Office furnishings manufacturer and design house Herman Miller, Inc. (NASDAQ: MLHR) released fiscal first-quarter 2019 earnings on Wednesday after the markets closed. The company's revenue expansion, order growth, and increased backlog indicated relative health and earnings momentum at the start of its fiscal year. Let's run through the overview metrics, then delve into factors that pushed performance for the maker of storied furniture lines including the Eames lounge chair and the Aeron office chair.
Herman Miller: The raw numbers
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What happened at Herman Miller this quarter?
- Net sales and organic sales both hit the more optimistic reaches of management's previous guidance. Year-over-year net sales of nearly $625 million fell within the high end of the company's anticipated range of $610 million to $630 million. Organic sales rose 7.6%, exceeding a midpoint projection of 6%.
- As has been the case in recent quarters, the company's ELA segment (Europe, Middle East, Africa, Latin America, and Asia-Pacific) led overall expansion. Revenue growth in ELA jumped nearly 24% against the fiscal first quarter of 2018, to $115.4 million.
- North America, Herman Miller's largest segment, generated a 4.6% increase in its top line, to $343.7 million.
- The company's specialty segment grew revenue by 3% to $77.3 million, a slower rate versus the double-digit increases of previous quarters. The consumer segment advanced by 6% to $88.2 million. However, after adjusting for a single item related to a change in shipping terms, the consumer segment's organic revenue improved by nearly 13%.
- Orders for future work expanded by a solid 6%. Notably, the last three months marked the first time in three quarters in which the North American segment enjoyed positive revenue and positive order growth. The North American segment's 3% uptick in orders follows 3.8% growth last quarter. The incipient trend is providing relief to shareholders who fretted about Herman Miller's core business division when orders unexpectedly dropped 7.4% in the fiscal third quarter of 2018.
- Herman Miller's order backlog increased 4.3% over the first quarter of 2018, to $364.4 million.
- As I discussed last quarter, CEO Brian Walker retired in August as previously announced. The company hired Andi Owen, formerly an executive at Gap Inc., to helm the company. Owen most recently served as global president of Gap division Banana Republic, where she oversaw 11,000 employees.
- Gross margin ticked down 140 basis points to 36%. Roughly 60 basis points of this change was due to the adoption of a new accounting standard, ASC 606.
- Operating expenses rose by $12.3 million to $178 million. The company attributed $5.1 million of the increase to its CEO transition. Adjusting for this number, operating margin decreased only 40 basis points to 8.1%.
- Management noted that after excluding one-time restructuring and impairment charges, adjusted diluted earnings per share (EPS) of $0.69 exceeded the company's original first-quarter estimate range of $0.63 to $0.67.
What management had to say
In Herman Miller's earnings press release, new CEO Owen enumerated several factors which hinted at possible revenue and earnings acceleration in fiscal 2019:
Herman Miller anticipates second-quarter fiscal 2019 revenue of between $635 million and $655 million, which implies 5% organic growth at the midpoint of the range. Management expects diluted EPS to fall between $0.70 and $0.74. If it hits the midpoint of its targeted band, the company will achieve 26% growth in adjusted EPS over the second quarter of 2018.
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