HNI 2026年度第3四半期決算説明会：EPS成長とスチールケースとのシナジー拡大

重要なポイント

• HNIコーポレーションが発表した2026年第3四半期のGAAP希薄化後EPSは1.23ドル、非GAAP希薄化後EPSは1.62ドルとなり、非GAAP EPSは前年同期比で約50%増加し、経営陣の社内予想を上回りました。
• オーガニック売上高は6%増加しました。既存オフィス家具部門の売上高はオーガニックベースで6%増加し、住宅建設資材部門の売上高は5%増加しました。
• 既存オフィス家具部門の非GAAP営業利益率は、前年同期比390ベーシスポイント拡大して第3四半期として過去最高の16.2%に達しました。住宅建設資材部門の利益率は180ベーシスポイント拡大しました。
• スチールケースの統合は計画より前倒しで進んでいます。HNIは、潜在的な売上シナジーや国際市場における効果を除いた、本格寄与時点でのシナジー目標を従来の1億2,000万ドル以上から1億3,000万ドル以上に引き上げました。
• 経営陣は、2025年の実績3.46ドルを基準とする2026年通期の非GAAP EPS成長率見通し（20%〜25%増）を維持し、2027年にも再び2桁のEPS成長を見込んでいます。
• 四半期末の負債レバレッジは、堅調なフリー・キャッシュ・フローと純負債の削減に支えられ、前四半期の2.4倍から2.0倍に低下しました。

主要財務データ

事業および営業業績

オフィス家具部門は、オーガニックな販売数量の増加、価格設定、生産性向上施策、および費用抑制の恩恵を受けました。スチールケースを含めると、同セグメントの非GAAP営業利益は前年同期の2倍以上に拡大しました。大口法人需要の活発化と出社回帰の需要を背景に、大口受託顧客の注文伸び率は中小企業向け注文を上回りました。

経営陣によると、スチールケースの売上高および受注高は前年同期比で改善し、買収は第3四半期の収益にプラス寄与しました。調達、物流、製造ネットワークの最適化が、追加シナジー機会の大部分をもたらすと予想されています。同社の現在のシナジー見通しはスチールケースのアメリカ事業のみに適用されており、売上シナジーは含まれていません。

HNIはまた、ディーラーネットワークを通じてHNI傘下のオープンラインブランドの販売拡大を目指す「HNIポートフォリオ・イニシアチブ」をテスト運用しています。経営陣はこれを新たな第2の注力分野と位置付けており、パイロットプログラムが推進力を得られれば規模を拡大する計画です。

住宅建設資材部門は、住宅市場の圧力が続くなかでも成長を記録しました。リフォームおよび改修需要の2桁成長が、新築市場の軟調さを十分に補いました。経営陣はこの好業績について、組織再編、ブランドおよび製品の強化、顧客向けツールの拡充、市場展開（GTM）投資、および顧客エンゲージメントの深耕によるものとしています。

オフィス需要の各種指標は引き続き堅調です。経営陣は、入札見積り、顧客訪問、提案依頼（RFP）、デザイン要求の増加、および成約率の改善を挙げました。オフィスの賃貸契約と純吸収量は5四半期連続でプラスとなり、主要10大都市圏におけるクラスAオフィスのピーク時稼働率は95%を超えました。

経営陣の見通し（ガイダンス）

2026年第4四半期について、既存オフィス家具の売上高は前年同期比で1桁台前半の増加が見込まれています。前年の追加の1週間分を除くと、経営陣は1桁台中盤の成長を予想しています。スチールケースを含めると、オフィス家具部門全体の売上高はほぼ倍増する見通しです。

住宅建設資材の売上高は、第4四半期の報告ベースでほぼ横ばいとなる見込みです。2025年第4四半期の追加の1週間を除くと、経営陣は1桁台前半の成長を見込んでいます。前年の追加の1週間は、両セグメントにおいて売上成長率に推定3ポイントの逆風をもたらします。

HNIは第4四半期の非GAAP希薄化後EPSが前年同期比で20%台中盤の増益率になると予想しています。スチールケース、生産性向上によるコスト削減、費用管理、および税務計画が、緩やかな販売数量の圧力、一時的な価格・コスト面での逆風、ならびに継続的な成長投資を十分に補うと期待されています。

