Office furniture stocks have had a great run over the past year and are trading near their 52-week highs. The market is becoming more concerned now that Herman Miller, Inc. (NASDAQ:MLHR) has guided estimates lower for next quarter. The reason Herman Miller, Inc. (NASDAQ:MLHR) is guiding lower is that the company is seeing the effects of sequestration. The federal government is cutting back and that’s not good for the office-furniture sector. If profits are forecast to be lower, it’s time for investors to reassess their positions and possibly look to take profits.
Every executive’s favorite chair
Herman Miller, Inc. (NASDAQ:MLHR) is best known for its armchairs and its modern office furniture. It is also credited with the invention of the office cubicle. Many of its furniture designs are considered icons, particularly its Aeron chair.
In the company’s earnings release this week, net sales for the fourth quarter of the 2013 fiscal year rose 9.3% to $460 million. Earnings per share doubled from the prior year to $0.40 per share. For the full year, overall net sales increased 2.9% compared to the 2012 fiscal year. The company’s gross margin for the quarter was 35.4%.
Going forward, the worry for investors is that the company reduced its guidance for the next quarter. The company is forecasting earnings per share of $0.36 to $0.41 per share. The consensus estimates were for earnings per share of $0.46 per share. As a result, the stock sold off over 4% in after-hours trading in response to that development. CEO Brian Walker cited the delay in customer purchases as the reason for the weakness going forward. He said:
The place we saw most of them was in the government. But I would say there were others as well. And with the government, you’ve got to believe some of this is probably the hangover from sequestration and all that stuff, right, with them prioritizing things.
Considering that the stock is up over 66% in the past year and has risen over 26% year-to-date, investors might want to consider locking in profits until a clearer picture emerges going forward in the next quarter.
For Herman Miller, Inc. (NASDAQ:MLHR) to continue growing earnings, the company needs to see growth from its recent $156 million acquisition of Maharan Fabric. The plan is to combine Maharan’s textile and wall-covering business with Herman Miller, Inc. (NASDAQ:MLHR)’s office furniture for interior design.
There’s steel in this case
Steelcase Inc. (NYSE:SCS) is a manufacturer of office furniture and was originally known for its filing cabinets and safes. Now the company manufactures everything for the modern-day office.
Steelcase Inc. (NYSE:SCS) disappointed the market with its first-quarter earnings report. Revenue actually fell 1% on weakness in Europe. This broke the company’s string of 12 consecutive quarters of growth. The bright spot for the company was the Americas segment, where revenue grew 7%. This segment accounts for 72% of the company’s revenue, so it’s important that this segment continues to grow.
