Furniture maker MillerKnoll (MLKN, Financial) saw its shares drop by 12% after reporting disappointing Q1 results and mixed Q2 guidance. Investors had hoped for a boost due to a 50 basis point interest rate cut by the Federal Reserve, but the near-term earnings guidance falling short of expectations led to a sell-off. Despite this, MLKN shares held up better than its competitor Steelcase (SCS, Financial), which also reported a tepid August quarter and issued bearish guidance.
- Q1 adjusted EPS dropped by $0.01 year-over-year to $0.36, missing consensus estimates for the first time since 2021. Revenue fell for the seventh consecutive quarter, down 6.1% year-over-year to $861.5 million.
- MLKN's top-line miss was primarily due to widening delays from order entry to customer-requested ship dates, similar to issues faced by SCS. These delays, while not as concerning as cancellations, increase uncertainty and keep a higher percentage of orders in backlog.
- New orders rose 2.4% year-over-year to $935.9 million. The Americas Contract segment saw a 5.2% increase, with August showing the highest levels. International Contract and Specialty new orders increased by 2.7%, while Global Retail lagged with a 4.7% decline, reflecting housing market weakness.
- MLKN's retail operations differentiate it from competitors, which may have prevented a sharper stock decline despite SCS’s weak guidance. The Fed's rate cut is expected to boost the housing market, potentially increasing order trends.
- MLKN's Q2 guidance was mixed. The company expects adjusted EPS of $0.51-0.57, missing analyst expectations, but forecasted sales of $950-990 million, exceeding consensus. Margins remain a concern due to a shift in business and product mix, offsetting labor and overhead efficiency improvements.
- However, MLKN maintained its FY25 adjusted EPS outlook of $2.20, citing positive trends in global contract demand and an expected boost from lower interest rates.
Despite some positive signs, such as easing monetary policy and potential benefits from more companies asking workers to return to the office, investor anxiety remains due to delayed deliveries affecting revenue. HNI (HNI, Financial) may face similar challenges when it reports its September quarter results next month.
