Some Furniture Financials Due

June 20, 2003
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The coming week should bring a clearer picture of West Michigan’s economic fortunes and of the key office furniture industry sector.

Steelcase Inc. and Herman Miller Inc. — which last week narrowed sales guidance and announced the closing of a Georgia plant and relocation of work to its Spring Lake campus — release their most recent sales and earnings figures this week.

Coming off the annual NeoCon trade show, the financial reports and executives’ perspectives on them should yield an indication of what’s directly ahead for the ailing office furniture industry at a time when new data shows the U.S. economy beginning to recover.

Just last week, The Conference Board reported that the Index of Leading Economic Indicators grew 1.0 percent in May, a solid improvement from a 0.1 percent gain in April and a 0.2 percent decline in March.

And Huntington Bank last week upgraded its economic outlook, raising the projected GDP for the third quarter from 3.6 percent to 3.9 percent and from 3.7 percent to 3.8 percent for the fourth quarter.

Tom Reardon, executive director for the office furniture industry trade group BIFMA, said the mood among manufacturers at NeoCon last week was generally upbeat and that the industry, after nearly three years of an unprecedented downturn of some 40 percent of sales volumes, is finally moving into recovery mode.

“It certainly feels like we’ve found the bottom and we’re starting to rebound out of it,” Reardon said.

Yet while the signs are positive, Reardon cautions that the industry’s traditional six- to nine-month lag behind an economic rebound remains. Potential customers will need to see a sustained economic improvement before they begin to place orders.

“It’s going to take some fairly substantial good times for our customers before they start to let out some capital spending,” he said. “They’re going to have to see this is sustained and lasting.”

In the coming days, Steelcase Inc. has both its quarterly report and annual meeting scheduled. Brokerage analysts polled by Thomson Financial expect Steelcase to post a quarterly loss of 4 cents per share, which compares with a 2-cent per-share profit a year earlier and 2-cent per share gain in the previous quarter.

Herman Miller’s report and subsequent quarterly conference call with Wall Street analysts should offer a “much more comprehensive picture on how the management team believes things are going,” spokesman Bruce Buursma said.

Herman Miller is scheduled to release its fourth quarter and 2003 fiscal-year financial report Wednesday afternoon. The call with analysts is set for Thursday morning.

Leading up to the report, Herman Miller announced last week a narrowing of its sales guidance for the quarter, including a significant upgrade in the low-end of the target. Herman Miller said it will report a loss resulting from a $23 million pretax charge the company will take in connection with the planned closing of a plant in Canton, Ga., and relocation of work to its Spring Lake campus, creating 360 to 380 jobs locally producing the Resolve and Ethospace office systems.

Herman Miller now expects quarterly sales of $318 million to $322 million. The company in March offered sales guidance of $305 million to $325 million.

The $23 million charge related to the Georgia plant closing, coupled with previously announced charges of $15.5 million to $16.5 million, will reduce Herman Miller’s results by 14 cents per share to a quarterly net loss of 1 cent to 3 cents per share.

The loss could have been much larger, had it not been for the significant gains in Herman Miller’s gross margins, the company said.

The closing of the three-year-old Georgia plant will save Herman Miller $10 million annually in operating costs, Chief Financial Officer Beth Nickels said. The plant closing and relocation of the work to Spring Lake, expected to occur by the end of February 2004, was the result of more than just cost considerations, Nickels said.

The move will enable the company to maintain capacity while gaining better proximity to key suppliers and other manufacturing sites in Michigan and significantly reduce transportation times and costs, she said.

“This action is not being taken purely for financial reasons. This is a proactive change that will better serve our customers, who are always asking us to do what we do better, faster, and for less,” Nickels said. “This action reflects Herman Miller’s strategy to simplify and enhance our operations while also reducing costs. This decision was made after extensive review of our systems furniture manufacturing operations. The analysis made it clear that consolidation into the West Michigan facility would benefit our customers, as well as our cost structure.”

Given the 500 jobs lost in Georgia, Buursma downplayed news of the new jobs being created in Spring Lake, where Herman Miller is the top manufacturing employer in the area with 1,300 employees in the 191,000-square-foot facility that at one time employed 2,000. The plant produces filing and storage products and Herman Miller’s Passage office system.

Gov. Jennifer Granholm’s office wasn’t as shy as the company, issuing a news release trumpeting the news.

Michigan is the nation’s No. 1 office furniture manufacturing employer, with Herman Miller playing a key role in the development of this important industry,” Granholm said. “It is encouraging to see the company continuing to build on their heritage here. Herman Miller’s decision to bring this production work north is a testament to Michigan’s attractiveness to industry leaders and to the ongoing dominance of Michigan’s office furniture manufacturers.”

Helping the move was a single-business tax credit Herman Miller received in 1999 from the state if it created up to 500 new jobs at the Spring Lake campus, known then as Meridian.               

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