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Published in Manufacturing

Herman Miller navigates market disruptions amid start of Knoll integration

BY Thursday, September 30, 2021 04:55pm

ZEELAND — Herman Miller Inc. contended with several market disruptions as it worked to integrate the newly acquired Knoll Inc. into its operations during the start of its new fiscal year.

The company — which will eventually do business as MillerKnoll Inc. after shareholder approval — released its earnings report this week for the first quarter of its 2022 fiscal year that ended Aug. 28. The period showed that strong growth in orders was tempered by operational challenges from rising commodity costs, labor shortages and shipping delays.

Andi Owen COURTESY PHOTO

Zeeland-based Herman Miller closed on its transformational $1.8 billion acquisition of Knoll on July 19, and the two businesses were combined for roughly the second half of the quarter. The company this week reaffirmed its target made during the acquisition of $100 million in run-rate cost synergies within two years.

“Since the early days of the integration, our global teams have demonstrated extraordinary operational discipline,” Herman Miller President and CEO Andi Owen said during a call with brokerage analysts. “They’re executing well against our plans, and they’re on track to achieve our timeline for delivering $100 million in cost synergies within two years after the close of the deal.”

Combining the dealer networks of both companies so all dealers provide the full portfolio of products is a key part of delivering the forecasted cost synergies.

“One of the key areas of focus for the integration is bringing our two leading contract dealer networks together in the Americas,” Owen said. “And while there’s still a lot of work to do, we’ve made considerable progress.”

Herman Miller generated $789.7 million in sales for the quarter, a 0.4-percent organic increase, which factors out the $156.4 million sales bump added through the Knoll acquisition.

Orders ticked up to $916.5 million, a 34.5-percent organic increase from the same time last year.

Global Retail was the bright spot among the company’s reconfigured segments, which included legacy North America retail and international retail. Sales in the segment were up 30.7 percent while orders were up 22.2 percent.

“I would say our retail strategy has been bearing fruit,” Owen said. “I think we were very thoughtful in how we thought about our direct-to-consumer business, and that we knew that one of our sweet spots is our ability to deliver a healthy and ergonomic seating to a wider variety of folks with the hybrid work environment that we see.”

“Our Herman Miller seating stores have been very, very successful and we see a continuation of that growth in our retail business,” she added.

The Retail Americas Contract segment sagged, though, reflecting the legacy North America contract segment combined with Latin American and Design Within Reach contract segments. The segment as a whole was down 12.2 percent from last year. However, last year’s first quarter benefitted from a large backlog in orders. This year’s first quarter brought the company labor shortages and supply chain challenges.

Commodity costs and inflationary pressures were the most prominent of those disruptions. Herman Miller finished the quarter with gross margins of 35.1 percent compared to 39.9 percent last year.

Herman Miller CFO Jeff Stutz estimated that commodities — primarily steel — eroded margins by 120 basis points while delivery charges accounted for a drop of 70 basis points.

Herman Miller implemented a price increase in June, and Knoll did the same before the acquisition. As a combined company, Herman Miller has additional price increases slated for its present second quarter.

Herman Miller reported a net loss of $59.9 million, or 93 cents per share, in the first quarter. Adjusted for acquisition and integration charges, amortization of purchased intangibles, debt extinguishment charges, restructuring expenses and other special charges, executives said the company’s earnings would have been 49 cents per share, which compares to adjusted earnings of $1.24 per share a year ago.

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