HNI Corporation
Q2 2013 Earnings Call Transcript

Published: 18 Jul 2013

[Operator:]

Good morning. My name is Sara and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation Second Quarter Fiscal 2013 Results Conference Call. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions) As a reminder, today’s conference call is being recorded. Thank you. Mr. Schmidt, you may begin your conference.

[Derek Schmidt:]

Good morning, and thank you for joining us today for the HNI Corporation conference call to discuss second quarter 2013 results, which were announced yesterday after the market closed. My name is Derek Schmidt; Vice President, Corporate Finance for HNI Corporation. If you have not received a copy of the financial news release, it is available on our website, www.hnicorp.com. A presentation intended to accompany this call has also been posted to our website under the Investor Information section. We encourage you to review this presentation as it contains details of our financial performance, including the non-GAAP to GAAP reconciliation. Joining me on the line today from HNI Corporation are Kurt Tjaden, Vice President and CFO and Stan Askren, Chairman, President and CEO. Stan and Kurt will review the results and then open up the call for questions. Before we begin, please be advised that statements made by the Corporation during this call that are not strictly historical facts are forward-looking statements. Forward-looking statements are subject to known and unknown risks. Actual results could differ materially from expected results. Additional information concerning factors that could affect actual results can be found in the conference call presentation posted to the HNI Corporation website. The corporation assumes no obligation to update any forward-looking statements made during the call. I now have the pleasure of turning over the call to Stan Askren. Stan?

[Stan Askren:]

Thank you, Derek. Good morning everyone. We will share our usual assessment for the quarter -- the second quarter of 2013 in this case and then provide some thoughts on our outlook for third quarter and then full year 2013 and then as usual we will open the call up for questions at the end. We executed well and delivered solid results for the second quarter, our growth investments drove solid sales improvement across both segments, strong market execution, good cost control and investment returns contributed to improved margins. We continued to deliver strong operating results while maintaining our investment spending for long-term profitable growth. Our supplies business improved 2% against prior year comparisons, small business confidence a key market driver for us remain soft. We are executing well. Our market leadership position is strong and growing and our brands have good momentum in the market. Sales in our other office furniture business has accelerated in the second quarter, strong organic sales growth of 9% was driven by robust project activity and increasing demand for our new products. Top line strength was broad based across all of our contract brands. Our hearth business continues to deliver outstanding performance. Sales in the new construction channel remained especially strong with 31% growth driven by our leading market position and the housing market recovery. Remodel retrofit sales also improved 10% led by strong remodeling activity. Overall, I feel good about our second quarter results which exceeded expectations and I feel good about our momentum heading into the second half of 2013. I will now turn the call over to Kurt Tjaden to review the specific financial data for the second quarter. Kurt?

[Kurt Tjaden:]

Thank you, Stan. So for the second quarter 2013, consolidated net sales increased 6.3% to $511 million or 7.3% on an organic basis. As a reminder, the second quarter 2013 includes results which related to the addition of BP Ergo and the disposition of several small businesses including dealer spin-offs. Sales for the office furniture segment increased 4.2% to $436 million or 5.4% on an organic basis. Net sales for the hearth product segment increased 20.5% to $75 million. Consolidated gross margins were 34.2% compared to 34.4% in the prior year quarter impacted by new product ramp-up and operations reconfigurations to meet the changing market demand partially offset by higher volume and increased price realization. As a percent of net sales, total selling and administrative expenses including restructuring and impairment charges improved 1.3 percentage points due to higher volume, network distribution realignment savings and lower restructuring charges partially offset by investment in growth initiatives and a loss on the sale of a small non-core office furniture business. We ended the quarter with $34 million of cash, operating activities used $12.5 million of cash in the first six months of 2013 compared to generating $6 million of cash in the same period last year. This change is primarily due to working capital timing. Stan?