2026年通期について、経営陣は2025年の3.46ドルからの非GAAP EPS成長率20%〜25%増という予想を維持しています。国際事業の利益圧力と一時的な価格・コスト面の逆風が第3四半期の利益上乗せ効果を相殺するため、スチールケースの通期EPSへの貢献度は中立となる見通しです。

経営陣は、2027年における2桁の非GAAP EPS成長と売上高の改善を見込んでいます。このEPS見通しは売上成長に依存していません。価格改定施策により、2027年の第1四半期から第2四半期にかけて価格とコストの整合性が回復する見通しです。

HNIは、既存オフィス家具事業における製造ネットワーク最適化から約3,000万ドルのコスト削減を見込んでいます。その約3分の1が2026年に認識され、残りの3分の2は2027年と2028年に均等に分割して認識される予定です。また、同社はスチールケースの2年目のEPS貢献度予想を0.60ドルから0.70ドルに引き上げました。

2026年通期の純支払利息は約8,000万ドル、税率は約24%となる見込みです。HNIは、2025年12月のスチールケースの買収完了から18〜24か月以内にレバレッジ比率を1.5倍以下に引き下げることを目指しています。

リスクおよび注視事項

軽油、鉄鋼、その他の原材料費におけるインフレ加速により、一時的な価格とコストのミスマッチが発生しています。経営陣は、新価格の適用開始前に既存受注残の価格が維持されるため、第4四半期に0.10〜0.15ドルのEPS押し下げ要因になると予想しています。

スチールケースの海外事業は、戦争、地政学的混乱、および広範な市場の混乱に関連する需要の減退に直面しています。コスト対策は予定通り進んでいるものの、経営陣は収益の改善が予想よりも緩やかであると述べています。

住宅の新築市場は、高水準の金利、住宅価格の高騰、および購買力の限界によって引き続き圧力を受けています。経営陣は2026年の残りの期間も軟調さが続くと予想しており、2027年もこのチャネルにとって厳しい年になると述べています。

一部の大型オフィスプロジェクトは、労働力の確保、予算改定、および再見積りにより遅延が生じています。また、コロナ禍における資金支援や地方債による支出が一巡したことで、教育機関や州・地方政府の需要も減退しています。

アナリスト質疑応答の要点

• スチールケースの海外事業：経営陣は軟調さの主因が需要面にあると述べています。HNIはコストと収益性を厳格に管理する方針ですが、1億3,000万ドルのシナジー目標は引き続き南北アメリカ事業に限定されています。
• 価格設定とインフレ：燃料、軽油、および鉄鋼コストが予想以上に上昇したため、HNIは追加サーチャージの導入およびカタログ価格の改定を実施しました。経営陣は、現在の価格とコストのギャップが2027年初頭に解消すると予想しています。
• シナジーの拡大：上場企業関連費用および販売管理費（SG&A）における初期のコスト削減効果は予想を上回りました。今後のさらなる上積みは、主に調達、物流、ネットワークの最適化からもたらされると見込んでいます。
• オフィス需要の構成：中小企業（SMB）の需要は堅調を維持しており、大口受託事業は出社回帰の動き、オフィスの純吸収力、および今後のリース契約満了を背景に加速しています。経営陣は、予期せぬ混乱がない限り、このサイクルが2027年以降も続くと予想しています。
• プロジェクトのタイミング：好調な事前販売指標や受注が短期の販売数量に完全には結びついていません。これは、労働力の制約や予算調整により大型プロジェクトの時期が繰り延べられているためです。経営陣は、これを広範なキャンセルではなく、主に時期（タイミング）の問題と位置付けています。

決算説明会（電話会議）全文文字起こし

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Good day, and thank you for standing by. Welcome to HNI Corporation Third Quarter Fiscal Year 2026 Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to Mr. McCall. Please go ahead.

Matthew McCall

Good morning. My name is Matt McCall, I'm Vice President, Investor Relations and Corporate Development for HNI Corporation. Thank you for joining us to discuss our third quarter 2026 results. With me today are Jeff Lorenger, Chairman, President and CEO; and V.P. Berger, Executive Vice President and CFO.

Copies of our financial news release 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 risks. Actual results could differ materially. The financial news release 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 the call. I'm now pleased to turn the call over to Jeff Lawrence. Jeff?

