Just over one year ago, Herman Miller (Nasdaq:MLHR), the Michigan-based furniture maker, with its sales and earnings were still expanding nicely, was in the middle of a transformation from U.S. furniture manufacturer into global player. A critical piece of its expansion plan included designing environmentally-friendly products for both the home and office. By 2010, its corporate goal is to derive 50% of its revenue from this type of furniture.
While it likely won't achieve this ambitious goal, it’s important they are at least trying to do so. Big hairy audacious goals (BHAGs) are what made the American industry great. However, instead of a reward for innovation, the markets are pummeling Herman Miller stock, alongside most of its competitors. Down 45% since June 27, 2008, I'm wondering if I was wrong about the company.
IN PICTURES: 7 Forehead-Slapping Stock Blunders
Herman Miller and Competitors
|
Company
|
TTM EPS
|
P/E
|
52-Week Return
|
|
Herman Miller (Nasdaq:MLHR)
|
$1.25
|
11.1
|
-45%
|
|
Steelcase (NYSE:SCS)
|
-$0.25
|
N/A
|
-43%
|
|
HNI Corp. (NYSE:HNI)
|
$0.67
|
24.4
|
-8%
|
|
Knoll (NYSE:KNL)
|
$1.68
|
4.4
|
-45%
|
|
Kimball International (Nasdaq:KBALB)
|
$0.13
|
46.5
|
-31%
|
Sales And Earnings Way Off
On June 24, Herman Miller announced fourth-quarter and year-end results and they weren't pretty, especially those in the quarter itself. Revenues dropped 38.4% in Q4 to $319.9 million while they were off 9.7% from the third quarter. Worse, earnings per share dropped 80% from $0.71 in the final quarter of 2008 to $0.14 this year. Neither number inspires confidence.
However, the $27.3 million in operating cash flow generated in the fourth quarter brought its cash balance to just under $200 million and more than 50% of its existing long-term debt. Anyone predicting dire consequences for the company might want to rethink their position. Herman Miller's going nowhere but forward.
New Business Opportunities
Herman Miller is selling more new products in more new categories in more new countries than ever before as part of its international expansion. A recent example is the June 24 announcement that the company was buying Nemschoff Inc. for $32 million in cash along with two million shares of its common stock. The maker of healthcare furniture did slightly more than $90 million in sales in 2008, meaning Herman Miller paid approximately two-thirds Nemschoff's revenues.
With the population aging, the demand for its products will only go up, making the purchase a good deal that will only enhance Herman Miller's position within the growing healthcare market. The benefits of this deal might not show up for several quarters given the economy, but you can be sure they will and when they do, shareholders will prosper.
The Bottom Line
Any way you slice it, fiscal 2009 was a disaster for America's most admired furniture company. Its net earnings ($68 million) and revenues ($1.63 billion) were the lowest since 2005. In May, the board voted to cut its annual dividend by 75% from 8.8 cents to 2.2 cents, in the process saving it $14 million annually. Personally, I don't know why it bothers with a dividend. Even at the old rate, the yield isn't anything to write home about. It's a non-issue, just like the possible downgrade by Moody’s on some of its unsecured notes. At the end of the day, whatever the rating on its debt, Herman Miller is a good company experiencing severe business deterioration, which you could say about every second company in America, not just furniture manufacturers.
Do I still like Herman Miller as an investment? With its lowest price-to-sales ratio in the past decade, I sure do. (To learn more, read Use The Price-To-Sales Ratios To Value Stocks.)