[Stan Askren:]

Again, thank you, Kurt. I’m encouraged by the strong performance of our businesses and improved conditions in the core markets. Our strategies are working and we remain on track to deliver solid sales growth and double-digit profit improvement for the year. Demand in our supplies business is expected to be relatively flat as market conditions remained choppy and weak in the near-term due to soft small business confidence. Our brands are well positioned to continue to outperform the market. We expect strong year-over-year growth rates in our other office furniture businesses as new business activities remains robust across our contract brands. Our hearth segment is expected to deliver continued strong profit growth, we anticipate continued double-digit growth in the new construction channel but at a moderating rate given a strong year-over-year growth comparisons. Growth in the remodel and retrofit business is projected to be solid on remodeling activity improvement. I remain excited about our ability to continue to outgrow the markets across both segments of our business. Key to our success has been our ability to deliver consistent flawless execution to our customers and provide relevant new product solutions in a very dynamic market. In office furniture, we are simultaneously ramping up several major new products and platforms. At the same time, we are experiencing a significant acceleration in our core demand especially from these new product categories in response to the stronger than expected growth we are making additional investments in our operations to ramp up new product production. We are also taking advantage of opportunities to reconfigure our operations to support new product ramp up in sales growth while driving improved operating efficiencies longer term. We started these investments in the second quarter and they will continue into the third quarter. New product development has been an increasingly important role in our business and we made a concerted effort in recent years to develop a stronger pipeline of new product in response to market and mix shifts. Sales from new products have more than doubled in the past five years and now account for almost 30% of our office furniture sales. Recent new product sales are on track to exceed those levels and the strong top-line growth, we are experiencing can be attributed to the success of our new product launches. The near-term investments to speed up new product ramp-up and operational reconfiguration are key enablers for our businesses to continue to outgrow the market and deliver strong profitable growth for the long-term. Overall, I feel good about our performance, investments and market momentum in 2013 across all of our businesses. We are executing our strategic objective to grow faster than market, deliver improved returns and then invest for long-term profitable growth. Kurt will now provide the financial outlook for the third quarter and the full year 2013.

[Kurt Tjaden:]

So for the third quarter 2013, we anticipate overall sales to be up 3% to 6%. Office furniture sales are expected to be up 4% to 7% organically or up 1% to 4% including the impact of acquisitions and divestitures. Organic sales from the supplies driven channel are expected to be down 1% to up 2%. Organic sales in the contract channel are expected to be up 10% to 14%. Hearth sales are expected to be up 11% to 14%. Non-GAAP gross profit margin is expected to be slightly higher than third quarter 2012 when it was 34.8% excluding restructuring and transition charges. Non-GAAP SG&A as a percentage of sales excluding restructuring and transition charges is expected to be slightly higher versus third quarter of 2012 when it was 27%. Net interest expense is projected to be $2.7 million and the effective tax rate is projected to be approximately 34% for the full year. For the year, we are expecting capital expenditures to be $80 million to $85 million. We expect full-year 2013 depreciation and amortization to be $46 million to $48 million. Our estimated non-GAAP earnings per diluted share for the third quarter is $0.55 to $0.60. And for the full-year, we are narrowing our estimate of non-GAAP earnings per diluted share to $1.30 to $1.40, which excludes restructuring charges, transition costs and loss on sales of other business. This summarizes our outlook for the third quarter and full year 2013. I will now turn the call back to Stan.

[Stan Askren:]

Thank you, Kurt. I will close here. I’m encouraged by the recent growth acceleration of our businesses and remain confident in our strategies to drive profit improvement, while simultaneously investing for long-term profitable growth. We are entering the third quarter with good momentum across our office furniture and hearth businesses and we remain on track to grow sales and solve the increased profits in 2013. With those comments complete. We will now open it up for questions.

[Operator:]

(Operator Instructions) Your first question comes from Matt McCall of BB&T Capital Markets. Your line is now open.

