of the slow and steady demand improvement happening over the last couple of years, kind of low single-digit growth. But when we think about where the industry is at relative to maybe pre-pandemic levels, I know you've passed along a lot of pricing. Relative to where we are in terms of volume to maybe where we were pre-pandemic, where are we in terms of industry-wide volumes?
I'm just trying to get a sense of where we're at in the cycle and maybe what the potential uplift from here could be if we do get a more positive demand environment going forward.
Jeffrey D. Lorenger: Yeah, Greg, I think we're probably, with all the pricing, it's a little tough to say, but I think confidently, we probably are 30 to 35% on the volume side, still down just given pricing actions and tariffs. But so that's kind of, I think, as you think about that, that's how we think about the post-COVID kind of cycle and some of these other macro backdrop items starting to turn around. So that's how I think about it. That's how we think about it, and that's why we're bullish about the space.
Gregory John Burns: Yeah, even if it returns half back, Greg, you're looking at mid-single-digit volume growth for a significant number of years. So the backdrop is set up. It doesn't get back to the 30% more. There's still a lot of volume growth opportunity.
Gregory John Burns: Alright. Great. Thank you.
Operator: Your next question comes from the line of Reuben Garner of Benchmark. Your line is now open.
Reuben Garner: Thank you. Good morning, everyone. Can you kind of give us a compare and contrast about your full-year guidance? I guess, what's embedded in the fourth quarter now versus maybe how it looked a few months ago? It looked like maybe the top line's a little higher, but there's some more cost in there as well. Can you kind of give us the breakout of that?
Vincent Paul Berger: Yeah, I can walk you through that, Reuben. Starting with revenue, I think it's probably, if I look at workplace and residential revenue, it's mostly actually in line with prior expectations. Both are expected to be in the fourth quarter of high single digits with the extra week. So I think we're seeing a little bit of the pressure is the product mix. When we look at what's come through in backlog and the pipeline, there's more project-driven business and systems. So that's really a timing issue. It draws a little bit lower margin, but on the backside of that comes other business that goes with that, with ancillary products that come probably in Q1. So a little timing there.
I think the second part of our Q3 beat is going to be timing of investments. Some of it slid into the fourth quarter, part of it actually saved in the third quarter. So those are going to come back. I think the key there is our second half is still unchanged. So I think you've got a little bit going between the two quarters.
Reuben Garner: And then a couple of other things to mention, Jeff mentioned, I mentioned insurance-related pressure year over year. That's hitting us on the SG&A side. And I think we probably need to update our tax rates. Second half tax rates now at 24.4%, about 85 basis points higher than we talked about prior in the year, for a second to full-year tax rate of 23%. So when you boil that all together, the back half is really not changing. Got a little bit of timing and dealing with one-time expenses.
Reuben Garner: Okay. That's really helpful. And then on the residential building product side, you guys have definitely outperformed what the end markets have been like so far this year. And I know you've got some investments ongoing there to drive growth. How much runway do you have on that front? I guess maybe to ask it differently, if we're looking at kind of a flattish environment next year, do you think you can still grow above and beyond the market on the volume side?
Jeffrey D. Lorenger: Yeah, Reuben, it's a good question. I think we can. It's all relative to the macro environment, right? But I think given the investments we're making, like right now, the new construction business, I'll give you an example. We're outperforming, for instance, in our October, our orders were flat, and permits 90 days prior to that were down high single digits. And that's kind of the lag time we've been seeing. So that tells you we believe we can outperform this market. The question is, where is the market ultimately going? And your guess is as good as ours, but we definitely think we can outperform. We've got retail performing well. Our gas inserts are up year over year.
We've got stoves now going into the big box channel, and that's early innings. Our wholesale business is actually up year over year because the operating model is strong, and that part of the world supports smaller independent dealers. And just overall investments in our superior service model, our vertical integration, and builder intimacy efforts are starting to take shape. So these are in the early innings, but they are bearing some fruit. So we do believe we'll be able to stay ahead of the demand curve, if you will. The question is, where is that macro demand curve, and what gap can we put on top of that?
Reuben Garner: Okay. I understand. Can I sneak one more in on the contract business? It seems like some good momentum on that side, and the timing of you guys adding Steelcase seems nice. Can you talk about any risks that are gate as you're integrating the company? And if we did see an acceleration in demand, what gives you confidence that you'd be able to participate in that upswing as you're putting the two companies together?
Jeffrey D. Lorenger: Yeah, that's a great point, Reuben. Let me start with, first of all, there's really no change on the front. Our dealer partnerships are going to remain intact as they are. The brand distribution is going to remain intact. Salesforce is intact, both for HNI and Steelcase companies. So I think our approach there will avail us the ability to take advantage of some of those trends because everybody's heads down in that regard. The cultures are good.
We're out of the blocks, and so we're bullish about being able to work on what we need to work on, as we've talked about cost synergies in some of those areas, while keeping the front end of these businesses separate and focused on their unique brand positions so that we continue to work to build on those. So we would anticipate being able to participate in any of this as the trends continue to evolve, particularly in some of these larger markets.
Reuben Garner: Great. Thank you, guys, and good luck to the end of the year.
Operator: Your next question comes from the line of Brian Barros on behalf of Steven Ramsey. Your line is now open.
Brian Barros: Good morning. This is Brian Barros on for Steven Ramsey. Thanks for taking my questions today. On the resi side, I guess, sales were flat. Orders grew 2%, and really accelerated at the end of the quarter, it sounds like. So I guess, can you just parse out maybe why orders grew and if there's anything to call out that drove the acceleration into the quarter end?
Vincent Paul Berger: Yeah. Are you talking about the resi side or workplace, Brian, to make sure?
Brian Barros: Sorry, the resi side. Yeah.
Vincent Paul Berger: You kind of nailed it. So if you look at orders for the quarter, we're up 2% as for the segment. The actual remodel retrofit was up seven, and it actually was accelerating as we went through the quarter. We actually grew backlog 13%. So that's given us confidence in the high single digits for the quarter. The backdrop of everything that Jeff just talked about is supporting that, which is allowing us to outpace the market. Starting to see good signs for a retail season in most of the country outside the West Coast. All those support our high single digits with the extra week.
So when we look at that business for the full year, I think it's more important. We're going to grow mid-single digits in a very tough market that didn't grow. Although most of it will be priced, we actually are going to show unit volume growth in the fourth quarter and a bit for the full year.
Brian Barros: And secondly, I guess, on the workplace segment, the opportunity set there and maybe by sector, is there a way to think of how much that reflects return to office compared to non-office verticals?
Jeffrey D. Lorenger: Oh, so yeah. I think that's pretty hard to parse that. I think it's some of both. The verticals have been holding up well. You look at education, you look at healthcare. Obviously, the federal government is in kind of a weird spot right now. But I think the return to office stuff, if I had to say, is probably in the earlier innings definitely than some of the other vertical plays. But we do see some of those verticals as we look out into the future that's still staying strong. But I'd say verticals have been a little stronger than return to office, and return to office is just really getting going.
Brian Barros: Understood. Thank you.
Operator: I'd now like to hand the call back to Mr. Lorenger for final remarks.
Jeffrey D. Lorenger: Great. Thanks. Thank you for taking an interest in HNI, and have a great day. Appreciate your time.
Operator: Thank you so much for attending today's call. You may now disconnect. Goodbye.