Shares of office equipment manufacturer Herman Miller (MLHR 31.25, +2.00) trade about 6.8% higher today in reaction to the company’s mixed Q3 print and better than expected Q4 earnings guidance.
Specifically, MLHR reported better than expected Q3 earnings of $0.39 on worse than expected revenues which fell about 2.2% to $524.9 million. By segment, sales growth was strongest in MLHR’s smallest segment, Consumer, while the largest segment, North America, displayed relative net sales weakness.
In that respect, net sales in the North America segment were down about 0.3% compared to last year to about $308.9 million. Net sales in the Consumer space were up 4.0% to $73.0 million, while net sales in the Specialty space fell about 1.3% compared to last year to $54.0 million. Lastly, the ELA space saw net sales decline about -0.8% to $91.6 million.
In light of the weaker net sales result, management offered that the company continues to feel the impact of relatively high commodity costs and a challenging pricing environment, both of which pressured our consolidated gross margins relative to same quarter a year ago. With that said, neither of these factors fell outside the company’s expectations coming into the quarter, and MLHR would expect their recently implemented price increase to provide some offset to these pressures as they move through the balance of this fiscal year and into fiscal 2018.
Additionally, management noted that operating expenses were well managed throughout the business this quarter, though the company continues to feel the impact of cost inefficiencies inherent with opening new consumer retail studios. This remains a factor in the overall profitability of the company’s Consumer segment as they currently have seven Design Within Reach studios that that have been in place less than twelve months.
Looking ahead, MLHR expects net sales in Q4 to be in the range of $575-595 million. On an organic basis, adjusted for the impact of dealer divestitures and foreign currency translation, this forecast implies organic sales growth of 4.2% compared to Q4 of the prior year at the mid-point of the range. MLHR also sees better than expected diluted EPS in Q4 between $0.53-0.57.
In light of the favorable Q4 earnings guidance and Q3 earnings beat, shares of MLHR popped higher about 8.7% at the open this morning but have come off those levels slightly. Thus far in 2017 shares have had a rough go, declining about 6.3% YTD.