Q4 2024 HNI Corp Earnings Call
Okay.
Speaker Change: Good morning, and welcome to H N I Corporation fourth quarter and year end fiscal 2024 results conference call.
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Speaker Change: After the Speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
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Speaker Change: As a reminder, today's call is being recorded.
Speaker Change: I'll now hand todays call over to Matt Mccall. Please go ahead Sir.
Speaker Change: Yeah.
Good morning My.
Matt McCall: My name is Matt Mccall, and Vice President of Investor Relations and corporate development for <unk> Corporation. Thank.
Speaker Change: Thank you for joining us to discuss our fourth quarter and fiscal year 2024 results with me today are Jeff Oranger, Chairman, President and CEO N V P Berger executive Vice President and CFO.
Speaker Change: Copies of our financial news release, and non-GAAP reconciliations are posted on our website.
Speaker Change: Statements made during this call that are not strictly historical facts are forward looking statements, which are subject to known and unknown risks actual results could differ materially.
Speaker Change: Our news release posted on our website includes additional factors that could affect actual results.
Speaker Change: <unk> assumes no obligation to.
Speaker Change: To update any forward looking statements made during this call.
Geoff: I'm now pleased to turn the call over to Jeff Lawrence Geoff Thanks, Matt.
Speaker Change: Good morning, and thank you for joining us.
Speaker Change: Going to divide my commentary today into three sections first.
Speaker Change: I will provide some comments on our fourth quarter and full year results.
Speaker Change: 2024, non-GAAP EPS, great great a double digit pace for the third consecutive year.
Speaker Change: Next I will discuss our initial expectations for 2025.
We anticipate a fourth consecutive year of double digit non-GAAP earnings improvement.
Speaker Change: And finally, I'll discuss how we see our markets playing out over the course of the year and provide additional detail about our EPS growth visibility.
Speaker Change: Following those highlights V. P will provide more detail around our first quarter and full year 2025 outlook.
Speaker Change: Including some thoughts on our ability to offset the impact of new tariffs.
Speaker Change: He will also comment on our strong balance sheet.
Speaker Change: I will conclude with some general closing comments before we open the call to your questions.
I will start with our fourth quarter and full year.
Speaker Change: In the fourth quarter non-GAAP EPS was <unk> 87.
Speaker Change: This result was better than we anticipated.
Speaker Change: While revenue did moderate as expected our members continued focus on productivity drove more financial benefit than we had forecasted.
Speaker Change: The decremental margin to only 17% for the quarter.
Speaker Change: As the year ended workplace furnishings experienced softness with small and medium sized customers.
Speaker Change: The transactional business within SMB, where products are sold through wholesalers, a national supply dealers was particularly soft throughout the fourth quarter.
Speaker Change: As we discussed last quarter.
Speaker Change: Sure a short selling cycle typically involve smaller item purchases and historically has been highly sensitive to macroeconomic changes as a result revenue trends can be volatile and shift rather quickly.
Speaker Change: And our contract furniture business fourth quarter revenue was down slightly versus the prior year.
Speaker Change: As the timing of larger projects temporarily limited segment growth in the fourth quarter.
Speaker Change: Finally in residential building products.
Speaker Change: First quarter revenue declined 5% year over year as housing market weakness persisted.
Speaker Change: Moving to some commentary on the full year.
Speaker Change: Our members delivered another year of excellent operational and financial performance.
Speaker Change: non-GAAP EPS totaled $3 <unk>.
Speaker Change: 15% from 2023 levels, reaching a new record high for the full year.
Speaker Change: Importantly, we delivered these results despite our markets remaining near cyclical low points.
Speaker Change: Consolidated operating margin in 2024 expanded 130 basis points on a non-GAAP basis to eight 6% the highest level since 2005.
Speaker Change: This strong performance was driven by workplace furnishings profit transformation initiatives.
Speaker Change: Our synergy capture and successful price cost strategies.
Speaker Change: From a segment perspective in 2024 and workplace furnishes are profit transformation plan and acceleration of chaos synergies drove a 44% increase in non-GAAP operating profit.
Speaker Change: While segment non-GAAP operating margin of nine 5% reached the highest level since 2007.
Speaker Change: In residential building products ongoing housing market weakness pushed revenue lower for the year.
Speaker Change: However segment operating profit margin expanded 50 basis points to 17, 5% in 2024.
