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Herman Miller, Inc. (NASDAQ:MLHR)

F1Q08 (Qtr End 9/1/07) Earnings Call

July 20, 2007, 9:30 AM ET

Executives

Brian C. Walker - President and CEO

Curt Pullen - EVP and CFO

Joseph M. Nowicki - Treasurer and VP of IR

Analysts

Chris Agnew - Goldman Sachs

Matthew McCall - BB&T Capital Markets

Presentation

Operator

Please stand by we are about to begin. Good morning everyone and welcome this Herman Miller Incorporated First Quarter Fiscal 2008 Earnings Results Conference Call. Today's call is being recorded. This presentation will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those forward-looking statements. These risks and uncertainties include those risk factors discussed in the company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission.

Today's presentation will be hosted by Mr. Brian Walker, President and Chief Executive Officer, and Mr. Curt Pullen, Executive Vice President and Chief Financial Officer. Mr. Walker and Pullen are joined by Mr. Joe Nowicki, Treasurer and Vice President of Investor Relations. Mr. Walker and Mr. Pullen will open the call with a brief presentation which will be followed by your questions. We will limit today's conference to 60 minutes and ask that all callers limit their questions to allow time for all to participate.

At this time I would like to begin the presentation by turning the call over to Mr. Walker. Please go ahead.

Brian C. Walker - President and Chief Executive Officer

Good morning everyone. As always, I will open our presentation with a few introductory remarks and then turn the call over to Curt and Joe for a more detailed review of our results.

As you saw in our press release, we started the fiscal year with a good first quarter. Our high backlog heading into the period along with a solid order entry early in the quarter enabled us to drive great top-line sales performance. We were able to capitalize on that volume and saw improved leverage within our gross margin and operating expense percentages. As a result, our operating income, net income and earnings per share were some of the highest levels we've recorded.

We continue to see great demand for the new products that we launched in the past year which reinforces our strategic direction to focus on bringing innovation to the marketplace. In addition, our international business had another outstanding quarter in orders, sales and profitability. Our emphasis on new market, new products and new channels within this segment of our business is clearly driving results as it now plays a key role in our overall financial performance. Our success in these areas strengthens our resolve in the growth strategy we have previously outlined. We are on the right long-term path.

The challenge for the quarter within our North American order entry rates, in the first quarter of the prior year we recorded a disproportionately high amount of large project orders in our North American business segment. This included orders for several large government projects that we talked about during prior investor calls as well as several large commercial opportunities. While our level of overall project business was still relatively high this quarter, we did not have the same volume of big projects as we had in the prior year. This difficult comparison to our prior year performance led to our modest decline in total orders and backlog.

It's not unusual for the timing of project activity to vary month by month and for our results to deviate from the overall industry, like we have seen this quarter. Yet we believe the recent lowering of the industry forecast and the debt general state of the U. S. economy could be signs of an emerging softness in the North American market. We recognized that we are in a cyclical industry. In fact, we have built our current business model around that reality. We have incentive compensation systems that naturally adjust the volume. We have a manufacturing model which flexes with volume through temporary labor and overtime, and we know how to rationalize our operating expenses and capital expenditures to align with our sales volume.

With that said, we are already taking steps on the above items to immediately align our north... our cost structure to the current volume levels we are seeing in North America. We believe it is possible that our North American business may see flat to low single digit revenue growth for our fiscal 2008, and we are making the appropriate operating cost adjustments as we always have to maintain our profitability and preserve our long-term future.

In addition to these near-term operating steps, we are evaluating alternatives to create value for shareholders by leveraging the strength of our balance sheet, adding scale in high growth areas and exploring a variety of actions to further improve operating efficiencies.

Long term, we remain confident in our strategy for growth and content to continue investing in opportunities that will drive top-line growth and create value for shareholders. We are now mapping out the actions to get us to these objectives. Let me assure you that this won't be a year long analysis. We intend to announce our plans by the end of our fiscal second quarter. I look forward to sharing those with you soon.

