MillerKnoll, Inc. — Form 10-Q Summary
Business context and reporting period
This filing covers the third quarter and first nine months of fiscal 2023, ended March 4, 2023. The company designs, manufactures, and sells furnishings and related services across contract, specialty, and retail markets. The comparable nine-month periods differ in length: fiscal 2023 included 40 weeks versus 39 weeks in fiscal 2022. Unless otherwise indicated, amounts are in millions of dollars.
Key financial results
| Metric | Q3 FY2023 | Q3 FY2022 | Nine months FY2023 | Nine months FY2022 |
|---|---|---|---|---|
| Net sales | $984.7 | $1,029.5 | $3,130.4 | $2,845.5 |
| Gross margin | $335.6; 34.1% | $339.5; 33.0% | $1,075.3; 34.4% | $970.2; 34.1% |
| Operating earnings (loss) | $21.2 | $29.2 | $110.7 | $(17.2) |
| Net earnings (loss) attributable to MillerKnoll | $0.4 | $14.4 | $42.2 | $(48.7) |
| Diluted EPS | $0.01 | $0.19 | $0.56 | $(0.66) |
- Sales and demand: Q3 reported sales declined 4.4% year over year; organic sales declined 2.7%. Orders fell 19.2% reported and 17.6% organically, to $885.4. Backlog was $732.3, down 28.2% year over year. Nine-month reported sales rose 10.0%, but organic sales rose 5.2%, reflecting acquisition, currency, and extra-week effects.
- Profitability: Q3 gross margin improved to 34.1%, mainly on pricing and Knoll synergies, partly offset by commodities, freight and distribution, labor, mix, and Fully-related impairment. Operating earnings fell 27.4%; higher interest expense and tax effects contributed to the sharp decline in quarterly attributable earnings. Nine-month operating earnings improved from a loss, while adjusted diluted EPS— a non-GAAP measure—was $1.44 versus $1.34.
- Cash flow: Nine-month operating cash flow was $70.4, compared with cash use of $57.9 a year earlier. Investing used $53.2, primarily including $60.6 of capital expenditures; financing used $22.1. Cash declined $13.2 to $217.1.
- Debt and liquidity: Total debt was $1,462.8, including $468.5 drawn on the revolving facility; long-term debt on the balance sheet was $1,415.1. Available revolver capacity was $242.4, and stated total liquidity was $459.5. Interest expense was $19.1 in Q3 versus $10.2 a year earlier. The company transitioned U.S. dollar borrowings from LIBOR to SOFR and added a $150 interest-rate swap effective at 3.95% before applicable margin.
- Balance sheet: Current assets were $1,276.1 and current liabilities $733.2. Inventory was $539.6, down from $587.3 at fiscal year-end. Cash and equivalents included $200.9 held outside the United States.
Material changes and segment performance
- Q3 Americas Contract sales declined 4.9% reported and 4.5% organically; operating earnings improved to $32.5 from a loss of $8.6, with price increases and lower variable compensation helping.
- International Contract & Specialty sales rose 0.6% reported and 4.3% organically; operating earnings increased to $25.3 from $17.0.
- Global Retail sales fell 7.7% reported and 5.5% organically. The segment recorded an operating loss of $24.5 versus earnings of $36.3 a year earlier, reflecting weaker demand and Fully-related impairments.
- The company reported $123 of annualized run-rate synergies captured from the Knoll integration, against a target of $140 by the end of the third year after acquisition.
Outlook, risks, contingencies, and unusual items
- No specific near-term revenue or earnings guidance is provided. Management expects fiscal-year capital purchases of $80–$90 and disclosed that the 2023 restructuring plan is expected to reduce annualized expenses by approximately $30–$35.
- Management cited economic uncertainty, weaker orders across all three segments, the North American housing slowdown affecting retail, and input-cost sensitivity. Price increases and cost-reduction actions are intended to offset cost pressure.
- The company decided to stop operating Fully as a stand-alone brand and sell certain products through other Global Retail channels. It recorded $37.2 of related asset impairments in Q3: $15.7 inventory, $3.8 property and equipment, $6.1 right-of-use assets, and $11.6 trademark. The filing presents impairment expense across cost of sales and operating expenses.
- Knoll integration costs were $12.7 for the first nine months. The company expects total pre-tax cash costs for the multi-year integration program of approximately $140. The separate 2023 restructuring plan incurred $19.8 through March 4.
- Global Retail goodwill of $389.2 was not impaired after interim testing, but estimated fair value exceeded carrying value by only 1%, creating heightened sensitivity to changes in assumptions or market conditions.
- Management said pending ordinary-course litigation is not expected to materially affect the financial statements. Performance bonds exposed the company to a maximum of $8.2; standby letters of credit totaled $14.1. A new risk factor warns that financial-sector disruption could affect customers’ ability to pay, suppliers’ ability to deliver, and access to financing. The company reported no deposits at the failed banks identified in the filing.
- Management described liquidity as adequate for foreseeable needs, subject to financing availability. It also disclosed plans to repatriate $185.0 of foreign earnings and remain indefinitely reinvested in approximately $250.2 of other undistributed foreign earnings.
Important facts for investors to verify
- Whether the steep order and backlog declines translate into lower sales, and how orders develop by segment.
- Whether pricing and integration synergies can continue to offset input, labor, and distribution costs without further weakening demand.
- Global Retail performance and the sensitivity of its goodwill valuation, including the effects of the Fully channel change.
- Debt levels, interest costs, covenant headroom, and available revolving credit as rates and liquidity conditions evolve.
- Cash realization and timing of expected restructuring savings, integration costs, and the $80–$90 capital-spending outlook.
- Comparability of reported results: fiscal 2023 year-to-date includes an extra week, and acquisition, currency, and divestiture effects affect reported growth; adjusted EPS and organic growth are non-GAAP measures.