ZEELAND, MI -- Herman Miller, Inc. announced results for its second quarter ended Dec. 3, 2011. The company reported net sales in the quarter of $445.6 million; an increase of 8.1% from the second quarter of fiscal 2011. Net sales were up 4.7% sequentially, after adjusting for the extra week of operations included in the first quarter of this fiscal year. New orders of $440.0 million in the second quarter were 4.7% lower on a year-over-year basis. Adjusting for the extra week, orders in the second quarter were down 1.6% from the level reported in the first quarter of this year.

Diluted earnings per share in the second quarter were $0.41 compared to $0.26 in the prior year period and $0.42 in the first quarter of this fiscal year.

Brian Walker, CEO, said, "Our results this quarter cap a solid first half of fiscal 2012. Our employee-owners continued to execute well, which enabled us to expand margins and earnings. In addition, we made progress on initiatives aimed at strengthening our brand and growing our business. All of this builds confidence in our long-term growth prospects. Reduced order momentum this past quarter reflected pockets of weakness in some customer sectors driven by a reduction in large order volume compared to last year. At the same time, we remain optimistic that some of today's economic headwinds are transient and opportunities for growth remain both here and abroad."

FINANCIAL HIGHLIGHTS (Dollars in millions, except per share data)

 

Three Months Ended

Six Months Ended

 

12/3/11

11/27/10

% Chg.

12/3/11

(27 wks)

11/27/10

(26 wks)

% Chg.

Net Sales

$445.6

$412.2

8.1

$903.7

$792.9

14.0

Gross Margin %

34.1%

32.9%

N/A

33.9%

32.7%

N/A

Operating Expenses

$111.4

$102.2

9.0

$223.9

$195.7

14.4

Restructuring Expenses

$2.1

N/A

$3.0

N/A

Operating Earnings %

9.1%

7.6%

N/A

9.1%

7.7%

N/A

Adj. Operating Earnings %*

9.1%

7.1%

N/A

9.1%

6.8%

N/A

Net Earnings

$23.7

$17.9

32.4

$48.3

$34.0

42.1

Earnings per share?diluted

$0.41

$0.26

57.7

$0.83

$0.48

72.9

Adj. Earnings per share?diluted*

$0.41

$0.29

41.4

$0.83

$0.51

62.7

Orders

$440.0

$461.8

-4.7

$921.4

$855.7

7.7

Backlog

$280.8

$314.6

-10.7

 

 

 

*Items indicated represent Non-GAAP measurements; see "Reconciliation of Non-GAAP Financial Measures" below.

Second Quarter Fiscal Year 2012 Financial Results

Sales within Herman Miller's North American reporting segment of $321.7 million were up 4.6% from the prior year. New orders in the second quarter totaled $306.2 million; reflecting a decrease of 13.0% from the same period last fiscal year. On a sequential basis, adjusted for the extra week of operations reported last quarter, segment sales increased 4.8% from the first quarter level. On this same basis, segment orders were down 4.7% sequentially.

The company's international operations were again a highlight this quarter, led by sales and order strength in the U.K. and Asia-Pacific region. The non-North American business segment reported net sales of $87.5 million for the quarter. This represents a 20.4% increase from the year ago period. New orders were also strong in the quarter, totaling $92.1 million; an increase of 25.4% from the second quarter of fiscal 2011. Adjusting for the extra week, segment sales increased 11.0% and orders were essentially flat relative to the first quarter of this fiscal year.

Net sales in the second quarter for the Specialty and Consumer segment were $36.4 million, up 14.1% from the prior year period. New orders in the quarter were 14.7% higher than the second quarter of last year. Sequentially again adjusting for the impact of the extra week of operations in Q1 segment sales decreased 8.2% from the first quarter level while new orders increased 23.6%.

Greg Bylsma, CFO, said, "While we saw order increases this quarter relative to last year in both our non-North American and Specialty and Consumer segments, we did experience a decrease in our North American business. This was primarily due to a relative decrease in the volume of large government projects entered this quarter."