With that, I will turn the call over to Curt and Joe for additional discussion of our first quarter results.

Curt Pullen - Executive Vice President and Chief Financial Officer

Brian, thanks. It's a pleasure to be with you all this morning. As Brian mentioned overall, we had another really great first quarter. Sales were up 9% from the prior year. Operating income expanded to about 11% of sales. Cash flow from operations totaled nearly $32 million and earnings per share increased 26% over the prior year. We'll spend some time walking through what drove these results and I will also talk about the outlook.

First quarter sales of $492 million represented our 15th quarter in a row of year-over-year revenue growth. On a sequential basis, first quarter sales were up about 1% from the prior year. Often we have a seasonal slowdown in our sales when moving from the fourth quarter to our first quarter, that didn't happen this year, partially due to our very strong beginning backlog which was up over 20% from the prior year and which helped provide a solid start to our new fiscal year.

North American sales of $406 million increased 9% year-over-year and were up 4.5% sequentially from the fourth quarter. Also our healing business continued to post notably strong year-over-year revenue growth. Non-North American sales were up over 17% with continued very strong growth in the UK, China, India, Australia and Eastern Mediterranean regions. These sales were further aided by a weakening U. S dollar which favorably impacted sales for the quarter by $2.7 million.

As Brian discussed our challenge for the quarter was in orders. In total, our orders declined by 3.9% from the prior year, and our backlog ended the quarter down 4.8%. The order decline was entirely in the North American part of our business which was down 4.5% versus least year. Conversely, orders for our non-North American component of our business increased 6% driven by strong growth throughout the international business.

So what's going on with our domestic orders? For starters as Brian mentioned is we have a particularly challenging comparative when looking at last year's first quarter, so let's look at that for a minute. At this time last year, we were entering orders for several very large projects. In fact, our order entry level for the first two months of last fiscal year, that is June and July of 2006, was approximately 26% above the prior year. At that same time the overall industry was reporting growth of about 6%. So we firmly outfaced the industry at this time last year. This is important when we look at the current situation.

This year the industry reported order growth of 11.7% for the months of June and July which compared to a decline of 2.4% in our domestic orders over the same two months period. The point here is that given the project driven nature part of our business we did not always follow the exact cycle of the overall industry when examined over a short time horizon. And even now when we step back and look at our market share for a rolling 12 month period, we see that we are still performing above the industry in both sales and order growth.

Looking more closely at the current quarter, we are experiencing regional variations in order strength. Our West area, which has always been very strong for us and where there is a large concentration of sub-prime lenders, has seen a general slowdown in order activity compared to the prior year. While we don't believe that we carried any degree of significant exposure to that particular industry, we are seeing generally lower levels of activity in these markets right now.

We are also hearing about space constraints in certain West area markets that may be hampering the real state and facility strategies for certain existing and potential customers. On the other hand, we continue to see strengths in the East and North region. A&D firms that we work with are very busy and our dealers are very active.

Our sales funnel remains very strong and in fact has increased in both number and dollar volume of projects from our fourth quarter, and we are starting to see moderate increases in our daily order levels during the first few weeks of September when compared to our first quarter averages. I wouldn't call that a trend, but it has been positive over the last couple of weeks.

We have also had tremendous success during the quarter with several large projects wins that have not yet been ordered, and we expect to book these orders over the next couple of months. So we had good sales for the quarter, and the selling activities during the quarter contained what appeared to be several positive indicators. However, the industry forecast is pointing towards slower growth and the overall economy remains somewhat uncertain. So we don't have a perfectly clear picture of what the future looks like. Therefore we are approaching the North American business with caution, as Brian described, have already taken prudent steps to align our business with anticipated market conditions including the possibility of slowing growth.

Let's go to gross margin. Margin at 34.1% of sales improved 20 basis points over the prior year of 33.9%. Benefits from our previously enacted price increases as well as lower commodity prices primarily in steel drove the majority of the improvement. These were partially offset by lower margins on service sales and also unfavorable start-up costs associated with the new systems products that we have previously discussed with you.

