Herman Miller Announces Third Quarter Sales Decline

Furniture World Magazine

Herman Miller, Inc. announced results for its third quarter of fiscal year 2009. Consolidated net sales for the quarter were $354.4 million, a decline of 28.5% from the same period last year and 25.6% from the prior quarter. The company moved quickly to adjust labor, overhead, and operating expenses. Excluding restructure charges, the adjusted operating income was 5.8% of sales and adjusted earnings per share were equal to $0.18. Including restructure charges of $23.4 million incurred during the quarter, earnings per share were $(0.10) compared to $0.65 per share during the same period last year. The company also generated $18.7 million in cash flow from operations for the quarter, further strengthening its cash balance to $172.4 million. The company completed most of the previously announced restructure actions during the quarter; however, the full benefits of the actions were not realized in the quarter. The company also implemented additional cost reduction actions near the end of the quarter. The net result of these combined actions is expected to reduce the quarterly operating expense levels by approximately 26% compared to fiscal 2008. On an annual basis, this represents a decrease in expense levels between $110 million and $115 million. Brian Walker, Chief Executive Officer, stated, "As we expected, business levels continued to decline with the overall economic stagnation that occurred during the quarter. Fortunately, our management teams were once again out in front of the rapid change and moved quickly to modify our cost structure and strengthen our cash position. Our people remain motivated and focused on the most important ways to serve our customers and improve our operating performance. We continue to challenge ourselves to find faster and more efficient methods to improve our position in the market and take advantage of competitive opportunities." North American sales were $295.9 million, a 27.7% decrease from the prior year, while non-North American sales for the quarter were $51.8 million, a 28.0% decline from a year ago. The impact of foreign currency rates reduced sales by $10.4 million for the quarter. As anticipated, order rates fell sharply at the end of December but have since increased slightly and stabilized. Orders for the quarter were $279.4 million, a decrease of 38.5% from a year ago, with North American orders declining 35.5% and non-North American orders down 49.8% over the prior year. The impact of foreign currency rates decreased orders by $10.1 million for the quarter. The ending backlog of $206.8 million is a 32.7% decrease from the prior year level. Gross margin for the quarter decreased to 29.9% of sales from 34.3% in the prior year period. Despite solid manufacturing process improvements and reduced overhead spending, the gains could not overcome the impact of sharply lower volumes. Operating expenses of $85.3 million declined by $23.0 million, or 21.2%, when compared to the same period last year. This improvement is attributed to lower variable costs, fewer people and programs, and general cost controls. Sequentially, operating expenses decreased $15.1 million, or 15% from the second quarter. The company expects annualized expenditure levels to decline further as the benefits of announced actions are experienced for a full quarter. Excluding the restructure charges of $23.4 million, adjusted operating earnings for the quarter would have been $20.6 million, or 5.8% of sales. For a reconciliation of adjusted operating earnings to GAAP operating earnings, see "Reconciliation of Non-GAAP Financial Measures" below. Greg Bylsma, Chief Financial Officer, stated, "The rapid implementation of expense and overhead cost reductions during the quarter, along with our organization-wide focus on continuous improvement, enabled us to rapidly adjust to an unprecedented drop in market demand. These actions were somewhat offset by unfavorable raw material prices. We expect additional benefits from our cost reduction efforts and improvement in raw material prices through the balance of this fiscal year." The company's quarter end cash position increased to $172.4 million compared to $81.4 million at the close of the prior year period. Cash flow from operations for the quarter totaled $18.7 million compared to $35.5 million for the same period last year. The operating cash flow for the quarter included approximately $9 million of payments related to the restructuring actions. Capital spending for the quarter was $4.5 million compared to $9.2 million a year ago. Capital spending year-to-date totals $20.3 million, a 28.0% reduction when compared to the $28.2 million spent during the same period last fiscal year. Mr. Walker concluded, "With all of the uncertainty in the global economy, it is difficult to predict the length and depth of the recession. However, I am confident that our management team and culture of employee ownership and participation will enable us to find creative methods to adjust in this difficult environment. This quarter's results, while disappointing in absolute terms, once again demonstrated this proven ability to adapt, innovate, and execute. Our lean business model and continued investment in our performance innovation strategy will prove resilient and valuable today, and when the economic environment improves." About Herman Miller, Inc.: Herman Miller works for a better world around you - by designing furnishings 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 $2.0 billion in revenue in fiscal 2008. Innovative business practices and a commitment to social responsibility have established Herman Miller as a recognized global company. In 2008, Herman Miller was again cited by FORTUNE as both the "Most Admired" in its industry and among the "100 Best Companies to Work For" in America, while Fast Company named Herman Miller among the world's "Fast 50" most innovative companies. Herman Miller trades on the NASDAQ Global Select Market under the symbol MLHR.