NASDAQ: MLHR. Herman Miller, Inc. Investor Presentation Second Quarter FY2013

Transcription

1 NASDAQ: MLHR Herman Miller, Inc. Investor Presentation Second Quarter FY2013

2 Forward Looking Statements This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management s beliefs, assumptions, current expectations, estimates, and projections about the office furniture industry, the economy, and the company itself. Words like anticipates, believes, confident, estimates, expects, forecasts, likely, plans, projects, should, variations of such words, and similar expressions identify such forward-looking statements. These statements do not guarantee future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood, and degree of occurrence. These risks include, without limitation, the success of our growth strategy, employment and general economic conditions, the pace of economic recovery in the U.S, and in our International markets, the increase in white-collar employment, the willingness of customers to undertake capital expenditures, the types of products purchased by customers, competitivepricing pressures, the availability and pricing of raw materials, our reliance on a limited number of suppliers, currency fluctuations, the ability to increase prices to absorb the additional costs of raw materials, the financial strength of our dealers and the financial strength of our customers, the mix of our products purchased by customers, our ability to attract and retain key executives and other qualified employees, our ability to continue to make product innovations, the success of newly introduced products, our ability to serve all of our markets, possible acquisitions, divestitures or alliances, the pace and level of government procurement, the outcome of pending litigation or governmental audits or investigations, political risk in the markets we serve, and other risks identified in our filings with the Securities and Exchange Commission. Therefore, actual results and outcomes may materially differ from what we express or forecast. Furthermore, Herman Miller, Inc., undertakes no obligation to update, amend or clarify forwardlooking statements. 2

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4 1923 Traditional Residential 1930 s 40 s Modern Furniture 1950 s 60 s Authored Design 1970 s 80 s Systems Furniture 1990 s Ergonomic seating and storage 2000 s Today Herman Miller Performance System Future Shift Strategy Inspiring designs to help people do great things 4

5 North American Furniture Solutions Non-N.A. Furniture Solutions Segment Sales Q2 13 YTD Annualized ($ millions) $158 North America Non-North America Specialty & Consumer Specialty & Consumer $375 $1,250 5

6 North American Furniture Solutions Non-N.A. Furniture Solutions Specialty & Consumer 6

7 North American Furniture Solutions Non-N.A. Furniture Solutions Specialty & Consumer HM Manufacturing 7

8 North American Furniture Solutions Non-N.A. Furniture Solutions Specialty & Consumer 8

9 Estimated Market Size ($ billions) N.A. Contract European Contract $5 (3) Emerging Markets Health/Educ/Hosp. $4 (3) $9.6 (1) Consumer/SMB/Textiles $7 - $9 (3) $9 (2) Source: (1) The Business and Institutional Furniture Manufacturers Association; (2) 2012 CSIL Market Research; (3) Company estimate 9

10 Leading economic indicators include: Corporate profitability Service sector employment levels Nonresidential construction activity Office vacancy rates Architectural billing activity (ABI) CEO & small business confidence $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 North American Office Furniture Orders ($ millions) Source: The Business and Institutional Furniture Manufacturers Association $2,000 $ Forecast Service Sector Employment (million workers) Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12 Jan-13 AIA Consensus Construction Forecast (% YOY Growth) U.S. Architecture Billings Index Source: U.S. Bureau of Labor Statistics Source: The American Institute of Architects Source: The American Institute of Architects Category Nonresidential Total +5.0% +7.2% Commercial +8.6% +10.7% Office +7.3% +11.4% Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 10

11 Net Sales ($ millions) Adj. Operating Margin (1) % Net Sales Operating Cash Flow ($ millions) $2,000 $1,800 $1,600 $1,400 $1,630 $1,319 $1,649 $1,724 $1,783 10% 9% 8% 9.3% 8.3% 8.4% $120 $100 $92 $99 $89 $90 $95 $1,200 7% 6.7% $80 $1,000 $800 6% 5.2% $60 $600 5% $40 $400 $200 4% $20 $0 FY09 FY10 FY11 1 FY12 FY13 (ann.) 3% FY09 FY10 FY11 FY12 FY13 (ann.) $0 FY09 FY10 FY11 FY12 FY13 (ann.) (1) Represents a Non-GAAP Measure, see Appendix for reconciliation. 11

12 Cash Position ($ millions) Net Debt (1) ($ millions) Dividends Paid ($ millions) $250 $350 $35 $200 $193 $186 $300 $306 $281 $30 (2) $29 $172 $250 $25 $150 $135 $142 $200 $20 $19 $100 $150 $150 $107 $114 $15 $100 $10 $50 $50 $5 $5 $5 $5 $0 FY09 FY10 FY11 FY12 FY13 (Q2) $0 FY09 FY10 FY11 FY12 FY13 (Q2) $0 1 FY09 FY10 FY11 FY12 Curr. Rate (1) Defined as interest bearing debt and GAAP unfunded pension liabilities less cash; (2) Represents the most recently announced quarterly dividend rate annualized 12