The consistent profit margins in this segment are evidence of the businesses unmatched price point breadth and channel reach.
Speaker Change: Along with the benefits of its vertically integrated business model and overall operational agility.
Speaker Change: To summarize 2020 for our profit growth in workplace furnishings and margin expansion in residential building products continue to demonstrate the strength of our strategies and customer first business model along with the resilience of our members.
Speaker Change: During the year, we again demonstrated our ability to manage through all parts of the economic cycle.
Speaker Change: Going forward, we expect continued earnings improvement driven by our margin expansion efforts and a return of revenue growth as we move through the year.
Speaker Change: However, as we enter the new year, we do see demand volatility across our businesses.
Speaker Change: That leads to my comments about our current expectations for 2025.
Speaker Change: First in our workplace furnishings business, our internal metrics and external indicators support our outlook for revenue improvement.
Speaker Change: And we are increasingly focusing our investments on driving growth in this segment.
Speaker Change: However, tariff uncertainty and rising inflation expectations provide reasons to expect ongoing volatility.
Speaker Change: Internally orders and preorder metrics continue to show improvement and backlog levels are up pointing to a return of revenue growth in 2025.
Speaker Change: Segment orders in the fourth quarter were up 2% compared to the prior year period.
Speaker Change: Consistent with recent revenue trends fourth quarter orders from contract customers performed better than those from small to medium sized customers.
Speaker Change: Overall workplace backlog was also up double digits year over year at the end of 2024.
Speaker Change: And preorder metrics remain encouraging with our order funnel and workplace furnishings up at a mid to high single digit pace year over year.
Speaker Change: Our internal metrics are consistent with what we are seeing in various external metrics that typically drive industry demand.
Speaker Change: For example office sublease activity in office space absorption are heading in the right direction.
Speaker Change: Both are leading indicators for office furniture demand and are providing additional reasons for encouragement.
Speaker Change: We're also continuing to see return to office momentum build as well.
Speaker Change: So as you look out into 2025, we are signals that are encouraging and support our view of a return to revenue growth.
Speaker Change: At the same time, we are increasingly focusing our investments on driving revenue growth in this segment.
Speaker Change: Moving to the residents of building products. Our current view is that any real housing recovery continues to push out.
Speaker Change: And our revenue outlook points to the majority of segment growth occurring late in the year as year over year comparisons ease in our growth initiatives gain traction.
Speaker Change: As is well documented that dynamics in the housing market remain difficult.
Speaker Change: After bottoming at 39 in August the housing market Index reached 47 in January well there.
Speaker Change: It is a solid improvement the January reading remains below the 10 year average of 62.
Speaker Change: Builder sentiment continues to reflect the impacts of elevated interest rates and ongoing affordability issues.
Speaker Change: Despite these headwinds we believe in the long term opportunities tied to the broader housing market and the strength of our market leading positions and profitable operating model.
Speaker Change: And we continue to invest accordingly.
Speaker Change: I will finish by making a few comments about our markets and provide additional detail around our elevated 2025 EPS closer visibility.
Speaker Change: As is evident from our commentary it is in and in the in the release and on the call. We are increasingly focused on driving revenue growth in both businesses.
Speaker Change: However, we do expect the year to start off a bit slow with revenue declines in the first quarter.
Speaker Change: And workplace the first quarter revenue softness is being driven by the transactional portion of SMB and large product project timing within the hospitality business.
Speaker Change: Overall SMB activity lag in the final quarter of 2024.
Speaker Change: I'll remind you prior to the second half of 2020 for SMT was an area of strength for us with consistent order growth over the previous two years and we remain bullish about the fundamental backdrop.
Speaker Change: As we look at 2025, our strength in the SMB space and our broad price point breath continue to be competitive differentiators, especially as more cost conscious customers embraced price mixing across projects increasingly mingling SMB products in the contract settings.
Speaker Change: In our contract business, we see growth on the horizon.
Speaker Change: Contract orders were up 4% on a year over year basis in the fourth quarter.
Speaker Change: We continue to see encouraging signs within larger projects and we saw order outperformance from the workplace and health end markets during the last quarter of 2024.
Speaker Change: In addition, education order patterns improve as 2024 progressed.
Speaker Change: In education order backlog is up double digits to start 2025.