[Matt McCall:]

Thank you. Good morning everybody. So, I guess first can you continue to talk about investments and then can you in the past we kind of called that out and quantified what the incremental spend was on year-over-year basis and the margin impacting. And did I hear a reference to additional investments, I think Stan to support some of the new products I think for manufacturing perspective so any -- maybe what baked in to the margin outlook from an incremental spend perspective?

[Kurt Tjaden:]

Yes, I will start this Matt and let Stan kick in. So this isn’t a new and incremental spending related to new product and plant reconfiguration. So a little difference in some of the investments perhaps we talked in the past. Accelerating on those and we would expect that number to be somewhere between $5 million and $6 million for the full year started really in the second quarter and continuing on into the third quarter through the balance of the year.

[Stan Askren:]

And so Kurt talked about this investment as new, often these investments are ongoing simply what’s happened is we are accelerating these. I think is probably the best way to frame this. So what’s transpiring? A) the market is changing rapidly and I say that from the standpoint of new product category shifts -- excuse me shifts in the product category for instance metal, archrivals, storage to laminate object sort of storage or higher monolithic panel systems to lower open desking sort of systems. And so we are seeing significant shift in that area, I would say continues to accelerate. Secondly, we are seeing really some very nice success on our ramped up new product introductions, said another way in the past we talked on the front-end about our investments and a significant portion of that was to accelerate new product development and we’re seeing really very nice take up on those products and that’s requiring us to accelerate the ramp up of those products and then the final portion of this as we’re finding opportunities related to both of these, to go into our plans and do some reconfigurations. What that means is we’re moving product lines, we’re moving things around to a) accommodate the new product startup, b) to account for the mixed category shifts, and c) to drive operating efficiencies so that we can continue this consistent flawless execution. So, these things come very fast, we’re very nimble and agile so we respond to them. It’s consistent with kind of our rapid continuous improvement it’s just right now there is a significant ball going through the organization at this point in time.

[Matt McCall:]

So is the way that to think about because you’re starting to talk about plant reconfigurations you’re not calling it restructuring, I understand why but, is the way to think about this, there is a margin element of -- from the reconfiguration, better productivity, better efficiency in the facilities that can help the margin beyond the normal incremental that we should expect?

[Stan Askren:]

The answer is partially yes. Let me -- give me a second here to kind of rephrase. Interesting that you say similar to restructure, it is similar to restructuring this is simply the positive restructuring due to --

[Matt McCall:]

Right.

[Stan Askren:]

Growth in new product launch in the older days --

[Matt McCall:]

Right.

[Stan Askren:]

In the shrinking market we called this out and everybody would be happy that the market is going down over restructuring. This is a situation of joy for us as well. We’re growing faster than we anticipated. The new products are kicking on faster than we anticipated. And there is margin opportunity for us. It’s more than margin opportunity though Matt. Some of this is simply to meet demand okay, secondly some of this is to assure consistent flawless execution for our customers. When we stumble on consistent flawless execution it’s a really bad event for customers’ confidence in us and it’s a bad event for them and a bad event for us. So it's those three things, growth, margin, opportunity and really derisk on consistent flawless execution.

[Matt McCall:]

Okay. And then, so from that new product perspective, can you talk about some of the areas you mentioned some of the transitions in a way the markets changing, is that where you’re seeing success from a new market perspective, is it on the metal going to laminate, high panels going to desking or is it, or is there something else that's going on from product perspective I'm specifically asking about furniture in this case?

