Herman Miller, Inc. Form 10-Q Summary
Reporting period: Quarter and six months ended November 28, 2020 (fiscal 2021 Q2). The filing identifies the registrant as Herman Miller, Inc. (NASDAQ: MLHR); it does not use the MillerKnoll name.
Financial performance
| Metric | Three months ended Nov. 28, 2020 | Prior-year quarter | Six months ended Nov. 28, 2020 | Prior-year six months |
|---|---|---|---|---|
| Net sales | $626.3 million | $674.2 million | $1,253.0 million | $1,345.2 million |
| Gross margin | $244.2 million; 39.0% | $255.5 million; 37.9% | $494.2 million; 39.4% | $501.6 million; 37.3% |
| Operating earnings | $71.0 million; 11.3% of sales | $62.4 million; 9.3% | $166.4 million; 13.3% | $122.6 million; 9.1% |
| Net earnings attributable to Herman Miller | $51.3 million | $78.6 million | $124.2 million | $126.8 million |
| Diluted EPS | $0.87 | $1.32 | $2.10 | $2.14 |
| Adjusted diluted EPS (non-GAAP) | $0.89 | $0.88 | $2.13 | $1.72 |
- Quarterly sales declined 7.1% reported and 14.9% organically; six-month sales declined 6.9% reported and 14.1% organically. Organic figures exclude acquisition and currency effects.
- Quarterly orders were $629.7 million, down 6.7%; six-month orders were $1,185.7 million, down 12.3%. Backlog was $403.4 million, up 0.7% from the prior-year comparable date.
- Quarterly gross margin expanded 1.1 percentage points, principally on favorable channel and product mix and lower commodity costs, partly offset by reduced factory overhead leverage. Operating expenses fell 10.3% in the quarter and 13.5% for six months, reflecting lower compensation, selling, marketing and travel costs, among other items.
- Segment trends diverged: Q2 North America Contract sales fell 28.3% to $323.1 million and operating earnings fell to $35.6 million; International Contract sales rose 42.2% to $168.1 million, largely due to acquisitions, with operating earnings of $23.4 million; Retail sales rose 28.2% to $135.1 million and operating earnings improved to $22.6 million from a loss of $0.9 million.
Cash, debt and liquidity
- For the six months, operating cash flow was $214.6 million, versus $142.4 million a year earlier. Investing used $24.4 million; financing used $276.9 million, including $265.0 million of revolving-credit repayments. Cash decreased $76.1 million to $377.9 million.
- At November 28, 2020, total debt was $327.2 million, down from $591.3 million at May 30, 2020. This included $225.0 million drawn on the revolving credit facility and $50.0 million of debt securities due March 2021. Cash and short-term investments totaled $385.1 million.
- Reported total liquidity was $650.3 million, including $265.2 million available under the $500 million revolving facility. The company repaid a $265 million precautionary revolver draw in June 2020.
- Capital expenditures were $24.4 million in the first six months. Management expected full-year fiscal 2021 capital purchases of $50 million to $60 million and cited $16.3 million of outstanding capital-purchase commitments.
Material changes, outlook and risks
- COVID-19 weakened demand in the Contract business, particularly North America, while work-from-home demand supported Retail and e-commerce. Management said the pandemic’s duration, supply-chain effects, future demand and financial impact could not be estimated with certainty.
- Management cited continued tight expense and working-capital control, and said the company believed its financial resources could manage the pandemic’s impact, potentially including materially reduced revenue and profits. The filing provides no specific sales or earnings guidance.
- A fiscal 2020 workforce-reduction plan eliminated about 400 positions and was expected to deliver approximately $40 million of annualized expense reductions. The company reported $18.3 million of related charges to date and said no material future costs were expected.
- Management restored the quarterly cash dividend and ended a 10% compensation reduction; retirement-plan contributions were scheduled to resume in Q4 fiscal 2021. Open-market repurchases remained temporarily suspended, although 1,198 shares were repurchased during the reported quarter.
- Risks highlighted include pandemic-related demand and operational uncertainty, steel-price increases that could pressure second-half gross margin, trade-policy and Brexit uncertainty, foreign-exchange exposure, and raw-material pricing and availability. The filing says existing pricing, sourcing and profit initiatives had offset tariffs then imposed on imports from China.
- Fiscal 2020 included substantial goodwill and trade-name impairments. No interim impairment indicators were identified in the current six-month period, but management noted that International reporting-unit fair value exceeded carrying value by 17% and further operating declines could trigger impairment. Routine legal proceedings were not expected by management to have a material adverse effect. Performance bonds exposed the company to up to $5.5 million; standby letters of credit totaled $9.8 million.
Important facts for investors to verify
- Whether North America Contract demand, orders and backlog recover, and whether Retail growth can offset ongoing Contract weakness.
- Whether improved gross margins persist as steel prices rise and factory capacity utilization changes.
- Whether the stated $40 million annualized savings are realized without impairing sales, service or product investment.
- Near-term debt maturities, revolver usage, cash generation and the company’s ability to fund capital spending and dividends.
- Potential further goodwill or intangible-asset impairments, particularly if International results weaken.
- How pandemic developments, supply-chain conditions, trade and currency movements affect future results; management cautioned that outcomes remained uncertain.