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To: Jenna who wrote (89970)	3/24/2000 1:08:00 AM
From: Jenna	Respond to of 120523

MLHR buy trigger e-mailed to subscribers on March 21st about noon: Herman Miller Sits Tall By Brian Lund (TMF Tardior, The Motley Fools) March 22, 2000 Herman Miller (Nasdaq: MLHR) , the company that pioneered ergonomic office furniture design, announced its third-quarter results yesterday after the market closed. Sales for the quarter rose 13% to $478 million, while net orders bounced up 20%. Income increased to $31 million, a 6.4% gain over last year's third quarter, excluding one-time gains. Earnings per share (EPS) rang in at $0.40, up 17.6% from $0.34 a year ago and in line with analysts' estimate. Herman Miller is synonymous with quality. The Aeron "machine for sitting" was the only piece of furniture to win one of Business Week's 36 "Designs of the Decade" award. Time magazine heralded another Herman Miller product, the Eames chair, as the "Best design of the 20th century," just ahead of the S-1 steam locomotive and the Swatch watch. Full disclosure: I am a Herman Miller chairholder. Since I spend so much time at my desk at home, I decided a couple years ago to spring for a good seat, so I paid the two weeks' salary required to obtain the Aeron. It was the best investment I ever made. If I bought stocks based on how much I use and love their products, I'd fill my portfolio with Herman Miller. Unfortunately, things have not been great at the company lately. The trouble starts at the top line; annual sales growth slowed to 2.8% in 1999 from 15% in 1998. This year, excluding the acquisition of Geiger Group in July and the purchase of U.S. dealerships, Herman Miller's total sales have declined 0.7%. New domestic orders have increased a light 2.6% and international orders are only slightly better, up 5% net of acquisitions. The company saw improvement on this front in the third quarter. It pumped static U.S. sales up 11.2% and orders up 10.4% on a comparable basis. This is well ahead of the 1.5% increase in estimated U.S. furniture shipments over the last two months, according to the Business and Institutional Furniture Manufacturer's Association. While gross margins fell from 37.9% to 36.8%, operating margins held steady compared with the year-ago quarter. The company credited its cost-control measures with the save. Overall sales growth of 13%, however, translated into a 6.4% growth in net income, and net margins decreased from 7.1% a year ago to 6.7%. The 17.6% increase in EPS arose from fewer shares outstanding, thanks to a buyback program that has returned 11 million shares to Herman Miller in the last two years. For a company that has seen sales stagnate over the same time period, I'd have thought the company would have better uses for its cash. More disturbing, however, has been the recent negative trend in asset management at Herman Miller. Accounts receivable swelled 24% and inventory ballooned 38% from the year-ago quarter. These levels have led to a vast increase in the company's operating cycle, which now stands at 161 days, compared to a lean 53 days in fiscal year 1999 (based on period-over-period averages). Some allowance should be made for acquisitions, but the difference seems abnormally large, considering 13% overall sales growth. Last quarter, after inventory problems led to earnings short of estimates, management pointed to manufacturing inefficiencies and slower orders late in the quarter. This quarter's inventory levels showed no improvement. Herman Miller has great products and, according to Industry Week, great management. Between 1997 and 1999, management showed great acumen by cutting 15 days off its cash conversion cycle, so there is reason to believe that it can overcome the problems that have surfaced in the last three quarters. Still, investors might want to sit back in their Aeron chairs and watch for improvement in sales and inventory before buying. Email this page to a friend Format for Printing