HNI Q1 Earnings Call: Margin Expansion and Growth Initiatives Offset Demand Volatility

Workplace furnishings manufacturer HNI Corporation (NYSE:HNI) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 2% year on year to $599.8 million. Its non-GAAP profit of $0.44 per share was 29.4% above analysts’ consensus estimates.

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StockStory’s Take

HNI’s first quarter results reflected revenue growth across both of its primary segments, with management attributing performance to incremental productivity gains, synergy capture, and improved volume in Residential Building Products. CEO Jeff Lorenger noted that Workplace Furnishings revenue was supported by large contract projects, even as small and medium business (SMB) activity remained soft due to macroeconomic uncertainty. Segment profitability was affected by a shift in business mix, as higher-discount contract projects diluted margins, while Residential Building Products delivered improved profitability through strong remodel-retrofit activity and operational efficiencies. Lorenger stated, “The consistently strong profit margins in this segment are evidence of the business’ unmatched price point breadth and channel reach, along with the benefits of its vertically integrated business model.”

Looking ahead, management expects continued earnings improvement, emphasizing ongoing investments in growth initiatives and operational transformation. Lorenger highlighted that the company maintains its outlook for double-digit non-GAAP earnings growth in 2025, with visibility into further gains in 2026 driven by synergy initiatives and the ramp-up of HNI’s Mexico facility. However, the team remains cautious about potential demand volatility, citing tariff uncertainty and inflation as near-term risks. CFO VP Berger added, “We expect temporary price cost pressure related to tariffs,” but expressed confidence that pricing actions and supply chain flexibility would help offset these headwinds. Management reiterated its commitment to investing in new products and customer awareness programs to support revenue growth in both business segments.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to operational efficiencies, synergy realization, and targeted investments, while noting that revenue growth was uneven across customer segments and market conditions remained unpredictable.

• Residential Building Products momentum: The segment benefited from robust remodel-retrofit activity, which management linked to homeowners’ willingness to invest in existing properties despite challenging housing market dynamics. Lorenger specifically cited “solid year-on-year revenue growth” and margin expansion as evidence of successful execution in this business.
• Workplace Furnishings segment mix shift: Revenue from large contract projects increased, but management acknowledged these carry higher discounts, which diluted segment profit margins. The team clarified that this was due to project mix rather than increased competitive pricing pressure.
• SMB softness persists: Orders from small and medium-sized business customers declined 5% year-over-year, with management attributing this to macroeconomic uncertainty and the segment’s sensitivity to rapid changes in business sentiment. However, they noted a slight improvement in order trends as the quarter progressed.
• Synergy and productivity gains: HNI continued to realize benefits from its KII acquisition and operational transformation efforts, driving non-GAAP margin expansion and supporting higher earnings visibility. Management emphasized these initiatives as core to its ongoing margin improvement strategy.
• Tariff and inflation impact: Management identified tariffs and rising inflation expectations as key sources of short-term demand volatility and margin pressure, particularly in the Workplace Furnishings segment. The company is addressing these challenges through pricing actions, surcharges, and supply chain adjustments.

Drivers of Future Performance

HNI’s outlook for the rest of the year is shaped by demand volatility, ongoing tariff risks, and a focus on growth investments and operational efficiency.

• Growth initiatives and product launches: Management intends to drive revenue gains through new product development, increased customer awareness campaigns, and strengthened builder relationships. Lorenger pointed to targeted investment in both Workplace Furnishings and Residential Building Products as drivers of long-term revenue growth.
• Tariff and supply chain management: The company expects temporary margin pressure from tariffs but believes that pricing actions (including surcharges and list price adjustments) and supply chain flexibility will offset most of the impact by year-end. Berger noted that supply chain resiliency allows HNI to navigate shifting tariff environments without significant constraints.
• Order and backlog trends: Leading indicators such as a 19% year-over-year increase in Workplace Furnishings backlog and ongoing strength in Residential Building Products remodel-retrofit orders support management’s expectation for continued revenue growth, though overall market recovery in housing and SMB sectors is expected to remain slow.

Catalysts in Upcoming Quarters

As we monitor HNI in the coming quarters, the StockStory team will focus on (1) progress in capturing further KII and Mexico facility synergies, (2) the effectiveness of pricing actions and supply chain strategies in offsetting tariff-related margin pressure, and (3) signs of sustained order momentum in both contract and SMB segments. Additionally, we will track the success of new product introductions and customer engagement initiatives as indicators of the company’s ability to drive organic growth amid persistent market challenges.

HNI currently trades at a forward P/E ratio of 13.7×. At this valuation, is it a buy or sell post earnings? Find out in our full research report (it’s free).

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