For seven quarters running, Herman Miller (NASDAQ:MLHR) has made a habit of never missing an earnings forecast. Tie it, yes. Beat it, sometimes. But never miss it. On Thursday morning, the company will attempt to nail down two straight years of such performance as it announces its fiscal Q2 2007 earnings.

What analysts say:

  • Buy, sell, or waffle? Five analysts follow Herman Miller, which gets three buy ratings and a pair of holds.
  • Revenues. On average, they're looking for a 15% sales increase to $503.6 million.
  • Earnings. Profits are predicted to soar 40% to $0.56 per share.

What management says:
Want to know how good business is at Herman Miller? In October, the firm announced that it will raise its commercial product list prices by 5%, on average, in response to rising raw material costs. On the surface, that seems only reasonable, but don't forget to read the subtext. A company that feels able to push through a price increase when other furniture companies (albeit those that generally target the consumer market) are shuttering factories is a company with strong pricing power.

What management does:
The margin trends, reflected below, support this assessment. Far from exhibiting a need to raise prices to combat margin erosion, Herman Miller's gross margins have been expanding for at least the last 18 months. Operating margins showed some weakness in recent quarters, but it's been more than offset by the time we reach the bottom line.

Margins %

5/05

9/05

12/05

3/06

6/06

9/06

Gross

32.3

32.7

32.8

32.8

33.1

33.3

Op.

8.2

8.9

9.7

9.9

9.2

9.5

Net

4.5

4.9

5.4

5.6

5.7

5.9
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:
Digging deeper into the company's financials, we see further evidence that Herman Miller's price hike is negotiation from strength, not an act of desperation. Over the last six months, the firm's revenues are up a respectable 6.5% on average. The raw material costs about which the firm complains, in contrast, are up only 5%. Hence the expanding gross margins. As for the operating weakness, it's resulted from soaring selling, general, and administrative costs, which were up 16% over the same period.

Another weakness to watch can be found on Herman Miller's balance sheet. There you'll see that both accounts receivable and inventories are outpacing sales growth at 11% and 12% on average, respectively. Perhaps the firm's just stocking up to meet the surge in demand we've been told to expect in tomorrow's news. Perhaps. But if Thursday's expected 15% sales growth doesn't materialize, the only way to view the balance sheet trends will be as bright yellow caution signs that we failed to heed.

Competitors:

  • Design Within Reach (NASDAQ:DWRI)
  • HNI (NYSE:HNI)
  • Kimball (NASDAQ:KBALb)
  • Knoll (NYSE:KNL)
  • Steelcase (NYSE:SCS)

Does past performance predict future results? Herman Miller's shareholders should hope so. Find out why in:

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Fool contributor Rich Smith does not own shares of any company named above.