MillerKnoll, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first nine months ended March 2, 2024, compared with periods ended March 4, 2023. The filing is for fiscal 2024 Q3, notwithstanding the request metadata’s “2023 Q3” label. Fiscal 2023 included an extra week in its first quarter, affecting year-to-date comparisons. MillerKnoll designs, manufactures, and sells furnishings and related services across contract, specialty, and retail channels.
Financial performance
| Metric | Q3 FY2024 | Q3 FY2023 | Nine months FY2024 | Nine months FY2023 |
|---|---|---|---|---|
| Net sales | $872.3 million | $984.7 million | $2,739.5 million | $3,130.4 million |
| Gross margin | $337.0 million; 38.6% | $335.6 million; 34.1% | $1,067.1 million; 39.0% | $1,075.3 million; 34.4% |
| Operating earnings | $42.8 million | $21.2 million | $143.5 million | $110.7 million |
| Net earnings attributable to MillerKnoll | $22.2 million | $0.4 million | $72.4 million | $42.2 million |
| Diluted EPS | $0.30 | $0.01 | $0.97 | $0.56 |
| Operating cash flow | Not presented quarterly | $273.9 million | $70.4 million |
Q3 adjusted diluted EPS, a non-GAAP measure, was $0.45 versus $0.54; nine-month adjusted diluted EPS was $1.41 versus $1.44. Management attributes improved gross margin principally to price actions, lower freight and distribution costs, better inventory management, and Knoll synergies. Lower sales volume reduced leverage. Prior-year impairment charges related to the Fully business also make comparisons more favorable; no impairment charge was recorded in the current periods.
Q3 reported sales fell 11.4% and orders fell 6.2%; organic sales and orders declined 10.1% and 4.7%, respectively. Backlog was $639.4 million, down 12.7% year over year. For the first nine months, reported sales declined 12.5% and orders 7.7%; organic sales and orders declined 9.0% and 4.0%. Organic comparisons exclude specified currency, Fully-closure, and, where applicable, prior-year extra-week effects.
Segments and material changes
- Americas Contract: Q3 sales of $441.1 million, down 9.0%; operating earnings were $25.3 million versus $32.5 million. Orders fell 9.0% reported. Nine-month operating earnings increased to $101.8 million from $78.2 million.
- International Contract & Specialty: Q3 sales of $217.3 million, down 10.4%; operating earnings were $18.5 million versus $25.3 million. Orders rose 8.3% reported. Nine-month operating earnings fell to $53.7 million from $81.5 million.
- Global Retail: Q3 sales of $213.9 million, down 17.0%; operating earnings improved to $11.3 million from a $24.5 million loss. Orders fell 14.6% reported. The prior-year period included Fully-related impairment charges and sales before its closure as a standalone business.
Q3 gross margin increased 4.5 percentage points while sales declined. Operating expenses decreased 6.4% year over year, although compensation and benefit costs rose. Nine-month operating cash flow improved substantially, aided by higher earnings and working-capital movements, including lower current assets and inventory.
Liquidity, debt, and capital allocation
- At March 2, 2024, cash was $223.6 million and total debt was $1,344.6 million, including $40.9 million classified as current. Long-term debt was $1,290.4 million.
- Available revolving-credit capacity was $334.4 million; reported total liquidity, including cash, was $558.0 million. The $725 million revolver matures in July 2026. Debt is secured by substantially all of the company’s and guarantor subsidiaries’ tangible and intangible assets.
- Nine-month investing cash outflow was $61.0 million, including $56.5 million of capital expenditures. Financing cash outflow was $213.1 million, including $101.0 million of share repurchases, $42.2 million of dividends, and net credit-facility repayments.
- Management expects fiscal 2024 capital spending of $70 million to $90 million and says cash, operating cash flow, and borrowing capacity should cover foreseeable needs, subject to financing availability.
Outlook, commentary, and risks
- Management reported $153 million of annualized Knoll run-rate synergies captured and expects approximately $160 million per year by July 2024. The Knoll integration program is expected to involve approximately $150 million of pretax cash costs.
- The 2024 restructuring actions are projected to produce annualized expense reductions of approximately $15 million to $17 million. The completed 2023 restructuring plan had projected savings of approximately $30 million to $35 million.
- No specific sales or EPS guidance is provided in the supplied filing text. Management cited global economic uncertainty, persistent inflation, elevated interest rates, geopolitical concerns, and a weak U.S. housing market as demand pressures.
- Other disclosed risks include integration and synergy execution, debt and covenant obligations, raw-material availability and prices, dealer and customer financial strength, foreign-exchange exposure, and litigation or governmental audits. Management stated pending ordinary-course litigation was not expected to have a material adverse effect.
- Performance bonds represented maximum exposure of approximately $7.9 million; standby letters of credit totaled $12.7 million and counted against revolver availability. No liabilities were recorded for these arrangements. Warranty reserves were $70.6 million.
Important facts for investors to verify
- Whether orders, backlog, and sales stabilize, particularly in Americas Contract and Global Retail, and whether International orders growth converts to revenue.
- Whether margin gains persist as lower volume and product/channel mix remain pressures, and how much improvement reflects recurring efficiencies versus prior-year impairment comparisons.
- Progress toward the $160 million synergy target and the remaining integration cash costs, restructuring charges, and projected savings.
- Debt repayment, interest costs, covenant headroom, revolver availability, and the sustainability of operating cash flow and shareholder distributions.
- How reported and adjusted results differ: adjusted EPS excludes Knoll intangible amortization, integration and restructuring costs, impairment charges, and related tax effects.