MLHR - Earnings call transcript Q2 2019

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Operator

Good morning, and welcome to the Herman Miller Second Quarter Earnings Conference Call.

As a reminder, this conference call is being recorded. I would now like to introduce your host for today’s conference, Kevin Veltman, Vice President of Investor Relations and Treasurer.

Kevin Veltman

Good morning, everyone.

Joining me today on our second quarter earnings call are Andi Owen, our President and Chief Executive Officer; and Jeff Stutz, our Executive Vice President and Chief Financial Officer.

press our today’s site Relations posted hermanmiller.com. at have release Investor on Web We

figures cover GAAP that on the the that of Some we’ll accessed be basis. in supplemental on reconciled can amounts also a site. today We’ve the non-GAAP comparable to Web a file non-GAAP presented are

forward-looking remarks, our Before remind that we prepared begin this statements. everyone will I call will include

press materially release could filings. from factors our issued and information that cause to have actual will the to annual refer on Q&A remarks, prepared as earnings forward-looking these At night session. differ we statements, last of our well please For results we a the as conclusion SEC quarterly

no today’s minutes allow callers We to ask over participate. will time for XX to all Andi. call call that, turn limit the than now more I to to will three questions and to With that limit their

Andi Owen

joining my XXX Miller, With it comments thank the morning today. with a first I’ve this all describing Herman role. with in us quarter few how being for spent quarter I to full open my Good you days appropriate and found first

progress. about each XXX ways, and executive many meet businesses with with first and and I’m tour across schedule but and given days focusing our primary engaging a locations studios speak our of the you all customers, with our manufacturing can employees. around listening whirlwind talented partners and have with amplify to As this thoroughly has ways me had globe. to world enjoyed leaders quality have of to to imagine been diverse and I My the each of sure it’s investors, and an our our time travels been me our on around stakeholders spend our taken opportunity office actively opportunity In more and I’ve to our dealer the engage the It’s ahead to our see our in the meantime, building the capitalize quarter Jeff that and and for call by to and and the path an to I share experience team overall, these and the opportunities thoughts I’m like I’d My be ahead. to on focused look our few encouraged there where on. and are details we months In I sharing opportunities, a of over for forward that, results key After several been well understanding the share progress company. an strategy going turn I’ll can energized may opportunities about on I and Kevin our accelerating of amazing second initiatives. the what’s financials. retail on

So with macroeconomic let start picture. me global the

in XXX last is XX%. While second was quarter of top orders markets and negotiations while during representing totaled as rates uncertainties third volatile the that China current delivered further new our the for in supportive order and tariff economic of quarter U.S. encouraged Brexit order reflected sales margins were over gross our the environment U.S. demand last generally the recent increase organic between quarter, are postponement nature on market our begin our organically it by trade levels were the X% results, the were higher persist, that positive. achieved magnitude growth quarter and growth and around which notable of will the for million see year. and lower underlying particularly we for XX% record to Consolidated to the equity into results We policy not in U.S. allow to This organic positive This million development And quarter the very of our same business. the an in We of and XXX increase broad-based and both of up quarter. for encouraged quarter. reflected layer were indicators quarter was this a prices year of steel in sales China.

remain same reported on EPS reflected Combined of level EPS margin quarter restructuring sales on helped to basis managing profit teams margin $X.XX focus year. an of operating We an adjusted over On of in during optimization quarter second increase expansion last Our is a helping we factors diligent with same at the growth, charges, stabilize excludes these performance GAAP expenses. quarter the year. drive which over our which the and $X.XX certain and XX% quarter. our basis, operating the other in the last gross reported

our in great progress to continue We current strategic priorities. make

a let the few share me from quarter. highlights So

the Cosm has awards pipeline and critical launched innovation of Award. late sophisticated It’s instant Award is Orgatec Our pacing that acclaim comfort was trend. generating and Design business chair has ahead of including performance been well quarter design The Innovation seating very is number its by task Cosm ergonomic Innovation Fast brings won active. Company a as last the

free also this for exciting launched space first inch square of compromise. every or is that it products; using desking setting. Vista, people of we By size end workspace compression diverse the quarter, without two more the Towards of to up the Canvas new space system a the provides smartly, trims more

