For two years 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. Wednesday afternoon, the company begins a 12-month-long attempt to extend its streak to three years, as it announces its fiscal Q3 2007 earnings.

What analysts say:

  • Buy, sell, or waffle? Four analysts follow Herman Miller, and they split their ratings down the middle, between buy and hold.
  • Revenues. On average, they're looking for a 16% sales increase to $491.4 million.
  • Earnings. Profits are predicted to shoot up an incredible 58% to $0.52 per share.

What management says:
For all of the turmoil elsewhere in the furniture industry -- the layoffs at Stanley (NASDAQ:STLY), layoffs and factory closures at Hooker (NASDAQ:HOFT) and Furniture Brands (NYSE:FBN), and layoffs, closures, and subsidiary sales at La-Z-Boy (NYSE:LZB) -- Herman Miller is doing just fine, thank you very much. Last quarter, management exulted over "strong sales growth," "improved financial leverage," and "the highest quarterly earnings per share ever recorded by the company."

Even better for shareholders, business appears to be getting stronger as time progresses. Last quarter, for example, sales rose 14% year over year, and orders (a.k.a. future sales) grew 22%. On the surface, at least, this bodes very well for Wednesday's news. Indeed, according to CEO Brian Walker, "The key economic factors that drive the contract furniture industry continue to remain positive."

What management does:
The sales numbers are easy to find in the company's press releases -- just look at the headlines. As for the "leverage" that management speaks of, look to the margins to see how higher sales are parlayed into bigger profits, as fixed costs get spread out among more goods sold.

Margins

9/05

12/05

3/06

6/06

9/06

12/06

Gross

32.7%

32.8%

32.8%

33.1%

33.3%

33.7%

Operating

8.9%

9.7%

9.9%

9.2%

9.5%

10.0%

Net

4.9%

5.4%

5.6%

5.7%

5.9%

6.2%
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:
Now, it's not all tea and crumpets at Herman Miller. As I mentioned last quarter, there have been problems with both accounts receivable and inventories outpacing sales growth in recent quarters -- and they're getting worse.

Digging deeply into the firm's balance sheet, here's what I've found: Sales that are averaging 9% higher, year over year, in the last couple of quarters are being rapidly outrun by growth in both accounts receivable (up 38%) and inventories (up 68%.) Worse still are the trends within inventory growth itself. There we see that finished goods were, at last report, stacked 46% higher than in December 2005. Works in progress stood 32% higher.

And the inventory class whose rise most closely resembled sales growth? Raw materials. This kind of negative inventory divergence suggests that Herman Miller is having trouble selling all of the stuff it's making and is slowing down the rate at which it buys raw materials in response. It doesn't jibe at all with the reported strong growth in orders -- and that makes me very nervous indeed.

What did we expect out of Herman Miller last quarter, and what did we get? Find out in:

Stanley Furniture and Hooker Furniture are both Motley Fool Hidden Gems recommendations. La-Z-Boy is a Motley Fool Income Investor recommendation. Check out either investing service free for 30 days.

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