Herman Miller, Inc., Net Earnings Rise 81% in Second Quarter
Furniture World Magazine
Herman Miller, Inc. announced results for its second quarter ended December 3, 2005. Strong growth continued this quarter, demonstrated by a sales increase of 18.9% and an orders increase of 11.1% from the year-ago period. Operating earnings grew to 10.1% of sales based on efficiency gains in both gross margin and operating expenses. Net earnings were $27.9 million, or $0.40 per share, an increase of 81.2% over net earnings of $15.4 million for the same period in the prior year. The ending cash balance of $149.7 million benefited from robust operating cash flows of $44.2 million.
The company's consolidated sales for the quarter were $438.2 million, reflecting both year-over-year and sequential growth. Sales were up 18.9% from the same period a year ago and up 1.7% sequentially from the previous quarter. It's important to note that the previous quarter did include an additional week of operations based on the company's accounting calendar. Orders in the quarter were $433.5 million, increasing 11.1% from the prior year, and backlog was $267.1, up 4.2% from the prior year.
"We are delighted with the continued growth of our top line," said Beth Nickels, Chief Financial Officer. "We achieved double-digit year-over-year growth in sales and orders, even before considering the prior year included sales and orders from dealers that we either no longer own or consolidate under FIN46." The company's prior year results for the same period included three dealerships which added a combined $11.4 million in sales and $15.7 million in orders. Ms. Nickels added, "Our international orders in the second quarter were also very encouraging, with the international backlog reaching its highest level in five years."
Gross margin of 32.8% increased slightly from 32.6% for the same quarter last year and remained consistent with the previous quarter's 32.9%. Gross margin compared to the prior year was positively affected by the leverage gained from additional volume, combined with the favorable impact of the company's recent price increases. These were partially offset by increases in fuel-related costs and incentive compensation.
Operating expenses for the quarter totaled $99.7 million or 22.8% of sales, compared to $94.8 million or 25.7% of sales for the same period in fiscal 2005. The prior year included approximately $4.0 million of operating expenses related to the three dealerships previously discussed. Most of the increased spending was the result of employee benefit costs and incentive compensation.
Ms. Nickels concluded, "Everyone did a great job of managing costs again this quarter. Gross margin improved year-over-year and operating expenses as a percentage of sales hit the lowest level in over four years. These two factors combined to drive operating income of over 10% of sales."
The company's ending cash position was $149.7 million. Cash flow from operations for the quarter totaled $44.2 million compared to $29.4 million for the same period last year. Capital spending for the quarter was $11.6 million compared to $7.3 million for the same period last year. The company also repurchased approximately 0.9 million shares of its stock for $26.6 million at an average price of $28.87 per share during the quarter.
The company expects sales for the third quarter of fiscal 2006 to be in a range of $410 million to $430 million. This represents a 7% - 13% increase over the prior year and reflects a seasonal decline. The company estimates earnings per share of $.30 to $.34, an increase of 25% - 42% over the prior year.
Brian Walker, Chief Executive Officer, stated, "The economic uncertainty that existed after this summer's storms has eased. The key economic factors that drive our industry continue to improve. Office furniture demand has grown at a double-digit rate. Our focus on continuous improvement has allowed us to meet the challenges of higher material and fuel costs while significantly improving overall profitability. Thanks to the efforts of all the employee-owners of Herman Miller, we are meeting our short-term goals and continuing to build the capabilities envisioned in our strategy."
The company has announced a live webcast to discuss the results of the fiscal 2006 second quarter on Thursday, December 22, 2005, at 9:30 a.m. EST. The company encourages all interested parties to log in to the website to obtain presentation materials, which will augment the verbal presentation. To ensure your access to the webcast, you should allow extra time to visit our website at http://www.hermanmiller.com/ to download the streaming software necessary to participate. An online archive of the presentation will be available on the website later that day.
Herman Miller helps create great places to work, heal, learn, and live by researching, designing, manufacturing, and distributing innovative interior solutions that support companies, organizations, and individuals all over the world. The company's award-winning products, complemented by furniture- management and strategic consulting services, generated over $1.51 billion in revenue during fiscal 2005. Herman Miller is widely recognized both for its innovative products and business practices. In fiscal 2004 Herman Miller was named recipient of the prestigious National Design Award for product design from the Smithsonian Institution's Cooper-Hewitt, National Design Museum. In 2005 the company was again included in Business Ethics magazine's "100 Best Corporate Citizens" and was cited by Fortune magazine as the "Most Admired" company in its industry. The company trades on the NASDAQ market under the symbol MLHR. For additional information visit http://www.hermanmiller.com/ .