[Stan Askren:]

Yes, I think you’re on the core of it is really the success with new product platforms. So, and you know this Matt because I think you understand our business, we are a multifaceted, multi-brand, multi-segment, multi-product category, multi-platform company. And so I'm going to give you some broad -- we have invested significant dollars in virtually all of our categories and so what we’re in new product sort of platforms as well. So, driving better sort of platforms that we can differentiate provide a broader set of solution to customers and pull it off more efficiently and more economically for our distribution partners as well as for our operations. And so the categories or the platforms range all the way from significant new seating platform launches, family launches, significant new systems platforms. We showed at NeoCon some new launches and new platforms all the way from what we called sort of lighter [scale] [ph] lower height, more open desking systems to more conventional, traditional sort of value-priced systems platforms that compete at the more of the entry level so -- and everything in between. We’re significant investments in new platforms around the laminate storage, the laminate desking, the laminate casegoods as well. We’ve talked to you about our significant expansion here and in the Iowa in this new operation to really sort of upgrade our laminate capability to better execute what we see as a growing category there. So it’s very broad-based, it’s multiple brands, it’s multiple product categories, it’s multiple process, it’s just all coming here in a big, big way. And as I say it’s result of a lot of the work that we talk to you as we were coming out of the recession and we said we’re going to get on the gas on investment, it’s simply happening and now we need to sort of reconfigure and accommodate that growth more aggressively in our operations and quite frankly we anticipated.

[Matt McCall:]

Okay. And thank you Stan and then one more if I could. Just kind of -- to connect the dots here so the midpoint of the full year range came down a little bit I guess is that curve related to the $5 million to $6 million of incremental spending. And then looking at the quarter -- the Q2 results specifically, did that -- the incremental spending that maybe we didn’t have baked into the guidance, did that impact your margins in the quarter?

[Kurt Tjaden:]

So part of your process Matt is to give our best current view of the business and as we get better visibility through the year is narrow that range. So I think it’s a combination of better visibility as we look out clearly some of those investments as Stan talked that we accelerated in the second quarter impacted that and continued through the third, so those would have been a component as we looked at our total forecast that clearly played in.

[Matt McCall:]

Thank you, guys.

[Operator:]

Your next question comes from Peter Lisnic of Robert W. Baird. Your line is now open.

[Josh Chan:]

Hi, this is Josh Chan filling in for Peter. Good morning, Stan, Kurt and Derek. I guess my first question is to clarify the investments the $5 million to $6 million. Should we think of that as sort of a one-time 2Q/3Q expense or should we think of that category as something that perhaps is ongoing in the last into 2014?

[Stan Askren:]

Yes, I think Josh the answer - I'll narrow this answer down, the broad answer is it depends on how the market develops, how we continue to -- new products continue to develop and what the opportunities we see to drive operating efficiencies and consistent flawless execution. That said what we anticipate is as we sit here today is that it’s going to be second quarter, we signal it’s going to be third quarter that will start to feather down through the end of the year and into 2014. But I want to be clear with everybody on the call we’ve always said all else equal we are in this for the long-term, we will forgo quarterly improvement for longer term improvement and we will respond to the market. So as we see and the markets developing very, very fast that’s very, very dynamic and you all know that. So as we see opportunities that may change but where we sit today I would say second quarter, third quarter start to feather through the end of the year and then 2014 start to feather out.

[Josh Chan:]

Okay, great. And it’s definitely encouraging that you’re seeing the growth in the contract side and the acceleration there. Could you comment on sort of the underlying activity levels, visits, things of that nature that you are seeing and maybe what that tells you about the trajectory of growth we could expect for the rest of the year and maybe even into 2014?

[Stan Askren:]

Well, we gave -- Kurt gave you some guidance on the organic forward contract and third quarter we’re saying it’s going to be up 10% to 14%. And I think the activity level we see is just strong pipeline right now around the large project – I would say project large probably not fair, it’s really the medium to larger projects, again it’s relatively broad-based across our different companies and brands. And so that feels good to us, we monitor that obviously weekly, this economy is very dynamic but I think we believe it’s going to continue through the end of the year based on what we see today, Josh.

