MillerKnoll, Inc. — Q2 Fiscal 2024 Form 10-Q
Reporting period: Quarter ended December 2, 2023; six-month results compare with the six months ended December 3, 2022. MillerKnoll designs, manufactures, and sells furnishings across contract, specialty, and retail channels. Fiscal 2023 included an extra week in the first six months, which affects year-over-year comparisons.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $949.5 million | $1,066.9 million | $1,867.2 million | $2,145.7 million |
| Gross margin | 39.2% | 34.5% | 39.1% | 34.5% |
| Operating earnings | $60.4 million | $38.7 million | $100.7 million | $89.5 million |
| Net earnings attributable to MillerKnoll | $33.5 million | $16.0 million | $50.2 million | $41.8 million |
| Diluted EPS | $0.45 | $0.21 | $0.67 | $0.55 |
- Q2 sales declined 11.0% reported and 10.1% organically; orders declined 6.8% reported and 6.0% organically. Backlog was $688.5 million, down 15.6% from the prior-year quarter.
- Q2 gross margin improved 4.7 percentage points. Management cited pricing, lower commodity, freight, and handling costs, and Knoll synergies; lower volume reduced leverage. Operating margin was 6.4%, versus 3.6%.
- For the six months, reported sales fell 13.0%, while organic sales fell 8.5% after adjustments for currency, the prior-year extra week, and the Fully closure. Diluted EPS on an adjusted, non-GAAP basis was $0.59 for Q2 and $0.96 for the six months, versus $0.46 and $0.90, respectively.
- Operating cash flow was $213.4 million for the six months, compared with cash used of $5.3 million a year earlier. Capital expenditures were $39.9 million; investing cash outflow was $41.3 million and financing cash outflow was $170.8 million. Cash increased $2.3 million to $225.8 million.
- At December 2, 2023, total debt was $1,331.3 million, including $355.0 million drawn on the revolving facility. Cash plus available revolver capacity was $583.1 million; $357.3 million of revolver capacity was available after outstanding letters of credit. Long-term debt on the balance sheet was $1,278.2 million.
Changes and segment trends
- Sales declined across all three segments. Q2 Americas Contract sales were $476.1 million, down 10.1%; International Contract & Specialty sales were $241.2 million, down 8.9%; Global Retail sales were $232.2 million, down 14.7%. Organic declines were 10.3%, 10.4%, and 9.4%, respectively.
- Q2 segment operating earnings increased in Americas Contract to $35.1 million from $25.3 million and in Global Retail to $14.7 million from $2.0 million; International Contract & Specialty decreased to $23.8 million from $28.3 million.
- For the six months, reported sales declines also reflect the prior-year extra week and the Fully business closure. Cost savings and margin gains supported higher consolidated operating earnings despite lower sales.
Outlook, commentary, and risks
- Management reported $147 million in annualized run-rate Knoll synergies captured and expects total annual run-rate synergies of $160 million by July 2024. The Knoll integration is expected to involve approximately $150 million of total pretax cash costs.
- The company expects fiscal 2024 capital purchases of $80 million to $100 million. It also expects annualized expense reductions of $5 million to $8 million from its 2024 restructuring plan. The filing provides no specific full-year revenue or EPS guidance.
- Management cited global economic uncertainty, geopolitical concerns, persistent inflation, and elevated interest rates as affecting demand. Segment commentary also noted softness in Europe and China, high rates affecting international wholesale demand, and weakness in the North American housing market.
- Key exposures include execution of Knoll integration and synergy plans, debt and covenant obligations, raw-material availability and pricing, customer and dealer financial strength, currency movements, and macroeconomic conditions. Management reported no material change in risk factors or legal proceedings and no material effect expected from pending ordinary-course litigation.
- Unusual or notable items include the $0.4 million loss on sale of the Maars investment; $7.0 million of six-month restructuring expense; and $10.8 million of six-month Knoll integration costs. A Wisconsin manufacturing facility with a $4.6 million carrying value was classified as held for sale, with no impairment recorded.
- The company repurchased 3.1 million shares for $60.0 million during the six months and paid $28.1 million in dividends. Its remaining repurchase authorization was $160.6 million at quarter-end.
Investor verification points
- Check whether orders and backlog stabilize and convert into sales, given their year-over-year declines.
- Assess the durability of gross-margin gains from pricing, input-cost relief, and integration savings if volumes remain weak.
- Track progress toward the $160 million synergy target, expected integration cash costs, and the 2024 restructuring savings.
- Review debt repayment, borrowing availability, interest costs, and covenant headroom; the filing does not state a clear covenant-headroom figure.
- Distinguish reported results from management’s non-GAAP adjusted EPS and organic-growth measures when comparing periods.