The company's consolidated gross margin in the second quarter was 34.1%; representing a 120 basis-point improvement from the prior year. Benefit captured from recent price increases, net of incremental discounting, drove the majority of the year-over-year improvement. This was partially offset in the quarter by higher commodity costs relative to last year.

On a sequential comparison, gross margin in the second quarter increased 40 basis-points from the first quarter of fiscal 2012. Higher factory production levels in the second quarter contributed significantly to this improvement. Additionally, incentive bonus expenses recorded in the period were lower in relation to the first quarter level. These factors more than offset the negative impact of having one less week of operations compared to the first quarter.

Operating expenses in the second quarter of $111.4 million were $9.2 million higher than the prior year. Approximately half of this increase was driven by adjustments made in the prior year to contingent liabilities associated with the Nemschoff acquisition, thus reducing operating expenses in that period. The remaining expense increase was driven primarily by variability against higher net sales and by increased employee wages and benefit expenses. On a sequential-quarter basis, operating expenses were $1.1 million below the level reported in the first quarter of this fiscal year.

Bylsma said, "We are very pleased to report significantly improved gross margins from a year ago. Our consolidated margin is the highest level we have achieved in more than three years. This is particularly encouraging in that it delivers on our commitment to leverage sales growth and capture benefit from our recent price increases. Our employee-owners matched this improved gross margin with solid operating expense control, helping to drive a 41% increase in adjusted earnings per share from a year ago."

Herman Miller's effective income tax rate in the second quarter was 33.4%. This compares to an effective rate of 32.0% in the second quarter of fiscal 2011.

Cash flow generated from operations in the second quarter was negative $0.4 million compared to positive $22.6 million in the second quarter of last fiscal year. The decrease relative to last year was driven by a net use of working capital in the quarter. The company ended the quarter with total cash of $181.0 million; a decrease of $1.3 million from the amount held at the end of the first quarter of this fiscal year.

Walker said, "There's no question that our near-term business outlook is clouded by the tenuous health of the global economy. Regardless of what challenges we may face in the coming months, our collective focus at Herman Miller remains on driving success over the long run. I feel very good about the progress we're making on the building blocks of our strategy, and I'm as confident as ever in our ability to deliver long-term value to our customers, employees and shareholders."

Operating Segment Information
The table below summarizes select financial information, for the periods indicated, related to each of the company's reportable operating segments. The North American Furniture Solutions segment includes the operations associated with the design, manufacture, and sale of furniture products for work-related settings, including office, education, and healthcare environments, throughout the United States and Canada. The business associated with the company's owned contract furniture dealers is also included in the North American Furniture Solutions segment. The non-North American Furniture Solutions segment includes the operations associated with the design, manufacture, and sale of furniture products, primarily for work-related settings, for Mexico and outside of North America. The Specialty and Consumer segment includes the operations associated with the design, manufacture, and sale of high-end furniture products including Geiger wood products, a collection of classic products and our North American consumer retail business. The "Corporate" category consists primarily of startup business and unallocated corporate expenses including, if applicable to the periods shown, restructuring and impairment costs.

(in millions)

Three Months Ended

Six Months Ended

 

12/3/11

11/27/10

12/3/11

11/27/10

Net Sales:

 

 

 

 

North American Furniture Solutions

$321.7

$307.6

$652.2

$593.5

Non-North American Furniture Solutions

87.5

72.7

172.4

139.5

Specialty and Consumer

36.4

31.9

79.1

59.9

Corporate

Total

$445.6

$412.2

$903.7

$792.9

 

 

 

 

 

Operating Earnings (Loss):

 

 

 

 

North American Furniture Solutions

$28.5

$27.4

$56.8

$53.9

Non-North American Furniture Solutions

8.8

4.0

18.4

6.7

Specialty and Consumer

3.6

2.9

7.8

4.9

Corporate

(0.2)

(2.8)

(0.5)

(4.8)

Total

$40.7

$31.5

$82.5

$60.7

Supplemental Reconciliation: Components of Earnings Per Share

The following table summarizes the components of the numerator and denominator used in the calculation of earnings per share for the quarterly periods indicated.