Overlay to evolve visual a freestanding The system Overlay, plan launched agility clarity gives second designed create in space, to organizations product and to offices, to open find quickly. movable used was the help of is adapt which walls

Office needs. and that As will we create look continue workspaces customers shape ahead, high-performing our help unique our agenda very our to research-based meet innovation framework Living

As can developed offering the global effort new that on that of search dealer a ecosystem leader digital effort addition here interactions technology Walls, our around we you also glass know, seamless tools every more has in development winning of finalized led dealers in ecosystem tools to architectural as America help been Maars the that We’ve In This our access an our dealers. in ecosystem The world. day. elsewhere across targeted centers dealer and the by provides included being both business do North make understand launches This all brands. as for to focus in on has we easy with sellers our investment important be. and business new walls. full the our product aid Living August, our transaction

second early and process. During team market strategy work good Herman development has also into dealer integration Miller This and on quarter, incorporating made award-winning onboarding partners our our showrooms. progress their the products included Maars’

this potential the We’re already new and business. with in of wins seeing project growing have confidence long-term capability this

in the revenue On business progress scaling another with of strong seen we’ve growth. front, this quarter consumer further

the the and initial we’re new this the The traffic in the marketing to stages North live investments of in North made With brand to HAY America. Website went start past of November, June, the investment teams we launching underway on are HAY well site. our drive America

and available Portland, Design in of Reach We also two retail first more throughout the November. our Within studios. same time the products end Costa HAY at California dedicated our HAY Mesa, opened widely we’ve At studios Oregon; made

We’re HAY of job by multichannel democratic design pleased leverage pricing by creates fabulous a the platform and to audiences. teams remarkable results. opportunity aggressive HAY’s tremendous meet to and combination commercial our deliver timelines consumer influential initial and across our

and and let achieve are the optimization successfully our initiative executing this remain a the critical we goal have move to initiative inflationary near offset we forward. confident operating driving quarters, This our goal pressures. a as helping fund track two past detail role unpacked plays on In plays targets. to reiterate we leverage in that growth are me this savings as term, role critical we profit that initiatives, tariff pressures, in on helping Finally, offsetting

its Miller XX% goods With potential and Herman the imported have by pressures tariff on recent rate deferral suppliers lessened. tariff of China, near-term the from

we continue evaluate the in quarter. profit provide While introduction navigate will financial our uncertainty and remains optimization conclude, situation this contingency With these to ultimately I’ll and how the to believe to Jeff continue will overview, pressures, will term. turn price in fully detail we brief additional January trade to work tensions the results offset help for that the more to call longer plans now over that on increase

Jeff Stutz

Thanks, up million same which year. adopting X% the above the second on recognition XXX and year-over-year sales were of the fiscal rates rules for organically, year currency a of earlier new last impacts Consolidated revenue adjusts GAAP in net quarter in morning, Andi, foreign and and basis changes X% this good the quarter impact everyone. of

period quarter, representing second were basis above America and XX% XX% year of North last in a increase Within million the GAAP organically. on from in the our $XXX an up last orders segment, New X% sales were year.

America up over strongest growth Western geographic of New X% the on coming orders were a was projects the in The quarter million led the order X% this reported and with XXX regions and Central and by U.S. medium-sized increased were North last and from basis year. small- increases organically

an quarter, compared of million X% ELA Our year. the reported sales to $XXX segment increase last of in

by performance Sales the XX% and of approximately growth strong representing an totaled last Pacific, growth increase in year’s orders Mexico Asia the segment year. quarter. in order quarter over $XXX from specialty led The East. year-over-year Middle second same million, of New million were our XX XX% within last quarter was second the

