Herman Miller, Inc. Form 10-Q Summary
Reporting period: Third quarter and first nine months of fiscal 2021, ended February 27, 2021. The filing is under Herman Miller, Inc.; the supplied company metadata says MillerKnoll, Inc.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $590.5 million | $665.7 million | $1,843.6 million | $2,010.8 million |
| Gross margin | $230.9 million; 39.1% | $243.3 million; 36.5% | $725.2 million; 39.3% | $744.9 million; 37.0% |
| Operating earnings | $55.1 million | $50.4 million | $221.5 million | $173.0 million |
| Net earnings attributable to Herman Miller | $41.5 million | $37.7 million | $165.7 million | $164.5 million |
| Diluted EPS | $0.70 | $0.64 | $2.80 | $2.78 |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $260.1 million | $191.8 million |
- Quarterly orders fell 13.1% to $566.1 million; backlog was $379.0 million, down 7.8% year over year.
- Quarterly adjusted diluted EPS, a non-GAAP measure, was $0.65 versus $0.74. The reconciliation removes a $0.05-per-share after-tax legal settlement gain in the current quarter.
- Cash and cash equivalents were $397.4 million at quarter-end, versus $454.0 million at fiscal year-end. Total liquidity, including short-term investments and available revolver capacity, was $669.7 million.
- Total debt was $327.0 million, compared with $591.3 million at May 30, 2020; $225.0 million was drawn on the $500 million revolving facility, leaving $264.8 million available after letters of credit. The company repaid $50 million of notes at maturity after quarter-end.
- Capital expenditures were $42.8 million for the nine-month period. The company declared quarterly dividends of $0.1875 per share and reported no material open-market repurchases during the quarter.
Material changes and business drivers
- Sales declined 11.3% in the quarter and 8.3% year to date. North America Contract was the principal drag: quarterly sales fell 35.1%, while nine-month sales fell 29.7%, reflecting pandemic-related softness in contract furniture demand.
- Retail sales rose 62.8% in the quarter and 41.9% year to date, driven chiefly by e-commerce demand related to home furnishings and work-from-home needs. International Contract sales rose 6.1% in the quarter; year-to-date growth included HAY and naughtone acquisitions and favorable currency translation.
- Quarterly gross margin improved 2.6 percentage points. Management cited favorable channel and product mix, pricing, and ongoing profitability initiatives, partly offset by weaker overhead and labor leverage. Operating expenses fell 8.9%, including lower restructuring, warranty, travel, marketing, and compensation costs.
- Operating earnings improved despite lower consolidated sales. Retail and International Contract earnings increased, while North America Contract operating earnings fell to $11.9 million from $51.2 million.
- Year-to-date cash flow from operations increased, supported in part by working-capital movements and deferred payroll taxes under the CARES Act. Investing outflows were lower largely because prior-year acquisitions did not recur; financing outflows included $265 million of revolver repayments.
Outlook, risks, and unusual items
- Management gave full-year fiscal 2021 capital expenditure expectations of $55 million to $65 million, principally for facilities and equipment. It did not provide numerical sales or earnings guidance.
- Management expects rising steel prices to pressure fourth-quarter fiscal 2021 gross margin. Cost-reduction initiatives and a planned price increase in the first quarter of fiscal 2022 are expected to help offset input-cost pressures over time.
- The company says the pandemic continues to weigh on contract demand and that its duration, supply-chain effects, and future demand remain difficult to estimate. It cited continuing uncertainty from economic recovery, trade policy and Brexit, tariffs, raw-material availability and pricing, and customer capital spending.
- The May 2020 workforce restructuring eliminated approximately 400 positions and is projected to reduce annual expenses by about $40 million. The company reported $18.7 million of related severance and charges to date, with no material future costs expected; remaining amounts were expected to be paid in fiscal 2022.
- Current-quarter results included a $4.3 million pretax gain from a legal settlement. Prior-year nine-month results included a $30.5 million gain on consolidation of an equity-method investment, affecting comparisons.
- Management reported no material expected adverse effect from pending ordinary-course litigation. Performance bonds had maximum exposure of about $5.5 million and standby letters of credit about $10.2 million; no related liability was recorded. The company also disclosed sensitivity to potential future impairment in its International reporting unit and certain trade names, though it identified no interim impairment trigger during the period.
Important facts for investors to verify
- Whether North America Contract orders and sales stabilize, and how its backlog converts to revenue.
- Whether Retail demand remains strong and whether e-commerce growth and segment margins persist.
- The impact of steel and other input costs, pricing actions, tariffs, and supply-chain conditions on upcoming gross margins.
- Progress against the approximately $40 million annualized restructuring savings and the timing of remaining cash payments.
- Post-quarter debt repayment, liquidity and covenant terms, plus the sustainability of operating cash flow and dividends.
- Potential impairment sensitivity and the significance of the legal settlement and other non-recurring items when comparing adjusted with GAAP results.