Earnings Per Share—Basic

Three Months Ended

 

12/3/11

11/27/10

Numerator (in millions):

Net Earnings

 

$23.7

 

$17.9

 

 

 

Denominator:

Weighted-Average Common Shares Outstanding

 

58,160,339

 

57,034,222

Earnings Per Share—Diluted

Three Months Ended

 

12/3/11

11/27/10

Numerator (in millions):

Net Earnings

 

$23.7

 

$17.9

Adjustment to earnings related to contingent purchase consideration that can be settled in common stock at the company's option, net of tax

 

 

(2.8)

Numerator for diluted EPS

$23.7

$15.1

 

 

 

Denominator:

Weighted-Average Common Shares Outstanding

 

58,160,339

 

57,034,222

 

Potentially dilutive shares resulting from stock plans

 

227,447

 

634,169

Denominator for diluted EPS

58,387,786

57,668,391

Supplemental Reconciliation: Components of Earnings Per Share
The following table summarizes the components of the numerator and denominator used in the calculation of earnings per share for the year-to-date periods indicated.

Earnings Per Share—Basic

Six Months Ended

 

12/3/11

11/27/10

Numerator (in millions):

Net Earnings

 

$48.3

 

$34.0

 

 

 

Denominator:

Weighted-Average Common Shares Outstanding

 

58,108,349

 

57,005,344

Earnings Per Share—Diluted

Six Months Ended

 

12/3/11

11/27/10

Numerator (in millions):

Net Earnings

 

$48.3

 

$34.0

Adjustment to earnings related to contingent purchase consideration that can be settled in common stock at the company's option, net of tax

 

 

(6.2)

 

Numerator for diluted EPS

 

$48.3

 

$27.8

 

 

 

Denominator:

Weighted-Average Common Shares Outstanding

 

58,108,349

 

57,005,344

 

Potentially dilutive shares resulting from stock plans

 

266,785

 

761,362

 

Denominator for diluted EPS

 

58,375,134

 

57,766,706

Reconciliation of Non-GAAP Financial Measures
This release contains Adjusted Earnings per Share and Adjusted Operating Earnings measures, which are both Non-GAAP financial measures. Adjusted Earnings per Share and Adjusted Operating Earnings are calculated by excluding from Earnings per Share and Operating Earnings items that we believe are not indicative of our ongoing operating performance. For the periods covered by this release, such items consist of expenses associated with restructuring actions taken to adjust our cost structure to the current business climate and adjustments to acquisition-related contingent purchase price liabilities. We present Adjusted Earnings per Share and Adjusted Operating Earnings because we consider them to be important supplemental measures of our performance and believe them to be useful to show ongoing results from operations.

Adjusted Earnings per Share and Adjusted Operating Earnings are not measurements of our financial performance under GAAP and should not be considered an alternative to Earnings per Share or Operating Earnings under GAAP. Adjusted Earnings per Share and Adjusted Operating Earnings have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating Adjusted Earnings per Share and Adjusted Operating Earnings, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of Adjusted Earnings per Share and Adjusted Operating Earnings should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using Adjusted Earnings per Share and Adjusted Operating Earnings only as a supplement.

The following table reconciles Adjusted Earnings per Share to Earnings per Share for the periods indicated.

 

Three Months Ended

Six Months Ended

 

12/3/11

11/27/10

12/3/11

11/27/10

Earnings per Share—Diluted

$0.41

$0.26

$0.83

$0.48

Add back:Restructuring charges

0.03

0.03

Adjusted Earnings per Share—Diluted

$0.41

$0.29

$0.83

$0.51

The following table reconciles Adjusted Operating Earnings to Operating Earnings for the periods indicated.

(Dollars in millions)

Three Months Ended

Six Months Ended

 

12/3/11

11/27/10

12/3/11

11/27/10

Operating Earnings

$40.7

$31.5

$82.5

$60.7

Add:  Restructuring expenses

2.1

3.0

Less: Adjustments to contingent purchase consideration

(4.4)

(9.7)

Adjusted Operating Earnings

$40.7

$29.2

$82.5

$54.0

 Source: Herman Miller, Inc.

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