We continue to see outstanding demand for new products and are making solid improvements and the profitability of these new lines. On a sequential basis, gross margin improved by 50 basis points from the 33.6% recorded in our fourth quarter. Improved pricing driven by the price increases as well as lower discounting and commodity costs resulted in these improvements.

Operating expenses for the quarter totaled a $114 million or 23.1% of sales compared to $107 million or 23.7% of sales last year. Careful control of our costs as well as the increased sales volume helped us to leverage our operating expenses and drive these costs to a lower percentage of sales. The increased absolute spending in the quarter was due primarily to increased compensation costs from merit increases that were effective with the new fiscal year, and increased variable selling costs from the higher sales volumes. We also experienced an impact... an increase from the impact of the FAS 123R which is related to our stock-based compensation. These increases were partially offset by lower bad debt expenses for the quarter.

On a sequential basis, operating expenses declined both as a percent of sales and in total dollars from a $119 million or 24.4% of sales in Q4. This was driven by decreases in incentive compensation based on our actual performance during the quarter as well as lower marketing and development costs which are often lower in the months that follow the industry tradeshow in early June.

Our effective tax rate for the quarter was 33.5%, which was within the range of 32% to 34% that we are forecasting for the quarter. Consistent with what you've heard from us before this rate is lower than our statutory rate due to increased benefits from our manufacturing deductions under the American Jobs Creation Act, as well as our increased utilization of foreign tax credits resulting from the profitability of our international business.

Also, important to note on the tax front is that we adopted FIN 48 this quarter which is accounting for our uncertainty for income taxes. As a result, we recognized a $1 million increase in liabilities for unrecognized tax benefits which was recorded as a reduction to beginning retained earnings.

Consolidated net earnings for the quarter were $33.5 million, which represents a 17.5% increase over the prior year. Our earnings per share improvement was more significant due to our share repurchases during the quarter and at $0.54, represents an improvement of 26% over the last year.

I'll now turn the call over to Joe Nowicki, our Treasurer and VP of Investor Relations. Joe will talk about cash flow and the balance sheet.

Joseph M. Nowicki - Treasurer and Vice President of Investor Relations

Thanks, Curt. Cash flow from operations was the source of funds of $31.8 million this quarter compared to use of funds of $6.4 million in the prior year.

Higher net income and lower working capital requirements in the current year were the main drivers of the year-to-year change. Working capital requirements drove our use of funds of $18.2 million in the current year as compared to $48.1 million for the prior year. The current year use of funds was primarily driven by reductions in accruals for the payment of prior year incentives, partially offset by increases in tax accruals including an adjustment of rate through adoption of FIN 48.

Capital expenditures were carefully managed at $8.9 million for the quarter, which were pretty consistent with the prior year at $8.6 million.

We returned $60.8 million to shareholders this quarter in the form of stock repurchases and another $5.5 million in dividends. We took advantage of the low stock price earlier in the quarter to aggressively buy back stock, and total for the quarter we bought back almost 1.9 million shares at an average price of $32.38 per share. At the end of the quarter we still have approximately $77 million remaining on our Board authorization.

As a result of the share purchases and cash flow requirements described above we worked on our excess cash balance and also began borrowing against our revolving line of credit. As of the end of the quarter we had a cash balance of $65.3 million. Of this amount $45 million is currently located in our international entities and not readily accessible without higher tax implications. In addition, we had borrowings against our revolver of $30 million based on the timing of our quarter end cash flows.

We continue to have a high degree of financial flexibility in our balance sheet as demonstrated by our low leverage ratio and our high interest coverage. In addition, we have another $107 million of available capacity on our bank revolver. As Brian described earlier, we are exploring additional opportunities to utilize our strong balance sheet to accelerate our growth and shareholder return objectives.

Curt Pullen - Executive Vice President and Chief Financial Officer

Thanks Joe. Let's turn to the outlook for the second quarter of our fiscal year. Given our recent order entry rates and current backlog, we anticipate that our second quarter sales will be approximately in line with our sales for the first quarter just ended, in the range of $475 million to $500 million. This assumes weekly order entry rates of about $37 million and $39 million, which is about what we are seeing today.

