Are you sitting down in your ergonomically designed office chair? I hope so, because the news I'm about to share with you will rock your world. Get ready for it; drum roll please. Furniture is "cool", so says Fast Company magazine.
In Fast Company's 2008 "Fast 50" issue that came out in March, which celebrates 50 of the most innovative companies in the world, Herman Miller (Nasdaq:MLHR), the Michigan-based contract furniture maker was 26th on the list. Innovations mentioned in the article include its Convia electrical delivery system for open offices allowing greater flexibility and design; as well as a blurb about C2, a climate control device for individual users at their workspace. CEO Brian Walker believes innovation keeps the company moving. In short, it's Herman Miller's time.
Steady As She Goes
Herman Miller's fourth-quarter and year-end results were nothing short of phenomenal. We're in the midst of a serious economic slowdown, yet Herman Miller is putting up numbers usually associated with good times. Try these on for size:
- Sales were up 7% in the fourth quarter to $519.1 million.
- Sales are up 4.9% for the entire year to $2.01 billion.
- Operating income improved 350 basis points in Q4, translating into an increase of 42% in EPS, to 71 cents from 50 cents last year.
- The increase in EPS was helped by a 12% reduction in shares outstanding due to company buybacks.
- For the year, EPS improved 29% to $2.56 per share.
With Herman Miller's expansion into new markets, it isn't surprising to see sales (year-over-year) outside the U.S. were up 22.8% in the fourth quarter. It's clearly gathering momentum in other parts of the world. International business now accounts for 23% of its total revenue and Healthcare, Home and Education another 14%. That's a 12% improvement over how they did in 2001. By 2010, it plans to obtain 50% of its annual growth from international business. (Learn how the EPS can be boosted with share repurchases in How Buybacks Warp The Price-To-Book Ratio.)
Green Is Good For Business
In a recent speech to a green conference, CEO Brian Walker stressed how important sustainability is to the recruiting process. He feels, rightfully so in my opinion, that the best people want to work at the best companies and if you're not doing everything to make your business environmentally responsible, the most talented will pass on your overtures.
Employees want to know that a company's values align with their own, and some investors are also looking for socially responsible investments. It's not enough to pay people well anymore; you have to demonstrate through your actions that you care about the world beyond your doors. Herman Miller's goal to reduce its waste and emissions to zero by 2020 is a clear sign it understands the future of business. No wonder SustainableBusiness.com made it one the 20 most sustainable stocks in the world in 2007. Right now it's 63% of the way toward its goal of zero emissions. (To learn how companies profit from going green, read The Green Marketing Machine and For Companies, Green Is The New Black.)
CAPEX Comparison
One of my favorite calculations when comparing companies in similar industries is capital expenditures (CAPEX) divided by EBITDA. I generally look for companies that spend less than 20% of EBITDA on capital expenditures.
| Company |
CAPEX |
EBITDA |
Result |
Herman Miller
(Nasdaq:MLHR) |
$41.30M |
$273.60M |
15.10% |
Steelcase
(NYSE:SCS) |
$79.60M |
$315.90M |
25.20% |
HNI Corp.
(NYSE:HNI) |
$58.57M |
$255.35M |
22.94% |
Knoll
(NYSE:KNL) |
$16.29M |
$164.39M |
9.91% |
Kimball
(Nasdaq:KBALB) |
$40.88M |
$58.59M |
69.77% |
Three out of four of its competitors spend more. Add in a five-year (2003-2008) annualized EPS growth rate of 52.54% for Herman Miller and your decision should be straightforward. (For more on CAPEX, check out Analyze Cash Flow The Easy Way.)
A Clear Vision
The company is moving forward by resolutely transforming itself from U.S. office furniture manufacturer to a global company providing better habitats for customers, whether at work or in the home. More people are working from home, providing plenty of opportunity for the Herman Miller for the Home business. Still early, it should become a bigger piece of the pie.
The company is developing more new products, for more new markets, in more new countries than ever before. Innovation is the key and by 2010, it hopes to have 50% of sales come from DfE (Design for the Environment) protocol. Essentially, DfE examines every part of the manufacturing process from an environmental point of view and in doing so improves its performance. So far, Herman Miller has only made it to 17.4%. It's a huge challenge, but a worthwhile one.