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14 We are shifting our business model to focus on: 1. Increasing the size of our addressable market 2. Faster growing segments driven by demographics 3. Higher margin products Office NA-centric Industry Contract Everywhere Global Industry + Consumer Omni Channel 14

15 New Products We consistently exceed our goal of deriving >20% of revenue from new products introduced within the past 4 years Design & Research Expenditures ($ millions; % sales) $60 3.1% 3.1% 3.5% $50 2.5% 2.8% 2.8% 3.0% $40 2.5% 2.0% $30 1.5% $20 1.0% $10 0.5% $ % 15

16 New Products 16

17 New Products Customer Segments 17

18 New Products Customer Segments Specialty & Consumer 18

19 New Products 1. POSH Acquisition 2. Regional Product Development Customer Segments Specialty & Consumer Global Footprint 3. Targeted Investments 19

20 New Products Customer Segments Specialty & Consumer Global Footprint Contract Magazine Brand Report 2012 (1) #1 Herman Miller #2 Knoll #3 Steelcase Brand & Channel (1) Contract Magazine Brand Report, December 2012, When thinking about brands that inspire you to create your best commercial design solutions, what are the top three companies that come to mind? 20

21 Net Sales ($ millions) $2,500 S&C Non-NA North America $2,190 $2,000 $1,500 $1,000 $1,319 $106 $223 $1,649 $1,724 $134 $158 $290 $347 $1,784 (1) $1,784 $220 $540 FY12-FY15 CAGR GOALS BY SEGMENT: N. America 5% Non-N.A 16% S&C 12% $500 $990 $1,225 $1,219 $1,430 $0 FY10 Actual FY11 Actual FY12 Actual FY13 Consensus FY15 Target (1) Average based on estimates reported by Raymond James & Associates (12/20/12), BB&T Capital Markets (12/21/12), and Longbow Research (12/21/12) 21

22 Our strategy will require targeted investments through FY15 Key Investments (FY13-FY15) Estimated Total $240M $260M (% Allocation) Global Footprint New Product Commercialization Mfg. Capability and Upgrades 7% Brand Marketing 8% 22% Channel and Sales Structure Information Technology 18% 16% 29% 22

23 Adjusted Consolidated Operating Income (1) (% sales) Targeted Improvement Bridge 11% 10.0% 10% 9% 8% 7% 6% 5.2% 6.7% 8.3% 7.9% (2) FY15 Target 10%+ 0.3% 0.4% Product Mix Performance Improvements 5% 1% Volume Leverage 4% 3% FY12 Actual 8.3% 2% FY10 Actual FY11 Actual FY12 Actual FY13 Consensus FY15 Target (1) Represents a Non-GAAP Measure, see Appendix for reconciliation. (2) Average based on estimates reported by Raymond James & Associates (12/20/12), BB&T Capital Markets (12/21/12), Longbow Research (12/21/12), and Sidoti & Company, LLC (1/31/13) 23

24 Adjusted EBITDA (1) ($ millions) $300 $250 $200 $150 $272 $100 $154 $184 $50 $114 $0 FY10 Actual FY11 Actual FY12 Actual FY15 Target (1) Represents a Non-GAAP Measure, see Appendix for reconciliation. 24

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26 Appendix Recent Operating Performance Quarterly Net Sales & Orders ($ millions) $500 $400 $400 $361 $476 $444 $450 $452 $442 $421 Net Sales Orders Gross Margin and Adj. Operating Income % (1) (% net sales) 50% 40% 33.6% 35.7% 33.3% 33.6% Gross Margin % Adj. Operating Income % $300 30% $200 20% $100 10% 6.3% 8.4% 8.4% 8.4% $0 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 0% Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Quarterly Operating Expenses ($ millions) Q3 FY12 Q2 net sales decreased 1% from the prior year; orders up 8%. $135 $130 $125 $120 $115 $110 $105 $109 $115 $115 $130 Q4 FY12 Q1 FY13 Q2 FY13 Revenue in Q2 was lower than anticipated due to weather-related delays on the East coast and a large number of longer lead-time orders entered in the quarter. Q2 gross margin reflects 20 basis-point reduction from non-cash legacy pension expenses. Operating expenses in Q2 include $18 million in non-cash expenses relating to legacy domestic pension plans. EPS in Q2 totaled $0.14 per share, or $0.35 (1) adjusted for legacy pension expenses and restructuring charges recognized in the period. $100 $95 (1) Represents a Non-GAAP Measure, see Appendix for reconciliation.

