A massive restructuring and cost-cutting initiative launched during the year in response to rapidly shrinking revenues, brought on by the worst slide to ever hit the office furniture industry, enabled Herman Miller to improve its gross margin during the fourth quarter over the previous three months. The margin improvement sets the stage for a small pre-charge profit during the first quarter of FY 2003.
The first-quarter expectations, combined with the other positives of the fourth quarter such as improved quarter-to-quarter order rates and significant lowering of the company’s break-even point, provide a glimmer of light for Herman Miller after a miserable 12-month period that saw revenues fall by more than a third, or $767.5 million, erasing five years of sales growth.
“It’s good to have last year behind us,” Chairman and Chief Executive Officer Michael Volkema said during a July 2 conference call with brokerage analysts. “In our opinion, the stage is now set for a more promising business future.”
Herman Miller expects to post a small, pre-charge profit of 1 cent to 4 cents per share in the first quarter on projected revenues of $330 million to $350 million. Though a sequential improvement over the two previous quarters, the revenue estimates are still off sharply from the $410.3 million recorded during the first quarter a year ago and the $547.9 million for the same period in FY 2001, just before the industry downturn began.
“We now have a cost structure in place that will significantly improve our profitability as sales increase,” Chief Financial Officer Beth Nickels said. “As a management team we are confident the right actions have been taken, and believe that Herman Miller has a bright future.”
During the 2002 fiscal year, Herman Miller posted annual revenues of $1.46 billion, down 34.3 percent from the $2.23 billion in FY 2001.
Net losses for the year totaled $56 million, or 74 cents per share, which compares to net income of $140.6 million, or $1.81 per share, in the previous fiscal year. Minus pre-tax special charges of $81.6 million for the year that are related to restructuring, Herman Miller posted a loss of $4.5 million, or 6 cents per share.
Fourth quarter revenues totaled $322.6 million, off 36.9 percent from the $511 million of the same period a year earlier. The company recorded a quarterly net loss of $18.8 million, or 25 cents per share, which compares with earnings of $32.8 million, or 43 cents per share, during the fourth quarter of FY 2001.
The pre-charge loss was at the favorable end of the 5-cent to 10-cent per-share loss that both the company and Wall Street brokerage analysts expected. Quarterly revenues just missed Herman Miller’s earlier guidance of $325 million to $345 million for the quarter.
Executives expect restructuring efforts undertaken in the past year — including facility closings, the elimination of 3,800 jobs and elimination of two distinct divisions, SQA and Red — will save $85 million a year and make a larger mark on the bottom line in the first quarter.
Herman Miller’s goal is to drive “profitable growth” as a company that is far leaner and more able to anticipate and weather future volatility, Volkema said.
“A lot of great work was done to reposition our business and simplify our business model,” Volkema said. “We are better positioned to compete effectively and win the marketplace.”
Herman Miller’s move back to profitability will come at a time when the office industry is forecast to begin moving out of the downturn and into positive growth.
The Business and Institutional Furniture Manufacturers Association forecasts an increase of 9 percent in industry-wide shipments during 2003, although that growth will come from sales levels that haven’t been seen since the mid-1990s.
Overall shipments in the office furniture industry are forecast to fall 13 percent during 2002, to $9.5 billion, with a solid recovery coming next year, according to BIFMA’s latest outlook issued in May. That’s on top of a 17.4 percent decline recorded in 2001, when shipments fell by $2.3 billion, from $13.2 billion to $10.9 billion.