Furniture Industrys Growth Spurt Settles

April 2, 2007
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Results from West Michigan's two publicly traded office furniture companies are evidence of a strong industry, albeit with a more realistic growth curve.

The Business and Institutional Furniture Manufacturers Association recently reported the industry's first year-over-year order decline since July 2004, with January orders off a modest 1 percent. That followed sinking growth in 2006, which saw an 8 percent growth in orders and 9 percent growth in shipments in the first six months, but a respective 5 percent and 6 percent in the back half of the year. Last month, BIFMA lowered its 2007 expectations from 10 percent to 7 percent.

In its third quarter of fiscal 2007, Zeeland-based Herman Miller Inc. lost some of what had become a superhuman swagger. Despite a 52 percent increase in earnings to 50 cents per share, the company missed the expectations of some Wall Street analysts by as much as 8 percent. Coupled with reports of order volatility in the quarter, shares fell from a close of $37.84 before the announcement to $33.27 a week later.

Raymond James analyst Budd Bugatch wrote that the fall could be a blessing for the company, as "despite impressive fundamental characteristics, we have found it difficult to recommend shares because of concerns about decelerating industry demand and the stock's relatively full valuation."

A victim of high expectations, the company pointed to lower production volumes, rising raw material costs and new product launches for the lower than expected growth in profits; the 44.2 percent spike, to $32.3 million, did meet its own guidance. Total sales increased 14.3 percent to $484.8 million, with particularly promising growth in the international, home and health care segments.

"To be frank, our operating income was not as good as we had expected," said CEO Brian Walker in a conference call with investors, indicating that the company's run of industry leading growth could soon fall in line with its peers. The company is forecasting sales growth of 9 percent to 14 percent for the quarter. Most analysts following the company are predicting year-over-year sales growth to fall to the single digits by the second quarter of fiscal 2008.

"We didn't believe we'd see double-digit growth indefinitely," said Walker. "We didn't think we could buck the industry trend forever."

At Steelcase, quarterly earnings more than tripled to 20 cents per share, or $29.3 million, buoyed by international growth, tax gains and restructuring. The fourth quarter results beat Wall Street estimates by 2 cents. More in line with industry expectations than its Zeeland competitor, the Grand Rapids-based Steelcase reported sales growth of 5.4 percent to $779 million.

Sales for the fiscal year increased 8 percent to $3.1 billion.    

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