[Josh Chan:]

Okay, great. And my last question is on to get to your midpoint of the 2013 guidance I guess it probably implies that office furnitures are about flat compared to 2012, if I’m doing my math right. And obviously you are investing to drive growth, but I guess the question is, as volume continues to grow and I guess at what point might we possibly see kind of the stronger and more normal leverage that perhaps brings office furniture margins back to the historical levels I guess is there a point that you imagine that leverage could accelerate?

[Kurt Tjaden:]

Yeah, I mean it’s a very theological question and we’ve said – we still believe in this, in the leverage all else equal. We are in a significant transformation of the core, the office furniture industry is going through, coming out of recession, seeing significant change in all people office. Everybody is responding to that driving new sort of product platforms kind of dealing with the old bringing in the new. So, we got to get through that cycle. I believe as we get through that cycle, which would stand based on where we sit today and should be the middle of the latter part of 2014 would be my best guess, if you really press me. Then we should begin to see return back of those historic profitability levels. Now we have to deal with the change of mix and there are some short-term things as we ramp up in some of those investments and sometimes that inefficiencies et cetera so. So, as we talk about leverage we feel the same way, we are probably more inclined to get less excited about trying to dial it in by the quarter and more inclined to talk about it, like next year sometime that will begin in 2015 that begins. Again, because where we said our job is to respond to the market and the markets very, very dynamic now.

[Josh Chan:]

Great that makes sense. Appreciate all the color.

[Kurt Tjaden:]

Thanks Josh.

[Operator:]

Your next question comes from Budd Bugatch of Raymond James. Your line is now open.

[Budd Bugatch:]

Good morning, Stan. Good morning, Kurt. Good morning, Derek. I guess the first question just as the map holds on mix basis in office, it looks like post the divestitures, the supply side is 70% of the business and the project side or the contract side is 30%, is that?

[Stan Askren:]

Think you got that. I think we need to work on the map but basically office furniture split half-and-half still.

[Budd Bugatch:]

It’s still, okay, but if you think those individual numbers you gave us, I guess what we don’t know is the impact of the divestiture in each of the upcoming quarters, we can -- faired in for that but based on Matt to what you said in terms of your --

[Stan Askren:]

It’s not significant. Budd is -- as you look out at the third quarter guidance, you can see the organic not significant from a growth perspective.

[Kurt Tjaden:]

We are going to take a look by that that those numbers and see if we need to provide additional explanation. But where we sit, net of those divestures, office furniture is still 50

[Budd Bugatch:]

Okay. I understand that. Let’s talk, the additional expense as you mentioned looked to me just like normal business expenses to take care of demand shifts, it happens all the time in business. And I think you are as agile as you said, as anybody I have seen to do that. I am trying to understand now the contribution margins and maybe where we are in terms of those kinds of metrics, so that we can model even going forward.

[Stan Askren:]

So, is there a question there Budd?

[Kurt Tjaden:]

Yes, what are the contribution margins by segment, I guess is.

[Stan Askren:]

We don’t break those out specifically. But basically what I would say regarding the investment, you are correct largely are for us. I would say they are at a heightened level right now due to this significantly changing mix and this ramp up. So, the leverage that we would have typically given in office furniture organic we basically have spent on this ramp up through a) new product ramp up and through this operation and reconfiguration and mix. So when you net that all back, our contribution margin, leverage we talk about and organic office furniture would be still that, 25% to 30% roughly and we simply taken that and chosen to reinvest that to meet the market to handle the mix and to ramp up these new products.

[Budd Bugatch:]

For essentially two quarters and then improving or moving beyond that unless the market again shifts.

[Stan Askren:]

Yes, exactly. Unless there is something that comes on the horizon that says we would be wise to invest our shareholders money to meet that market in a different way. But, as we sit here today, yes, what you said is, what I would anticipate.

[Budd Bugatch:]

Okay. And where do you see, any significant change year-over-year on corporate overhead, what you see for third and fourth quarter?

[Kurt Tjaden:]

I think the only one Budd is, what we’ve talked in the past is around BST, seen a strategic investment as we ramp that up but quarter-to-quarter it will be choppy, but that’s probably the one item of note.

