Herman Miller, Inc., Reports 22.1% Order Growth and Record Earnings Per Share

Furniture World Magazine

Herman Miller, Inc., announced results for its second quarter ended December 2, 2006. Strong sales growth, coupled with improved financial leverage, drove the highest quarterly earnings per share ever recorded by the company. Sales for the quarter increased 13.9% and orders increased 22.1% from the year-ago period. Operating earnings expanded to 11.8% of sales based on improvements both in gross margin and operating expenses as a percentage of sales. Net earnings were $36.6 million, or $0.56 per share, an increase of 31.2% over net earnings of $27.9 million for the same period in the prior year. he company's consolidated sales, orders, and backlog all reflected year- over-year and sequential growth. Sales for the quarter were $499.1 million, up 13.9% from the same period a year ago and up 11.0% sequentially from the previous quarter. Orders were $529.1 million for the quarter, increasing 22.1% from the prior year and 5.2% from the prior quarter. Backlog was $323.9 million, up 21.3% from the same period a year earlier and up 10.2% sequentially from the previous quarter. "Orders were over $500 million for the second consecutive quarter," said Beth Nickels, Chief Financial Officer. "This represents our highest level of orders in six years. Our North American orders grew 20% over the prior year, and orders outside of North America once again led the way with growth of almost 40% for the quarter." Gross margin as a percentage of sales improved by more than a full percentage point to 34.1% compared to 32.8% for the same quarter last year. On a sequential basis, gross margin also improved from the previous quarter's 33.9%. Gross margin was positively affected by the leverage gained from additional volume, improvements in direct labor efficiency, and the favorable impact of the company's prior price increases. These gains were partially offset by continued increases in raw material costs. Operating expenses for the quarter totaled $111.7 million, or 22.4% of sales, compared to $99.8 million, or 22.8% of sales, for the same period in fiscal 2006. The increased spending was primarily driven by continued investments in research and development costs for new products, higher variable-selling costs associated with the increased revenue, incremental employee compensation, and increased benefit costs. Nickels concluded, "Thanks to focused efforts from everyone at Herman Miller, we were able to drive operating income of 11.8% of sales for the quarter, which exceeds our 2010 goal. It's particularly noteworthy that we've accomplished this while continuing to invest in our business. We invested both in new markets, including the new Convia infrastructure technology, and in new geographies, notably China." The company's ending cash position was $52.7 million. Cash flow from operations for the quarter totaled $30.6 million compared to $44.2 million for the same period last year. Capital spending for the quarter was $10.2 million compared to $11.6 million for the same period last year. The company also repurchased approximately 0.9 million shares of its stock for $30.7 million at an average price of $33.77 per share during the quarter. Looking forward, the company expects another strong quarter with third quarter fiscal 2007 sales to be in a range of $480 million to $500 million. This represents a 13% to 18% increase over the prior year. The company estimates earnings per share of $0.50 to $0.54, an increase of 52% to 64% over the prior year. This estimate includes a projected favorable earnings per share impact of $.01 related to the extension of the U.S. Research Tax Credit. Brian Walker, Chief Executive Officer, stated, "The key economic factors that drive the contract furniture industry continue to remain positive. Our business remained solid and we continued to implement our strategic focus on new products, new markets, and new geographies. With the strong response to our newest furniture systems, the launch of the Convia electrical infrastructure business, continued progress in our international strategy, and still more innovations in the queue, we're on pace to achieve our objective to double our business to $2.6 billion in revenue by 2010." Herman Miller helps create great places to work, heal, learn, and live by researching, designing, manufacturing, and distributing innovative interior solutions that support companies, organizations, and individuals all over the world. The company's award-winning products, complemented by furniture- management and strategic consulting services, generated $1.74 billion in revenue during fiscal 2006. Herman Miller is widely recognized both for its innovative products and business practices. The company is a recipient of the prestigious National Design Award for product design from the Smithsonian Institution's Cooper-Hewitt, National Design Museum. In 2006, Herman Miller was once again cited by Fortune magazine as the "Most Admired" company in its industry and is among Business Ethics magazine's "100 Best Corporate Citizens." The company trades on the NASDAQ's Global Select Market under the symbol MLHR. For additional information visit http://www.hermanmiller.com/ .