Herman Miller's Improved Earnings Guidance: Cozy and Cryptic

Herman Miller (MLHR) issued an updated and improved earnings guidance press release. They feel that they will be making more money in the second quarter. And that's a good thing. They also raised their long-term operating income target to 13% of sales. And that's also a very good thing.

But they fall short of issuing any additional guidance for the only number that will matter, and that's EPS over the next year. The only point mentioned was that it is increasingly difficult to forecast furniture demand in an increasingly difficult market. Maybe as companies need to lay off employees they will not be buying really nice chairs and office furnishings.

There are clearly some cost cutting measures for Herman Miller such as layoffs for about 150 employees. They also claim that some other undisclosed measures will also come into being over the next six to nine months. They are claiming annual cost savings of $25 to $30 million. Given that last years after tax earnings was approximately $129 million, that's a really big and interesting number. Transparency in the process would be nice instead of teasing promises.

The company also indicated that as recently as on September 28, 2007, they announced a $300 million expansion of its share repurchase authorization. Additional capital structure work is underway and the company anticipates sharing more complete details in its second quarter earnings release and conference call.

A quick scan of the balance sheet leaves no conclusion other than an increase in indebtedness to support the share buyback program. More debt to support buying your stock at a low point when the market for high end office furnishings is probably about to become rather difficult.

Reading this press release reminds me of when you sometimes are about to sit down in your chair and the chair has rolled away some and for a few moments it's questionable as to if enough of your backside will land on the moving chair and stabilize it, or if the laws of physics and gravity will apply and you fall out of your chair.