In terms of earnings guidance, we expect earnings per share to be in the range of $0.51 to $0.57 per share for the second quarter. We anticipate continued favorable impact in gross margin from pricing, raw material costs and improvements with our new products. Our operating income should remain approximately where it was in the first quarter, and the effective tax rate should again be in the range of 32% to 34%.

I'll now turn the call back to the operator and we'll take your questions.

Question And Answer

Operator

Thank you. [Operator Instructions]. We'll go first to Chad Vollen [ph] with Raymond James.

Unidentified Analyst

Good morning Brian, good morning Curt and Joe. How are you?

Curt Pullen - Executive Vice President and Chief Financial Officer

Good.

Brian C. Walker - President and Chief Executive Officer

Yes Chad, how are you? [Multiple Speakers]

Unidentified Analyst

Couple of questions. First, I was obviously intrigued by the statement you made regarding evaluating alternatives for enhancing shareholder value. Could you give us a sense of how much leverage you'd be comfortable with, in terms of debt to EBITDA as well as interest coverage? And then in terms of potentially adding scale, what's your filter? What are you looking for, what are the characteristics that you'd want to see before making some sort of an investment?

Brian C. Walker - President and Chief Executive Officer

Chad, let me... this is Brian, let me take the second part of that first and then we will come back to the question on how much is doable. First of all, we've been pretty... on the track for sometime as we talked about the strategy that we thought there was some great opportunities for us, both in international areas like healthcare as well as the work that we are doing in our Convia business around infrastructure. I think it's likely that we'll look for areas like those that enable us to get platforms in place in the areas that we've targeted for future growth. We don't have anything specific obviously that we can talk about in this form but it has been a focus for us in all three of those. We did a small one as you know in Convia late last year, and we continue to look for those kind opportunities that really essentially supplement what we're doing from an internal development standpoint. We do have, of course, lots of internal development going in the product arenas and all of those areas as well as call it commercial building, distribution networks and those kinds of things. But we are seeing great success in those areas, and so our belief is we need feed those. So that's kind of a primary objective for us.

In terms of... in terms of the balance sheet and debt we have consistently said it's an important thing for us we believe to continue to be investment grade because that obviously puts in outside parameter over anything that we do we believe that especially our business it is going to run through cycles, we need to have some flexibility. And certainly when you see what you've seen happened to a lot of companies through this recent credit crunch, making sure that you are in that spot that you've got the flexibility I think it's just the right place to be.

Having said that, we clearly have a lot of debt capacity out there that we have not utilized, and I think if anything we have growing confidence as a group in our ability to generate cash flow through the cycle so I think we've set this thing in saying that we wanted that... our goal was to have one to two times... debt to EBITDA was one to two times, is kind of the range that we thought we can be in and feel comfortable with. So that continues to be where we are at and within that of course we've got lots of room from where we are at today.

Unidentified Analyst

Great, thank you.

Operator

We'll take the next question from Chris Agnew with Goldman Sachs.

Chris Agnew - Goldman Sachs

Good morning gentlemen. I am little confused given that one of the explanations is the tough comps for 2Q but then you talked about seeing strengthen in the North and the Northeast but also talking about the cyclical slowdown. And also reading steel cases results this morning and they are quite a bit more upbeat. I am just wondering what's making you so concerned and why you are looking to take cost actions?

Brian C. Walker - President and Chief Executive Officer

Chris, it's a great question and to be frank I think that we would tell you we think it's a fairly mix picture out there as well. If you look at our internal data first of all, you look at just having negative year-over-year orders is always a reason for a moment for pause. As we have looked at it and looked at order entry rates they are pretty flat. Now that in and of itself when we get underneath it and look at this year-over-year issue that Curt detailed out for you around projects and then what would happen with projects later. We can sort of explained that and say geeze [ph], when you take that into effect... into account and you realize that we believe we have a fair number of large projects that have yet to order and if we go to talk to the sales force, and A&D firms, they are up still fairly buoyant about what they see. And in fact the sales force they are still running towards their original plan, and say we are going to hold you guys accountable for that.

