Good morning. My name is Lori and I will be your conference operator today. I would like to welcome everyone to the HNI Corporation Third Quarter Fiscal 2015 Results Conference Call. [Operator Instructions]. Mr. McGough, you may begin your conference.

Good morning. Thank you for joining us to discuss our third quarter fiscal 2015 results. Here with me are Stan Askren, Chairman, President and CEO and Kurt Tjaden, Senior Vice President and CFO. Copies of our financial news release, earnings presentation and non-GAAP reconciliations are posted on our website. Statements made during this call that are not strictly historical facts are forward-looking statements which are subject to known and unknown risk. Actual results could differ materially, the earnings presentation posted on our website includes additional factors that could affect actual results. The corporation assumes no obligation to update any forward looking statements made during this call. I'm pleased to turn the call over to Stan Askren.

Good morning. We delivered strong double digit earnings growth in the third quarter despite modest decline in both office furniture and our organic sales in a slowing economic environment. The markets where we compete were impacted by slower economic momentum in the third quarter. We experienced slumping orders in mid-August which has since stabilized. I'm pleased our office furniture business has delivered double digit operating margins despite a 3% sales decline, our supplies driven business sales were down 4% while our sales in our other contract furniture businesses were flat. We continue to believe our office furniture business are competing well in the respective markets. We have a very strong and profitable hearth business. Sales in our hearth business increased 11% including Vermont Castings. Organic sales increased 11% in the new construction channel which makes up approximately 40% of the overall hearth business. As expected, organic sales and remodel retrofit portion of the business decreased 13% driven by declining biomass specifically pellet fuel stoves. Overall I'm pleased with our strong third quarter profit performance and our ability to adjust to a slower economic environment. Kurt?

Thank you, Stan for the third quarter of 2015 specific financial highlights include consolidated net sales increased 0.2% to $616 million, net sales declined 2.8% on an organic basis. Non-GAAP net income or diluted share excluding restructuring and transition costs improve 15% to $0.93 per share. Non-GAAP consolidated gross margin improvement a 38% compared to 36.4% in the prior year. Strong operating performance, lower material cost and increased price realization were partially offset by lower volume and an unfavorable product mix. Selling and administrative expenses as a percentage of sales increased 70 basis points due to higher freight cost, strategic investments and acquisition impact partially offset by strong cost management. Stan?

Thank you, Kurt. We entered the fourth quarter focused on delivering our profitability despite a softening economy. We are taking calculated actions to reset our cost structure for a range of slowing economic scenarios. Our management team has been through these types of business cycles before with proven results. For the full year 2015 we continue to project more than a 25% profit improvement on approximately 4% sales growth. We remain committed to long term, we believe there continues to be a significant investment opportunities for long term value creation in our core businesses both office furniture and hearth products. We’re using this opportunity to continue to tighten our business and product portfolios, we’re configuring our operations to sport new products, build new capabilities and improve our operational efficiencies. We remain focused as always on the eliminating waste to improve profitability and better serve our customers. As we look forward to 2016, we are preparing for multiple scenarios. Our current best view projects overall sales to be up slightly to down slightly for 2016, we expect our supply driven business to be flat to down modestly due to [indiscernible] small business spending environment. We're projecting our North America office furniture contract business to be up slightly to flat compared to last year. Overall our international business is forecast to be down modestly led by the economic challenges in China and for our hearth business we expect that to be up slightly, we project continued growth in the new construction channel, remodel retrofit channel sales are expected to be flat to down slightly again led by continued declines in the biomass portion of that business. Overall I remain confident in our investments and the capabilities we're building to strengthen our market positions and deliver long term profitable growth. We expect to increase profits in 2016 despite the overall challenging economic outlook. Kurt?