XX% in segment. orders businesses this the prior the of Encouragingly, the four were comprised $XX New that orders across demand million higher higher than period the specialty reflecting in increase year. quarter levels all

of growth segment the channels. catalog, These and quarter same results wholesale in across consumer the increase driven studio, by million, year sales our quarter XX% Our a strong $XX from reported were an ago. business e-commerce of

net recognition perspective, the growth million Within ahead impact year. this estimate second year. period. Reach of sales Consolidated $X million at the rates margin New dollar in which quarters brand XX brand sales a sales the adopting comparable the changes period orders from X% of year-ago sales We the in to consolidated currency for of for Design driven general straight had same the gross quarter From were comparable was XX.X% an translation This to of last DWR. XXX impact below was points relative quarter. higher quarter for year. in unfavorable start the quarter the of last current a XX% XX new revenue of strengthening the the the growth year-over-year for levels headwind decrease last quarter year reflecting was of was than U.S. the rules same currency by translation were basis impact

last cost were new As as as previously the guidance that expenses of sold we certain now quarter, dealer goods classified reduction under a within sales. are net noted we payments in recording

enhancement lower reported million primarily remaining operating retail earnings year consolidation marketing occupancy, as the through with reduced improved $XXX,XXX compared North higher This and next and year-over-year costs second it the in projects the as million and associated last recorded classification to to $XXX including the period. and of $X HAY $XX transition realizing of increase initiatives move quarter dollars, this schedule previously expect the of our our are approximately in half $XXX variable gross new GAAP Restructuring Operating compared to year-ago last mainly back year. impact in China. gross profit both $X.X zero facility in reported On from of as million on brand costs we driven benefits of the CEO year. begin half to the staffing related special $XX million America. UK XXXX profit of year. the compared the quarter percentage were fiscal we well These the on and and first includes announced second margin same fees charges by quarter expenses launch amount While to projects in and progressing this of has was a charges operating million we to in supporting costs. quarter earnings expenses consulting The e-commerce million into selling basis, studios platforms, efficiency related in

operating The in was of the year. Jobs U.S. recently adjustment or rate of the by special current an adoption included And sales. second Act. the rate clarified and second in tax X.X% adjusted quarter income charges, quarter in last adjusted other Tax XX reported of restructuring operating comparison, guidance quarter million regarding or the effective earnings X.X% related The were to of of this XX the Excluding and million we sales quarter XX.X%. Cuts

last XX%. diluted rate the finally, And was a adjustment, net to $XX of Excluding last rate year. to million million quarter $X.XX XX.X% or second quarter in totaled or effective period on per in in year of $XX in share this the compares This QX compared basis a earnings $X.XX year. per the the share

cash in impact share that, totaled to of of compared With the earnings sheet. and per balance $X.XX now to share quarter earnings Kevin $X.XX update diluted other last adjusted who of our the charges, and Excluding this per adjusted the I’ll on quarter restructuring flow call turn give will an year. us over second

Kevin Veltman

cash from and in quarter cash million to $XX in were expenditures total from of the $XX with year-to-date. quarter quarter compared flows were the $XX increase million million of the of in the $XX equivalents operations ended $XXX Capital We Jeff. quarter Thanks, million second quarter. an last $XX last million, same year. and Cash generated million

fiscal million capital all EBITDA expenditures quarter. quarter-end Cash year. $XX quarter full For ratio gross the debt as facility repurchased in X. capacity to of our the to the end the and in covenants of and with X.X The of XXXX, We anticipate of the at stood compliance for were million $XX million was we remain our million during approximately bank dividends million $XXX available debt at $XXX to on quarter. we credit shares paid $XX

well the to to for I’ll fiscal remain current ongoing total of now turn Given and sales from XXXX. our business cover third call quarter cash that, of back With financing we over capacity, moving to the guidance and balance, flow cash the meet Jeff earnings needs our forward. operations the positioned borrowing

Jeff Stutz

Great. Thank you, Kevin.

of to to the range respect range revenue of the million The $XXX between with quarter forecast, last $XXX XXXX compared midpoint implies million. this and we fiscal So organic same fiscal anticipate an quarter the X% to of increase year. sales third in

impact the This of between And share XXXX, gross forecast of consolidated recognition $X.XX between imports margin Chinese in I costs are quarter the range This to sequentially and points tariffs which, estimate year-over-year the period, million. and of quarter to third approximately change, gross includes forecast second points. XX be last expected than we reflects lower We comparability XX.XX% $XXX XX next adopting between a this for is as expect XX.XX%. our standard tax the in latest is for quarter impact level. XX% per quarter this on the midpoint view Operating steel approximately at fiscal fiscal to of course basis Adjusted described full quarter between XX% earlier, in the the by and revenue assumed new higher XX%. to the effective and year. range earnings impacts million anticipate $X.XX margin and basis $XXX rate expenses for

the I’ll turn operator take now we’ll call overview, that with So to and your the back over questions.

