Herman Miller: Zacks’ Bear of the Day Play

Herman Miller Inc. (MLHRSnapshot Report) has seen an improved market for its office furniture business so it will face stronger year over year comps this year. This Zacks Rank #5 (Strong Sell) is expected to see just the low single digits in earnings growth in Fiscal 2016.

Herman Miller manufactures office and residential furniture. The Michigan-based company has long been known for its cutting edge designs. In 2014, the company bought popular furniture company Design Within Reach (“DWR”) and is working on integrating it into its overall business.

A Big Beat in the Fiscal Fourth Quarter

On June 24, Herman Miller reported its fiscal fourth quarter and full year results. It easily beat the Zacks Consensus by 7 cents. Earnings were 47 cents compared to the Zacks Consensus of 40 cents.

Net sales were up 13% in the quarter to $550.7 million with new orders rising 16.1% to $556.9 million year over year.

Organic sales, however, were up just 3.9% in the quarter year over year.

Foreign currency translation issues were in play for this global company. For the fiscal year, currency translation impacted earnings by $0.12.

Gross margins in the fourth quarter rose to 38.1% from 36.7%.

Many are watching the addition of DWR for clues about how that business will spur growth in the quarters to come.

The consumer segment saw sales rise to $78.9 million, with $60.8 million of that the new DWR business. The company didn’t break out the actual same store sales for DWR.

Analysts Worried About Strong Comps

As the economy improved, Herman Miller’s business did as well and now the year over year comps are getting harder to beat.

The analysts are concerned that fiscal 2016 might not be as strong as a result.

2 estimates were lowered for fiscal 2016 in the last 30 days with 1 being lowered in the last week.

Analysts expect earnings growth in fiscal 2016 of just 4.1%.

They see a rebound in fiscal 2017, as earnings are expected to jump 15.5%, but even still, one estimate was cut for 2017 in the last week as well.

Shares See-Saw

Herman Miller shares have been stuck in a narrow trading range for months.

Shares are probably going to need better news to break out of this channel.

The good news is that they are reasonably priced. Herman Miller trades with a forward P/E of 15 which is lower than the average of the S&P 500 of 18.

But the analysts believe that growth will be hard to come by this year.

If you’re interested in investing in an office furniture maker, you might want to keep Steelcase Inc. (SCSSnapshot Report) in mind instead. It’s a Zacks Rank #2 (Buy) and is expected to see 21.4% earnings growth this year.

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Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Value Investor service. You can follow her on twitter at @TraceyRyniec.


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