Herman Miller Reports Third Quarter Fiscal 2017 Results
Herman Miller, Inc. (NASDAQ: MLHR) announced results for its third quarter ended March 4, 2017. Net sales in the quarter totaled $524.9 million, a decrease of 2.2% from the same quarter last fiscal year. New orders in the third quarter of $543.2 million were 6.8% above the prior year level.
The company estimates its most recent price increase, which became effective on February 6, 2017, had the effect of accelerating approximately $21 million of orders that would have otherwise been entered in the fourth quarter of fiscal 2017. On an organic basis, which adjusts for this order acceleration as well as foreign currency translation and dealer divestitures, net sales in the third quarter increased by 0.1% and orders increased by 4.8% from the same quarter last fiscal year.
Herman Miller reported net earnings of $0.37 per share on a diluted basis in the third quarter compared to diluted earnings per share of $0.46 in the same quarter last fiscal year. Excluding the impact of certain restructuring charges and a gain from a dealer divestiture recognized in the period, adjusted earnings per share in the third quarter totaled $0.39.
Brian Walker, Chief Executive Officer, stated “While demand patterns across our business remained mixed this quarter, we were particularly pleased to see a marked improvement in the level and pacing of new orders within our North American Contract and Consumer business segments, both of which posted strong growth over the third quarter of last year. Net sales and gross margins for the quarter were within the range we anticipated coming into the period, and our teams did an outstanding job controlling operating expenses. The combination of these factors helped drive net earnings above the expectations we established back in December.”
Mr. Walker continued, “The organization is in the early phases of executing on our plan to reduce operating costs, with a target of achieving between $25 million and $35 million of annual savings over the next three fiscal years. These savings will be used to fund future growth initiatives, offset expected inflationary pressures, and improve operating leverage. We still have a lot of work to do, but our results this quarter give us confidence we have the right talent and organizational focus to achieve these objectives.”
Third Quarter Fiscal 2017 Financial Results
Consolidated gross margin in the third quarter of fiscal 2017 totaled 37.2%, representing a 150 basis point decrease from the level reported in the same quarter of last fiscal year due to comparatively higher levels of price discounting and pressure from commodity costs.
Operating expenses in the current year third quarter were $157.8 million compared to $163.5 million in the same quarter a year ago. This represents a year-over-year decrease of $5.7 million.
The Company also recognized pre-tax restructuring expenses totaling $2.7 million in the third quarter. These costs relate to severance and outplacement benefits associated with targeted workforce reductions implemented during the period.
Herman Miller’s effective income tax rate in the third quarter of both fiscal 2017 and 2016 was 29.8%.
Jeff Stutz, Chief Financial Officer, noted, “We continue to feel the impact of relatively high commodity costs and a challenging pricing environment, both of which pressured our consolidated gross margins relative to same quarter a year ago. With that said, neither of these factors fell outside our expectations coming into the quarter, and we would expect our recently implemented price increase to provide some offset to these pressures as we move through the balance of this fiscal year and into fiscal 2018. Operating expenses were well managed throughout the business this quarter, though we continue to feel the impact of cost inefficiencies inherent with opening new consumer retail studios. This remains a factor in the overall profitability of our Consumer segment as we currently have seven Design Within Reach studios that that have been in place less than twelve months. These near-term inefficiencies aside, we were very pleased with the improved sales and order momentum this quarter, and remain confident that the fundamental value drivers of real estate transformation and product mix will deliver improved operating margins for the Consumer business segment going forward.”
The company ended the third quarter with total cash and cash equivalents of $78.4 million. Cash flow generated from operations in the third quarter was $27.8 million compared to $52.7 million in the same quarter last fiscal year, primarily due to changes in working capital.
Fourth Quarter Fiscal 2017 Guidance
Looking forward, Herman Miller expects net sales in the fourth quarter of fiscal 2017 to be in the range of $575 million to $595 million. On an organic basis, adjusted for the impact of dealer divestitures and foreign currency translation, this forecast implies organic sales growth of 4.2% compared to the fourth quarter of the prior year at the mid-point of the range. Diluted earnings per share in the quarter are expected to range from $0.53 to $0.57 per share.
Supplemental Information and Webcast
The company has created a supplemental data report which provides additional information relevant to its quarterly results. This document can be accessed via a link on the Investors section of the company’s website – http://www.hermanmiller.com/about-us/investors.html. The full text of Herman Miller’s 3Q17 earnings release, including all tables, and a replay of the company’s Mar. 23 conference call webcast are also available there.
About Herman Miller
Herman Miller is a globally recognized provider of furnishings and related technologies and services. Headquartered in West Michigan, the global company has relied on innovative design for over 100 years to solve problems for people wherever they work, live, learn, and heal. Herman Miller’s designs are part of museum collections worldwide, and the company is a past recipient of the Smithsonian Institution’s Cooper Hewitt National Design Award. Known and respected for its leadership in corporate social responsibility, Herman Miller has earned the Human Rights Campaign Foundation’s top rating in its Corporate Equality Index ten years in a row, was named a 2016 Top 100 Healthiest Employer, and has earned numerous global sustainability awards. In fiscal 2016, the company generated $2.26 billion in revenue and employed nearly 8,000 people worldwide. Herman Miller trades on the NASDAQ Global Select Market under the symbol MLHR.