Operator

Instructions]. you. Thank [Operator

Our first Griffin is Bobby the question of Raymond from of line James.

Your line is open.

Robert Griffin

thank you and taking Congrats the broad-based growth order Good on my morning, quarter everybody. questions. the for and

Kevin Veltman

Bobby. Thanks,

Robert Griffin

for of the America had, impact North Jeff, I that on the in the So I is gross the first question segment? impact the I mean revenue rec, margin, largest the guess.

Jeff Stutz

Yes, good question.

that basis line points about at level, at speaking So segment. margin it’s roughly North XX the consolidated the gross it’s contract in the magnitude American

In gross basis those a the adjustments our segment at to and XX gross a level, XX about it’s into at specialty to then impact basis about level. XX combination segment the of further closer margin point point percentage consolidated ELA largest the the fact, is where nets all the impact And to you when points. is in margin year-over-year the get basis impact

Robert Griffin

Okay.

or the then would and guess be inflation – of impact the the the basis was in was Is that still get office, QX, to rec better other North than better being a which gross side -- steel moving tariffs. XX revenue and points parts XX? with was down the America maybe than little in so me to I largest that margin performance So the the other

Jeff Stutz

little commodity a bit, quarter the impact. in impact tariff little very Yes, certainly year-over-year

contracts, in North We for which everything got the as are pieces. from big influence an margins You’ve and those on factor American really sector, good mix there. the the product in a in healthcare example, quarter, has a moving had

Robert Griffin

prices you’re is are And the from know is the tailwind get that what from the prices tailwind is potential where I going worth now, but that if to of think quarter don’t going same about steel potential forward, of full you’re to be? magnitude the best tariffs the release when going get where steel would are impact trending, a I Okay. then word, steel about of

Jeff Stutz

correct. Yes,

Let talking whether on year-over-year, this it you’re me clearly I sequentially say Bobby. or make depends because always sure

and I’m your me answer I’ll question. getting then So, you if tell to

for commodity about year-over-year which in think the implied $X about principally year-over-year is guidance drag. steel impact is million you our QX, a impact If

Robert Griffin

Okay.

Jeff Stutz

impact The then, million that And planned drag. pricing XX% of is This about is a the we already with either implemented estimated the $X for level. or year-over-year offset think we planned tariff at has can is that the part early been QX.

Robert Griffin

that’s Okay, helpful. very

an clear wasn’t appreciate question You you explained nearly the than even so asking, in credit. clear give was I way very helpful. response. as I as I’ll My so that;

a guess I for consumer maybe the So, segment. level at next about just to I me wanted talk high

You which impressive. been mentioned very the comps have

do of of you’re what in you low-hanging have so aspects And you towards? still DWR? streak the or comps, that far looking some about more forward, drivers at that biggest that still positive excited achieved with performance think driven that some kind what you some good guys back working has that’s then guess Looking of business I that fruits other

Andi Owen

Bobby, look is it’s DWR, assortment. well we’ve comp great XX revenue as growth. are it solid I pretty I performance the question, of at had the in contributing that the to I amazing. factors if as quarters think And you a and mean, product performance think straight

rationalizing done the I the job team has store base. excellent think an of

I the right think size of place. right we stores the and have

of done There great label margin. have increasing a was job higher private our we think little a I products. bit a

doing is our those contributing understanding So marketing if for location, market how spending this really, things of also well the and money run that look we’re where nice I are, business. and of think to all customer, understanding how our at I are as all residential well. on customer, to our we kind really the a furnishings factors; we’re kind

a to continue. from but we this getting that, bit we benefit of expect So are little

about optimistic business. this very We’re

Robert Griffin

again season to holiday appreciate great quarter it. detail. and good the a I have Okay, and year. Congrats the appreciate the new I on all start

Andi Owen

Bobby. Thanks,

too. You

Jeff Stutz

Thanks, Bobby.

Operator

Thank you.

next the Our Burns comes Company. of & Sidoti question from Greg of line

line Your is open.