Jeffrey Lorenger

Good morning, and thank you for joining us. In the third quarter, we drove volume growth in both segments, while our members continue to demonstrate focus and diligence. In addition to the benefits of operating leverage from the higher volume, cost and expense management, legacy productivity benefits and price cost favorability drove third quarter results that significantly exceeded our expectations.

Encouragingly, our internal leading indicators, preorder activity, orders and backlog continue to provide reasons to be optimistic. The positive momentum of our strategies, both revenue and cost focus, the benefits of our diversified revenue streams, the merits of our customer-first business model and the integration of Steelcase continue to deliver strong shareholder value. And we expect the fifth consecutive year of double-digit earnings improvement in 2026 and full year organic revenue growth in the low single digits in both segments.

On today's call, I will break my comments into three sections. First, our quarterly results surprise to the upside. Second, our revenue backdrop remains strong and is expected to support a solid fourth quarter. And third, we have elevated visibility into profit growth as we look to 2027 and beyond. Following my comments, VP will provide more details about the third quarter, our outlook, cash flow and balance sheet. I will close with some additional commentary before we open the call to your questions.

I will start with some highlights from the third quarter. Non-GAAP EPS of $1.62 exceeded our internal expectations and was up nearly 50% year-over-year. Both segments reported volume and order growth in the quarter, while we continue to effectively manage the middle of the income statement. Profit improvement versus the prior year was driven by the Steelcase acquisition, operational productivity benefits, price cost and organic volume growth. Revenue overall was in line with our projections with building products nicely exceeding our forecast and offsetting a slight miss in Workplace.

In our legacy Workplace Furnishings businesses, our profit transformation efforts are working and revenue is continuing to grow. Third quarter net sales were up 6% year-over-year on an organic basis. We remain optimistic about the industry backdrop and our internal indicators continue to provide reasons to be encouraged about future top line trends. Non-GAAP segment operating margin, excluding Steelcase, expanded 390 basis points year-over-year, reaching a third quarter record of 16.2%. And when including Steelcase, non-GAAP operating income was more than double the prior year level.

For the full year 2026, we continue to expect solid margin expansion in our legacy Workplace businesses, resulting from strategic cost transformation initiatives and leverage on volume improvement, while we continue to invest to drive future growth. At Steelcase, our integration efforts are on track. synergy capture is ahead of plan. Net sales and orders improved on a year-over-year basis, and we saw accretion from Steelcase in the third quarter.

From a synergies perspective, we now expect total capture to reach at least $130 million when fully mature versus our original target of $120 million. And the original target of $120 million is now expected to be achieved by the end of year 4 earlier than previously expected. In Residential Building Products, our organizational realignment and growth initiatives are working and fueled 5% net sales growth in the quarter, strong results given the headwinds in the housing markets. This growth exceeded our expectations communicated on the second quarter call as the benefits of structural changes organizing around the consumer and growth investments drove continued market outperformance.

Revenue from the remodel retrofit business increased double digits and more than offset continued market-driven weakness in the new construction channel. The top line strength and our lean model drove operating profit and margin upside with 180 basis points of margin expansion and 16% profit growth on a year-over-year basis. We remain encouraged about the opportunities tied to our growth initiatives despite expectations of ongoing housing market headwinds. And importantly, we continue to invest to grow our unique operating model and diversified revenue streams, including ongoing go-to-market changes to organize around our customers.

In summary, for HNI overall, the strength of our growth strategies and ability to stay focused on our profit levers despite ongoing macroeconomic uncertainty was evident in our third quarter results, and we expect strong profit growth again in the fourth quarter. That leads to my comments on our outlook for the fourth quarter of 2026. Again, our revenue backdrop remained strong in the third quarter. From a segment perspective, beginning in our legacy Workplace businesses, orders in the third quarter saw a solid increase compared to the prior year period.

As a result, we expect net sales growth again in the fourth quarter versus the prior year in legacy Workplace. Our segment outlook continues to be supported by external industry metrics and by internal pipeline data. Specifically, in addition to strengthening orders in the quarter, preorder metrics remained encouraging, including project funnel, bid quotes and design requests. For Steelcase, order growth exceeded our legacy workplace businesses, consistent with the strong preorder activity and accelerating order momentum we discussed on the second quarter call.

