Herman Miller Cuts Back
ZEELAND — Herman Miller Inc. has eliminated about 150 white-collar jobs over the past three months, part of a strategic plan to reduce annual costs by $25 million to $30 million, even as it raised its second quarter earnings guidance and a Goldman Sachs analyst called the company's stock "our best sector idea."
The cost-cutting is aimed at improving Herman Miller business performance while also preparing for a possible decline in the American economy.
"There's a big question mark as to what the industry can do next year," said Mark Schurman, director of external communications at Herman Miller.
The Business and Institutional Furniture Manufacturer's Association is forecasting U.S. production next year at $11.3 billion, down slightly from the $11.4 billion predicted for the current year.
"The expectation is that the amount of dollars invested in new office building construction will decline next year, and that is one of the more significant factors" affecting office furniture sales, said Tom Reardon, executive director of BIFMA. He further described office construction as "taking a little dip next year."
Herman Miller announced on its Web site on Nov. 27 that its earnings per share guidance for its second quarter (which ended Nov. 30) was raised to a range of 56 to 63 cents. It also reported that sales for the quarter would be "near or slightly above" the top end of its previous guidance of $475 million to $500 million, and that "order rates have strengthened."
The company reported net sales of $491.7 million for the first quarter, compared to $449.7 million in its first quarter of 2006.
"We are pleased with the improved outlook for the second quarter and very confident in the long-term prospects for Herman Miller. At the same time, it remains difficult to predict the direction of the U.S. economy and the strength of office furniture demand over the next 12 months," said Brian Walker, CEO of Herman Miller.
Herman Miller sales last year totaled slightly more than $1.9 billion, according to Schurman. The company has about 4,900 employees in West Michigan; of the 150 white-collar jobs eliminated recently, 120 are in West Michigan. None are manufacturing jobs.
"We are not at all pulling in our horns," said Schurman. He added that the company is "absolutely determined to win more of the share of the business that is available" in coming months.
The strategic initiatives announced last week are "about positioning the company for the long term," he said.
On Nov. 27, Goldman Sachs analyst Christopher Agnew issued an update on Herman Miller stock, noting the company's anticipated second quarter results, strategic initiatives and "solid orders." Agnew said he is "neutral" on Herman Miller stock because the office furniture industry in general may be affected by the ailing financial services industry, and he is cautious about the "overall U.S. economy in 2008." However, he said the company's stock "is our best sector idea."
Brian Bascom of Velocity Partners, an industrial consulting firm in Holland, said the major players in the office furniture industry are "taking a cautious approach."
"They want to make sure they are in a better position financially than what they were in, in 2001 and 2002 when the industry went through its worst recession ever."
He said the industry revenues dropped from 20 to 40 percent in those years, and that afterwards some of the "smarter companies" began looking more carefully at key markets and key products, to determine what would be vulnerable in another downturn. He added some of the companies have invested in new market segments — such as furniture for hospitals.
According to BIFMA, U.S. office furniture production peaked at $13.2 billion in 2000, dropping to $10.9 billion in 2001, $8.8 billion in 2002 and $8.5 billion in 2003. Then it began increasing again.
In 2006, U.S. production was estimated at $10.8 billion, although an estimated $12.8 billion worth of office furniture was sold in the U.S. that year. The $2 billion difference reflects furniture imported into the U.S. from abroad, according to Reardon.