Greg Burns

Good morning.

segment, terms nice some in seeing some out going on and what’s on like an the it But growth what’s called can color Thanks. just you you going of in in you In Middle Are from East. France? APAC, us ELA sounds on give Europe? of and the Brexit kind Mexico, impact

Andi Owen

question. That’s a great

but is orders you still have a Brexit pretty just slow bit. can little European we hear that? Our actually uncertainty, seen strong, business the with

Kevin Veltman

just Greg, Yes. check to in.

We’re little us hear okay? feedback. getting a you Can

Greg Burns

Yes, I hear you.

Kevin Veltman

Okay.

Sorry.

Andi Owen

Great.

that about business. really remain we think optimistic I

still the in I think strong still market, well. businesses compared struggling order other little to the but from probably performing standpoint although an Europe is bit a

Jeff Stutz

Yes, just I little agree color. with that. a Greg, maybe

So of We a Orders UK. in pretty in good around Brexit the uncertainty continent in did the growth lot were sure impacted see the in the and quarter. revenue for quarter.

So region this area good by Middle some in EMEA in that strength of the was we East. one saw the broader kind where offset pressure really

Greg Burns

as consumer turning obviously volumes. And the have segment Thanks. Okay. much leverage seeing solid. would Not numbers I you like the been to given margin expect the discussed, revenue and really just as

just kind what’s we was this fall start line growth top view I through wondering to So your more when to line? operating the of see of strongly some on

Andi Owen

line look top things. that we both and kind operating kind about Yes, think at margin of as those I of talk of I’ll income,

how I expecting things margin at a customer from is wants can think the everyone and now we look place effectively performance more of of are of things costs. provide shipping rate And for consumer right now out are happy free. our the the that with. think is think sort figuring efficiently what we a couple shipping just increased in us, I I we impacting if in But are right

relatively that that’s can a think problem I solve So soon. we

that’s been thing margin to decline discounting. contributing is The other

top discounting year, growth, very, rest need a the have think So forward to a a our going look into of of line little that good of increased next plans also year balance very increase. number margin the so at line in top growth and we We but promotional bit rein have nice we that in revenue had our as a for we while revenue we’ve good ways. we

see about think feel term I term we’ll bit are but So little potential. a the optimistic the these incline gradual margin a really in that we short of things long

Greg Burns

consumer then on progress lastly, business the you sold about And is Okay. feel business? Thanks. that market? contract how consumer And the into the percent what of making side do you’re the of

Jeff Stutz

here. Jeff Greg, So,

than is the be we’ve about this can a obviously something part and tell segment less consumer as it’s it. disclosed segment of fast not So I to excited XX%. Contract of you we’re disclosure. growing continues the component

from addition growth. of there. and points today, more DWR that even forward even great contract the component certainly of the leverage price large but with more broader to confidence moving But growing strong not the HAY fact, supplement we us offer business already it’s In that our can future gives see space in we product

Greg Burns

business? business contract growing component faster American contract North than the of your Is consumer the

Andi Owen

It’s on a much smaller base.

look super but in point, So in obviously percentage it can what from about the But small very if faster a is are you it future. we size. at optimistic a it be growing

Greg Burns

Okay. Thank you.

Operator

Thank you.

of comes question from the of Kathryn next Our Thompson line Thompson Research.

Your line is open.

Brian Biros

This Brian my morning. for Good Kathryn. for Hi. Thank questions. taking is you Biros

Andi Owen

Brian. Hi,

Brian Biros

Hi. Good morning.

Andi Owen

you? are How

Brian Biros

you too. Hope are Good. guys doing well

Andi Owen

Good.

Brian Biros

in So I It revenue QX. guidance I with for came for EPS. both guess wanted start was the Street the bit above what anticipating little a and to

so the higher? throughout just If or is market confidence you far Street any or it’s touch too driving pricing a that pessimistic being anything maybe color actions. looking for that guide? a down, pace quarter on guide on I coming it’s gives But you the that’s higher additional there that else for you just maybe slowdown? think mentioned in be bit But Maybe it change steel helpful. that little end would where could tariffs,