And as I mentioned, our synergy capture is running ahead of plan. In 2026, the synergy upside will be partially offset by temporary price/cost pressure from accelerating inflation. Importantly, we expect our pricing actions will bring price/cost neutrality in 2027. In addition, in Steelcase's international markets, the benefits of our ongoing cost actions and profit improvement plans are being partially offset by geopolitical turmoil, slowing the rate of earnings improvement in 2026.

We will continue to aggressively manage the cost structure with a focus on profitability in these markets. So with the new leadership team in place, a focus on growth and disciplined management, the Steelcase business is positioned for a strong 2027.

In Residential Building Products, our members continue to drive market outperformance. Segment orders grew solidly compared to the third quarter of 2025. For the full year, we continue to expect modest price-driven revenue growth with volume improvement adding to the pricing benefits in the second half. Again, that's despite the persistent housing market headwinds that have been with us all year.

From a profit perspective, we expect Residential Building Products non-GAAP operating margin to significantly expand again in the fourth quarter and for the full year overall. The fourth quarter will mark the anniversary of our Steelcase acquisition and a full year of our consolidated results. This will also mark an operating margin trough for the combined company. As we move forward with substantial revenue and profit opportunities, we expect significant margin expansion ahead.

Now moving on to my third point, our outlook for 2027 and beyond. Cost management initiatives and efforts to streamline priorities across the organization to focus on profitable growth will deliver improved profitability over the remainder of 2026 and in 2027. This is despite expectations of ongoing geopolitical and macro uncertainty. Further, we continue to expect manufacturing network optimization savings in our legacy Workplace Furnishings businesses totaled nearly $30 million. We expect to recognize about 1/3 of the savings in 2026 with the remaining 2/3 benefiting '27 and '28 equally.

In addition, synergies associated with the integration of Steelcase are progressing ahead of plan and are now expected to add at least $130 million of operating profit when fully mature. As a result, from an earnings perspective, we expect double-digit EPS growth again in 2027. And while our outlook for double-digit EPS growth in 2027 is not reliant on top line growth, we do expect net sales improvement again in 2027. Beyond next year, the combination of our disciplined cost management, Steelcase synergies and ongoing legacy manufacturing optimization projects will continue to support our earnings visibility story.

A couple of additional items to note. First, our current synergy projections are focused only on the Steelcase Americas business. Second, we are assuming no benefits from revenue synergies. However, we are increasingly confident in the benefits tied to our HNI portfolio initiative which are focused on increasing sales of the HNI aligned brands across our dealer networks. We'll provide additional commentary throughout 2027 on this topic. And third, as I discussed earlier, we will continue to aggressively manage the cost structure and profitability in Steelcase's international markets. Now I will turn the call over to VP. VP?

Vincent Berger

Thanks, Jeff. I'll start with some additional comments about the third quarter.

GAAP diluted EPS was $1.23. On a non-GAAP basis, diluted EPS totaled $1.62, which was ahead of our internal expectations. Organic volume rebounded in the quarter with both segments reporting year-over-year volume growth. Workplace net sales increased 6% year-over-year organically with volume up 2%. Residential Building Products net sales grew 5% year-on-year with volume growing 4%. Total net sales in the quarter increased 133% overall. From an organic standpoint, total net sales were up 6% on a year-over-year basis.

Moving to Q3 orders. In the Workplace Furnishings segment, orders in the third quarter increased 6% compared to the prior year period. Order growth rates from contract customers solidly outperformed those from small- and medium-sized businesses and Steelcase order growth was stronger than legacy Workplace Furnishings. Over the most recent five-week period, segment order growth has continued. Orders in the Residential Building Products segment were up 4% compared to the third quarter of 2025. Solid remodel retrofit order growth offset modest declines from the new construction channel. However, both segments continue to outperform the respective markets. Over the most recent five-week period, segment order growth has continued.

Before I discuss our fourth quarter net sales and profit outlook, a reminder that our fiscal 2025 includes an extra week in the fourth quarter. The extra shipping days in the year ago fourth quarter are estimated to create a 3% point revenue growth headwind in the fourth quarter of 2026. For the fourth quarter of 2026, net sales in legacy Workplace Furnishings are expected to increase at a low single-digit rate year-over-year, including the negative impact of the extra week a year ago. Excluding the impact of the extra week, fourth quarter segment sales are expected to increase at a mid-single-digit rate. Including Steelcase, total Workplace Furnishings net sales are expected to nearly double from the prior year period.

