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Herman Miller Sales Fall, Orders Grow

Thursday 18 September 2008

Herman Miller, Inc., Wednesday announced results for its first quarter of fiscal year 2009. Earnings per share were $0.60, an increase of 11.1% over the same period in the prior year. Operating earnings improved to 11.8% of sales from the prior year same period 10.9%. Significant increases in raw material costs were offset by a 7.0% year-over-year reduction in operating expenses. Sales declined 2.6% from the prior year, primarily from softness in the U.S. Office Furniture market, although orders increased 10.6%.
Sales for the quarter were $479.1 million. North American sales were $395.9 million, reflecting a 2.6% decrease from the same period in the prior year, and non-North American sales for the quarter were $70.1 million, reflecting a 4.5% decrease from the prior year. Orders for the quarter were $535.2 million, an increase of 10.6% from a year ago, with North American orders increasing 8.9% and non-North American orders up 9.6% over the same period a year ago. The strong order entry resulted in an ending backlog of $332.4 million, an 18.8% increase over the prior year.

Brian Walker, Chief Executive Officer, stated, \"We had the foresight last year to realign our resources in preparation for the potential of rough waters ahead. As a result of those actions, we were able to continue to deliver solid financial results to our shareholders despite the challenges of softening demand in the U.S. and dramatic increases in commodity costs. We also continue to make excellent progress on our strategic initiatives to diversify and transform our business into a global company centered on performance innovation.\"

\"This is the first time in over four years that we reported a decline in sales. Although the decline was modest, it was not unexpected and we are encouraged by the strength in order entry during the quarter,\" said Curt Pullen, Chief Financial Officer. \"We are pleased to have recorded increased orders in both our North American and non-North American segments, even after consideration for what we believe to be a pull-forward effect of the recently implemented price increase. The decline we experienced in sales outside North America was primarily driven by the timing of several large projects.\"

Gross margin decreased slightly to 33.9% of sales from 34.1% in the prior year period. Commodity prices increased significantly through the quarter reflecting current market conditions and resulted in a year-over-year unfavorable impact of approximately $9 million. This negative impact was partially offset by reductions in overhead spending and continued manufacturing process improvements.

Operating expenses of $105.8 million declined by $8.0 million to 22.1% of sales, a 100 basis point improvement, compared to the same period in fiscal 2008. This improvement is primarily attributable to the restructuring actions taken in the second quarter last year. Sequentially, operating expenses decreased from 22.2% in the prior quarter, reflecting the spending increase in the prior quarter related to NeoCon, the industry\'s annual trade show.

Pullen concluded, \"Once again we were able to generate nearly 12% operating income, notwithstanding the loss of volume leverage and the large increases in commodity costs. These results demonstrate our commitment to continuous improvement, our overall focus on cost management and the diversification of our revenue base. We know that next quarter will be just as challenging and while certain commodity costs may have leveled off, they remain well above year-ago levels and are still working their way into our product costs. Offsetting this, to some degree, will be the positive impact of our recently implemented price increase. Additionally, just after quarter\'s close, we completed our previously announced $200 million Accelerated Share Repurchase program and retired an additional 2.1 million shares of stock on September 9.\"

The effective tax rate for the quarter was 35.0%, down slightly from the prior quarter rate of 35.1% but up from the previous year\'s first quarter rate of 33.5%. The expiration of the U.S. R&D tax credit contributed to the higher year-over-year tax rate.

The company\'s cash position at the end of the quarter was $147.8 million. Cash flow from operations for the quarter totaled $3.9 million compared to $31.8 million for the same period last year. The current quarter\'s operating cash flow reflects a working capital use of funds due primarily to reductions in accruals for the payment of prior year incentives. Capital spending for the quarter was $8.2 million compared to $8.9 million for the same period last year.

Looking forward, the company expects second quarter sales to be in a range of $490 million to $515 million. The company estimates earnings per share to be in a range of $0.59 to $0.66. These estimates reflect both a challenging U.S. demand picture and the rising commodity costs previously discussed, offset partially by the favorable impacts of the price increase and a lower share count.

Brian Walker, president and CEO, noted, \"We remain very confident in the long-term success of our business model and our strategy to diversify and grow our product portfolio as well as the markets we serve. Signs of our continued success were evidenced in the financial results this quarter and in the execution of a new distribution alliance that will significantly expand our reach and product offering in China. We haven\'t stood still back home either. This quarter we entered into a new channel agreement in the retail market that will begin to bear fruit in the second quarter. We also have a development queue filled with innovative, problem-solving designs that will be further demonstrated with the launch of the Embody(TM) chair this fall. Looking ahead, we remain focused on performance and innovation in every aspect of the business.\"

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