Office furnishings manufacturer and design house Herman Miller, Inc. (NASDAQ:MLHR) released fiscal first-quarter 2019 earnings on Wednesday after the markets closed. The company's revenue expansion, order growth, and increased backlog indicated relative health and earnings momentum at the start of its fiscal year. Let's run through the overview metrics, then delve into factors that pushed performance for the maker of storied furniture lines including the Eames lounge chair and the Aeron office chair.

Herman Miller: The raw numbers

Metric Q1 2019 Q1 2018 Year-Over-Year Growth
Revenue $624.6 million $580.3 million 7.5%
Net income $35.8 million $33.1 million 8.2%
Diluted earnings per share $0.60 $0.55 9.1%

Data source: Herman Miller, Inc.  

What happened at Herman Miller this quarter?

Red chairs surrounding a white desk.

Low-, medium-, and high-back Cosm chairs, the company's newest line. Image source: Herman Miller.

  • Net sales and organic sales both hit the more optimistic reaches of management's previous guidance. Year-over-year net sales of nearly $625 million fell within the high end of the company's anticipated range of $610 million to $630 million. Organic sales rose 7.6%, exceeding a midpoint projection of 6%.

  • As has been the case in recent quarters, the company's ELA segment (Europe, Middle East, Africa, Latin America, and Asia-Pacific) led overall expansion. Revenue growth in ELA jumped nearly 24% against the fiscal first quarter of 2018, to $115.4 million.

  • North America, Herman Miller's largest segment, generated a 4.6% increase in its top line, to $343.7 million.

  • The company's specialty segment grew revenue by 3% to $77.3 million, a slower rate versus the double-digit increases of previous quarters. The consumer segment advanced by 6% to $88.2 million. However, after adjusting for a single item related to a change in shipping terms, the consumer segment's organic revenue improved by nearly 13%.

  • Orders for future work expanded by a solid 6%. Notably, the last three months marked the first time in three quarters in which the North American segment enjoyed positive revenue and positive order growth. The North American segment's 3% uptick in orders follows 3.8% growth last quarter. The incipient trend is providing relief to shareholders who fretted about Herman Miller's core business division when orders unexpectedly dropped 7.4% in the fiscal third quarter of 2018. 

  • Herman Miller's order backlog increased 4.3% over the first quarter of 2018, to $364.4 million.
  • As I discussed last quarter, CEO Brian Walker retired in August as previously announced. The company hired Andi Owen, formerly an executive at Gap Inc., to helm the company. Owen most recently served as global president of Gap division Banana Republic, where she oversaw 11,000 employees.

  • Gross margin ticked down 140 basis points to 36%. Roughly 60 basis points of this change was due to the adoption of a new accounting standard, ASC 606. 

  • Operating expenses rose by $12.3 million to $178 million. The company attributed $5.1 million of the increase to its CEO transition. Adjusting for this number, operating margin decreased only 40 basis points to 8.1%. 

  • Management noted that after excluding one-time restructuring and impairment charges, adjusted diluted earnings per share (EPS) of $0.69 exceeded the company's original first-quarter estimate range of $0.63 to $0.67. 

What management had to say

In Herman Miller's earnings press release, new CEO Owen enumerated several factors which hinted at possible revenue and earnings acceleration in fiscal 2019:

There are tremendous opportunities ahead to leverage Herman Miller's global multi-channel distribution capabilities and leading portfolio of brands with both commercial and consumer audiences. These opportunities include leveraging the investments that we made this quarter in HAY, a leading global design brand in both commercial and consumer furnishings, and Maars Living Walls, a global designer and manufacturer of interior wall solutions. Our teams are in the early days of integrating these brands into our portfolio and that work is progressing ahead of schedule. Our momentum is evident from our first quarter results as net sales and order levels reflected growth across all of our business segments and adjusted earnings exceeded the expectations established at the start of the quarter. I look forward to working with our leadership team to leverage our key strategic priorities to accelerate the growth and evolution of our business.

Looking forward

Herman Miller anticipates second-quarter fiscal 2019 revenue of between $635 million and $655 million, which implies 5% organic growth at the midpoint of the range. Management expects diluted EPS to fall between $0.70 and $0.74. If it hits the midpoint of its targeted band, the company will achieve 26% growth in adjusted EPS over the second quarter of 2018.