So financial outlook for the fourth quarter 2015, we anticipate overall sales to be down 4% to 8%, office furniture sales are expected to be down 3% to 7%. The supply is driven office furniture sales are projected to be down 5% to 9% while sales in our remaining office furniture businesses are forecasted to be down 2% to 6%. Hearth sales are expected to be down 6% to 10%, sales in our new construction channel are forecasted to be up 8% to 12% and we expect the remodel retrofit channel sales to be down 15% to 19% again led by Biomass. Non-GAAP gross profit margin is expected to be similar to the third quarter 2015 results of 38%, non-GAAP SG&A as a percentage of sales is expected to be similar to the third quarter 2015 results of 27.7%. The effective tax rate is projected to be approximately 34% for the full year. And for the full year 2015 we project non-GAAP earnings per diluted share to be in the range of $2.55 to $2.60. So the financial outlook for 2016 we believe we owe shareholders our best current view of the business, even in this uncertain economic environment. We expect 2016 full year consolidated sales to be in the range of up low single digits to down low single digits, in our initial 2016 non-GAAP earnings per diluted share guidance range is $2.60 to $2.85 per share. Stan?

Thank you. I will wrap it up here. Our businesses are strong and well positioned for the future. Our brands are competing well in their markets, I remain confident in our strategies and investments for long term profitable growth and we will continue to aggressively manage structural cost and we expect to increase profits in 2016. So with those comments complete by Kurt and myself, we will now open it up to questions.

[Operator Instructions]. Your first question comes from the line of Matt McCall of BB&T Capital Markets. Your line is open.

So first you said I understand the softer economic environment comment I guess but you said order stabilized since the weak August, I'm just talking about I think that was furniture in general. So what is that you're seeing specifically that it's causing this much I guess adjustment to the outlook or is it an adjustment to the outlook that we just had it wrong?

Well there are several questions in there Matt, so let me see if I can wade in here and help you sort it out. I think that's all good stuff for us to thrash around here a bit. Certainly the year started off very strong and our activities were very strong, orders were strong that came through, we saw a significant sort of step down in orders in early August. So I want to say that we've sought across the board Matt, so I will remind you as you know we play all the way from the top to the very put by values segment of the market and we saw that sort of the deceleration across the board, completely across the border. So you say okay, so is that you or is that the market is the question that you'll probably ask and we believe it's the market. If you look at what's happening in the economy, we believe that the economy has stepped down just due to the global economic uncertainty and that everybody begin to put the brakes on. The challenge here is there has been mixed signals though because if we talk to our resellers, our dealers. They say they're busier than ever if you look at our activity pipeline it looked good but simply what was not happening is it was not converting to orders and so that led to lots of mixed signals and so we went back and asked the question. I think pretty rigorously across the board is that us or the market. We believe it's the market, we believe that the overall economy has step down and office furniture is a non-revenue producing asset that the brakes get put in. The other thing I will remind you is we’re the shortest…

Yes, but going back to that comment about stabilization. So it sounds like in August, you saw things slower, you saw good pipeline activity a lot going on just wasn't translating into orders. But you said since August you’ve seen a stabilization, does that mean you've seen some of that activity turning to more orders and it seems like you're dragging the trend in August out in the next year and not necessarily the more recent trend or I misunderstand.

You misunderstood. It is stabilized at a lower level. So we in fact are projecting, as Kurt gave you the guidance there potentially it's slightly up to slightly down for 2016 and actually to give you more specific guidance for the remainder of 2015. So yes stabilized or leveled projecting that forward unless we see some catalyst that would change that and I don't know you're a smart guy that pays attention to economy. We're not seeing anything really the says it's going to get worse or it's going to get better. Now we're standing daily, weekly, looking for that and if that happens as I said we're prepared for whatever scenario comes our way.

Okay. So the top on guidance for next years were basically flat if you take the [indiscernible] it sounds like you’re talking about flat to up maybe $0.15, I will take the high end of '15 guidance you’re talking about flat to up top line EPS, so you referenced some cost takeout in the release and you talked about focusing on efficiencies. Can you give more detail onto what it is that you're doing or are you going back on any investments or is that just an efficiency improvement effort?