In Residential Building Products, fourth quarter 2026 net sales are expected to be roughly unchanged versus the same period in 2025, again, including the negative impact of the extra week last year. Excluding the impact of the extra week, fourth quarter segment sales are expected to increase at a low single-digit rate.

Non-GAAP diluted earnings per share for the fourth quarter of 2026 are expected to increase at a rate in the mid-20% range from the fourth quarter 2025 levels. The addition of Steelcase, productivity savings, expense management and the benefits of tax planning are expected to more than offset modest year-over-year volume pressure, a temporary price/cost drag resulting from the accelerated inflation and continued investments to drive future growth.

As Jeff noted, we saw solid EPS accretion from Steelcase in the third quarter as our synergy capture initiatives gain momentum. However, given the international profit pressures and expectations of temporary price cost headwinds in the fourth quarter, we now expect Steelcase to be neutral to earnings per share for 2026 overall. For consolidated HNI, we continue to expect full year non-GAAP EPS growth of 20% to 25% above 2025 full year of $3.46. As Jeff mentioned, we expect double-digit diluted non-GAAP EPS growth again next year, and we have multiple years of elevated earnings growth visibility beyond 2027.

Next, a few items to assist in your 2026 modeling. Net interest expense is expected to total about $80 million and full year tax rate should be approximately 24%. Finally, from a cash flow and balance sheet perspective, our balance sheet is strong, and we remain committed to maintaining significant financial flexibility to fund ongoing business investments to drive growth and payment of our long-standing dividend.

Strong free cash flow was used to meaningfully reduce net debt levels during the quarter. Quarter ending debt leverage was at 2.0x, down from 2.4x last quarter. We expect leverage to move back to pre-Steelcase acquisition levels at or below 1.5x on an annualized basis within 18 to 24 months of the closing of the deal in December of 2025. I will now turn the call back over to Jeff for some longer-term thoughts and closing comments.

Jeffrey Lorenger

Thanks, VP. Our members continue to manage our businesses well, delivering another strong quarter with improving top line trends and earnings that exceeded our expectations. We reported volume growth in Workplace Furnishings. Residential Building Products segment continued to overdeliver in the quarter, and our order patterns in both segments showed solid year-over-year improvement during the quarter.

The integration of Steelcase is going well with synergy capture progressing ahead of expectations. And a new leadership team, strategic cost resets and pricing actions have the Steelcase business in a great position as we move towards 2027. And we remain confident and expect significant accretion next year and beyond.

The benefits of the Steelcase acquisition, the strength of our strategies and our financial discipline are expected to drive increasing free cash flows even as we manage through worsening inflation and softness in the international markets. And while we remain focused, conservative and ready to adjust as required, our outlook and investment posture continue to demonstrate our confidence in revenue improvement, our ongoing profit growth visibility story and our ability to manage through dynamic economic conditions.

I will finish with some commentary around our demand indicators. The Workplace Furnishings backdrop we have discussed the last few quarters is unchanged, and we are encouraged about the demand environment. In short, our customer interactions indicate the good markets, quality buildings and specific industries are creating real opportunity for us despite the macro noise.

Return to office continues to be a positive driver with Class A peak day occupancy in the top 10 MSAs now back above 95%. Office leasing activity grew for the fifth straight quarter in Q3. Net absorption of office space a historically good leading indicator of future industry demand was also positive for the fifth straight quarter with more than 6 million square feet absorbed in Q3. And nonviable space continues to be removed from the market with 10 million square feet taken offline in the third quarter.

We continue to view this as a positive catalyst for furniture events as more tenants are forced to move. And while the supply of new office space remains subdued, we believe furniture demand only follows occupied seats and lease events, not only construction cranes. Our customer interactions indicate several drivers of demand despite very little new space under construction. Some customers unable to find new space in their existing markets are looking to fit more employees in their existing space. Some are looking for space in suburban areas adjacent to their existing markets, while others are looking to migrate to other primary and secondary markets where space is available. Encouragingly, each of these drivers creates a unique furniture event with the result often being higher furniture spend per square foot.

As I mentioned earlier, these encouraging industry drivers are consistent with recent order patterns and internal preorder metrics in both legacy Workplace and at Steelcase. Our funnel continues to expand with third quarter bid quotes up solidly year-over-year. Customer visits, RFPs and design requests were all strong during the quarter. Our teams are competing well and win rates are improving.

