Published in Manufacturing

Herman Miller records higher sales, can’t offer guidance because of coronavirus uncertainty

BY Thursday, March 19, 2020 10:25am

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ZEELAND — Herman Miller Inc. says it’s unable to predict sales for the present quarter because of the coronavirus pandemic that has created a “high degree of uncertainty throughout the global economy.”

Herman Miller president and CEO Andi Owen COURTESY PHOTO

In reporting results for the most recent three-month period, the Zeeland-based Herman Miller (Nasdaq: MLHR) deviated from its regular practice of offering quarterly sales and earnings guidance, citing uncertainty from the growing global pandemic and “given the difficulty of estimating near-term demand,” the company said.

“Uncertainty and associated market volatility has clearly accelerated as the coronavirus outbreak has spread across the globe,” President and CEO Andi Owen said in a Wednesday evening conference call to discuss quarterly results. The call was dominated by talk about the pandemic.

“Navigating the coronavirus situation will require flexibility, resilience, and an ability to balance our long-term objectives with the challenges we face today,” Owen said. “As we manage the business through this fluid situation, we’re focused on the factors we can control.”

For the third quarter of its 2020 fiscal year, Herman Miller recorded sales of $665.7 million, up 7.5 percent from the $619 million in the same period a year earlier. The temporary closure of a production facility in China where the coronavirus originated reduced international sales by $6 million from delays in shipments during the quarter.

The company reported lower net income of $37.7 million, or 64 cents per diluted share, for the quarter that ended Feb. 29. That compares to net income of $39.2 million, or 66 cents per diluted share, in the same period in the 2019 fiscal year.

Minus revenue from acquisitions, plus foreign currency exchanges and other charges, Herman Miller sales increased just 0.5 percent organically and recorded net income of 74 cents per share.

Orders for the quarter grew 6.3 percent to $651.7 million and backlogged orders were up 2.7 percent $411.2 million. Herman Miller experienced “uneven demand patterns for sales and orders during the quarter,” as the coronavirus outbreak emerged and grew around the world, Owen said.

Through nine month of its 2020 fiscal year, Herman Miller grew sales 6 percent to $2.021 billion with higher net income of $164.5 million, or $2.78 per diluted share.

Herman Miller “has not experienced any meaningful order cancellation” by clients because of the coronavirus and received “minimal requests from customers and dealers to adjust the timing of scheduled shipments, both in the U.S. and abroad, though we would expect this to increase,” said CFO Jeff Stutz.

Stutz noted that the office furniture industry has experienced two deep downturns in the past 20 years and that Herman Miller “has a lot of experience dealing with recessionary periods going back in our history.”

“We do know a thing or two about how to manage our way into a down period,” he said.

Financially, Herman Milles remains “well positioned to weather the near-term market volatility and meet the financing needs of the business moving forward,” said Kevin Veltman, the company’s treasurer and vice president of investor relations.

“We feel as well positioned to go into a challenging period as we probably ever have,” Veltman said. “No one’s predicting, and you’re certainly not going to get a prediction from us, as to what this means in the near term, but I think we are well positioned to manage our way through it and protect the critical investments that we need to come out on the other side.”

When the industry went into a deep tailspin toward the end of 2008 and into 2009 amid the U.S. financial crisis, Herman Miller first saw a drop off in day-to-day business with orders less than $100,000, said Greg Bylsma, president of the North American contract business.

The big indicator now is day-to-day activity, Bylsma said.

“The thing that I watch every day as we’re going through this is the day-to-day, and that seems to be pretty strong still,” he said. “We’re actually getting, in some cases on the health-care side, people saying, ‘Can you hurry up? We have demand that maybe we didn’t have three of four weeks ago.’”

While the health care division is a small part of Herman Miller’s overall business, accounting for about 15 percent of sales, “it is an interesting dynamic given all that’s going on,” Bylsma said.

Internally, Herman Miller has implemented a “significant number of initiatives” to minimize the outbreak’s impact on operations, such as increasing the frequency and scope of facility cleaning, staggering work breaks, increasing the time between production shifts, “and changing the structure of our work to allow for social distancing in work cells,” Bylsma said.

As the outbreak spreads globally, “We have put in place contingency plans to ensure we support our customers, maintain the supply of critical product lines, and address potential disruption at key suppliers,” Bylsma said.

The next glimpse at how the coronavirus pandemic may affect the office furniture industry comes next week. Grand Rapids-based industry leader Steelcase Inc. (NYSE: SCS) is scheduled to release quarterly sales and earnings results on March 25.

The North American office furniture industry in 2019 grew an estimated 5.5 percent to $14.96 billion, according to the Grand Rapids-based Business and Institutional Furniture Manufacturers Association

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