Herman Miller Inc. ($MLHR): Earnings Analysis


Herman Miller Inc. (MLHR) reports preliminary financial results for the quarter ended 2012-08-31.

Herman Miller Inc. (MLHR) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.

Herman Miller Inc.’s analysis versus peers uses the following peer-set: HNI Corp. (HNI), Steelcase Inc. (SCS)*, Dorel Industries Inc. Cl B (DII.B), La-Z-Boy Inc. (LZB), Knoll Inc. (KNL), Markor International Furniture Co. Ltd. (600337-CN), Fantastic Holdings Ltd. (FAN), Poltrona Frau S.p.A. (PFG) and Flexsteel Industries Inc. (FLXS). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

*For CapitalCube’s earnings analysis on Steelcase Inc. (SCS) please click here.

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Quarterly (USD million) 2012-08-31 2012-05-31 2012-02-29 2011-11-30 2011-08-31
Revenues 449.7 420.6 399.8 445.6 458.1
Revenue Growth % 6.9 5.2 (10.3) (2.7) 3.8
Net Income 20.0 12.0 14.9 23.7 24.6
Net Income Growth % 66.7 (19.5) (37.1) (3.7) 43.9
Net Margin % 4.4 2.9 3.7 5.3 5.4
ROE % (Annualized) 30.9 18.6 22.9 39.4 45.2
ROA % (Annualized) 9.4 5.8 7.3 11.7 12.2

Valuation Drivers

Herman Miller Inc. currently trades at a higher Price/Book ratio (4.2) than its peer median (2.6). MLHR-US’s operating performance is higher than the median of its chosen peers (ROE of 28.3% compared to the peer median ROE of 11.1%) but the market does not seem to expect higher growth relative to peers (PE of 16.0 compared to peer median of 15.4) but simply to maintain its relatively high rates of return.

The company’s median net profit margins of 4.1% and relative asset efficiency (asset turns of 2.1x compared to peer median of 1.7x) give it some operating leverage. MLHR-US’s net margin is similar to its four-year average net margin of 4.5%.

Economic Moat

MLHR-US’s revenues have changed in-line with its peers (year-on-year change in revenues is 4.5%) but its earnings have lagged (annual reported earnings have changed by 6.2% compared to the peer median of 81.4%), implying that the company has less control over its costs relative to its peers. MLHR-US is currently converting every 1% of change in revenue into 1.4% change in annual reported earnings.

MLHR-US’s return on assets is above its peer median both in the current period (8.5% vs. peer median 6.1%) and also over the past five years (10.3% vs. peer median 4.3%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s gross margin of 35.8% is around peer median suggesting that MLHR-US’s operations do not benefit from any differentiating pricing advantage. In addition, MLHR-US’s pre-tax margin of 6.6% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

While MLHR-US’s revenues have grown faster than the peer median (1.9% vs. 0.1% respectively for the past three years), the market gives the stock an about peer median PE ratio of 16.0. This suggests that the market has some questions about the company’s long-term strategy.

MLHR-US’s annualized rate of change in capital of 8.6% over the past three years is higher than its peer median of 3.2%. This investment has generated an above peer median return on capital of 13.2% averaged over the same three years. Evidently, the relatively high capital investment was successful given the relatively strong growth in its returns.

Earnings Quality

MLHR-US’s reported net income margin for the last twelve months is around the peer median (4.1% vs. peer median of 3.9%). However, the company has also recorded a relatively low level of accruals (0.5% vs. peer median of 1.6%) which suggests possible overstatement of its reported net income.

MLHR-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.

Trend Charts

Graph of Revenues Trend for Herman Miller Inc. (MLHR) Quarterly
Graph of Revenues Trend for Herman Miller Inc. (MLHR) Annual or TTM
Graph of Net Margin Trend for Herman Miller Inc. (MLHR) Quarterly
Graph of Net Margin Trend for Herman Miller Inc. (MLHR) Annual or TTM
Graph of Accruals Trend (% revenues, Quarterly) for Herman Miller Inc. (MLHR) Quarterly
Graph of Accruals Trend (% revenues, Annual or TTM) for Herman Miller Inc. (MLHR) Annual or TTM

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