HM Sales Earnings Drop

March 21, 2003
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HOLLAND — War with Iraq will continue to forestall a rebound for Herman Miller Inc. for the short term, although “an enormous pent-up demand” exists that could set the stage for the beginning of a broader recovery in the months after the conflict ends.

The unknown is whether the war will end quickly or become a prolonged conflict, Herman Miller Chairman and CEO Mike Volkema said last week when asked about the war’s potential impact on near-term sales during a conference call with brokerage analysts.

“The question is just telling us what the duration of the conflict is,” Volkema responded. “It just has to be some sort of known duration that people can start to get their minds around.”

As Herman Miller reported lower sales and earnings from year-ago levels, Volkema said he believes business may pick up once the war ends and removes an uncertainty that magnified economic conditions, potentially making businesses feel confident enough to start spending again.

“We know, client by client, there is a tremendous amount of pent-up demand out there,” Volkema said. “We are right on the threshold.”

While cost-cutting efforts did result in improved operating margins and earnings, economic uncertainty and the prelude to war with Iraq caused continued softness in orders that pushed Herman Miller’s sales and earnings down from year-ago levels. Herman Miller does not expect any near-term rebound.

“Given the current world events, we cannot anticipate an improvement in our order rates for this quarter,” Chief Financial Officer Beth Nickels said.

For the third quarter that ended March 2, Herman Miller reported sales of $310.4 million, down 8.9 percent from the $340.7 million during the same period a year earlier. Year-to-date sales for the 2003 fiscal year totaled $1.01 billion, down 11.5 percent from the $1.14 billion in the first nine months of the previous fiscal year.

Quarterly net income was $3 million, or 4 cents per share, which compares with a net loss of $11.6 million, or 15 cents per share, a year ago. Year-to-date net income was $24.6 million, or 33 cents per share, which is in sharp contrast to the net loss of $37.2 million, or 49 cents per share, in the same period a year earlier.

For the fourth quarter, Herman Miller expects sales in the range of $305 million to $325 million and net income of 1 cent to 6 cents per share. That would place annual sales at between $1.32 billion and $1.34 billion and net income for the year at 34 cents to 39 cents per share, excluding special charges that could result in a net loss if Herman Miller comes in on the low end of expectations, Nickels said.

Further cost cutting would occur if needed, Nickels said. Earlier this month Herman Miller laid off 115 manufacturing personnel and cut 150 office and indirect production positions. The actions were on top of the more than 3,000 jobs cut since December 2000 in response to the office furniture industry’s worst-ever downturn.

“If we don’t see any increase in sales, we anticipate looking at ways to reduce our costs,” Nickels said.

Given the uncertainty for the economy the war brings, the company did not offer earnings guidance for the 2004 fiscal year. If it’s a prolonged conflict, Herman Miller is looking at continued softness in sales for the first half of the next fiscal year, Volkema said.    

Sales
3Q 2003: $310.4 million
3Q 2002: $340.7 million
YTD 2003: $1.01 billion
YTD2002: $1.46 billion

Net Income
3Q 2003: $3 million, 4 cents per share
3Q 2002: -$11.6 million, - 15 cents per share
YTD 2003: $24.6 million, 33 cents per share
YTD2002: -$37.2 million, 49 cents per share

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