Unknowns cloud 2017 outlook for West Michigan office furniture makers – MiBiz

HOLLAND — Backed by strong growth in the European market and synergies created through its residential business unit, Haworth Inc. closed 2016 with better sales growth than the company had in the prior year. 

The Holland-based office furniture maker generated $1.94 billion in annual sales, a 6.6-percent increase compared to $1.82 billion in the previous year. By contrast, Haworth grew 1.3 percent in 2015. 

The privately-held Haworth publicly reports annual sales, but does not disclose earnings. 

Despite the sales growth, Haworth CFO John Mooney said he is not as bullish for 2017. 

“We are pleased how we grew in 2016, (but) we’re not overly optimistic about 2017,” Mooney said. “We’ve seen some indicators pointing to it being a reasonable growth year, but obviously it’s pretty early to tell for sure.” 

Specifically, Mooney points to orders being held up by customers out of concern over political and regulatory unpredictability, specifically in the case of tax rates and international trade. 

“We’ve certainly tried to structure our business so (uncertainty is) not a concern,” Mooney said. “The bigger concern is the uncertainty that it can cause in our customers. Everything you hear about the tax rate is people are holding out (from investing) because of the new depreciation methodology, or how imports could be impacted with differing trade policies.” 

Mooney’s concern over international pressures holding down sales in 2017 is a sentiment shared by others in the office furniture industry. 

“Despite the impact of low energy cost and interest rates, growth and productivity in the U.S. and abroad remained tepid,” said Herman Miller Inc. President and CEO Brian Walker in a December 2016 call with analysts to discuss the company’s quarterly performance. “The contentious political environment in Europe and the recent U.S. elections have combined to increase volatility over the past several months. (The) contract furniture industry in North America has echoed this mix environment, with choppy order levels and lower architectural billings activity at odds with the support of service sector employment and non-residential construction activity.”

Zeeland-based Herman Miller (Nasdaq: MLHR) reported net sales of $577.5 million in the second quarter of its 2017 fiscal year that ended Dec. 3, down half a percent compared to the same period a year ago. 

The company expects sales in its present third quarter to hit $520 million to $540 million, effectively flat compared to the same quarter in the previous year. 

Likewise, Grand Rapids-based Steelcase Inc. (NYSE: SCS) also cited a lack of confidence in the domestic political situation as one of the factors causing a “miss” in the company’s Americas business. That led to flat growth in the third quarter of the company’s 2017 fiscal year, said President and CEO Jim Keane in a conference call with analysts. 

Steelcase generated $786.5 million in sales during the quarter that ended Dec. 20, which compares to the $787.6 million it reported in the same period a year ago.  

The company expects sales in its present fourth quarter to reach $735 million to $760 million. It reported sales of $747.9 million in the fourth quarter of its prior fiscal year. 

Both Steelcase and Herman Miller will report current earnings in mid March.

While office furniture manufacturers may have seen the pace of large orders decline, they’ll likely continue to receive smaller orders, said Kathryn Thompson, CEO of Nashville, Tenn.-based Thompson Research Group, which covers the office furniture industry. 

“They’re trying to be conservative,” Thompson said of the public office furniture companies’ outlooks for 2017. “It’s still pretty much up in the air but I think it would be safe to see low- to mid-digit volume growth in the industry. But the type of growth is different, it’s more dominated by smaller business orders.” 

Despite political volatility, Stan Askren, chairman, president and CEO of HNI Corp., echoes Thompson’s perspective on small business orders driving growth in 2017 for the Muscatine, Iowa-based furniture manufacturer.

“A significant part of our business is driven by small business confidence,” Askren said in an early February call with analysts. “It feels like to us that even though there is lots of volatility and lots of crazy press and lots of crazy stuff going on, overall small business is going to feel more confident, therefore going to invest more and therefore it’s going to drive furniture events.”

The company expects annual sales to grow 3 percent to 6 percent this year from the $2.2 billion it generated in 2016. HNI sales last year dropped 4.4 percent compared to 2015. 

In addition to a challenging political and market environment, Mooney of Haworth said he’s also tracking rising commodity prices, particularly for oil and steel. 

“Those are key components in our industry and we’re keeping an eye on those,” Mooney said, adding that “commodity prices are a bit of a concern.” 

Overall, sales for office furniture companies in North America grew 2 percent in 2016, said Tom Reardon, executive director of the Business and Institutional Furniture Manufacturers Association (BIFMA), a Grand Rapids-based trade group. While that expansion slowed from the 3.5 percent growth rate for 2015, Reardon notes the disparity between those data points is likely a result of how BIFMA collects its data.

In the past, the organization tracked data only from the U.S. market, but expanded last year to encompass all of North America, which will skew comparisons, Reardon said. 

Despite the concern among those in the industry regarding a flat year ahead, Reardon remains positive, given the work that design firms have in the pipeline. 

“I’m hearing anecdotal but positive information in that regard,” he said. “Looking into 2017, there’s optimism out there. I wouldn’t be surprised to see better than 2 percent growth next year.” 


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