You follow this for lot of years. And so you know how I'm going to answer this I think which is one of things we're really good that we always are working. Good times or bad times is structural cost,, and what does that mean, it means we're always thinking about how do we realign our manufacturing, logistics physical distribution network. As product categories shipped, as we launch new products we’re always thinking about we're doing [indiscernible] to drive factory productivity. We're always thinking about where do we invest around information systems and productivity there, we consistently move redeploy people around on the front end to the kind of skate where the market is hot and where it's not. And so it's just a lot of that as you recall we have some 10s of some businesses, 16 plus, you know dozen and half operating facilities and we have dozens and dozens of manufacturing lines that we have millions and millions of products and so it's just part of our HNI member owner culture to get after that all at the same time and so it's that sort of thing that we're talking about. We're are not talking about backing off, long term value creation investments. I think just through the last global recession that we know how to sort take cost out but also continue invest the long term and that continues to be our emphasizes as investing for the long term while we attacked the ways to find a better way of doing what we're doing today to drive value for our customers, drive value for our shareholders and drive value for our member owners.

Okay. But it did seem like there was maybe an increased emphasis on, I know that's the way you operate and you guys are really efficient and you’re right, I know it's a day to day thing but I guess it seems like there was maybe a bigger effort tied to this softer economic environment and if so is there any way to breakout the expected toss [ph], expected savings, the timing of those savings. You know how much is assumed in the 260 - 285 those types of things.

I think why don’t we break it out because the big question you should be asking or shareholder should be asking more importantly is how do we beat earnings on a sales mix? Well we got on it early. We saw this thing coming down. We made the call, we began to tighten up, we accelerated some - took some priorities up the table, accelerated some structural cost and that's how we got on this sort of beating earnings when sales are softer than anticipated. So we wanted to make sure we emphasize that point in this press release and this goes back to sort this environment. We actually do pretty well in this type of environment with our split and focused model, with our member owner culture, with our rapid continues and improvement sort of set of tools. I'm not going to break out what specific projects and what the returns I don't think that's important for our shareholders. Quite frankly what's important is our forecast for what we think sales are going to be and our EPS and as you know there are many ways to get there, we simply are saying look we've got this target in front of us, we’re responding to multiple possible scenarios. We have the experience we have the tools in place and we're going to get after there and we're going to get after there with all sorts of different ways and we would spend hours trying to describe specifically what those are and how we're going to go get them. The [indiscernible] fee as we release our earnings, our results on whether we're able to do that or not in the long term.

Let me squeeze one more in, you talked about reallocating assets on the front end to the markets that are hot and away from markets that are not. Can you talk about what areas of the business are the hottest right now, whether it be geographies or in markets or product categories, anything that you can point out as being kind of a leading market.

Yes so as you know Matt, I'm going to give you a general response, we are so broadly diversified between our company and the segment that we play in and our selling models and we generally are tracking the overall economy. So some of this is strategic competitive as well, so we're identifying markets that we think we should you know are more likely to grow and where we have a competitive advantage of where we don’t and so a lot of this is specific competitive strategic sort of diagnosis and so I'm going to defer on the answer into that specifically.

Your next question is from Kathryn Thompson of Thompson Research Group. Your line is open.

The first is on hearth, I know that you've given guidance for the upcoming quarter and for next year with your hearth business, but realistically how should we think about the biomass business on a go forward basis. Not only for the balance of this year but as we go into next year, take into account comps and other fundamentals. Second part of that, how much of a down to upward biomass specifically to the quarter and then finally do you have any clarity on what percentage improvement you saw from the new construction business which has been improving and I know you talk about tracking overall economy, but all indications are that housing starts have been healthy and should be benefiting this business. Thank you.