Andi Owen

have few now gives to And has Herman on had I’ll in executed I Miller I’ll share over performer. we continuing, last envisioned Cosm confidence and which successful August in I Miller launch amazing America see an then pipeline launched the incredible several North in Both me of Last and know gives and an and innovation been have when delivered could globally on a product Jeff QX. had and guide we’ve a and and add that can for And two look innovation Canvas very where standpoint, incredibly would something so weeks launched one I Vista Cosm, product we Overlay. launches. launched from Herman launches. successful that it say I we I have Jeff confidence. we months only have thing that turn like think that at it pipeline the and it

Jeff Stutz

Jeff. broader confidence. a see we’ve is – is little of backlog in just this we confidence XX% recent certainly it to growth, months. I’d you here add the us as we’ve total in part order Brian, the color with us that what broader look by it’s this And – answer recovery rates take about to stability waiting order it’s When Yes. level been and your what a throughout outside, results well. gives that some year-on-year to at question right. certainly for gives supplemented signs of data the and seen industry some XX% also our that But points that up in upping

like large funnel activations, which projects up. of a results it’s overall of based. consistent When good for strong levels going it’s in to activation look fairly at pretty contract year-ago for isolated and good is data projects, the group. to handful health broad not that points see us forward, The ours you the fairly just relative to looks of contracts business our competitors the some showing other is You new of

compete go always I those there point for. won that cautious that Now say are is we’ve projects to projects to but and am there’s the

visit example. back noise of a to mix though been versus out condition that broader concern we shift the business the I here, are has day-to-day which to you fact creating guess our we the or seen year-ago but compared a concern are activity an that as like nervousness, that Brexit Again economy of that order like the anything are considering things West of question customer strong visit levels. look last that things kind trade – that. like haven’t factors customer macro the seen Michigan to in the we indicator an to policy. step at industry of anecdotal and some haven’t again some current interest around shift of And the of You because or project love trends in any in day resolution activity historically mix is or lot would and notable starting policy, things in so rate space, then No see there the of resolution, kind the obviously in here bit

of those the nervousness to shake all things for and business of our not nature such our all our tends is beyond but control confidence space. So that’s that good

the we those things is some resolved support see picture growth. can future team macro broader for but So better, the sooner us for of the

gives picture the big So that’s confidence. some is really what to us

Andi Owen

the they’re their and very trying that talent critically makes that for us as Yes, really and space, they talent attract is optimistic. I talent is space. and hear add also are us challenging unemployment really front they and low flipside about to looking one is It’s in the from innovative as far is and customers to most us although would and just how we is And creative one war with our thing our at more of manufacturing of rate. what that very for on which for that and something gaining ourselves, the helpful that be

Brian Biros

strength. one, help guidance the in it. Got growth around color. could on medium-sized the and for appreciate I small and You if a little the Thanks quarter? the order Last mentioned dig deeper you

the next quarter years in or last you. Thank the today last just during downturn? in years a small that from led ago that are year two few projects. perhaps it a mix, to and last and trying also we when I downturn also is for where maybe Really the understand think versus given few coming ago a seeing you’re seems by the now economy? was any different pause at least But

Jeff Stutz

this if anything few Yes. give is Jeff. you’d you thoughts like. add Brian, and a I’ll obviously

growth across all had order project So really generally we speaking sizes.

prepared cause had greatest will the not terms reasons earlier we for trend that pause in to remarks case. as in that it any And in I gives quarter-to-quarter. areas of notable like were in said going does or the nervousness questions in anything seeing small noted That we’re strength As guide medium. again the a around from of us our business forward looks bounce

macro all broad-based looking want across kind generally of if or overall Andi, So to sizes points that? I and to data anything growth all you add regions don’t project pretty know strong.

Andi Owen

No.

I think it. captured you

Brian Biros

Okay. Thanks.

Andi Owen

Thank you.

Operator

for you. at no this the further time. over turn Owen remarks. showing I’d back call closing to I’m Thank like questions And to Andi the

Andi Owen

want Miller Thanks next families for behalf to for of a you you you us Miller, and just updating of I Herman thank be holiday continued well. call to And wonderful interest a want Herman of on really forward quarter. want We again here you. on I Have and the all really day joining all season. today. in to your appreciate wish say guys. your to us and we great Thank at I look

Operator

gentlemen, thank your does This and today’s conclude in you Ladies participation conference. program. for the

You may great day. now disconnect. Everyone, have a

MillerKnoll (MLKN) 20 Dec 182019 Q2 Earnings call transcript