While the office furniture maker still saw a large decline in revenues from a year ago, there was a marked sales increase over the previous quarter. But executives are not yet ready to call it a trend. The company expects another sequential growth in quarterly revenues in the second quarter, as sales begin to rebound with a slowly recovering economy.
After three straight quarters of large losses, and despite a sales volume that’s more than $200 million below that of two years ago, the return to profitability enables Herman Miller to “focus on the future and creative ways to get the top line moving again,” Chairman, President and Chief Executive Officer Michael Volkema said.
“We’ve come through the storm of the past 12 to 18 months stronger for the future,” Volkema told brokerage analysts during a Sept. 19 conference call to discuss the first quarter results. “The numbers are beginning to move in the right direction.”
For the first time in several months, executives were able to focus on positive results, rather than operating losses, major restructuring efforts and related charges taken during the industry’s freefall. The period saw sales grow sequentially from the previous quarter for the first time in 18 months.
“The storm seems to have subsided,” said Volkema, emphasizing that Herman Miller is “well positioned to leverage any future increase in sales.” The company is specifically working with dealers on new methods to target small and medium-sized business, Volkema said.
Herman Miller recorded first quarter sales of $346.9 million, down 15.5 percent from the $410.3 million in the same period a year ago but up 7.5 percent from the fourth quarter.
Net income for the quarter that ended Aug. 31 totaled $9.8 million, or 13 cents per share, which compares to a $2.9 million loss, or 4 cents per share, in the same quarter a year earlier. Earnings far exceeded the company’s previous estimates of 1 cent to 4 cents per share, and Wall Street’s expectations of 3 cents.
The higher-than-expected earnings stem from Herman Miller seeing the benefits of its restructuring “far faster than we originally thought,” spokesman Mark Schurman said.
“We’ve seen early returns faster than we would have expected,” Schurman said.
The positive earnings news pushed Herman Miller’s shares up sharply in heavy early trading Thursday morning and prompted an upgrade from Merrill Lynch from a neutral to a buy. Merrill Lynch also raised its earnings outlook for Herman Miller from 56 to 62 cents per share for the fiscal year.
The profit reflects Herman Miller’s actions during the past year to dramatically lower its break-even point and improve margins. Year-to-year operating expenses are down 22.8 percent, or $26.8 million.
Herman Miller expects to achieve “modest growth” in sales from the first quarter to the second quarter, Chief Financial Officer Beth Nickels said. The company offered second quarter guidance of $340 million to $360 million in sales, with earnings of 9 cents to 14 cents per share.
Sales during the same period last year totaled $395 million, with a loss of $22.7 million.
“We believe, going forward, strong performance is sustainable,” Nickel said.
Brokerage analysts have been forecasting second quarter earnings of 10 cents per share.
Herman Miller’s first quarter results and return to profitability represent the first positive news in months within an industry beset by deep sales declines and operating losses, plant closing and mass layoffs brought on by the worst-ever downturn.
The latest outlook issued last month by Grand Rapids-based industry trade group Business and Institutional Furniture Manufacturer’s Association sees an 18 percent decline in industrywide shipments for 2002, to just under $9 billion. That decline is on top of the 17.4 percent drop suffered in 2001, when shipments went from $13.2 billion to $10.9 billion.
DRI-WEFA projects a modest 7 percent increase in industrywide shipments 2003.
Herman Miller was the first of the industry leaders to report its most-recent results. Steelcase Inc. is scheduled to release second quarter sales and earnings data following the close of the market today. Brokerage analysts polled by Thomson/First Call expect Steelcase to post a loss of 3 cents per share.