On the other hand, if you look what happened across overall economic activity as well as the kind of continued step-down in the industry forecast, what we are trying to do quite frankly is be ahead of that curve. I think when you look back to what happened in the last downturn and every other downturn that's happened in the history of the industry, we've always ended up sort of behind the curve and making adjustments to the business.

At this point for us is we do believe that next quarter looks like it will be flat, given what we're coming into with the backlog and what we see with order entry rate, we simply said let's get ahead of the curve. We know that we have tons of flexibility to ramp back up. So, if in fact we can outperform in the top line, we can deal with that from a manufacturing standpoint by our ability to flex backup and certainly nothing we're doing is trying to take capacity out on the front end of the business that is out there generating revenue. But, we are going to look at the things internally where we can from an efficiency standpoint to make sure that in fact we can play through the cycle strong and we have begun to ask ourselves longer term what can we do to continue to drive more operating performance.

Chris Agnew - Goldman Sachs

And I guess a quick follow-up to that. I know you are not going to talk about 3Q, but maybe some perspective on the last year. In the 3Q last year you had big project, large project activity as well. Is that correct?

Brian C. Walker - President and Chief Executive Officer

To be honest Chris, I don't know if I can give you an answer on the third quarter of last year in terms of big project activity. But that's... your memories may be better than mine in that specific. And we haven't looked at that one in that much detail. Chris, I think to go back to your question one of the things we often see and if you go back over time the inflection point from the industry often happens right after we get through that Christmas time horizon because as you know all of... all the companies, most companies set their planning cycles around a calendar year end. The thing that we are trying to be prudent of is that often if you went out and ask sales force and other folks, of course, they haven't seen any of those changes that CEOs and CFOs are planning for calendar 2008 correct.

So what we are trying to do is make sure that even though the sales force is there, we are trying to be cheerleaders with them and keep them fired up. At the same time we are looking at that overall picture that we see emerging out of the econometric model from the industry as well as what we all are watching economically and saying let's make sure that we don't over rub the engine in terms of building up our cost structure and in fact, that we are ready to deal with any eventuality. But, I don't know if there is any thing particular in the third quarter of last year. I will tell you that maybe the other one that we've looked at is of course the federal government is having a bit of a hard time getting a budget finalized which... while it won't affect the orders that we'll get here in the next few months in terms of our government business longer term you worry a little bit about that being lengthened out as they don't have new appropriations for new investments beyond the end of the fiscal year. So, there is a number of those factors that, while we haven't seen it yet in terms of funnel and we haven't seen it in terms of sales activity, we are just trying to be prudent and ahead of the curve.

Chris Agnew - Goldman Sachs

Okay, thanks. And then maybe just one final question. I think in the quarter you said you benefited from a recent pricing, some pricing. Can you comment on what you are seeing in terms of pricing industry looking forward because presumably if revenue growth rates are slowing down for the industry it's getting more competitive and tougher to achieve price?

Brian C. Walker - President and Chief Executive Officer

I will say so far pricing has been fairly stable and positive because we have been capturing some of the last price increase we've done. So at this point we are capturing about the same rate that we normally do. As you say I mean if we do see a softer market obviously it's likely that things will get even more competitive than they've been in the recent past. But I think right now there is still a realization that commodity prices while they were better recently have still been a bit of tugs on folks which has made it more likely that we'll be able to pack along those kind of increases.

Joseph M. Nowicki - Treasurer and Vice President of Investor Relations

Hey Chris this is Joe. Just giving a little more detail on that one. For the current quarter, that just ended the first quarter, we saw both. We got benefit from the price increase year-over-year. Plus we did also on a year-over-year basis discounting benefit as well too. So we saw a little better discounting, improved discounting. So both of those two combined to see kind of that net benefit in total that we talked about.

Chris Agnew - Goldman Sachs

Right. Thank you very much. Thanks.