[Budd Bugatch:]

Okay. And so nothing in the way of bonuses or stuff like that, it’s going to be accrued, it hasn’t been done for the year.

[Kurt Tjaden:]

Based on an (accretive) performance as we see it.

[Budd Bugatch:]

Okay. And that question Stan that as I’m struggling, are you -- do you have enough capacity in the (inaudible) for the growth, I know that we haven’t asked that for a long time.

[Stan Askren:]

Yes, isn’t that great. The answer is yes, we do Budd, there will be additions and some reconfigurations of some equipment et cetera redoing, I’ll give you an example, laser technology has come a long ways since beginning of the downturn. And so we may be replacing equipment to provide additional capacity same footprint dollars, but we feel good about the capacity we have in place and we’ve got more headroom to go.

[Budd Bugatch:]

Okay, all right. And the last question from me I guess is just the status of the school market, the K-12 market which you entered I think last year?

[Stan Askren:]

Yes, I think it’s kind of more of the same, it’s a short-term challenging market, but we continue to be optimistic about that business as an opportunity. I think K-12 education as states still are sorting through their budgets is going to be relatively flat but the longer term demographics along with I think the health of states is I think a good sort of indicator for the future in this market. Our performance with Artco-Bell is basically on track. As we said to you before we are seeing profit improvement there but the team is executing the plan, it’s still a transformation to really get it to the profitability that it needs to be at to be fully contributing. So the experiment to probe the strategic initiative we endeavored a couple of years ago is right on track and I continue to be feel positive about where that goes.

[Budd Bugatch:]

But if we haven’t gotten the business right now for 2013 we are not going to get it, that business is kind of already be in the tank, right?

[Stan Askren:]

Yeah, I mean this is the hot season, no pun intended in many ways for orders and for production et cetera. If it performs like it historically has we should say.

[Budd Bugatch:]

Okay. And I’m going to also prevail with one more question, any pricing changes you made?

[Kurt Tjaden:]

So, I think Budd we said, we took pricing across all of our businesses this year at varying points on an average of 2% to 3%, Budd.

[Budd Bugatch:]

And that already implemented and are you -- what’s the realization?

[Kurt Tjaden:]

I think realization has been positive and all have been implemented or announced, there is one small one yet that comes into effect here shortly, but feel good about where that is.

[Stan Askren:]

But the take up on the pricing has been consistent with what we’ve done historic.

[Budd Bugatch:]

Which is about a third, right?

[Stan Askren:]

Actually more like a half more than that, but --

[Budd Bugatch:]

Okay. But it takes you -- because of some your markets it takes about six months usually to get them implemented?

[Stan Askren:]

Yes, once we announced is correct but once it’s in it counts. So what you’re referring to is just the whole, some of its soft supplies business is a catalog-driven business and it takes longer to get it through the different channel partners to get it logged in.

[Budd Bugatch:]

Okay.

[Stan Askren:]

The contract gets it relatively quickly with the exception maybe of some longer term customers that may have contracts et cetera.

[Budd Bugatch:]

Right. Thank you very much.

[Stan Askren:]

Thanks, Budd.

[Operator:]

Your next question comes from Todd Schwartzman of Sidoti & Company. Your line is now open.

[Todd Schwartzman:]

Hi, good morning guys. What is the current competitive pricing environment of a contract furniture?

[Stan Askren:]

I think it’s very consistent of what it’s been, Todd which is, it’s always competitive, it’s always project by project you have to be very, very sharp, but no change as to what it’s been, it’s not the price environment isn’t getting worse, it’s not getting particularly better, it’s more sort of reached a point of equilibrium I think.

[Todd Schwartzman:]

Okay. Just to reiterate the low and mid-point of the EPS guidance for the year that’s purely the cost issue and does not speak at all to any change in demand, correct?

