Herman Miller Doubles 3Q Profits

March 17, 2005
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ZEELAND — On the subject of rebounding, the furniture industry is starting to look like the Ben Wallace of the manufacturing sector.

Herman Miller Inc. saw net earnings of $16.8 million, or 24 cents a share, in the third quarter that ended yesterday, an increase of 115.4 percent from the $7.8 million of 2004's third quarter results.

This was its third straight quarter of double-digit, year-over-year sales growth and the highest rate of quarterly sales increases over the prior year since November 2000.

Consolidated sales for the quarter were $382.4 million, reflecting both year-over-year and sequential growth. The current quarter's net sales include $5.7 million from the consolidation of an independent contract furniture dealership.

Sales were up 3.8 percent from the prior quarter.

"We're thrilled about the sales growth we drove this quarter and believe this outstanding performance is clear confirmation of our ability to deliver extraordinary value for our customers through innovative workplace solutions," stated Brian Walker, chief executive officer. "Our improved profitability is a direct result of the continuous improvement efforts of our employee-owners. Their hard work, dedication, and creativity is the cornerstone of our success."

Sales for the fourth quarter of fiscal 2005 are expected to be in a range of $380 million to $400 million, a 7 percent to 13 percent increase. Earnings per share are estimated at 23 cents to 28 cents, which reflect a traditional increase of fourth quarter operating expenses in support of new product launches.

"Exceptional performance in December helped us exceed our sales forecast for the quarter," said Beth Nickels, chief financial officer. "Heading into the quarter we had a large backlog of government and commercial business that drove our highest monthly sales results in a number of years. Orders did decline around the holidays, but fortunately it was to a much lesser degree than what we traditionally see, and we ended the quarter with a great year-over-year improvement in orders and backlog."

Orders in the quarter were $341.1 million, increasing 10.1 percent. Ending backlog was $215.1 million, a $19.1 million, or 9.7 percent, spike.

Gross margins continued to show year-over-year improvement. The ending cash balance grew to $164.2 million, including cash flow from operations of $40.5 million for the quarter and the impact of just under $23 million in share repurchases made during the current quarter.

The leverage of additional volume combined with the impact of a price increase implemented in August were enough to offset significantly higher raw material costs, with the quarter's gross margin of 32.1 percent showing a marked improvement over the prior year's 30.1 percent.

Operating expenses for the quarter totaled $93.7 million, which is 24.5 percent of sales, compared to $84.8 million, or 25.7 percent of sales for the same period in fiscal 2004.

Current-quarter expenses include $1.6 million associated with dealer consolidations not included in the prior year. The remainder of the increase was due primarily to incentive compensation accruals and variable selling costs driven by the higher volumes.

"Our operating income as a percentage of sales was 7.6 percent for the quarter, representing the highest it has been since 2001 when we were generating significantly more volume," Nickels said. "This continues to validate our increasingly variable operating model. The full impact of our price increase also kicked in during the quarter and offset a large portion of the approximately $5 million in increased steel costs over the prior year."

The effective tax rate was 35.4 percent for the quarter, rising from the 22.9 percent for the same period last year. The lower rate in fiscal year 2004 was due to favorable adjustments for prior years' taxes.

Herman Miller's ending cash position was $164.2 million. Cash flow from operations for the quarter was a strong $40.5 million compared to $7.2 million for the same period last year.

The prior year's cash flow from operations included a $26 million voluntary contribution to the company's employee pension fund.

Capital spending for the quarter was $10 million compared to $4.6 million for the same period last year. The company also repurchased approximately 859,000 shares of its stock for $22.7 million, at an average price of $26.40 per share during the quarter.    

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