Steelcase, Herman Miller eye continued growth in 2019

West Michigan-based contract furniture makers Steelcase Inc. and Herman Miller Inc. expect to maintain sales momentum going into 2019.

Both companies in late December reported strong quarterly sales and earnings gains and provided guidance for further growth in the present quarters of their fiscal years.

Steelcase President and CEO James Keane noted in a conference call with brokerage analysts that despite outlooks for slower economic growth in the U.S. this year and uncertainties such as trade tensions with China, many factors remained in the office furniture industry’s favor ahead of the new year.

“(I)t feels like underlying demand is remaining pretty strong right now,” Keane said.

A key driver for industry demand has been a worker shortage that has employers redoing their offices to help them attract talent.

“Yes, there’s disruption, but it feels like our business is expanding because our clients need to compete for talent and reinvest in their workplace and that still has a lot of energy behind it,” Keane said. “Despite the obvious stock market volatility, we see a supportive economic environment in the U.S. CEO confidence has taken a hit because of trade concerns, but it’s still very strong versus historical benchmarks because of lower tax rates.

“Corporate profits, job growth, nonresidential fixed investment all remain encouraging, and companies are investing in their workplaces.”

The Grand Rapids-based Steelcase (NYSE: SCS) generated $901 million in sales for the three-month period that ended Nov. 23, up 16.7 percent from $772.1 million in the same period a year earlier, according to an earnings report. Orders for the quarter grew 14 percent.

Steelcase reported $37.3 million in net income, or 31 cents per diluted share, for the third quarter of its present 2019 fiscal year, versus $25.7 million a year earlier, or 22 cents per diluted share.

Sales for the first nine months of the fiscal year grew 10.9 percent to $2.53 billion, and year-to-date net income increased to $103.4 million, or 87 cents per diluted share.

In the present fourth quarter of its 2019 fiscal year, Steelcase expects sales of $860 million to $885 million, or a 9-percent to 12-percent increase from the $772.7 million last year. The company expects quarterly net income of 24 cents to 28 cents per share.

The guidance reflects “an expectation that pricing benefits will begin to outpace the increase in commodity, freight and labor costs and unfavorable business mix will continue,” the company said in the quarterly earnings report.

“Taking into consideration the outlook for the fourth quarter, our fiscal 2019 results are on track to represent one of our strongest years in more than a decade, and we are targeting to grow revenue and earnings again in fiscal 2020,” Steelcase CFO David Sylvester said.

At Zeeland-based Herman Miller (Nasdaq: MLHR), sales grew 7.9 percent for the September-to-November period to $652.6 million, up from $604.6 million a year earlier. Orders during the quarter grew 11.6 percent and backlogged orders increased 11 percent.

Net income for the second quarter of Herman Miller’s present 2019 fiscal year increased 17.3 percent to $39.3 million, or 66 cents per share. That compares with $33.5 million, or 57 cents per share, in the second quarter of its previous fiscal year.

Similarly to Steelcase, Herman Miller executives said worries about interest rates, tariffs and trade with China could dampen business confidence and affect the industry. For now, low U.S. unemployment and the resulting tight labor market are driving activity.

“Although that is challenging on one front for us as far as our manufacturing and gaining talent ourselves, the flip side of that is what we hear from most of our customers (that) they’re also in the war for talent and space,” President and CEO Andi Owen told analysts. “It’s something that they are looking at critically and really trying to be creative and innovative about how they attract talent with their space, and that is very helpful for us and makes us optimistic.”

Midway through the fiscal year, Herman Miller generated $1.27 billion in sales, up 7.8 percent compared to a year earlier. The company reported net income increased 12.9 percent to $75.1 million, or $1.26 per share.

For its current third quarter of the 2019 fiscal year, the company expects sales of $615 million to $630 million, a 6.3-percent to 8.9-percent increase over the $578.4 million of a year ago, and net income of 59 cents to 63 cents per share.

“The overall health of the funnel looks pretty good to us and it’s not just isolated to a handful of large projects. It’s fairly broad based,” said Herman Miller CFO Jeff Stutz. “No question though that we would love to see some resolution to some of the macro factors that are out there in the economy that are creating concern or nervousness.

“All of those things (are) all beyond our control, but the nature of our business is such that nervousness tends to shake confidence and that’s not good for our space. So the sooner we can see some of those things resolved the better, but the broader macro picture for us is team support for future growth.”