Operator

[Operators Instructions]. We'll go next to Matt Mccall with BB&T Capital Markets.

Matthew McCall - BB&T Capital Markets

Thank you. Good morning everybody.

Brian C. Walker - President and Chief Executive Officer

Good morning Matt.

Joseph M. Nowicki - Treasurer and Vice President of Investor Relations

Hey Matt.

Matthew McCall - BB&T Capital Markets

Could you give some kind of detail into how the quarter broke down? Was it consistently... from an order perspective more or than from a shipment perspective but can you just break down the orders as we progressed through the quarter as we faced some of the credit issues out there? Did you see any change in patterns from releasing orders so... from a standpoint of releasing orders from the customers? Are they slowing their patterns at all or pause at all?

Brian C. Walker - President and Chief Executive Officer

Matt overall June was a little bit stronger but I would say June, July were little stronger but overall... that can be moved down little based on the project timing. And when a project actually falls into a month, overall our tenure would say not a lot of change, not a lot of variation. As Curt mentioned last two weeks have been a bit of better which is pretty typical that you will see a little bit of an upturn as we get into the fall in particular with some other government activity that takes place.

But generally I would say to you, we haven't seen a major change in order rates. Probably I would also say as we talk to our other sales team they would say the funnel has remained fairly consistent and strong as well. If we've seen any bumpiness around project issues it could bend more out in the areas that Curt mentioned in the West particularly Southern California, which of course is sort of ground zero around the total sub-prime issue. And again not so much that we have customers that are in the sub-prime game although we have serviced some of those folks in the past but not as heavily the last couple of years. At the same time it's been more just folks in that general economy that are obviously nervous about what's going on.

Matthew McCall - BB&T Capital Markets

Okay, okay so not...

Curt Pullen - Executive Vice President and Chief Financial Officer

It's Curt. I guess what I would add to that is as Brian said, we are relatively stable or you could say flat in our weekly order intake over the last quarter and even going back, just couple of months prior to that. These first couple of weeks of September have been a little bit above that on a daily basis. So, again it's not a clear picture to us because we have a variety of indicators and they are not all lining up in the same side of things. So, while that's encouraging as I mentioned in my earlier comments, but I don't call it a trend yet I like it. But I don't know if that is a trend so.

Matthew McCall - BB&T Capital Markets

And I guess, looking out... you've mentioned a couple of times there's some large projects showing up next year. I am trying to give a sense of that pipeline with respect to what you expect to potentially be occurring in the industry. I mean is the large project activity going to be enough to show an acceleration or enough to offset some of the moderating growth you may see in the day-to-day business? I think that's one thing I want to, maybe understand better is the project versus the day-to-day business. I know you have provided color on that, as well the first maybe just the large project outlook and what can that do for growth rate?

Joseph M. Nowicki - Treasurer and Vice President of Investor Relations

Hey Matt, this is Joe. The one thing that I would drop on to, on... when you look at that comparables just keep in mind last year for the second quarter, we had a huge order entry quarter because a lot of those government projects that came in and came through. So when you're looking at our year-over-year growth, that will be again, not from the sales but from an orders perspective a difficult comp to get at.

Matthew McCall - BB&T Capital Markets

Right I guess I was... I think Brian you mentioned there is some large projects on the horizon that you have yet to book orders, maybe a better understanding of when that is going to occur and what... how large are they? Are they big enough to offset some of this moderating, some of this moderation that we're seeing right now?

Brian C. Walker - President and Chief Executive Officer

It's a great question, if you look... let me be clear because I... it is not any one single large project specifically that I would say is, out of normal size range. But what we have had is a number of customer wins that we think are going to add to our ongoing sort of book of normally project business but also base business that we just haven't seen... we haven't gotten into the point, but those contracts are starting to fall under the order entry cycle. At this point, Matt, what I would say to you it is... that's why I think one of the... I think what Chris, you asked us why you got sound like you are pessimistic. And I would say I wouldn't describe it as pessimistic at this point. I think, what we are trying to do is be realistic with a bunch of data that points in different direction.