Speaker Change: We are still experiencing longer selling to order timeframes, which makes it a bit more challenging to predict revenue timing.
Speaker Change: So while underlying demand drivers are encouraging in the contract space the level of macro uncertainty, including the ultimate impact of tariffs will affect how demand plays out.
Speaker Change: Looking ahead, we believe we are particularly well positioned to benefit as the workplace furnishings market continues to improve.
Speaker Change: We have a portfolio of brands with unmatched product breadth and pricing breadth and depth, allowing us to meet any future need a customer has we have products that work for customers ranging from small businesses to the largest multinationals.
Speaker Change: Our brands are distributed widely across geographies from tertiary markets to the top msas.
Speaker Change: And we can broadly meet the needs of workplaces schools healthcare facilities and hotels.
Speaker Change: Moving to residential building products, we continue to believe in the positive long term market fundamentals.
Speaker Change: The near term remains dynamic and we expect the market driven revenue recovery takes some time given the current housing environment.
Speaker Change: We are however, optimistic about our opportunities to increase revenues through our growth initiatives.
Speaker Change: Specifically, we continue to develop market, leading new products and provide customers with more options and features.
Speaker Change: We are driving new programs to increase consumer awareness of the fireplace options, ensuring our products are considered and all remodel and new construction projects.
Speaker Change: And we are strengthening our already strong relationships with builders across the country, helping them deliver the best overall value to the homeowner.
Speaker Change: While we invest in growth, we will continue to deliver high margin results and strong profits in this business.
Speaker Change: Longer term single family housing remains under supplied and demographics will support additional demand growth there is.
Speaker Change: <unk> of our ongoing investments, which enhance our connection to customers and build on our leading brands will fortify our position of strength in the industry.
Speaker Change: Sure.
Speaker Change: Finally, and importantly, we have elevated earnings visibility this year and next.
Speaker Change: While our earnings expectation for 2025 does include revenue improvement.
Speaker Change: We continue to have high visibility of significant profit growth driven by operational improvements.
Speaker Change: As we have discussed we have two initiatives underway, Mexico and chaos synergies that will drive a total of 70 to 80 cents of EPS growth through 2026.
Speaker Change: That represents approximately 25% EPS growth on top of our 2024 earnings with.
Speaker Change: With the savings expected to be divided roughly equally over the next two years.
Speaker Change: In addition, we continue to manage our cost structure and residential building products to align with the demand environment.
Speaker Change: Early in the fourth quarter of 2024, we took actions to lower our cost structure by approximately $5 million in this business.
Speaker Change: Most of that benefit will be recognized in 2025 further adding to our overall profit visibility.
Speaker Change: So without help from the cycle, we expect our double digit earnings growth to extend to at least five years.
Speaker Change: I will now turn the call over to VP discuss our outlook for 2025 BP. Thanks.
Speaker Change: Thanks, Jeff I'll start by discussing our outlook for demand and profit beginning with demand as Jeff commented first quarter revenue and workplace furnishings is expected to decrease to a low to mid single digit rate year over year, the benefits of improving orders backlog and preorder metrics are expected to drive revenue growth beginning in the second quarter of 2025.
Speaker Change: For residential building products first quarter 2025, net sales are projected to increase at a mid single digit rate compared to the same period in 2024, we expect growth in both remodel retrofit and new home markets with remodel retrofit growing high single digits and the new construction up low single digits.
Speaker Change: Call our remodel retrofit was artificially low last year as channel inventory was clearing.
Speaker Change: We will continue to closely monitor several key housing market drivers, including interest rates home affordability consumer confidence as the year progresses.
Speaker Change: Shifting to our first quarter profit outlook, when including the anticipated impact of tariffs. We're now expecting a non-GAAP earnings per share in the first quarter of 2025 to decrease slightly from 2024 levels.
Speaker Change: Based on our current tariff assumptions, there will be a temporary first quarter price cost drag as existing backlog shifts. We estimate this one quarter drag to be approximately $3 million to $4 million. However, and importantly, we expect to recoup that drag over the remainder of 2025.
Speaker Change: Clearly the tariff situation remains very dynamic however, we have the flexibility to adjust and expect to be able to manage the estimated impact for the full year.
Speaker Change: Currently we are accounting for the following 25% tariffs for Mexico, and Canada, 10% additional tariff for China, and the announced steel and aluminum tariffs. We will continue to evaluate additional tariffs as they are announced.