[Stan Askren:]

That’s really correct. It’s just as Kurt indicated Todd, it’s typically what we do as we start with a broader range and as we get, get quarters behind us and the year becomes more certain then we frequently do narrow that. And so I think it indicates a) we got another quarter behind us and so the opportunity in front of us is less or certain b) it indicates this additional investment that we spent sometime elaborating.

[Todd Schwartzman:]

Okay. That makes sense. Last quarter, I think it was Derek, if I’m not mistaken who referenced a very large GSA project that was expected to ship in Q2, did that occur?

[Kurt Tjaden:]

It did not.

[Todd Schwartzman:]

Okay. And for the quarter what was the sales delta for the federal business?

[Kurt Tjaden:]

The fed gov was basically flat for the second quarter.

[Todd Schwartzman:]

Okay. So that’s a sharp improvement.

[Kurt Tjaden:]

That as we expected due to timing. But I would tell our outlook for the full year as we said last time was down 15% to 20% and that’s what we continue to project for the year.

[Todd Schwartzman:]

Okay. Is that really an issue of last year’s comps or is it just choppy at this point where you might expect some sequential weakening in the year-over-year delta?

[Stan Askren:]

It’s just tiny Todd. It’s kind of -- it’s always choppy b) it was largely driven by these large projects as you just handed out and so where last year came in and where this year comes in, it moves around. So as Kurt said, we think for the year it somewhere minus 15% to 20%.

[Todd Schwartzman:]

Okay. It looks like you are taking up your CapEx expectation about $10 million or so, is that all on the furniture side?

[Kurt Tjaden:]

Predominantly related Todd to the Stan talked about to support that new product ramp up and specifically as we talked about our Oklahoma expansion accelerating that to meet the market.

[Todd Schwartzman:]

Okay. Is that -- will that affect your pricing power on metals going forward?

[Stan Askren:]

I don’t think you should assume any change in sort of pricing power direction as you think about us going forward.

[Todd Schwartzman:]

Okay. And what was the small non-core office furniture business that was sold during the Q2?

[Kurt Tjaden:]

It’s part of the acquisition of Sagus which was Artco-Bell was a small non-strategic, they were a custom sort of laminate case producer for a market that was associated. So we acquired that business. We anticipated we would be spinning that off. It’s a $20 million type business not really contributing to the EBIT, the bottom line so to speak.

[Todd Schwartzman:]

$20 million annual top line?

[Kurt Tjaden:]

Yes.

[Todd Schwartzman:]

Okay. On hearth, can you -- you give any color on unit versus price growth, I know you mentioned you talked about couple of points to pricing across the board was that the case as well in the quarter for the hearth business?

[Kurt Tjaden:]

I think we don’t really break that out. But to provide some directional color, its mostly unit growth that the pricing environment is still very challenging there. And the builders are feeling lots of cost pressure and so they are negotiating fiercely on this. So we are seeing most of the benefit come through volume not very much at all through price.

[Todd Schwartzman:]

The housing rebound of late at least has been primarily in the west but I think to a lesser extent in the south, is that consistent with what you have been hearing from your builder channel customers?

[Stan Askren:]

We are broadly diversified, the most broadly diversified and play in all other markets. So, yeah that would be consistent. And now there is some differences at time based on the price point of the house and the heating index or South of the Mason-Dixon line, North of Mason-Dixon line, but we are experiencing the same growth patterns as the overall building sort of industry.

[Todd Schwartzman:]

Including by price point?

[Stan Askren:]

Including by price point.

[Todd Schwartzman:]

Great. Okay. Thank you very much.

[Stan Askren:]

Thanks Todd.

[Operator:]

There are no further questions at this time. I will turn the call back over to the presenters.

[Stan Askren:]

Okay. Well, thank you so much for joining the call. We look forward to share with you more about HNI in the future. And have a great day. Take care.

[Operator:]

This concludes today’s conference call. You may now disconnect.