MillerKnoll, Inc. — Form 10-Q Summary
Business context and period. MillerKnoll designs, manufactures and sells furnishings and related services for workplace, healthcare, education and residential markets. This filing covers fiscal Q1 ended September 3, 2022. The quarter had 14 weeks versus 13 weeks in the prior-year quarter; Knoll was also consolidated for the full quarter this year but only part of the prior-year quarter, limiting direct comparisons.
Financial performance
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Net sales | $1,078.8 million | $789.7 million |
| Gross margin | $372.1 million; 34.5% | $277.7 million; 35.2% |
| Operating earnings (loss) | $50.8 million; 4.7% of sales | $(52.6) million; (6.7)% of sales |
| Net earnings (loss) attributable to MillerKnoll | $25.8 million | $(61.4) million |
| Diluted EPS | $0.34 | $(0.92) |
| Operating cash flow | $(64.8) million | $(51.7) million |
- Reported sales rose 36.6%; organic sales increased 12.3%. Orders were $1,013.1 million, up 10.5% reported but down 11.0% organically. Backlog was $868.6 million, up 3.9% year over year.
- Adjusted diluted EPS, a non-GAAP measure, was $0.44 versus $0.50, a 12% decrease.
- Gross margin declined 0.7 percentage points. Management cited commodity, freight, distribution and labor inflation, partly offset by pricing. Operating expenses fell 2.7%, mainly because prior-year acquisition and integration costs and acquired-intangible amortization were higher.
- Cash used in investing was $10.2 million, versus $1,104.7 million in the prior-year period, which included the Knoll acquisition. Financing provided $77.0 million. Cash decreased $14.5 million to $215.8 million.
- At September 3, debt was $1,531.7 million, compared with $1,427.9 million at May 28, 2022. Long-term debt was $1,484.4 million. The $725 million revolving facility had $523.9 million drawn and $186.6 million available. Total liquidity, including cash, was $402.4 million, down from $526.9 million at fiscal year-end.
Material changes and business trends
- International Contract & Specialty sales rose 63.1% reported and 30.0% organically; operating earnings were $27.9 million versus $6.6 million. Americas sales rose 40.9% reported and 14.7% organically; operating earnings were $20.4 million versus a $10.6 million loss.
- Global Retail sales rose 11.4% reported but declined 3.7% organically; operating earnings fell to $17.8 million from $26.4 million. Management linked softer demand to consumers shifting spending toward travel and leisure and to macroeconomic concerns.
- Foreign currency translation reduced sales by approximately $22 million. The company recorded a $57.8 million net other comprehensive loss, primarily reflecting $72.5 million of currency translation losses, partly offset by a $14.3 million gain on interest-rate swaps.
- Inventory increased to $615.5 million from $587.3 million at May 28. Management said inventory was elevated amid softer demand in parts of the business and efforts to guard against supply-chain disruption.
Outlook, risks and unusual items
- Management reported approximately $80 million of annualized Knoll integration savings implemented by quarter-end and remained confident in achieving an additional $40 million in cost synergies by July 2024. The broader integration program is expected to incur $100–$120 million of pretax costs; $4.6 million was incurred this quarter.
- Expected full-year capital spending is $90–$100 million; $22.9 million of capital purchase commitments were outstanding at quarter-end. The filing does not provide a specific sales or earnings forecast.
- Management cited economic uncertainty, softer organic orders, inflation in commodities and labor, supply-chain challenges, foreign-exchange exposure, and risks related to debt, Knoll integration and realizing expected synergies. The filing says cash, operating cash generation and borrowing capacity are expected to support near-term and foreseeable needs.
- Knoll acquisition-related costs and purchased-intangible amortization affect comparability. The current quarter also included $0.5 million of restructuring expense. Management said pending ordinary-course legal matters were not expected to have a material adverse effect; performance bonds exposed the company to a maximum $7.0 million and standby letters of credit to $14.5 million.
Important facts for investors to verify
- Whether the decline in organic orders, especially in Americas Contract and Global Retail, persists and converts into lower sales or backlog.
- Whether pricing and cost actions can offset ongoing inflation and protect gross margin.
- Progress against the remaining $40 million synergy target, total integration costs and Knoll integration execution.
- Working-capital and inventory trends, operating cash flow, and the reduction in available revolving-credit capacity.
- The effects of currency movements, higher debt and interest expense, and the additional fiscal-year week when comparing results.