Herman Miller, Inc. (MLHR) today announced results for its second quarter ended November 28, 2015. Net sales in the quarter totaled $580.4 million, an increase of 2.7% from the same quarter last fiscal year. New orders in the second quarter of $601.4 million were 5.1% above the prior year level. On an organic basis, which adjusts for foreign currency translation, sales and orders in the second quarter increased 5.1% and 7.2%, respectively, from the same quarter last fiscal year.

Herman Miller reported net earnings of $0.57 per share on a diluted basis in the second quarter. This compares to diluted earnings per share of $0.46 in the same quarter last fiscal year. Adjusted diluted earnings were $0.51 per share in the second quarter of last year. The translation impact from year-over-year changes in currency exchange rates had an unfavorable impact on earnings per share of approximately $0.06 in the second quarter of fiscal 2016.

Brian Walker, Chief Executive Officer, stated "This quarter's operating results reflect the progress we're making as we execute our strategy and demonstrate the strength of our global multi-format distribution footprint, leading brands and innovative product solutions. Organic order growth was strong across the majority of our business, highlighted by double-digit increases within our North America and Specialty segments. This marks our fourth consecutive quarter of steadily improving order trends within our North American contract segment; a pattern that we believe validates the actions we've taken to improve the business are yielding results. We've achieved this while at the same time delivering consistent improvement in our consolidated gross margin performance, which this quarter was up both sequentially and relative to the second quarter of last fiscal year."

Second Quarter Fiscal 2016 Financial Results

Herman Miller's consolidated gross margin in the second quarter of fiscal 2016 totaled 38.7% compared to 36.4% reported in the same quarter of last fiscal year. Adjusting for $4.8 million of acquisition-related expenses in the prior year second quarter, the company's second quarter gross margin improved by 150 basis points from the same period last year.

Herman Miller reported operating expenses in the second quarter of $168.9 million compared to operating expenses of $159.0 million in the same quarter a year ago. Operating expenses in the second quarter increased by $9.9 million, the majority of which relates to spending on new product launch and marketing initiatives, higher incentive accruals and variability from higher net sales.

Herman Miller's effective income tax rate in the second quarter was 33.0% compared to 33.8% in the same quarter last fiscal year.

The company ended the second quarter with total cash and cash equivalents of $54.7 million. Cash flow generated from operations in the second quarter was $39.9 million compared to $38.7 million in the same quarter last fiscal year.

Jeff Stutz, Chief Financial Officer, noted, "Lower commodity costs, production volume leverage, and continued focus on operational efficiencies helped drive a 150 basis-point improvement over last year's adjusted gross margin percentage. Currency translation headwinds continued this quarter as expected, reducing our second quarter gross margin by an estimated 60 basis-points and pressuring earnings per share relative to Q2 of last year. Despite the challenging currency environment and lower than expected operating results in our Consumer segment, we delivered consolidated earnings above the range we guided coming into the quarter."

Segment Results

North American Furniture Solutions
Net sales for the second quarter of fiscal 2016 within Herman Miller's North American reportable segment were $348.1 million, an increase of 10.4% from the same quarter last fiscal year. On an organic basis, excluding the negative impact of changes in foreign currency translation, segment sales increased 12.0% on a year-over-year basis. New orders in the second quarter totaled $349.2 million, an increase of 9.4% from the year ago period. On an organic basis, adjusting for the year-over-year impact of currency translation, segment orders in the second quarter were 10.3% higher than last year.

ELA Furniture Solutions
Net sales within the ELA segment totaled $100.7 million in the second quarter of fiscal 2016. This represents an 11.9% decrease from the same quarter of last fiscal year. New orders in this segment totaled $112.7 million in the second quarter, representing a year-over-year increase of 0.3%.On a currency-neutral basis, segment sales decreased 4.5%, while orders were 7.7% higher than the second quarter of last year led by strong demand in the Middle East, China and Mexico.

Specialty
Net sales in the second quarter within Herman Miller's Specialty segment totaled $57.7 million. This represents a 4.2% increase over sales in the same quarter last year. New orders in the quarter of $61.3 million increased 15.2% from the year ago period. Order growth was broad-based in the quarter across the three Specialty brands - Geiger, Maharam and the Herman Miller Collection.

Consumer
The Consumer segment reported net sales in the quarter of $73.9 million, which were 8.1% lower than last year. Orders in the second quarter of $78.2 million were 10.3% below the prior year. The year-over-year decreases in sales and orders were driven by three primary factors: 1) continued softness within the company's legacy retail distribution channel following actions taken earlier in the calendar year to reduce the number of independent retail distributors; 2) a reduction in the number of DWR studios; and 3) sales and operational disruptions associated with the implementation of a new Enterprise Resource Planning system at Design Within Reach. The ERP implementation went live at the start of the second quarter, and despite significant disruption to the business, was largely complete and stabilized by the close of the quarter.

Third Quarter Fiscal 2016 Guidance

Looking forward, Herman Miller expects net sales in the third quarter of fiscal 2016 to be in the range of $535 million to $555 million. On an organic basis, adjusted for the impact of foreign currency translation, this forecast implies sales growth of approximately 7% at the mid-point of the range. The year-over-year negative impact of foreign currency translation on net sales is expected to be approximately $7 million. Diluted earnings per share in the quarter are expected to range between $0.37 and $0.41. This guidance includes targeted increases in promotional and marketing initiatives in the third quarter within the Consumer segment, which are expected to reduce consolidated earnings per share by approximately $0.02 in the period.