Herman Miller Posts First Quarter 9.3% Sales Increase
Furniture World Magazine
Herman Miller, Inc., announced results for the first quarter ended September 1, 2007. Sales increased 9.3% from the year-ago period. Improvements in both gross margins and operating expenses as a percentage of sales drove an expansion in operating earnings to 10.9% of sales from 10.2% in the prior year period. Net earnings for the quarter were $33.5 million, an increase of 17.5% over net earnings of $28.5 million for the same period in the prior year. Earnings per share of $0.54 increased 25.6% over last year's first quarter performance.
"We are pleased with our solid performance in the first quarter of 2008, achieving sales and earnings per share increases of 9.3% and 25.6%, while reaching our fifteenth consecutive quarter of year-over-year sales growth," said Brian Walker, Chief Executive Officer. "We continued to experience order growth in our international markets. However, this growth was offset by a reduction in large project orders in the North American market, resulting in a modest decline in total orders and backlog as compared to the prior year."
Mr. Walker continued, "While the level of project activity often varies from period to period, we believe the recent industry forecast and general state of the U.S. economy may suggest a cyclical softening in the North American market. We have evaluated these conditions closely and are beginning to take the necessary steps to realign our business with anticipated market conditions. In addition, because our business model is purposefully designed to provide a more variable cost structure, we are confident that these steps will enable us to deliver solid operating and financial performance even in the face of less robust market conditions."
"In addition to these near-term operating steps, we are evaluating alternatives to create value for shareholders by leveraging the strength of our balance sheet, adding scale in high-growth areas, and exploring a variety of actions to further improve operating efficiencies. Long-term we remain confident in our strategies for growth and intend to continue investing in opportunities that will drive top-line growth and create value for shareholders."
The company's consolidated sales for the quarter were $491.7 million, up 9.3% from the same period a year ago, reflecting growth in both North American and non-North American markets, primarily Asia and the U.K. North American sales increased 9% and non-North American sales increased 17% over the same quarter of the prior year. Orders in the quarter were $483.8 million, down 3.9% from the same period a year ago. North American orders declined 5%, while non-North American orders continued to grow, increasing 6% over the same period a year ago.
Gross margin as a percentage of sales in the quarter improved to 34.1% compared to 33.9% in the prior year. The gain was driven primarily by the favorable impacts of the recently implemented price increase and the leverage of overhead gained from higher volume. This was partially offset by inefficiencies in the start-up of new product lines and lower margins on service sales. On a sequential basis, gross margins improved from 33.6% achieved in the fourth quarter due to improvements in commodity costs and the recent price increase.
Operating expenses for the quarter totaled $113.8 million, or 23.1% of sales, compared to $106.6 million, or 23.7% of sales, for the same period in fiscal 2007. The increased spending was mainly driven by incremental employee compensation and benefits costs. In addition, the higher volumes drove increases in variable selling costs. Operating expenses were down from the fourth quarter level of $118.6 million, or 24.4% of sales, due to lower incentive compensation, as well as reduced marketing and product development costs.
Curt Pullen, Chief Financial Officer, stated, "We were able to achieve solid improvement in our operating results for the quarter. We gained leverage from the additional volume, continued to drive cost and efficiency benefits from the Herman Miller Production System, and maintained our focus on controlling operating expenses. While we continued to feel the impact of higher initial manufacturing costs associated with our new products, as discussed last quarter, we did make meaningful gains over the prior quarter and expect that trend to continue."
The company's ending cash position was $65.4 million. Cash flow from operations for the quarter was $31.8 million compared to negative $6.4 million for the same period last year. Capital spending for the quarter was $8.9 million compared to $8.6 million for the same period last year. During the quarter, the company repurchased approximately 1.9 million shares of its stock for $60.8 million, at an average price of $32.38 per share.
Looking forward, the company expects sales for the second quarter of fiscal 2008 to be in the range of $475 million to $500 million. The company estimates earnings per share of $0.51 to $.57.
About Herman Miller: 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.