HNI 2026财年第三季度业绩电话会议：每股收益增长与更高的Steelcase协同效应

核心要点

• HNI Corporation公布2026财年第三季度GAAP稀释每股收益（EPS）为1.23美元，非GAAP稀释EPS为1.62美元，其中非GAAP EPS同比增幅近50%，超出管理层内部预期。
• 有机净销售额增长6%。原有办公家具（Legacy Workplace Furnishings）销售额有机增长6%，住宅建筑产品销售额增长5%。
• 原有办公家具非GAAP营业利润率达到第三季度历史新高16.2%，同比扩大390个基点。住宅建筑产品利润率扩大180个基点。
• Steelcase的整合进度快于计划。HNI将其完全成熟后的协同效应目标从1.2亿美元上调至至少1.3亿美元，其中不包含潜在的收入协同效应和国际市场收益。
• 管理层维持对2026财年全年非GAAP EPS在2025财年3.46美元基础上增长20%至25%的预测，并预计2027财年EPS将再次实现两位数增长。
• 在强劲的自由现金流和净债务减少支撑下，季末债务杠杆率从上一季度的2.4倍降至2.0倍。

关键财务数据

业务与经营业绩

办公家具受益于有机销量增长、定价、生产力举措和费用控制。包含Steelcase在内，该板块非GAAP营业利润同比翻倍有余。大客户订单增速超越中小企业订单，反映出大型商业活动和复工需求的增强。

管理层表示，Steelcase的销售额和订单量同比有所改善，且该项收购在第三季度实现增盈。采购、物流和制造网络优化预计将提供大部分新增协同效应空间。公司目前的协同效应测算仅适用于Steelcase美洲业务，并不包含收入协同效应。

HNI还在试点其“HNI组合计划”，旨在通过其经销商网络扩大与HNI协同的开放线品牌的销售。管理层将其描述为一个新兴的次要重点，若试点项目取得成效，将进行推广扩增。

住宅建筑产品业务在住房市场持续承压的情况下依然实现增长。重修与改造业务的两位数增长，足以弥补新建住宅市场的疲软。管理层将这一业绩归功于组织重组、品牌与产品优化、客户工具、市场推广投入以及深化客户参与。

办公家具需求指标保持建设性。管理层提到投标报价、客户拜访、方案征询（RFP）和设计需求均有所上升，同时中标率也在改善。办公楼租赁和净吸纳量连续五个季度保持正增长，而前十大都市统计区（MSA）的A级办公楼高峰日入住率已超过95%。

管理层业绩指引

对于2026财年第四季度，原有办公家具销售额预计同比实现低单位数增长。剔除上财年多出的一周，管理层预计增长为中单位数。包含Steelcase在内，办公家具总销售额预计将翻倍。

按列报基准，住宅建筑产品销售额在第四季度预计将大致持平。剔除2025财年第四季度多出的一周，管理层预计低单位数增长。上财年多出的一周预计给两个板块的收入增长带来约3个百分点的阻力。

HNI预计第四季度非GAAP稀释EPS将实现20%中段的同比增长率。Steelcase的贡献、生产力节省、费用管理和税收筹划预计将足以抵消温和的销量压力、暂时的价格-成本阻力以及持续的增长投资。

对于2026财年全年，管理层继续预计非GAAP EPS将在2025财年3.46美元的基础上增长20%至25%。由于国际盈利压力和暂时的价格-成本阻力抵消了第三季度的增盈，Steelcase目前预计对全年EPS的影响呈中性。

管理层预计2027财年非GAAP EPS将实现两位数增长，净销售额也将有所改善。EPS的前景并不依赖于收入增长。预计定价举措将在进入2027财年约一个至一个半季度后重新恢复价格与成本的中性平衡。

HNI预计从原有办公家具业务的制造网络优化中可节省约3000万美元。其中约三分之一应在2026财年确认，其余三分之二将在2027财年和2028财年平均分摊。公司还将Steelcase第二年预计的EPS贡献从0.60美元上调至0.70美元。

2026财年全年净利息支出预计约为8000万美元，税率接近24%。HNI计划在Steelcase交易于2025年12月交割后的18至24个月内，将杠杆率降至1.5倍或以下。

风险与关注事项

柴油、钢铁及其他投入品通胀加剧正导致暂时的价格与成本失配。管理层预计第四季度EPS将面临0.10美元至0.15美元的拖累，因为在较新的定价举措生效前，现有的积压订单仍将按原价格履行。

受战争、地缘政治动荡及更广泛的市场扰动影响，Steelcase的国际业务面临需求走弱。成本控制举措仍在按计划推进，但管理层表示收益改善慢于预期。

高利率、高房价和可负担性限制继续使住宅新建市场承压。管理层预计疲软态势将持续至2026财年余下时间，并认为2027财年对于该渠道而言将是另一个充满挑战的年份。

由于劳工可用性、预算修订和重新定价，部分大型办公项目有所推迟。随着疫情时代的资金和债券支持的支出趋于放缓，教育以及州和地方政府的需求也有所转弱。

分析师问答要点

• Steelcase国际业务：管理层表示，疲软主要由需求驱动。HNI计划密切管理成本和盈利能力，而1.3亿美元的协同效应目标仍仅限于美洲业务。
• 定价与通胀：在燃料、柴油和钢铁成本增幅超出预期后，HNI实施了额外的附加费和挂牌价调整。管理层预计当前的价格-成本差距将在2027年初消除。
• 协同效应扩大：上市公司及SG&A成本的早期节省超出了预期。未来的上升空间预计主要来自采购、物流和网络优化。
• 办公需求结构：中小企业（SMB）需求保持韧性，而由于复工活动、办公楼吸纳量以及即将到期的租约，大型合约业务正在加速发展。若无不可预见的扰动，管理层预计该周期将延续至2027年及以后。
• 项目落地时点：强劲的预售指标和订单尚未完全转化为近期销量，因为大型项目受劳动力限制和预算调整影响而被推迟。管理层认为这主要是时机安排问题，而非普遍取消。

业绩电话会议完整记录

完整财报电话会议逐字稿

管理层陈述

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.

分析师问答

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.