Speaker Change: Our mitigation plans include a combination of cost avoidance supplier concessions additional pricing actions and productivity initiatives from a price perspective. Our current plans are to utilize a surcharge approach, which allows us to adjust quickly in a dynamic environment and reduce the impact on our customers when possible our plan is to <unk>.
Speaker Change: Fully offset any character of an inflationary pressures pressures similar that we demonstrated in 2018.
Speaker Change: In the first quarter, we expect operating margin in workplace furnishings to be down year over year. As continued profit transformation efforts are more than offset by lower volume and tariffs.
Residential building products operating margin is expected to expand on a year over year basis, as we anticipate higher volume and positive price costs more than offset increased investments and tariffs.
Speaker Change: Excluding the temporary drag from tariffs first quarter non-GAAP earnings per share are expected to increase modestly driven by increase in productivity, partially offset by continued investments.
Speaker Change: Moving to the full year, we expect year over year revenue growth in the low to mid single digits in both segments and workplace furnishings quarterly year over year revenue growth rates are expected to turn positive in the second quarter, and we expect them to improve each quarter as the year progresses and.
Speaker Change: In residential building products the majority of the year over year revenue growth is expected late in the year as comparisons ease and our growth initiatives gain momentum.
Speaker Change: On the bottom line, we expect another year of double digit non-GAAP EPS growth driven by savings from our broader productivity efforts, including about half of the remaining savings from associated with our Kimball synergies and the Mexico facility in.
Speaker Change: In addition, we expect increased profits from revenue growth on a year over year basis.
Speaker Change: I'll wrap up with a few comments on our balance sheet and cash flow. Despite 2020 for topline pressure. We expanded margins grew profit generated strong cash flow reduce debt return cash to shareholders and exited the year a stronger company for the year operating cash flow exceeded $225 million in year end <unk>.
Speaker Change: Most debt leverage is one one times as calculated in accordance with our debt agreements.
Speaker Change: The ratio was unchanged from the end of the third quarter of 2020 for wheat.
Speaker Change: We deployed cash flow by further accelerating stock repurchase activity in the fourth quarter, while maintaining our longstanding quarterly dividend.
Speaker Change: For the year, we returned $129 million to shareholders through stock buybacks and dividends.
Speaker Change: The combination of our strong balance sheet and consist consistent cash flow generation will continue to provide a high degree of financial flexibility and capacity for investment or.
Jeff: Our capital priorities remain reinvesting in the business paying dividends pursuing share buybacks and exploring M&A opportunities I will now turn the call back over to Jeff.
Speaker Change: Thanks, GP as we look to our future we are committed to driving revenue growth and delivering strong margins across our businesses.
Speaker Change: Despite ongoing macro economic uncertainty and anticipated demand volatility we have elevated earnings visibility through 2026 and are increasing our investments to drive growth.
Speaker Change: We delivered a third straight year of double digit earnings growth in 2024, and we expect momentum to continue in 2025.
Speaker Change: Beyond 2025, we are positioned for continued success.
Speaker Change: We have elevated earnings growth visibility through 2026.
Speaker Change: Broad and diverse product and market coverage and workplace furnishings.
Speaker Change: Market, leading positions in resident to building products.
Speaker Change: And we feel now is the time to lean into additional investments to drive future growth.
Speaker Change: All of this is supported by our strong balance sheet and the ability to drive continued free cash flow.
Speaker Change: I want to thank each HII member for their continued dedication and congratulate them on delivering another year of excellent results. We will now open the call to your questions.
Speaker Change: Yeah.
Speaker Change: As a reminder, if you would like to ask a question press star one on your telephone keypad. If your question has been answered and you would like to remove yourself from the queue Press Star one.
Speaker Change: Your first question is from the line of Reuben Garner with benchmark.
Speaker Change: Thank you good morning, everybody.
Speaker Change: Maybe to start with the last couple of years. The focus has definitely been on the margin fraud savings and synergies it sounds like growth and investments in growth as more of a focus now I was wondering if you could dig in a little bit on what exactly you're investing in significant.
Speaker Change: On the workplace side, and then why you kind of feel like now is the time to turn that on.
Speaker Change: Yeah. Good question I think.
Speaker Change: First of all I will let me start with we're still focused on margin expansion Thats still thats still a headline news but.
