David Tsao

Herman Miller: Preparing for the Long Haul

Thanks SwingTimer,

I don't trust the 30 second blips powering some of the major financial networks, so I end up digging for data myself. Reading 10K's, print, and books helps take the emotion out of the analysis. That slow cycle prevents me from doing stupid things in the market.

Quick Take: Herman Miller Inc.

What do you make of Greenblatt's system? I read his book last year but decided to tweak it a bit by using his simple approach to just get me the first screen, then apply some DCF to the companies that I thought had competitive advantages, high barriers, for undervalued plays.

Are you doing something similar along those lines? I couldn't jump straight in blindly and use his system. The back testing research he did shows good results, but I'm not sure if he ran his back test across every possible permutation of stock sets over the same period.

Quick Take: Herman Miller Inc.

Although Herman Miller is not in a favorable spot right now ($1600 Embody won't fly off shelves right now), it is not easy to start up an office design company. Try to develop an independent dealer network to distribute your wares at Herman Miller's scale.

The company does have an R&D expense, but it averages at a low 2.4% over the past 10 years. I wouldn't worry so much about their secured notes due in 2011. The company has available to them a $250mm line of credit, and recently announced job cuts to keep operating costs in check. These are tough times for any company, but as long as they can survive with their core talent in check and keep their continued focus on managing operating costs, they will come out ok. Brian Walker has done a good job managing the companies costs through their HMPS initiative (Herman Miller Production System)... basically lean manufacturing. The results show. During 2008 as commodity prices went through the roof, the company managed to fight through to protect operating margins. The effects of the high commodity costs were to show up in the last quarter, but they didn't.

The only misstep they made was jacking up the prices on their products to combat high raw materials cost. I hope that they didn't open up too many hedging contracts for steel back when prices were high.

They fought the commodity cost battle well... their next challenge where I do agree with you, is overall demand for office furniture. It won't pick up any time soon.

This is a well managed company, worth keeping an eye on.

Discloure: I own shares of MLHR.