Budd Bugatch: Congratulations on the performance in the quarter. Very, very heartening. Jeff, you talked about those four items, and I think Marshall stressed that price cost was important during this quarter and still remains positive, but less so going forward. Can you talk about which rank are the other three in terms of importance in this quarter and what’s left to get in terms of productivity, streamlining cost, or simplifying?
Marshall Bridges: Yeah. Budd, in the first quarter, we had about $14 million of favorable price cost. So that was the biggest item, but a very close second was productivity, which is about $12 million of benefit year-over-year. The actual SG&A cost was smaller than that. Moving forward, it’s about productivity. Price cost is still going to be positive, as I mentioned, the rest of the year, but less so. And productivity ramps up. So as Jeff mentioned, we’re expecting around $35 million of incremental net productivity benefit year-over-year. Compare that to maybe price cost of the year $15 million to $20 million, $14 million which was already in the first quarter.
Budd Bugatch: Okay. And by the end of the year, where do you think the legacy HNI workplace furnishings margins will be? And what’s still the goal? Is still goal double-digit?
Marshall Bridges: Look, our goal is more ambitious than double-digit, but we will — we may not quite get there this year, but we’re certainly trying and expect to see margin expansion going forward.
Budd Bugatch: Okay, I’m going to ask you to define a word for me and that word is solidly, which is an adjective you used, I think, to describe the performance in the second quarter, you want to put some framework on solidly.
Marshall Bridges: Gosh, but that’s a tricky one.
Budd Bugatch: That’s why I asked you, Marshall. You know that better than me.
Marshall Bridges: Yeah, I’m not sure we’ve got a lot of color for you on that one. What I maybe point to, Budd, is that I think the consensus estimate for the second quarter is like $0.64. And so, I think that would be up solidly versus the prior year to kind of give some color to it.
Budd Bugatch: Okay, well, let’s tack the year a different way. Do you — will we get to the normal earnings per shares seasonality performance of maybe one-third, two-thirds or 30-70 for the first half, second half? Was that your thinking?
Marshall Bridges: Yeah, that’s exactly what we’re thinking. That — that’s 70’30, one-third, two-thirds ranges is right on.
Budd Bugatch: Okay. That’s very helpful. In residential building products, I’m curious to everybody we hear has pretty much said, business is a little punk, but we’re optimistic going forward and I’m trying to understand the reasons for the optimism. And where are you seeing that? Are you seeing it in orders? Is the order book so solid that giving you that improvement?
Jeff Lorenger: Yeah, Budd. What I would say is on the new construction side, if you look at our Q1 orders, we were down low single digits and that’s now flipped to a positive order growth rate in the new construction side. So that’s probably what we’re talking about. But even if you talk about R&R, the decline was in the low 20s in the order book. But it’s now that decline is moderating. So it’s a — that sign — that’s a sign of some optimism as we go out throughout the year in ’24 on the RBP side, maybe.
Marshall Bridges: Maybe, Budd, just to add to that, the first quarter rates, I think Jeff mentioned this in his prepared comments, are kind of distorted. So I don’t — they don’t provide a very good look through of what like the next quarter’s revenue would be because of all the noise in the prior year comp. So maybe that helps a bit too.
Budd Bugatch: Got you. And for me, just, I want to make sure I understand something. I’m very — I am delighted to hear that you’re seeing improvement in contract. And I had no problem with the thought that it was going to grind forward until about sometime middle part of last week when the ABI came out and hit me in the face with a pretty sizable drop. And that always is a worrisome issue. This has dissuaded me of that concern.
Marshall Bridges: But I think that the drivers in contract are mixed. There’s a lot of reasons to believe we’re going to see some good growth. Our pre-order metrics are up. Certainly, the adoption of hybrid and people moving space, taking advantage of attractive lease rates, creative furniture events, those are all good. But then there’s things like you just mentioned, the ABI is down, people are worried, rates about are up. So that’s why we kind of think it mixes together to be a kind of a slow grind up. But that’s where we’re at. We’re not thinking we’re seeing dramatically high growth in the back half, but maybe something in the small, the mid single digits in the back half year-over-year for contract.
Jeff Lorenger: Yeah, Budd. It’s clearly still choppy out there on all those factors Marshall just mentioned. But a slight, as you kind of snap a line on this, we see it just, slightly ticking up, which is great news for us because we’re able to kind of deliver expanded margins without that. And once that volume growth, even a couple points comes, that’s going to lever through pretty good for us.
Budd Bugatch: Right. And I lied there. I do have one more question on that, $75 million to $80 million of incremental Kimball revenues, is that above the $50 million or $50 — $52 million or $56 million that you reported in the second quarter of ’23.
Marshall Bridges: Correct. Yeah, that’s — yeah, correct. But that’s incremental versus last year. So that’s not their total revenue for the quarter. That’s just the incremental year-over-year.
Budd Bugatch: So it’ll be in that $135 million to $140 million range is your best guess now?
Marshall Bridges: Correct.
Budd Bugatch: Okay. Marshall, thank you very much. And Jeff and team, congratulations on a really, as you would say, solid quarter.
Jeff Lorenger: Thanks, Budd.
Operator: Your next question comes from the line of Kathryn Thompson with Thompson Research Group. Please go ahead.
Kathryn Thompson: Hi, thank you for taking my questions today. Following up on the non-resident market and the ABI, our primary research and feedback from the field paints a little bit different picture than the ABI. And what large commercial contractors are sharing with us is that megaprojects and some projects simply aren’t being captured by the ABI, which I guess leads to the question of, as you look at mega projects, in what ways does HNI participate and what ways are ways that you can win?