Speaker Change: We're.
Speaker Change: We're investing we think we think now is the time, where investing is more selling capabilities, we're really focused on simplifying our customer experience and improving it.
Speaker Change: Increasing our spending in product development.
Speaker Change: Continuing to up our game in and digital connectivity throughout the value chain and so we.
Speaker Change: We just feel it's a really good.
Speaker Change: Time to do that and we're going to we're going to stay on it look we've we see strengthen in some of our verticals that werent more investment as well.
Speaker Change: In the office starting to show some some growth in the healthcare education hospitality kind of so there's a lot of reasons for us to want to lean into the investment profile right now.
Okay and then.
Speaker Change: On the Rev.
Speaker Change: Residential building products side can.
Speaker Change: Can you talk about the company specific drivers that gives you confidence in that growth.
Speaker Change: Target for this year in <unk>.
Speaker Change: Specifically the acceleration in the back half I understand the inventory dynamic, but maybe.
Speaker Change: <unk> I think you referenced the investments that you hope to drive accelerated growth in the back half. So if you could just talk about those as well.
Speaker Change: Sure I think the <unk>.
Speaker Change: The investments have started they obviously will taper and as we get further in the back half, but it starts with our continuing to organize around the consumer which is the business units. We introduced this to you too.
Speaker Change: Two probably three years ago, and the closer we organize around the consumer our efforts and benefits get.
Speaker Change: More tactical and precise so it starts with capabilities and selling and getting closer to the builder, we have a privileged position with our relationship with national accounts, our own distribution as well as our aligned distribution. So we're adding settling I would take capacity and capabilities in all those areas and then we're going to continue to drive category awareness.
Speaker Change: Consumers still need to know that fire places or an option both on the retail side as well as on the new home side and I would say finally, our product pipeline.
Speaker Change: The breadth and depth of that across all brands and all categories are pretty strong. So all of those investments are certainly incremental dollars that we're doing versus our run rates, but we will continue to defend our margins. While we invest those those should not be something to think that it's going to degrade the the.
Speaker Change: The high teen margins that we've been doing we feel its the time just like workplace to put the money in there to drive growth for not only this year, but the future.
Speaker Change: Great look forward to seeing them next week I'm going to sneak one more question then.
Speaker Change: The federal government can you remind us what your exposure is there and what the kind of early indications are I know you've got a lot of moving pieces with potentially cuts, but also return to office mandates. So just an update on that would be helpful. Thank you.
Speaker Change: Yeah on the federal side.
Speaker Change: Important part of the business, but it's a small part of the business. Let me start there when we look at the whole portfolio across workplace furnishing. So we're approaching it right now no changes and we're just going to continue to monitor we still have selling capabilities enforces addressing the opportunities here in scenario, where we can grow but for now it's a little bit of SaaS quote.
Speaker Change: Yes, we haven't really seen any any.
Speaker Change: Changes on buying patterns or anything yet, there's obviously a lot of dust in the air, but but right now we're going to stay the course and <unk>.
Speaker Change: You say, there is probably going to be puts and takes there.
Speaker Change: Over over the course of next couple of years, but we like our position and we're going to stay real estate president invested in that space.
Speaker Change: Great. Thanks, again, and congrats on a strong close the book.
Speaker Change: Most of this year.
Speaker Change: Your next question is from the line of Greg Burns with Sidoti.
Greg Burns: Good morning.
Greg Burns: Are you seeing any indications that that the that SMB part of the business is I know, it's probably shorter cycle, so not as much visibility, but any indications there that you might be seeing.
Greg Burns: Improvement in demand or stabilization there I did notice that the SMB small business index was showing positive.
Greg Burns: Positive signs last couple of quarters post the election are you seeing anything in the market that might give you hope that that SMB piece rebounds in 'twenty five.
Greg Burns: Great Thats. Good question I mean, right now, we're we're kind of flattish.
Greg Burns: You know in that space, we like our we like our position we know we know as it turns will be there.
Greg Burns: But it's a little early to call that I think I think it really suffered from kind of.
Greg Burns: The hangover of the election kind of going in ending the year and it's been a little rocky to start.
Greg Burns: But as things stabilize I would anticipate that we'll we'll see some.
Greg Burns: Revenue upside towards the back half of the year.
Greg Burns: Okay and then what.