Moving on to housing. Headlines continue to point to a challenging environment, especially in the new build space. Interest rates remain elevated, prices remain high and affordability concerns are not going away. As a result, we expect continued new construction weakness for the remainder of 2026 and that 2027 will be another challenging year. Despite this backdrop, we are confident that our go-to-market initiatives and growth investments will allow us to continue to outperform the market. In remodel retrofit, we are assuming modest market growth over the remainder of 2026 and for that to continue as we head into the first half of 2027. We also expect continued market outperformance in our R&R business. And as was the case for this business in 2026, we expect ongoing margin and cash flow consistency in the Residential Building Products segment.

In conclusion, post the acquisition of Steelcase, we are transformed and fundamentally stronger organization. The early on benefits of the Steelcase acquisition, strength of our strategies and our financial discipline are expected to continue to drive strong free cash flow and help us maintain a strong balance sheet. This will enable us to continue to invest with confidence to grow and deliver exceptional value to our shareholders, customers, dealers, members and communities. I want to thank all HNI members for their continued focus and commitment. Thank you again for joining us. We'll now open the call to your questions.

Operator

[Operator Instructions] Our first question will be coming from the line of Greg Burns of Sidoti.

質疑応答

Gregory Burns

So I just wanted to, I guess, better understand the international dynamics that are occurring in the market. Is there a demand destruction happening there? Or is it mainly a margin issue? And I thought you had mentioned, I don't know if I heard this correctly, but the $130 million of Steelcase synergies are mainly tied to North America, and that's not really considering international. Do you have plans for the international markets maybe to improve the profitability there?

Jeffrey Lorenger

Yes, Great. A lot there. First, let me start with -- yes, we do have plans. Yes, the synergy, the $130 million number is not involving the international markets. It's Americas only. And yes, I mean, really, what's going on over there is there's a lot of turmoil. Markets are disrupted. We got -- and so we're managing it closely for profit looking at our structures and what the demand environment is going to look like. And the bottom line is we've got less profit improvement out of that than we thought. And it's really demand driven, to be candid. The actions we're taking are on track, but the market softened up with the war and some other turmoil that's happening there. So that's really what's going on there, but we'll continue to focus on that as we go forward.

Gregory Burns

Okay. And I know the main focus or driver, since you acquired Steelcase has been mostly from a profit cost perspective. Now with the new management team in place, how should we think about maybe the revenue synergy opportunities and the timing of when those might become more evident in the results?

Jeffrey Lorenger

Yes. That's a good question, Greg. I mean, look, we're definitely turning our attention to revenue synergies. I'd say early on, we wanted to kind of look at it organically, and we've seen some encouraging signs. And right now, we're really spinning up some test and learn. We call it the H&I portfolio initiative where we're looking to drive our open line H&I brands across all our dealer networks. It includes a collection of initiatives. Some are in pilot form to sell across those networks, and we'll be focused on testing, learning and quickly scaling those efforts as we see traction. But again, you're right, a secondary benefit and a secondary focus that's now coming online.

Operator

Our next question is coming from the line of Reuben Garner of StonerX.

Reuben Garner

Let's see. So you mentioned pricing actions, a little bit of near-term price cost pressure in the fourth quarter. What pricing actions are you guys taking? Is it largely steel and diesel? Or are there other cost increases that you're facing? And talk about, I guess, the time line of when those pricing actions start to flow through to kind of get you back to neutral?

Vincent Berger

Yes. Reuben, obviously, this price cost has been dynamic, and we've maintained that we're looking for price cost neutrality over time. We've been able to do that over the last 2 years, even when the tariff started. So the pricing actions started in Q2. We went out with an increased surcharge as well as individual list price changes in all of our businesses based on the best assumption that we had. And we actually got price cost favorable if you remember at the end of Q2 as a positive even after having some headwinds in our legacy business.

So what happened in Q3 is fuel ran more, diesel ran more, steel ran more. So we've gone out again and taken additional actions. Our backlog is the biggest at that point at this time of year. So as a result, we have -- we honor those. So there's going to be a drag in the fourth quarter that we will incur, but our strategy hasn't changed. So there's a $0.10 to $0.15 drag in the fourth quarter that we will we will get back between Q4 actions we're taking as well as Q1 to have 2027 to be price cost neutral. And to answer your second question, it will take a quarter or 1.5 quarters into 2027 to capture. So all the businesses are doing activity here, and it's still a mix between fuel surcharge and lift.

