Herman Miller: In the Hot Seat

Investors sold the furniture maker's stock Thursday after quarterly earnings came in below expectations

Herman Miller (MLHR) disappointed investors on Mar. 22 with its recent and forecasted earnings. But the Zeeland, (Mich.) office furniture maker continues pushing ahead with unique new products that it hopes will pay off during the coming years.

Herman Miller's net earnings were $32.3 million during the quarter ended Mar. 3, an increase of 44.2% year over year. Sales for the quarter increased 14.3% and orders grew 15.2% from the year-ago period. "We attribute much of our success to our strategic initiatives to grow the business through investments in new products and new markets," CFO Beth Nickels said in a press release March 21.

In 2005, for example, Herman Miller launched a desktop device called "Babble" that connects to the telephone and is supposed to help you have a confidential conversation in the office. Herman Miller also recently introduced its Celle chair, designed to respond to the body's movements throughout the workday at a price that ranges from $564 to $984, around 25 to 30% below Herman Miller's Aeron chair.

As the company started production in China, Herman Miller had a rough holiday season this year while figuring out the best way to manufacture its new products. Earnings were slightly disappointing. Herman Miller's earnings per share amounted to 50 cents during the March quarter, while the consensus estimate had been for 52 cents. During the next quarter the company expects to earn between 47 cents and 51 cents, compared to the consensus of 52 cents per share.

After the news investors sold the stock 11.7% to $33.43 per share in Nasdaq trading Mar. 22.

Some of the company's challenges, such as high costs on raw materials, might be over. For example, CFO Nickels said in the press release that she thinks the recent leveling off in commodity markets should help her company in the next quarter.

"We view investment spending on new products favorably and believe innovative products position MLHR well to gain share," Standard & Poor's equity analyst Esther Kwon said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Cos.) But Kwon thinks the company will have higher operating expenses and cut S&P's earnings per share estimate on the company's May quarter to 49 cents from 53 cents and for the full fiscal year ended May to $1.98 from $2.05.

The company hasn't given up hope yet.

"We still have hard work ahead of us, but we have never been more confident in our strategic direction and the people we have to implement it," CEO Brian Walker said in the press release. "The new products we've launched and those in development, combined with the new markets we are entering, have us on a path toward reaching our goal of $2.6 billion in revenue by 2010."