So let me talk about new construction first up. That of our hearth businesses right now is 40% of that business likely to be more. We’re very, very strong in that business. We're very well aligned with in those markets. We have an excellent share market, we have the best brands with builders we have, I think the best products, the best management team, the best distribution etcetera and we should continue to benefit disproportionally add new single family new constructions starts continue to grow. And we see this single family continuing to grow back towards you know - you look at these numbers, back towards historic trends for single family which mean there is a lots of runway there. We also continue to work aggressively to help try to promote more fireplaces [indiscernible] etcetera so now we sort of track with the market because of our position, we want to exceed the market and then we also want to help grow the category as part of the initiative. So the other side, biomass is then currently 16% of the business which retail gas we call it is basically half that and then pellet stoves and cornwood would be the other part of [indiscernible] I did that wrong. Remodel retrofit would be half, retail gas and then half biomass, of the bio mass we have cornwood, wood burning stoves and then we have pellet stoves. So what's really going up and down is the bio mass largely driven by the pellet stoves. The big driver of that is that it is a decision around the efficiency and the economic sort of decision around the cost of liquid propane and the cost of fuel oil out of the North Seas. It's also impacted heavily by cold weather. So as oil has come down, as the LP prices have come down that order activity has come down in a big way. In 2014 that business went up 47% and this year it's down roughly 30% and so how do we think about that going forward, we really think you need to take a multi-year sort of look at that and kind of average that out over high fuel prices, low fuel prices and somewhere in the middle and so I would guess next year we're going to continue to see. moderate decline I think it's started to reach the bottom, and then we will reset based on somewhere between the peak and the trough there. The thing I would say to you Kathryn is that we have an excellent share position in that, again we make money on those products, up cycle and down cycle. We’re constantly thinking about where do we set our cost structure to make sure that that continues to happen as we go forward.

I’ve a few follow-up questions on office. In the office segment did you see any changes in mix impacted trends in the quarter and then I will wait for a follow-up for another office question.

Nothing notable to report, nothing out of the ordinary.

Again because we play in virtually all of the categories, all of the segment it's the normal sort of stuff.

Okay. And I guess a follow up, I know that you said earlier when entering Matt's questions that you're tracking the overall economy, but we over here at TRG look at the entire value chain of construction process from bonding and contractors to distributors to office furniture retailers. My question to you is I guess two part with that, first what were some of the greater differentiators within contract because seeing a greater weakness and that would be more troublesome than the day to day. So what were contract sales trending in the first half to now the quarter you just reported and based on your prior experience. You're talking about just not seeing your pipeline converting to orders. How does what you're seeing now compared to what you’ve seen in prior cycles and better or less or in line with what you've seen.

I think first up Kathryn, the thing I would say to you is that you really have to look new construction is not necessarily the primary driver of office furniture you. It certainly has an impact but there is a, there is not a direct sort of correlation there. Office furniture events, obviously can come from consolidation as well. What really what drives the [indiscernible] competence, small business confidence lead to furniture events and so the result of that then as well is that to your broader contract, contract came off it came off slower and is much more volatile than small business, why because big project - isn't it interesting. In fact I find it sometimes - I don't think it's certainly helpful that this industry actually looks at quarterly sales data and you find some of the competitors talking about whether they won a project or didn't win a project in the previous quarter and so it's very lumpy by nature in the contract and so you have to kind of watch looking at one competitor versus the other on the quarter. You will find if you track us a bit, you will never find me pounding my chest when we do better on a quarter likewise I don't get terribly concerned if we don’t do as well on a quarter because it's so damn lumpy when you look at that data. So back to your point. We are seeing similar sort of trend now. This is not the global recession. This is not like the last cycle it's not as dramatic but every time we've seen a stopping in the economy. Office furniture events tend to lag. So you'll see projects are started, there are decisions that are made and typically our dealers are far down the line. None [indiscernible] to stop you, you start to hear the cars crashing in the next one and office furniture is way down the line and so on the pipeline tends to kind of look good and the economy is closely connected, if it takes a dip it takes a lot of effort to show up in the pipeline and so you've got a good bid activity, you've got a good selling activity. You've got good show - all that sort of stuff and it doesn’t convert and we saw similar the last time at a smaller scale, that same thing happen where people are looking to at all the activity and saying it's good. But then the orders don't come and they get delayed and they get deferred and then they get pushed out and then they get descaled, down scoped whatever and then you’ve a softer sort of order period than you were anticipating.

Final question, on the supply driven sales down 4% in the quarter but did you see a stabilization in that segment of the business too once you got into September and October?

Yes it's kind of running about that same rate, the answer is yes.

You’ve no further questions at this time. I will turn the call back over to Mr. Askren.

Yes, well thank you so much for tuning in and your interest in HNI and we look forward to speaking to you in the future and we hope you'll have a great day. Thank you.