Muscatine, IA—Furniture manufacturer HNI Corporation (NYSE: HNI) says despite strong orders, its revenue and profits will be hit by “greater-than-expected capacity constraints” including lack of labor, supply chain snafus, and rising materials costs.
In July HNI, which produces furniture under brands including Allsteel, Gunlocke, and Hon, was projecting growth in a 25 percent range. (At that time HNI reported an 11.7 percent rise to $344 million in workplace furnishings sales, and another $166 million in sales for its home construction products, mostly fireplaces.) Now that projection has dropped to just 16-18 percent growth.
The reason, HNI says, is that its workplace furnishings delivery backlog has nearly doubled, and is now running 99 percent higher than a year ago at this point. “Workplace furnishings” is a broader term for “office furniture,” reflecting the reality that millions of people work at home due to the continuous impact of the COVID-19 pandemic.
“Labor shortages and supply chain disruptions are well documented, and we are not immune to these pressures,” says HNI CEO Jeff Lorenger. HNI’s announcement doesn’t signal a dire situation, but is best practices in communications for publicly traded companies.
For HNI, labor and supplies problems are slowing delivery, despite orders being 29 percent higher than a year ago. Order levels for the workplace furniture segment have even exceeded 2019 pre-pandemic levels, led by strong growth in contract furniture sales and small-to-mid-sized customers.
As the third quarter progresses, HNI says factors like greater seaport congestion and increasing COVID-19 cases in its facilities—combined with continued staffing shortages at HNI internally and at its suppliers—are limiting production capacity growth. To mitigate these problems, HNI says it has taken a number of actions:
With those factors in mind “we announced plans to open a new seating manufacturing plant in Saltillo, Mexico in 2022,” Lorenger says. “While the new facility is an important addition to our North American footprint, we remain focused on increasing staffing levels and capacity at all our other manufacturing locations in North America.”
Due to reduced labor availability and supply chain constraints and rising costs, HNI says profits will take a hit this quarter, with operating income to be 25 to 35 percent below prior year levels. Previously HNI had indicated volume growth would more than offset cost pressures.
HNI expects its backlog to remain elevated through the remainder of 2021, but projects that working off that backlog will support strong revenue growth in 2022. Historically, revenue in the workplace furnishings segment is seasonal—peaking in the third quarter and then declining through the first quarter. Given its strong order backlog, HNI expects minimal revenue seasonality and strong first half revenue growth in its workplace furnishings segment in 2022.
“The workplace furnishings market recovery is underway and growing,” says Lorenger. “We have taken and will continue to take pricing actions to help offset the inflationary pressures we are absorbing in 2021, and we will begin 2022 with an elevated backlog. There is much to be optimistic about.”