Its recent fourth-quarter earnings report last Wednesday was more confirmation of the same old tune at Herman Miller, excellent business performance. Revenues were up 9% to $444 million year over year, and earnings up about 16%. While not explicitly spelled out in the press release, if prior quarters' trends are any indication, good international results probably contributed to this performance.
However, while the company improved gross margins about 90 basis points to 34%, because of economies of scale, it could have been even better if not for significantly higher fuel costs, for one thing. As well, the rise in commodity prices such as plastic and aluminum are causing problems for the company which have also plagued other furniture companies like HNI Corp.
What is a nice change from many companies that I follow is a company setting goals and then actually going out and executing on them, instead of shoving them under the carpet in six months. Herman Miller is actually on track to meet the goals it set for itself in 2004, which were to double the company's sales in five years. Furthermore, the company is rather sensibly repurchasing shares, albeit in small amounts, at $21 million worth last quarter. Now it could take that shareholder friendliness one step further and up the dividend a bit, as free cash flow came in at $103 million in fiscal year 2006 and the dividend is only a paltry $0.31 a share (about $22 million) or 1.2% yield.
However, while Herman Miller has many positives on its side, it does operate in a highly competitive industry, very much subject to the whims of economic activity internationally (an area of heavy growth is South America) and corporate budgets. Its stock is trading at a 17 P/E ratio and a price-to-sales of roughly 1, both in line with peers and the office furniture industry as whole. While the company is well-run, I can't see a rewarding investment thesis being made at this valuation level, as the market has this one priced fairly. That doesn't mean I don't want an Aeron chair, though.
For more kick-off-your-shoes comfort:
Fool contributor Stephen Ellis does not own shares in any companies named above and wishes he had an Aeron chair to sit in. You can view his holdings here . The Motley Fool has a comfy disclosure policy .