Greg Burns: The tariffs it sounds like youre going to be able to offset them.
Greg Burns: On a concurrent basis, maybe not so much in the first quarter.
Greg Burns: In the past I always thought there was like maybe a little bit delay on your ability to pass through price and.
Greg Burns: That work its way through the system why why are you able to.
Offset the tariffs unlike a contemporaneous like in quarter basis going forward.
Greg Burns: Sure.
Greg Burns: Good question, Greg I think.
Greg Burns: We won't be able to do it in the first quarter, just because we've chosen where not.
Greg Burns: It's been kind of fast and furious and we're going to push the backlog out but this time maybe from the last time, we're going to take a surcharge approach as opposed to a permanent price list price adjustment.
Greg Burns: That's 0.1, because these things kind of come and go and it's more dynamic I think the last time, so that's a quicker mechanism than pushing a list price adjustment through and I think it's a fair a fair approach for our customers and we're also look we're also working our supplier concessions were looked.
Re looking at our productivity.
Greg Burns: All to get to a neutral place on this and be fair to everybody involved but the real bottom line is we're going to surcharge at which we can we can move.
Greg Burns: In a week or two fairly quickly.
Greg Burns: Okay great.
Greg Burns: When we think about you know maybe revenue growth this year volume.
Greg Burns: Volumes picking up what's your typical incremental margins on on.
Greg Burns: The topline growth you are projecting.
Greg Burns: Yes, I think it's fair to say now with the productivity improvements in workplace. You can you can consider 40 plus percent incremental margins on the core business, both residential and workplace furnishings.
Greg Burns: Alright, great. Thank you.
Greg Burns: And I think I think the important one more comment there that's while still investing so the investments that Jeff was talking about and I was talking about in residential as we continue to we expand we continue to expand those margins while doing that.
Greg Burns: Okay, great. Thanks.
Speaker Change: Your next question is from the line of Steven Ramsey with Thompson Research group.
Steven Ramsey: Hi, Good morning wanted to think about near term residential maybe you can extrapolate to the mid to long term if there is any but the outlook.
Speaker Change: For mid single digit growth in the first quarter, yet orders up 8% and that's continuing can you maybe clarify.
Steven Ramsey: What's kind of driving the delta there.
Speaker Change: Is the delay if it if it helps Q2.
Steven Ramsey: Sure. So I think we got it.
Steven Ramsey: One is obviously the smallest year smallest dollar amount from a seasonality standpoint. So we can start there and we talk about up.
Steven Ramsey: Mid single digits, we look at two markets, we look at the new home market and the residential remodel. So I think it's important to talk about both.
Steven Ramsey: The new home market as we as we see right now Q4 orders were actually down 2%, but we see that market continuing to improve and it has each quarter over the last four quarters to now almost be at a flat to a breakeven point if I look at the last 90 days permits which is a great indicator for us on kind of forward looking demand, that's actually flat as well so we see there.
That stabilizing when I look at the plus eight in orders.
Steven Ramsey: The important number and there is actually the remodel retrofit we're coming off of a very low comp. We've got two years of down 40%. If I look at the last two years of of residential. So this is why we have confidence that we think we can start we will start seeing some growth in that area and that will obviously continue through and build as we go through the year.
Steven Ramsey: Okay.
Steven Ramsey: Okay helpful and then thinking about work play.
Steven Ramsey: <unk> talked about the extended timeline.
Steven Ramsey: Between conversations to order to sale I'm curious with both customers both customer bases are still moving slow that is contract and SMB.
Steven Ramsey: Is that timeline shrinking at all.
Steven Ramsey: Yes, Steve Thats a good question I think there is a lot of noise in the system right now I would have told you that it was starting to shrink.
Steven Ramsey: But then.
Steven Ramsey: Kind of year end and tariffs in and.
Steven Ramsey: Some of the just kind of noise kind of I think it's slowed that I think we're kind of at a status, it's not extending anymore, but I don't I know, it's a little too early to call whether that trend will continue where we've got I think whatever we have is a bit of a temporary pause, but I did see that working its way.
Steven Ramsey: Slowly working its way down the timeline.
Steven Ramsey: And I would say right now we're in a position of kind of a whole pattern given kind of given some of the things that are that are happening.
Steven Ramsey: Hi.
Steven Ramsey: Okay and to make sure that this dynamic is is embedded in the full year guidance and kind of that timeline of improvement starting in Q2 I assume.