Reuben Garner

Okay. Great. And then the incremental synergies that you found, can you talk about what buckets those come in? And it sounds like -- well, yes, just what buckets did those come in, sorry?

Vincent Berger

Yes. You heard Jeff say we're actually ahead of plan. So the day 1 public company costs from SG&A, we made good traction there. We got a little more out of that than we expected. But if you look at where the additional increases going forward are really on the operational side. As we've laid out our project plans, we talked about last quarter, there's more opportunity in procurement. There's more opportunity in logistics and there's more opportunity, obviously, in network optimization. So that gives us confidence to move from the $120 to $130 for net lease. So kind of all four buckets are seeing some benefit, but the real juice in the future will be on the ops side. I think the other key, as a result, we've been talking about $0.60 in year 2 for Steelcase. We're now taking that up to $0.70.

Reuben Garner

Great. And then last one for me. The HA performance, very strong, obviously, in this environment, especially on the repair and remodel side. Can you just remind us and walk through double-digit growth is pretty impressive. You're not seeing a lot of building product categories see that kind of growth in this market. So can you just remind us the products, the strategies, the investments that you're making and kind of how those benefits are flowing through? Is it new customers? Is it just deeper penetration with existing customers? Just any color would be helpful.

Jeffrey Lorenger

Yes. Look, Reuben, it's a little bit of all of that. I mean we're getting really tight focus. We've done some brand work. We've done some new product work. We've focused on our go-to-market model and a little more intimacy. And I think the other thing that's going on here, we got some benefit from the oil prices of some of our stove business. pellet and wood. So fundamentally, I mean, we are really focused overall in this business, notwithstanding even the new home side on the front end of this business.

And so there's a lot of investments going in and a lot of focus, everything from bringing people into the organization with a different lens to branding work to new product investment and to customer tools to make decisions quicker. So that's really what's driving that. And I would say that we're going to continue to invest with confidence there because we are seeing results and the markets are going to do what they do, but we think there's a lot of opportunity to take share and to grow the category.

Operator

Next question is coming from the line of Steven Ramsey of Thompson Research Group.

Steven Ramsey

This is Chris calling in for Steven today. So the difference between workplace contractor and SMB switch this quarter, I believe, where SMB outperformed in Q1 and Q2. This quarter, contractors solidly outperformed you say. So is SMB slowing? Was it timing? Just hoping you can give us a little bit of understanding what the real trend is here.

Vincent Berger

Yes. I think you're on the trend as it relates to performance. I'd say SMB has been resilient for the last few years. If you look at the growth rates, we've shown 8 quarters where that's hung in there. So that's obviously distribution mix of products and the backdrop of the market.

Jeff talked about the macro indicators and what's happening. We play well in that space. So that's actually, I would say, has continued. What's happened with contract is really the macro of large commercial coming back, the return to office, the absorption. All those things are supportive of what I would call large contract return to office. And as a result, you're seeing that stuff accelerate. And that's generally what's happening both on the steel case as well as the legacy H&I business.

Jeffrey Lorenger

Yes, I would agree. I don't have a lot to add. I think it's less about SMB. It does ebb and flow a little bit. It's quicker to react to -- it's a shorter cycle business. So you'll see it, but it's still resilient. I think BP is the right term there. But this is more about the core commercial contract business getting traction based on all the things we've been seeing in the last couple of quarters, including even some of the verticals. So I think that's really how we think about it and position how you could probably think about it.

Steven Ramsey

Very helpful. And we're also hearing that the return to office is kind of driving growth in some of the other products that we cover like flooring. So just the final follow-up on this question is, is this something that you see extending into 2027 and beyond?

Jeffrey Lorenger

Yes, for sure. We do believe that we're bullish. I mean, short of anything crazy that nobody can see. But yes, I think that has lined up. It started. I think as we commented, there's a lot of lease expirations coming due that we will start to pop over the next 18, 24 months. So at the end of the day, we think we're in a good cycle. We think the combination of steel case in the family gives us even more exposure to play all the bases as the cycle goes, whether it be some of the verticals. So I think that's absolutely what we're competing well on and that's what customers are really talking to us about.

Steven Ramsey

And final one for me. Just wondering if you could speak a little bit about the regionality of both workplace and resi. Are you seeing growth in certain regions? Or are you seeing it pretty much the same across the nation?

