Herman Miller Reports Strong Sales and Earnings in the Second Quarter of 2012
Furniture Industry News Update -
Furniture World Magazine
Herman Miller, Inc., announced results for its second quarter ended December 3, 2011. The company reported net sales in the quarter of $445.6 million; an increase of 8.1% from the second quarter of fiscal 2011. Net sales were up 4.7% sequentially, after adjusting for the extra week of operations included in the first quarter of this fiscal year. New orders of $440.0 million in the second quarter were 4.7% lower on a year-over-year basis. Adjusting for the extra week, orders in the second quarter were down 1.6% from the level reported in the first quarter of this year.
Diluted earnings per share in the second quarter were $0.41 compared to $0.26 in the prior year period and $0.42 in the first quarter of this fiscal year.
Brian Walker, Chief Executive Officer, stated, "Our results this quarter cap a solid first half of fiscal 2012. Our employee-owners continued to execute well, which enabled us to expand margins and earnings. In addition, we made progress on initiatives aimed at strengthening our brand and growing our business. All of this builds confidence in our long-term growth prospects. Reduced order momentum this past quarter reflected pockets of weakness in some customer sectors driven by a reduction in large order volume compared to last year. At the same time, we remain optimistic that some of today's economic headwinds are transient and opportunities for growth remain both here and abroad."
Second Quarter Fiscal Year 2012 Financial Results
Sales within Herman Miller's North American reporting segment of $321.7 million were up 4.6% from the prior year. New orders in the second quarter totaled $306.2 million; reflecting a decrease of 13.0% from the same period last fiscal year. On a sequential basis, adjusted for the extra week of operations reported last quarter, segment sales increased 4.8% from the first quarter level. On this same basis, segment orders were down 4.7% sequentially.
The company's international operations were again a highlight this quarter, led by sales and order strength in the U.K. and Asia-Pacific region. The non-North American business segment reported net sales of $87.5 million for the quarter. This represents a 20.4% increase from the year ago period. New orders were also strong in the quarter, totaling $92.1 million; an increase of 25.4% from the second quarter of fiscal 2011. Adjusting for the extra week, segment sales increased 11.0% and orders were essentially flat relative to the first quarter of this fiscal year.
Net sales in the second quarter for the Specialty and Consumer segment were $36.4 million, up 14.1% from the prior year period. New orders in the quarter were 14.7% higher than the second quarter of last year. Sequentially – again adjusting for the impact of the extra week of operations in Q1 – segment sales decreased 8.2% from the first quarter level while new orders increased 23.6%.
Greg Bylsma, Chief Financial Officer, stated, "While we saw order increases this quarter relative to last year in both our non-North American and Specialty and Consumer segments, we did experience a decrease in our North American business. This was primarily due to a relative decrease in the volume of large government projects entered this quarter."
The company's consolidated gross margin in the second quarter was 34.1%; representing a 120 basis-point improvement from the prior year. Benefit captured from recent price increases, net of incremental discounting, drove the majority of the year-over-year improvement. This was partially offset in the quarter by higher commodity costs relative to last year.
On a sequential comparison, gross margin in the second quarter increased 40 basis-points from the first quarter of fiscal 2012. Higher factory production levels in the second quarter contributed significantly to this improvement. Additionally, incentive bonus expenses recorded in the period were lower in relation to the first quarter level. These factors more than offset the negative impact of having one less week of operations compared to the first quarter.
Operating expenses in the second quarter of $111.4 million were $9.2 million higher than the prior year. Approximately half of this increase was driven by adjustments made in the prior year to contingent liabilities associated with the Nemschoff acquisition, thus reducing operating expenses in that period. The remaining expense increase was driven primarily by variability against higher net sales and by increased employee wages and benefit expenses. On a sequential-quarter basis, operating expenses were $1.1 million below the level reported in the first quarter of this fiscal year.
Mr. Bylsma continued, "We are very pleased to report significantly improved gross margins from a year ago. Our consolidated margin is the highest level we have achieved in more than three years. This is particularly encouraging in that it delivers on our commitment to leverage sales growth and capture benefit from our recent price increases. Our employee-owners matched this improved gross margin with solid operating expense control, helping to drive a 41% increase in adjusted earnings per share from a year ago."
Herman Miller's effective income tax rate in the second quarter was 33.4%. This compares to an effective rate of 32.0% in the second quarter of fiscal 2011.
Cash flow generated from operations in the second quarter was negative $0.4 million compared to positive $22.6 million in the second quarter of last fiscal year. The decrease relative to last year was driven by a net use of working capital in the quarter. The company ended the quarter with total cash of $181.0 million; a decrease of $1.3 million from the amount held at the end of the first quarter of this fiscal year.
Mr. Walker concluded, "There's no question that our near-term business outlook is clouded by the tenuous health of the global economy. Regardless of what challenges we may face in the coming months, our collective focus at Herman Miller remains on driving success over the long run. I feel very good about the progress we're making on the building blocks of our strategy, and I'm as confident as ever in our ability to deliver long-term value to our customers, employees and shareholders."
About Herman Miller: Herman Miller works for a better world around you—with inventive designs, technologies and related services that improve the human experience wherever people work, heal, learn, and live. Its curiosity, ingenuity, and design excellence create award-winning products and services, resulting in more than $1.6 billion in revenue in fiscal 2011. Innovative business practices and a commitment to social responsibility have also established Herman Miller as a recognized global company. In 2011, Herman Miller again received the Human Rights Campaign (HRC) Foundation's top rating in its annual Corporate Equality Index and was also cited by FORTUNE as the "Most Admired" company in the contract furniture industry. Herman Miller trades on the NASDAQ Global Select Market under the symbol MLHR.
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