Orders Buoy Office Furniture Firms

June 27, 2003
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Amid reporting another round of quarterly losses, executives at Steelcase Inc. and Herman Miller Inc. offered a sense of optimism that the worst is over for the office furniture industry and that better times are finally ahead.

Evidence that the office furniture industry — after nearly three years of an unprecedented plunge in sales, massive restructurings, deep operating losses, plant closings and consolidations, and thousands of job losses — has bottomed out and is on the cusp of a recovery is seen in the improved order rates both companies experienced in their most recent quarters.

Whether those improvements, much like the U.S. economic rebound that some data suggests is now beginning, are sustainable going forward is the big unknown for the industry.

Yet executives, in conference calls with brokerage analysts last week who follow the office furniture industry, were markedly more upbeat than they have been for months about the companies’ near-term prospects after seeing several years of growth evaporate during the slide that began in late 2000.

“Our economy has a good chance to improve,” Steelcase President and Chief Executive Officer James Hackett said. “The fundamentals are now falling into place for this to happen.”

Large projects that dried up during the downturn are now “on the horizon” for Steelcase, Hackett said during the June 24 quarterly conference call to discuss Steelcase’s financial results.

Steelcase reported a net loss of $13.4 million, or 9 cents per share, for the first quarter that ended May 30. The result is in line with earlier guidance and includes a net pre-tax charge of $9 million, and compares with the net loss of $15.4 million, or 10 cents per share, during the same quarter a year ago, albeit on sharply lower revenues.

Steelcase’s sales for the quarter fell 11.1 percent to $571.9 million, from $643.1 during the same period in the previous fiscal year.

The positive note in the quarterly report came in what Chief Financial Officer James Keane called a “sustained higher order rate” that Steelcase has experienced since early in the first quarter in the North American market. That has triggered an apparent “gradual industry recovery” in the North American segment, Keane said.

Likewise, Herman Miller saw orders jump a strong 19.7 percent for the first quarter over the previous three months. Domestic orders alone were up 23 percent between the third quarter and fourth quarter and client visits “improved significantly,” an indication of pent-up demand, Chief Financial Officer Beth Nickels said.

That sequential quarter-to-quarter improvement in orders, combined with the recent data showing the U.S. economy beginning to improve, shows the industry is moving into a recovery, Chairman and CEO Michael Volkema said.

“As I sit here today, not all the uncertainty has gone away, but I am very encouraged by some of the positive economic signs and a slight pickup in our business,” Volkema said during Herman Miller’s June 26 conference call with analysts. “I know that the market condition will continue to be challenging, but from what I’ve seen in the last 90 days, I truly believe that Herman Miller is on the way back up.”

Volkema anticipates a “mild recovery” during the first half of Herman Miller’s current 2004 fiscal year, as the industry follows the traditional six-month lag of a broader economic rebound. He sees “a more significant uptick” in the second half of the fiscal year.

“In my view, I think it’s going to be pretty strong,” Volkema said of the second-half rebound he anticipates.

For the first quarter that ended May 30, Herman Miller reported a net loss of $1.3 million, or 2 cents per share, which includes pre-tax charges of $15.9 million and compares with an $18.8 million, or 25 cents per share, net loss during the same period a year ago.

The company posted net income of $23 million, or 31 cents per share, for the 2003 fiscal year. That includes $16.4 million in pre-tax charges and compares with a $56.6 million, or 74 cents per share, net loss in the prior fiscal year.

Sales on the year fell 9 percent, to $1.33 billion from $1.46 billion, although the decline was negligible in the final quarter.

Quarterly sales were off a mere 0.2 percent, to $321.9 million from $322.6 in the same period a year earlier.

Looking ahead for the first quarter of FY2004 that began June 1, Herman Miller expects sales of $320 million to $340 million. Per-share earnings should reach 1 cent to 5 cents, including an anticipated restructuring charge of 5 cents per share, Nickels said. Herman Miller recorded sales of $346.9 million during the first quarter a year ago and net income of $9.8 million, or 13 cents per share.

Steelcase expects to break even for the current second quarter, even with an anticipated $5 million pre-tax charge for restructuring, and post a profit for the entire fiscal year, Keane said.

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