April 9, 2008 - Herman Miller Inc. (MLHR-NASDAQ) is a top US manufacturer of office furniture. The firm is known for developing designs for corporate, government, home office and leisure, and health care environments. Herman Miller's products include ergonomic devices, filing and storage systems, freestanding furniture, lighting, seating, textiles, and wooden casegoods. It manufactures its products in the UK and the US and sells worldwide through its sales staff and dealer network, as well as through independent dealers and the Internet.

But are they making money? Definitely. In 2005, earnings per share (eps) were 97 cents, followed by $1.45. Last year, they went to $1.99. This year, analysts are expecting $2.50 and $2.70 next. Sales went from $1.515 billion in 2005 to $1.918 billion last year. Look for $1.985 billion this year and $2.005 billion next. Analysts predict sales will grow at an 11.5% rate annually, on average, over the next 5 years while eps increases by 20% a year, on average, in the same time period.

The reason for the optimistic eps growth is the company's recent focus on cost containment and new markets, ones like Healthcare and International. Even with moderate sales growth (2% in the second quarter of fiscal 2008), profits were impressively higher. The slowing U.S. economy has hurt business sales, but new efforts in Healthcare furnishings and higher margined international sales (14% of 2007 sales) have increased the bottom line.

To help jump start entry to the Healthcare Furnishings market, Herman Miller bought Brandrud Furniture, a Seattle firm with a strong presence in that market. The fit was a good one. Brandrud has a reputation for high quality, just as Miller does.

More numbers: Ariel Capital Management owns about 11% of the stock. Barclays Global Fund Advisors has 10% while management and directors own 3.4%. Current assets are 1.5 times current liabilities. There is a 35 cent dividend (1.4% yield). Net profit margin was 6.8% last year with expectations of 7.5% this year and 7.7% next. Return on Equity has been astounding. In 2006 it was 56%. Last year it was 71%. Debt is 52% of the balance sheet.

The stock has been trending lower of late, most likely in anticipation of a slow U.S. economy. But management is determined to sell more abroad where margins are higher because of the product mix. The global market with its better profitability should offset any decrease in domestic orders. The company is also aggressively buying back stock which will only help eps. There is plenty of free cash flow to buy the stock.

Look into Herman Miller if you're worried about a sluggish U.S. economy. Since the dollar is weaker, foreign sales will most likely increase markedly. New cost cuts are contributing to a better bottom line. Stock repurchases are shrinking the number of shares. It all adds up to a very interesting possible investment.

- Company Web site: www.hermanmiller.com

- Ted Allrich