Herman Miller Posts 32% Increase In Earnings Per Share
Furniture World Magazine
Herman Miller, Inc., announced results for the fourth quarter and fiscal year ended June 2, 2007. Sales continued to grow in the fourth quarter, increasing 9.3% from the year-ago period and resulting in a 10.5% fiscal year increase. Orders for the quarter increased 7.9% over the prior-year period, driving a 20.9% year-over- year growth in ending backlog. Net earnings for the quarter were $31.7 million, or $.50 per share. The ending cash balance was reduced to $76.4 million, primarily through increased share repurchases of $71.5 million during the quarter.
Consolidated sales for the quarter were $485.3 million, up 9.3% from the same period a year ago, reflecting growth in both North American and non-North American markets. North American sales increased 7.5% and non-North American sales increased 19.1% over the same quarter of the prior year. Orders in the quarter were $476.8 million, up 7.9% from the same period a year ago and representing the fifteenth quarter in a row of year-over-year growth.
"We experienced a high degree of variability in our rate of orders this quarter," said Beth Nickels, Chief Financial Officer. "Order rates in the first half of the quarter were slower than we anticipated. Orders in the second half of the quarter gained strength, enabling shipments to fall within our earlier range of guidance, and helping us build a solid backlog for the new fiscal year."
Gross margin as a percentage of sales improved sequentially from 33.0% in the previous quarter to 33.6% in the current quarter. The gain was driven by the favorable impacts of the recently implemented price increase, combined with improvements in commodity costs. On a year-over-year basis, gross margin declined from the 34.0% achieved in the prior-year same quarter due to inefficiencies in the start-up of new product lines.
Operating expenses for the quarter totaled $118.6 million, or 24.4% of sales, compared to $113.7 million, or 25.6% of sales, for the same period in fiscal 2006. The increased spending was mainly driven by incremental employee compensation and benefits costs. In addition, the higher volumes drove increases in variable selling costs and incentive compensation accruals.
"Demand for the new systems products introduced during the past year was better than we expected," Ms. Nickels said. "Although higher initial manufacturing costs associated with the new products reduced gross margin and operating income for the quarter, we are confident that our people and our focus on process improvement will enable us to achieve our long-term profitability targets for these products."
The effective tax rate was 24.4% for the quarter. The lower tax rate was driven primarily from increased foreign tax credit utilization, which occurred as a result of increased foreign sales combined with additional tax planning. Net earnings for the quarter were $31.7 million, an increase of 26.8% from the prior year fourth quarter. Earnings per share were $0.50 for the quarter, a 31.6% increase over the same period last year.
Cash flow from operations for the quarter totaled $46.3 million compared to $48.0 million for the same period last year. Capital spending for the quarter was $12.8 million compared to $16.2 million for the same period last year. Debt repayments totaled $3.0 million for the quarter. In addition, the company received proceeds of $7.5 million from the sale of its vacated facility in Canton, Georgia. During the quarter, the company also repurchased approximately 2.1 million shares of its stock for $71.5 million, at an average price of $34.43 per share. The company's ending cash position was $76.4 million.
Fiscal 2007 Financial Results
For the year, consolidated net sales totaled $1.92 billion, up 10.5% from fiscal 2006. Orders increased 11.4% to $1.97 billion. The prior-year results include the impact of an additional week of operations over the current year based on the company's accounting calendar. Excluding this extra week, sales were up 12.5% and orders were up 13.7%.
Gross margin improved 60 basis points to 33.7% of sales, from 33.1% in fiscal 2006. The improvement was driven primarily by leverage of overhead gained from higher volume and the benefit of prior pricing actions. This was partially offset by higher fuel and raw material costs and inefficiencies related to the start-up of new product lines.
Operating expenses as a percentage of sales declined from 24.0% in fiscal 2006 to 23.3% in fiscal 2007. Operating earnings increased by over a full percentage point to 10.3% from 9.1% in fiscal 2006. Net earnings increased 30.1% to $129.1 million, and diluted earnings per share increased 36.6% to $1.98 in fiscal 2007.
Cash generated from operations was strong again in fiscal 2007, totaling $137.7 million compared to $150.4 million in fiscal 2006. Capital spending for the year was $41.3 million compared to $50.8 million for fiscal 2006. During the year the company repurchased approximately 5.1 million shares of its stock for $164.9 million, at an average price of $32.23 per share.
Looking forward, the company expects sales growth to continue and estimates first quarter revenue to be in a range of $480 million to $505 million. This represents a 7% to 12% increase over the prior year. The effective tax rate is estimated to be in the range of 32% to 34%. Earnings per share are estimated at $0.47 to $0.53, an increase of 9% to 23% over the prior year.
Brian Walker, Chief Executive Officer, stated, "We closed the year with a strong fourth quarter. The new products we've launched and the new markets we're entering have us well positioned for the future. While the macro economic environment is moderating in North America, it continues to be positive. Strong attendance and high energy at the recently completed NeoCon tradeshow testifies to this favorable environment. The continued strength in the core business, coupled with our strategic investments to grow outside of the North American office furniture industry, gives us confidence in our ability to deliver future top-line growth. Thanks to the efforts of the employee-owners of Herman Miller, we're on track to accomplish the long-term
goals we set out three years ago and we remain optimistic about our prospects for the new fiscal year."
The designs and services of Herman Miller enhance the performance of human habitats worldwide, making customers' lives more productive, rewarding, delightful, and meaningful. The company's award-winning products, complemented by furniture-management and strategic consulting services, generated $1.92 billion in revenue during fiscal 2007. 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 2007 the company was again included in CRO 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 www.HermanMiller.com.