Jeffrey Lorenger

That's a good question. I would say in workplace, it's pretty broad-based right now. There's different pockets that kind of come and go. But generally speaking, the trends we're seeing in the activities and the lease expirations and the return to office is kind of across the board. In resi, I do think you see some pockets. It's a little more regionalized and it has been. It was a little weak in the upper Midwest and weaker a little weaker in the Northeast to start. And then the South and West were stronger. That's kind of been how it's played out the last couple of years. Now with the remodel business going, I was kind of talking more new home. You talk about remodel retrofit, that's more like workplaces, pretty broad-based.

Operator

Our next question is coming from the line of David MacGregor of Lobo Research.

David S. MacGregor

Congratulations on a strong quarter. Great results, very encouraging. I guess Jeff, I wanted to ask you just how you're thinking about the strong order book and all the strength you're seeing right now in the presale indicators versus your talk about volume pressure outlook in 4Q. And is this just really kind of the project calendar building for 2027? Or just talk a little more about that timing and kind of the mechanics of this.

Jeffrey Lorenger

Yes. It's a good question. I mean we have seen where we've got strength in the presale and the order book is also a large project. And we've seen some project push. Some of what we're hearing kind of across the board is some tightness with labor. Even though we're not talking about new construction, we are talking about labor to do jobs. And so we've seen some of the push there. So we're not really worried about it. It's there. It's just kind of timing on that, and that's the strongest piece of the business right now.

And I would tell you, also, like I said, we've got strength there. We've got strength in what I would call core commercial contracts. SMB has been resilient. Health care is strong. But we also have seen some weakness in the education space in the state and local space. As you can well imagine, post-COVID money and bond money, the education kind of taking a breather right now. We're competing well, but it's taken a breather and state and local governments are also kind of reengineering their budgets as we go. So I think those two things are kind of leaning on some of the softness as well, but those are lesser parts of the business.

David S. MacGregor

Right. No, I appreciate that detail. How much of this do you think is just the impact of cost inflation on customer project budgets and people just kind of running out of budget capacity here in '26 and saying, well, we'll address that in '27 or we'll divide the project up and we'll do the rest of that in '27.

Jeffrey Lorenger

That's good. We hear anecdotal evidence about that from time to time. I think that some of that's out there or a repricing exercise. That's not all bad for us with our open line to be candid, with this revenue synergy piece. So I think people may have started out on one budget and got reduced to another, but it doesn't -- we haven't really seen people saying it's an all stop. It's really, well, we can't maybe do what we thought we wanted to do. So we're going to take another look at this. And that stretches some of this out as well, I think. But again, I think the long game is that's not all bad for us. We don't mind that exercise one bit.

David S. MacGregor

No, I think I understand that. That's good. I also wanted to get you to maybe drill in a little further on that 390 basis points of operating margin in Workplace Furnishings, excluding Steelcase. Can you just bridge that for us and talk about the big pieces just to help us understand the composition of that. I mean it's an impressive number. Just trying to understand the composition.

Vincent Berger

Yes. I mean if you look at Q3, David, the EPS being up 47%, it wasn't one lever. So there's about $0.60 if I kind of bucket it between pushing off some price cost stuff. Our productivity, Jeff talked about our transformational efforts and resetting our footprint continues to deliver significant value creation. We had volume come back for the first time in both of the businesses. You had volume in residential show up at 4%. You had volume show up at 2% in the workplace side. And then obviously, we got the acquisition you said legacy piece, we got the acquisition of the accretion of Steelcase. We really had 4 or 5 levers coming through, and they came through, if I compare to expectations, even a little bit better on our streamlining our priorities as well as our productivity.

So all of that, I would say, is sustainable. So I think as you look to how do we think about the business in the long term, we did return to growth in the legacy business in '25. We grew again this year, and it's accelerated in the back half. So we're positioned for, to Jeff's point, a strong inflection here in '27 as these things continue to grow.

Operator

And that was the last question for today. I would like to go ahead and turn the call back over to Mr. Lorenger for closing remarks. Please go ahead.

Jeffrey Lorenger

Great. I appreciate everybody's time today. Thanks for taking the time to join us and look forward to speaking to you again in February. Thanks.

Operator

Thank you all for joining. You may now disconnect.