And you look at all of that different data pointing in different directions and say well okay so, what in here can I discern from all this? It appears to me that we have a fairly mixed picture, which I think is what you hear even on the overall economic front. Now certainly with the recent moves by the Fed and other things, if that increases this business confidence so that as we get through this next planning cycle, not only does the base business continue to move along, but in fact some of those new customer wins start to come through. That picture may get better, but simply if you look out and we often tell folks, look we have pretty good visibility when we're looking out for the next quarter. So we have a fairly good point of view right now around Q2. And I think you heard that in the range we are pretty comfortable with that.

As you get beyond Q2, quite frankly the waters are much more murky in that what I think have to do with the confluence of things of not only those project wins, but also what happens to the general economic tenor in the U. S. If that comes through this next cycle and people bounce back a bit and we don't see any more hiccups like you have seen in some places like the UK with the banks. If we don't see any more of that, I think we might be stronger than what we're predicting today. That will be a good thing and certainly that's why, we got the sales force focused.

Matthew McCall - BB&T Capital Markets

Okay, and then Joe, I think in the past you provided a breakdown, what percentage of your business was project versus a day-to-day business, do you have that number handy?

Joseph M. Nowicki - Treasurer and Vice President of Investor Relations

Yes, I do see. Project business for the quarter, last quarter was actually 45%. So a good strong number, that's consisting with where it was the last quarter and pretty close to where it was a year before, so still hanging in quite well.

Matthew McCall - BB&T Capital Markets

And then finally going back to the exploring of alternatives, if you could break down maybe just two of the opportunity you talked about, growing some existing businesses, or looking to some new opportunities or maybe, would share repurchases be, bit more of a focus, maybe if you could tier where you are focusing your efforts?

Joseph M. Nowicki - Treasurer and Vice President of Investor Relations

You know Matt, I don't know if I can tier it for you. I would tell you, we're looking at all of those things as a basket, certainly a prime for us is to make sure that we are putting in place the capabilities to continue to drive the strategy because we think we are on the right track. So if you look at from that angle, I'd say that's probably job one.

On the other hand, I'd say job two for us right now is asking the question and figuring out, what do we do even if we are in a slower growth period to continue to drive operating efficiencies. Driving operating efficiencies in a period of growth is a much easier task than if you are looking at slow to moderate growth. And what we're challenging ourselves with to say, even in slow to moderate growth, we've got to figure out how to improve operating efficiencies and profitability levels. We don't have that all in hand yet, but I'll tell you, it's an objective that we set for ourselves.

And then I would add third, beyond that is the question of, should we do something beyond that in terms of share repurchases? As you know, we've got $77 million of authorization. We've been I think a consistent believer in our ability to create value that way. We stay committed to that. And certainly if there are opportunities to go further based on what the view of the marketplace is we'll take those as they come.

Matthew McCall - BB&T Capital Markets

Okay. All right, thanks guys.

Operator

[Operator Instructions]. And at this time it appears we have no further questions in the queue. I'd like to turn the conference back over to the presenters for any closing or additional remarks.

Brian C. Walker - President and Chief Executive Officer

This Brian. Let me close by saying thank you for joining us today. I would tell you that let me recap our points we've shared with you today. First, we made good progress against our strategic goal over the past year and more and that's reflected in the first quarter sales, earnings and margin improvement. But we are not resting on our achievements to date. We are taking actions to align our cost structures to the current volumes levels we are seeing in North America. In addition, we believe there is further opportunity to improve operating performance within the core business and to make more effective use of our balance sheet. We believe this will enable us to accelerate investments in our strategic initiative while creating additional value for shareholders. We look forward to talking to you more about these plans in greater detail as we finish the second quarter and we look forward to talking to you all that. Thank you.

Operator

Thank you. That does conclude today's conference. We thank you for your participation and you may disconnect at this time.

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Source: Herman Miller, Inc. F1Q08 (Qtr End 9/1/07) Earnings Call Transcript
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