Steven Ramsey: It is Steve It is that is that we've tried to the best of our ability.
Steven Ramsey: Live with this for a bit now so the business is.
Steven Ramsey: As the businesses have have adjusted their their process to account for that so yes. That's that is embedded in our in our full year look.
Steven Ramsey: Okay helpful. And then last thing from me job managing SG&A in 2024 is this a positive factor again in 2025, just the SG&A line growing at a slower rate than sales.
Steven Ramsey: We actually have SG&A in 2025 growing as a percent. This is to Jeff's point about time of investments and keeping it relatively steady.
Steven Ramsey: Throughout so I think it's the the correction SG&A and this year was adjusting for actually the right sizing the business, while investing now it should stay pretty steady.
Steven Ramsey: Okay. That's great. Thank you.
Steven Ramsey: And that remark as a percent of sales to sort of clear on that the math.
Steven Ramsey: As a reminder to ask a question press star one on your telephone keypad.
Brian Gordon: Next question is from the line of Brian Gordon with water Tower research.
Brian Gordon: Hey, good morning, everyone. Firstly I just wanted to say congratulations.
Brian Gordon: Congratulations on the strong margin performance in a challenging environment I guess my first question would be what.
Brian Gordon: You might be hearing from your contract customers on where they stand with respect to return to office and how they might see those trends play out over the next year or two.
Brian Gordon: Yes, that's a good question I think there's there's more momentum building on return to office.
Brian Gordon: Kind of in the trenches.
Brian Gordon: And it's so the good news on a macro standpoint, I think there's more conversations theres more activity.
Brian Gordon: It still is a little bit case by case every business is a little different and they are all the good news is the.
Brian Gordon: Cut the Pie chart up because more people talking about it and planning for it then there was a year ago.
Brian Gordon: And I see that continuing.
Brian Gordon: How they execute the timing of execution is still a little bit case by case based on the business model, but.
Brian Gordon: It is continuing to trend in that direction.
Brian Gordon: From our perspective, and that's what we're kind of seeing on a day to day basis.
Brian Gordon: Every time that happens, whether they're shrinking moving cities.
Brian Gordon: So going from hybrid three days before days all of those are furniture events and they all are spawning dialogue and discussion about how best to accommodate and actually.
Brian Gordon: Make make it a great experience for their employees.
Brian Gordon: That and make the investments so that those employees will.
Brian Gordon: <unk>.
Brian Gordon: Want to return or at least at least not be struggling with the return.
That definitely makes sense. Thanks.
Speaker Change: Just wanted to dig in a little bit more on the SMB side of the business.
Speaker Change: Why do you think at this point F&B might be lagging behind contract or is this kind of more you think an industry effect of balance sheet.
Speaker Change: Growth effect, what do you think might be driving some of that given the fact that it's a volatile business of course.
Speaker Change: Yes.
Speaker Change: Two things one that that business has been really strong on a two year kind of run rate. So maybe theres a little bit of a natural breather there but.
Speaker Change: The fact, the matter as the contract as we've been talking about it's been building for quite some time in this.
Speaker Change: The comments, we just talked about return to work were more a twinkle in your eye and now they start to become reality and I think.
Speaker Change: My sense is even though there is disruption in kind of the market right now in tariffs.
Speaker Change: Those customers are they takes over they've studied this enough now and Theyre moving forward.
Speaker Change: I mean look the SMB folks they they have the luxury to be able to to kind of pause on a dime.
Speaker Change: I think it's no no more no less than that Brian. It's it's one is a longer longer cycle and the fact that like we talked about had gotten a little longer but the commitment is still there and the SMB as is taken.
Speaker Change: <unk> taken a bit of a breather like they always we've historically seen this.
Speaker Change: Every time, there is a disruption in the economy that the SMB, Ken Ken kind of flatten out or turn it turn negative, but they turn on fairly quickly as well.
Speaker Change: Great. Thank you so much and good luck with the quarter.
Speaker Change: Thanks.
Speaker Change: At this time there are no further questions I will now hand, todays presentation back over to our presenters for any closing remarks.
Speaker Change: Alright, I appreciate everybody's time today, thanks for joining us and spend some time with us have a great day.
Speaker Change: This concludes today's call. Thank you for joining you may now disconnect your lines.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].