HNI (HNI) Q2 FY26 earnings call: guidance and Q&A

Why the tweak to 'at least $120 million' for Steelcase synergies, and what potential upside is there?

The initial $120 million target was based on analytics. After 7 months of integration, bottom-up project lists in SG&A, logistics, procurement, and network optimization show a larger potential. The company will finalize new adjusted targets within 60 days, indicating confidence in exceeding $120 million.

“So now what we'll do over the next 60 days is put project time lines on those and finalize our confidence levels. And with that, we'll come back to a new adjusted target. So I think we're kind of -- you called it well. It's similar to what we did with Kimball. And I'd say we're on track, and we're encouraged that the number is going to be higher than $120 million.”

asked by Reuben Garner · answered by Vincent Berger

How are gross margins trending, considering Steelcase's different accounting, and what's embedded in the guide for the balance of the year?

Steelcase's margin accounting differs from legacy HNI due to freight and distribution. For legacy Workplace, HNI expects a 150 bps increase (from 10.5% to 12%) this year before tariff refunds. For Residential, a 90 bps incremental improvement is expected before tariff refunds. Steelcase margins will improve in Q3/Q4 as synergies hit.

“On the residential side on margins, we feel the same. There's a 90-basis point plan for incremental improvement this year, and that's before the tariff refund. And then if you look at actual Steelcase, you follow P&L throughout the year, you'll see that it's now aligning with the way we did with legacy, and you'll start to see the benefits of the synergies.”

asked by Reuben Garner · answered by Vincent Berger

Given mid-single-digit order growth and a 5-week acceleration comment, what gives confidence for high single-digit revenue growth in H2 for Workplace?

Confidence stems from three factors: 5% backlog and order growth rates, order acceleration post-quarter (especially in contract business), and a weighted funnel of pre-order metrics (won but not ordered) that are expected to convert. These internal indicators, combined with positive macro trends, support the H2 outlook.

“There's 3 parts to that, Reuben. Yes, that -- it's a good catch. So there's 3 parts. First, backlog at 5% going into a quarter and order growth rates at 5% going into -- coming out of the quarter support it. The second thing is the order acceleration that happened after the quarter. You heard Jeff mention that orders accelerated. That was at a much higher percentage than 5%, specifically on the contract side of our business.”

asked by Reuben Garner · answered by Vincent Berger

What are the drivers of improving win rates in Workplace, across legacy and/or Steelcase, and is the market rational?

Improving win rates are broad-based across both legacy and Steelcase, driven by project business (small, medium, large). This aligns with positive macro drivers like leasing activity and absorption. The market appears rational, with no unusual behavior from competitors or customers.

“Yes, good question. I think, Steven, it's kind of across the board, both legacy and Steelcase, teams are competing well. There's been -- it's a lot of project business, small, medium and large kind of across the board by business. And so there's not like a standout. It's kind of universal. I think it kind of goes to these macro drivers, I believe, that are happening with the leasing activity and the absorption and the dealer surveys are trending positive.”

asked by Steven Ramsey · answered by Jeffrey Lorenger

Does the pricing-driven revenue growth in Residential for H2 imply negative volumes, and what about mix?

Yes, Residential volume in H2 is expected to be low single digits negative. Price will offset this, resulting in relatively flat or low single-digit revenue for the second half. HNI is outperforming the market despite the challenging housing environment due to specific investments.

“Yes, Steven, the volume in the second half in the residential is low single digits negative. So there's a little bit of pressure. The price is going to offset that to make it relatively flattish for the second half or low single digits. So the point is even in a challenging housing market, we're going to hold revenue flat.”

asked by Steven Ramsey · answered by Vincent Berger

Beyond cost synergies, what are the longer-term revenue synergy opportunities with Steelcase, and how are brands working together?

Revenue synergies were not programmed into initial thinking but are occurring naturally. There's excitement among dealers and customers. HNI hasn't forced it yet, focusing on transition, but sees opportunities in the ecosystem and the mixing/matching of products across the floor plate. Reinvestment in NPD and sales force support will help capitalize on these.

“Yes, it's a great question, Greg. I mean I think that as you well know, none of that was programmed into our thinking going in. And so we're kind of watching that. I would tell you, some of that is occurring naturally in the ecosystem. And so that is -- there was a lot of excitement at Design Days this year, a lot of customers and dealers visiting all the spaces going to the Hans space, going to the Kimball space, what have you.”

asked by Gregory Burns · answered by Jeffrey Lorenger

What specific presale indicators are driving confidence in the Q3 outlook?

All pre-order activity and presale indicators are increasing, including RFPs, bids, and bid sizes. Investments in sales force and sophisticated systems allow HNI to track these. A 'weighted funnel' of won but not ordered projects provides internal visibility, combined with positive macro trends like absorption and leasing activity.

“Yes. David, I think us sharing more about preorder activity and presale indicators, we're seeing all of them increase. We're seeing RFPs increase. A little bit about the question earlier about win rate. Some of the investments that we made over the last few years when volume wasn't helped in the front and more salespeople on the street allowed us to sophisticate some of these systems to see it.”

asked by David S. MacGregor · answered by Vincent Berger

How much of the double-digit EPS growth expected in 2027 is from new orders vs. Steelcase synergies, and what are the volume assumptions?

The 2027 visibility of $70 million is minimally dependent on volume, primarily driven by Steelcase synergies and network optimization projects. Price/cost is assumed neutral. Any additional volume strength would represent upside to this conservative outlook.

“Yes, minimal. We've been conservative on that approach. Our visibility story for '27 of the $70 million is Steelcase network and the network optimization. And those numbers have been consistent. Those projects are in place, and we're building them. So growth on top of that is not in the economics, and certainly, that would be upside.”

asked by David S. MacGregor · answered by Vincent Berger

How is the business mix changing with Steelcase, given its larger project sizes, and what is being learned for future reinvestment?

Steelcase brings exposure to larger, lumpier opportunities, requiring HNI to refine predictability, especially with the sales funnel. This exposure is a key benefit. HNI is reinvesting in NPD and sales force support, re-triggering product development efforts to 'win at the point of attack' in the market, leveraging Steelcase's strong customer connections.

“Yes, it's a good question. We are -- this first year is a year of, I would say, transition. There's a lot of moving parts. But their exposure, obviously, is to larger opportunities than we typically have been operating kind of the standard deviation. It makes it a little lumpier, I would say. So we're kind of getting our arms around predictability. That's kind of why we're talking a lot about the funnel and the activities because that's kind of a precursor.”

asked by David S. MacGregor · answered by Jeffrey Lorenger