TRG | The Bottom Line – 1/16

HNI recently announced a plant consolidation to improve productivity and profitability in the coming years. This is another step on a solid earnings growth story that can continue to play out even without the help of volume. While HNI is a resi and office exposed name, this plant consolidation is not like other actions in the resi products space. Residential pressures of the last few years and the muted outlook has caused some manufacturers to adjust production levels, consolidate facilities, and adjust to the lower volume environment. HNI’s actions are related to network optimization rather than capacity reduction and is an example of the embedded earnings support within HNI to deliver earnings growth in a flattish market. In our view, the 2-year cash investment of ~$9MM to get annualized $8MM of benefits is a great ROIC. This is additive to what is an already solid earnings growth story from Mexico + Kimball synergies + Steelcase synergies. All of this is a volume-neutral story. We believe the stock is cheaply valued on these controllable levers (currently at ~11x our FY’26 EPS estimate without SCS and this move).