MillerKnoll, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2023, ended December 3, 2022. Fiscal 2023 has 53 weeks; the comparable first six months had 26 weeks versus 27 weeks in the current period. MillerKnoll designs, manufactures, and sells furnishings and related services across workplace, healthcare, education, and residential markets.
Financial performance
Amounts are in millions of dollars except per-share data and percentages.
| Metric | Quarter | Six months |
|---|---|---|
| Net sales | $1,066.9; +4.0% reported, +7.6% organic | $2,145.7; +18.2% reported, +9.6% organic |
| Gross margin | $367.6; 34.5% of sales | $739.7; 34.5% of sales |
| Operating earnings (loss) | $38.7; 3.6% of sales | $89.5; 4.2% of sales |
| Net earnings attributable to MillerKnoll | $16.0, versus a $1.7 loss | $41.8, versus a $63.1 loss |
| Diluted EPS | $0.21, versus $(0.02); adjusted EPS $0.46 versus $0.54 | $0.55, versus $(0.94); adjusted EPS $0.90 versus $0.98 |
| Orders / backlog | Orders $1,013.4, down 12.5% reported and 9.2% organic; backlog $815.4, down 15.7% | Orders $2,026.5, down 2.3% reported and 10.0% organic |
Quarterly sales growth reflected price increases and International & Specialty volume growth, partly offset by currency translation and lower volumes in Americas and Retail. Gross margin was nearly flat year over year: pricing gains and the absence of prior-year Knoll purchase-accounting amortization largely offset commodity, freight, labor, and inventory handling costs. In the six-month period, gross margin declined from 34.7% to 34.5%.
Segments and material changes
- Americas Contract: Quarterly sales rose 6.1% reported (7.3% organic); operating earnings were $25.3 million versus a $10.9 million loss. Orders fell 17.3% reported.
- International Contract & Specialty: Quarterly sales rose 7.2% reported (15.4% organic); operating earnings increased to $28.3 million from $14.8 million. Orders were down 7.4% reported but approximately flat organically.
- Global Retail: Quarterly sales declined 2.8% reported but increased 1.2% organically. Operating earnings fell to $2.0 million from $34.4 million, with gross margin down 8.3 percentage points to 36.7%, reflecting inventory-related costs and mix.
- Quarterly operating expenses decreased 5.2%, mainly because Knoll integration and amortization costs were lower by approximately $42 million; this was partly offset by $14.7 million in restructuring charges and higher compensation and marketing costs.
- Year-to-date reported sales growth includes the prior-year Knoll acquisition comparison and the extra fiscal 2023 week. Organic growth excludes acquisition/divestiture, currency, and, for the six-month comparison, the extra week.
Cash, debt, liquidity, and outlook
- Six-month operating cash flow was negative $5.3 million, versus negative $57.6 million a year earlier. Investing cash outflow was $32.0 million; capital expenditures were $40.3 million. Cash decreased $32.8 million to $197.5 million.
- Total debt was $1,481.3 million, including $480.0 million drawn on the revolving facility. Cash plus available revolver capacity of $230.9 million provided reported total liquidity of $428.4 million, down from $526.9 million at fiscal year-end. Interest expense rose amid higher debt and rates.
- Management expected full-year fiscal 2023 capital purchases of $90–$100 million. It reported approximately $101 million in annualized Knoll integration savings implemented by quarter-end and raised its targeted run-rate cost synergies from $120 million to $140 million within three years of the acquisition.
- The fiscal 2023 restructuring plan is expected to reduce annualized expenses by approximately $30–$35 million. The company recorded $15.2 million of charges in the first six months, principally cash severance costs.
- No specific full-year revenue or earnings guidance is provided in the supplied filing text. Management said cash, operating cash generation, and borrowing capacity should fund foreseeable operations and capital needs, subject to financing availability.
Risks, contingencies, and unusual items
- Management cited economic uncertainty, weaker order trends, office return-to-work project patterns, changing consumer spending, and pressure from commodities, freight, labor, and inventory storage and handling costs.
- Interest-rate exposure is relevant given debt levels; interest-rate swaps hedge portions of borrowing. Foreign currency movements also reduced quarterly sales, and foreign exchange remains a business risk.
- Knoll integration execution, realization and cost of synergies, dealer and customer financial health, raw-material availability and pricing, and compliance with debt obligations are identified risks.
- Performance bonds had maximum exposure of approximately $8.1 million; standby letters of credit totaled $14.1 million and count against revolver availability. Management reported no material adverse impact expected from pending ordinary-course litigation. No material changes to previously disclosed risk factors or legal proceedings were reported.
- Other notable items include $14.7 million of quarterly restructuring expense, substantial year-over-year reductions in Knoll integration and amortization expenses, and prior-year Knoll acquisition-related costs that complicate comparisons.
Investor facts to verify
- Whether orders and backlog stabilize and convert into sales, particularly in Americas Contract.
- Whether pricing continues to offset input-cost pressures, and whether Retail inventory and distribution costs normalize.
- Progress toward the $140 million Knoll synergy target and $30–$35 million annual restructuring savings, including associated cash costs.
- Debt, borrowing availability, interest expense, and operating cash flow trends.
- How acquisition, currency, and the extra fiscal week affect reported versus organic comparisons.