Office furniture specialist Herman Miller (Nasdaq: MLHR ) reports its fiscal first-quarter 2008 earnings results Wednesday afternoon. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
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Buy, sell, or waffle? Five analysts follow Herman Miller, where buy ratings outnumber holds 4-to-1.
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Revenue. On average, they're looking for a 9% sales increase to $489.7 million.
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Earnings. Profits are predicted to do even better, rising 16% to $0.50 per share.
What management says:
Herman Miller committed the cardinal sin of being honest in its pessimism last quarter. As related by fellow Fool Mike Cianciolo, its 30% growth in profits last year didn't make a whit of difference in investors' minds, when faced with the prospect that the firm might grow as little as 9% in Q1. Actually, what management promised was $0.47 to $0.53 in per-share profits -- so it could conceivably report growth north of 20% on Wednesday.
What management does:
What investors may fear is that the strong trends we see below have begun to reverse themselves -- that Herman Miller may be topping out, and beginning to follow the housing market south. (Let's remind ourselves here that the company makes office furniture, rather than home furniture.) Rolling gross margin did in fact dip last quarter, even as operating and net margins maintained their upward momentum.
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Margin
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3/06
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6/06
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9/06
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12/06
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3/07
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6/07
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Gross
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32.8%
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33.1%
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33.3%
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33.7%
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33.8%
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33.7%
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Operating
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9.7%
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9.1%
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9.4%
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9.9%
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10.2%
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10.3%
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Net
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5.6%
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5.7%
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5.9%
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6.2%
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6.5%
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6.7%
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All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.
One Fool says:
Much as I'd like to be able to reassure investors that their fears are overblown, I do see a risk that gross margins may weaken going forward. Namely, while sales have grown 10% on average over the past year, Herman Miller's inventories are growing at a much more rapid pace -- up 19% during the same period.
Of course, rising inventory isn't always a bad thing, since high raw materials growth can be indicative of anticipated need. However, in this case, the rising inventory has been fueled by increasing finished goods, up 23% in the company's fourth quarter versus the 18% boost in raw materials. This indicates that goods just aren't moving as fast as anticipated.
Personally, I think Herman Miller needs to take a page from its much-maligned domestic furniture-making counterparts, such as La-Z-Boy (NYSE: LZB ) , Furniture Brands (NYSE: FBN ) , and Bassett (Nasdaq: BSET ) , all of which are at least making an effort to get their inventories under control.
How did Herman Miller do last year? Find out in:
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