David Tsao's  Instablog

Herman Miller last month announced more details in its plans to reduce costs in its effort to ride out this economic downturn. The details include the closure of one of its manufacturing facilities in Michigan and redistribution of equipment and production capacity to other facilities in the area. The company reports that this move will cost the company a one-time charge between $9 to $12 million dollars. The expected savings are projected to be $5 to $7million annually. The closure is targeted for spring of 2010. This will eat into the company’s earnings for the next two quarters. The benefits of consolidation moves like this take time to realize, so don’t expect to see the savings immediately. The company will also be reducing their dividend payout in order to save $14mm annually.

These actions don’t seem surprising given the economic conditions and may seem like reactionary measures, but the company looks to be preparing for a long term ground and pound fight in the office furniture industry.

The Head Fake?
The strengthening earnings numbers of the last quarter reported by Lowes and Home Depot has given some positive light to the housing industry. The S&P has risen a steady 4% since the companies both reported. However, this is centered on residential homes and is not indicative of the overall real-estate market, specifically commercial real estate. A good measure for the overall real estate market is the Dow Jones REIT Index. This is a good benchmark index as it has broad reach. Tracking this against Herman Miller’s revenues from 2004 to 2009 shows some degree of correlation.