No Rebound For Steelcase Miller

December 20, 2002
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HOLLAND — The recovery is still out there, somewhere.

Executives at Steelcase Inc. and Herman Miller Inc. are just unsure when it’ll occur.

Even as the two corporations issued contrasting earnings reports last week and expressed optimism for the future, executives from both agreed that sales, though stabilizing, have yet to show definitive signs of a rebound.

“We continue to operate in an interesting economic climate,” Herman Miller Chairman and Chief Executive Officer Mike Volkema said during a Dec. 19 conference call with brokerage analysts to discuss second quarter financial results.

As each company continues to cope with the industry downturn, Herman Miller last week reported its second consecutive quarterly profit and sees future earnings ahead.

Steelcase posted another loss, $31.1 million this time, and warned of further losses in the next quarter before modest earnings return in the next fiscal year as it realizes further benefits of restructuring and cost-cutting measures that include another 350 to 400 in upcoming hourly job cuts in North America. In two years, Steelcase has trimmed more than 36 percent of its global workforce.

Cost-cutting efforts will continue as Steelcase pushes to return to profitability next year, Chief Financial Officer James Keane told analysts during Steelcase’s Dec. 19 conference call.

“We’re not done. We are going to keep on working on things,” Keane said. “We’re preparing to be profitable again soon.”

Steelcase last week reported third-quarter revenues of $646.7 million, off 11.6 percent from the $731.4 million in the same period a year ago. Revenues include $36.3 million from acquisitions made in the past year, as well as $18.5 million from a dealer consolidation in the third quarter.

Year-to-date revenues were $1.94 billion, down 19.8 percent from the $2.42 billion recorded through the first nine months of Steelcase’s 2003 fiscal year.

Steelcase’s net loss of $31.1 million, or 21 cents per share, for the quarter compares with a $4.9 million, or 3 cents per share, net income a year earlier. Minus non-recurring charges, the net loss would have been $11.5 million, or 8 cents per share, which is within range of the expectations of both the company and brokerage analysts.

Year to date, Steelcase has lost $53.8 million, or 36 cents per share. That compares to net income of $35.3 million, or 24 cents per share, in the first nine months of the previous year.

For the fourth quarter, Steelcase expects to lose 5 cents to 8 cents per share before charges and perform “at or just below” break-even in the following quarter, Keane said.

“We should be profitable even with a modest rebound” in 2003, he said.

Shipments for the entire office furniture industry are off more than 21 percent through October, compared to the same period in 2001, falling from $9.42 billion to $7.43 billion, and down a staggering 32.7 percent from the peak of $11.05 billion through the first 10 months of 2000, according to the industry trade group BIFMA International.

BIFMA expects shipments to register a 20 percent decline over 2001 to a little more than $8.7 billion, representing the worst-ever single-year decline for the industry. The trade group’s present outlook shows a slight sales growth of 2 percent in each of the first three quarters for 2003, over deflated volumes of 2002, and a “pretty big spike” occurring in the fourth quarter next year, Executive Director Tom Reardon said.

BIFMA’s most recent forecast, issued in October, sees an overall 8 percent increase in industrywide shipments for 2003, although that’s based on current conditions. Any economic deterioration or other events, such as a conflict with Iraq, could quickly affect corporate earnings or capital spending that are key to the industry’s fortunes, Reardon said.

“There are so many intangibles and unknowns,” he said.

Herman Miller Inc., after returning to the black during mid-2002, expects to remain profitable for the final half of the current 2003 fiscal year, the result of stabilizing sales volumes and fully realizing the benefits of massive cost-cutting initiatives and job cuts made in the past year.

Driven by the resulting improved operating margins, Herman Miller now forecasts net income of 50 cents to 61 cents per share on revenues of $1.37 billion to $1.42 billion for the 2003 fiscal year that ends in May, a dramatic turnaround from the per-share net loss of 74 cents on revenues of $1.46 billion in the previous 12-month period.

During the quarter, Herman Miller recorded net sales of $357.3 million, down 9.5 percent from the $395 million of a year ago. At mid-year, sales were off 12.6 percent from the previous fiscal year, falling from $805.3 million to $704.2 million.

Quarterly net income totaled $11.8 million, or 16 cents per share, beating the estimates of brokerage analysts by 3 cents. The earnings results compare with a net loss of $22.7 million, or 30 cents per share, in the same period a year ago.

Mid-year net income was $21.6 million, or 29 cents per share, which compares with a net loss of $25.6 million, or 34 cents per share, during the first six months of the previous fiscal year.

Even as he heralded the improved profitability, Volkema said executives will continue to make cost reduction their primary focus to further improve profitability as Herman Miller looks for ways to boost sales and expand its market.

“We’re not waiting around for the economic recovery,” Volkema said. “We plan to significantly improve our performance over time even if the economic climate remains interesting.”

Going forward, Herman Miller projected third quarter net income of 3 cents to 7 cents per share and, noting that the period traditionally sees a slowdown from the previous quarter, sales of $310 million to $330 million. By comparison, Herman Miller recorded sales of $340.7 million in the third quarter of fiscal year 2002 and $561 million in the period two years earlier, when a weakening U.S. economy began to throw the office furniture industry into a tailspin.

The company forecast fourth quarter earnings of 18 cents to 25 cents per share on sales of sales $355 million to $385 million — a marked sales improvement from the $322.6 million in the same period during FY 2002 but well below the $511 million during the fourth quarter two years earlier.

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