27 Appendix Debt & Liquidity Profile Quarterly Cash Flow from Operations ($ millions) Q3 FY12 $50 $45 $40 $35 $30 $25 $20 $15 $10 $5 $0 $44 $8 $29 $19 Q4 FY12 Q1 FY13 Q2 FY13 Rolling 4Qtr Coverage Ratio (EBITDA (1) to Interest) Bank Covenant > 4.0 Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Rolling 4Qtr Leverage Ratio (Debt to EBITDA (1) ) Q3 FY12 Q2 Ending Cash and Investments of $195 million Bank Covenant < 3.5 Q4 FY12 Q1 FY13 Q2 FY13 LT Debt maturity schedule: PPN ($50M) due 2015 PPN ($150M) due 2018 PPN ($50M) due ST Debt as of December 1, 2012: $2 million CAPEX totaled $13 million in Q2; $29 million YTD. Total FY13 CAPEX estimated to range between $50 million and $60 million. Dividends paid in Q2 ($5 million); recently announced increase to $0.125 per share, per quarter (1) Represents a Non-GAAP Measure, see Appendix for reconciliation.

28 Appendix Reconciliation of Non-GAAP Measures This presentation contains Adjusted Operating Earnings as a percentage of net sales (Adjusted Operating Earnings %), Adjusted EBITDA, Adjusted EBITDA ratios, and Adjusted Earnings per Share, all of which constitute non-gaap financial measures. Each of these financial measures is calculated by excluding items the Company believes are not indicative of its ongoing operating performance. The Company presents these non-gaap financial measures because it considers them to be important supplemental indicators of financial performance and believes them to be useful in analyzing ongoing results from operations. These non-gaap financial measures are not measures of financial performance under GAAP and should not be considered alternatives to GAAP. Non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of the Company s results as reported under GAAP. In addition, you should be aware that in the future the Company may incur expenses similar to the adjustments presented.

29 Appendix Reconciliation of Non-GAAP Measures Table I Herman Miller, Inc. Reconciliation of Non-GAAP Measures Adjusted Operating Earnings % ($ millions; percents represent % of net sales); (unaudited) FY09 FY10 FY11 FY12 1H13 (ann.) Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY13 Net Sales $ 1,630.0 $ 1,318.8 $ 1,649.2 $ 1,724.1 $ 1,783.0 $ $ $ $ Operating Earnings Operating Earnings (GAAP) $ $ 53.6 $ $ $ $ 25.3 $ 29.8 $ 34.3 $ 17.5 Operating Earnings (%) 7.5% 4.1% 7.5% 8.0% 5.8% 6.3% 7.1% 7.6% 4.0% Add: Restructuring Expense Add: Debt Tender Offer Settlement Charges Less: Adjustments to Nemschoff Contingent Consideration - (6.4) (15.1) Add: Post-Tranisition Pension Amortization/Settlements Adj. Operating Earnings (non-gaap) $ $ 68.4 $ $ $ $ 25.3 $ 35.2 $ 37.9 $ 37.0 Adj. Operating Earnings (%) 9.3% 5.2% 6.7% 8.3% 8.4% 6.3% 8.4% 8.4% 8.4%

30 Appendix Reconciliation of Non-GAAP Measures Table II Herman Miller, Inc. Reconciliation of Non-GAAP Measures Adjusted EBITDA and Adjusted EBITDA Ratios ($ in millions); (unaudited) Adjusted EBITDA Ratios Adjusted EBITDA Trailing 4-Quarter Period Ended Fiscal Year Q3 FY12 Q4 FY12 Q1 FY13 Q2 FY Earnings Before Income Taxes (EBT) $ $ 34.8 $ Add: Depreciation Amortization Interest Other Adjustments (1) (7.3) 9.7 Adjusted EBITDA $ $ $ $ $ $ $ Total Debt, End of Trailing Period $ $ $ $ Rolling 4-Quarter Debt-to-Adj. EBITDA Rolling 4-Quarter Adj. EBITDA-to-Interest (1) "Other Adjustments" include, as applicable in the period, non-cash stock based compensation expenses, charges associated w ith business restructuring initiatives, changes in the value of the contingent consideration components of the Nemschoff purchase price, pro-forma income statement adjustments associated w ith Nemschoff, as permitted under lender covenant arrangements, and non-cash charges and credits associated w ith the company's planned termination of its domestic defined benefit pension programs.

31 Appendix Reconciliation of Non-GAAP Measures Table III Herman Miller, Inc. Reconciliation of Non-GAAP Measures Adjusted Earnings per Share ($ per share); (unaudited) Quarter Ended 12/1/12 Earnings per Share - Diluted $ 0.14 Add: Restructuring Expenses 0.01 Add: Legacy Pension Expenses 0.20 Adjusted Earnings per Share - Diluted $ 0.35