Herman Miller NASDAQ: MLHR shares surged more than 33% yesterday after its Q1 2021 earnings blew away expectations.
The revenue of $626.8 million was down 6.6% yoy, but looked great compared to the consensus estimate of $524.8 million. Earnings beat by even more, coming in at $1.24 per share vs. the estimated 26 cents.
Expectations were, most likely, higher than the published estimates going into the earnings report, as the price action leading up to the report indicated that many were expecting a beat. MHLR had increased 14.1% over the first three sessions this week. Shares have now jumped 52.3% this week – and the week isn’t even over.
The Herman Miller earnings report was excellent any way you cut it, particularly on the heels of its 29% yoy revenue decrease in Q4 2020.
But after the huge move this week, MLHR is trading at nearly 2.5x its mid-March lows and is fast approaching pre-pandemic levels. The office furniture maker is still facing a few headwinds, and now is a good time to lock in some profits.
Asia-Pacific & Europe Strength Helped Offset North America Weakness
In Q1 2021, international orders rose 26% with Asia-Pacific and Europe leading the way.
CEO Andrea Owen said, “If we think about the APAC region, China is in many ways, up and running in a very, very normal way. We look at our businesses there, people are walking around without masks, people are back in the office. So we are really seeing that part of the world kind of coming back up to normal. Even in parts of Europe, particularly around Denmark and places like that, we have seen life return to the new normal.”
The Asia-Pacific and Europe numbers helped to offset a 40% decline in North America.
You may be thinking:
Won’t the North America numbers improve over time, similar to Asia-Pacific and Europe, as the U.S. inevitably overcomes the coronavirus?
That is a reasonable expectation. But work-at-home is here to stay, in some capacity, and that isn’t good news for Herman Miller.
Work-At-Home Will Test Herman Miller
Digging deeper into the North America declines shows the breakdown of Herman Miller’s business:
Its contract segment, which sells furniture to commercial offices, saw sales decline by 40%. Its retail segment recorded 40% revenue growth, largely due to a 300% increase in its home office category.
Again, North America saw a 40% decrease, overall, so it’s clear that commercial office furniture is responsible for a much larger percentage of sales than home office furniture.
Unlike a company like Wayfair NYSE: W, which is seeing a net-benefit from the work-at-home shift, it is a net-negative for Herman Miller.
It’s impossible to pinpoint just how many people will work from home after the pandemic ends, but some estimates peg the number at 25-30% at the end of 2021.
P/E Ratio is Appealing… But Long-Term Growth is Sluggish
Herman Miller is still trading at just 13.5x forward earnings and .87x forward sales after the massive gains of this week.
That looks appealing, but even pre-pandemic this wasn’t a fast-growing company. From 2016 to 2019, Herman Miller’s revenue grew at a CAGR of just 4.3%.
If work-at-home does remain common post-pandemic – which almost every indicator predicts – Herman Miller may struggle to return to that (modest) long-term growth rate.
MLHR Faces a Lot of Overhead Resistance
Herman Miller shares spent most of 2019 and the first two months of 2020 trading between $35 and $49 a share. Today’s move took shares just shy of $35.
With MLHR, you have a stock that is well into overbought territory – 81 on the RSI – and facing a lot of overhead resistance.
Anything is possible, but it is most likely that shares either go sideways or dip after this week’s run.
The Final Word
If you got into MLHR at just about any time over the past six months, you have a lot of paper profits.
It wouldn’t be a horrible idea to hold at these levels – the P/E ratio does give it a relatively high floor even if the long-term outlook deteriorates a bit.
But there are better plays in the market right now, and it’s a good time to cash out at least some of your Herman Miller shares.
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