Factory Orders Up - Office Furniture Mfgs Up

New factory orders increased 0.7% in November, reversing an identical 0.7% drop in October. Not coincidentally all of the "major" office furniture manufacturers reported sales increases for their most recently reported quarters:

• Steelcase: + 9% year over year revenue growth for Q311
• Herman Miller: +19.9% year over year revenue growth for Q211
• Knoll: + 12% year over year growth for Q311
• HNI (parent of Allsteel): Forecast + 10-12% for Q410

Look for pricing to begin returning to normal (read that as prices will go up), as factory capacity starts to fill, and the cut-throat discounting that has been present for the past two years starts to recede.

Top Office Furniture Vendors to the Federal Government

From the pages of the Monday Morning Quarterback, the office furniture industry's trade publication, comes the top suppliers of office furniture to the federal government (based on 2009 sales).

(all figures in millions)
1. Knoll $121.5
2. Federal Prison Industries $103.4
3. Herman Miller $94.4
4. KI $91.3
5. HNI (Allsteel, HON, Gunlocke) $71.7
6. Haworth $70.1
7. Steelcase $63.1
8. Kimball $44.2
9. Misc. Foreign contractors $27.2
10. Teknion $25.1

In addition to the list, the article also pointed out that the annual purchases by the federal market had nearly tripled over the past decade. Growing from $515 Million in 2000 to $1.3 Billion in 2009.

Q2 Mixed Results for Office Furniture Manufacturers

Some mixed Q2 results for two of the key office furniture manufacturers.

 Going Up: - HNI Corporation (parent company of Allsteel Inc. & HON Company) posted a 6.3% increase in Q2 2010 revenues, reporting sales of $398.2M. HNI CEO Stan Askren stated, "I am encouraged by the strengthened demand across our businesses..." Asken went onto say that "office furniture demand improved across the board..."

Going Down: - Knoll Inc. posted a 4.9% decrease in Q2 2010 revenues, reporting sales of $192.3M. Knoll reported that the decrease in sales was experienced across the majority of product lines, with Systems continuing to decline at the largest rate when compared with prior year.

In my personal experience, Knoll has been discounting extremely aggressively over the past 4-5 months, which makes sense in light of their slowing sales. As sales slow, manufacturers increase their "discounting" off list price. This effectively lowers the cost of product to the dealers, who are then pushed to drop their prices to the end-users in the hopes of increasing sales.

The Office Furniture Breath Holding Competition Continues...

The past week has provided further evidence of what a brutal year it has been for the office furniture industry:

• Steelcase: The world's largest office furniture manufacturer, closed out their fiscal Q4 with a loss of $65.7 million, and closed out fiscal 2010 with a loss of $13.6 million on total revenue of $2.3 billion. This number came in lower than the companies estimates, primarily due to increases in tax valuation, lower than expected revenues, and additional restructuring activities.
• Knoll: Announced last week that they are closing their Kentwood MI. plant, cutting approximately 100 unionized employees.
• Herman Miller: Announced Q3 2010 results with sales declining 7%, however net quarterly earnings were $8.3 million...
• HNI (Parent company of Allsteel): Had an "unofficial" furlough week for a number of employees in Muscatine IA. (their longtime home city). As reported by the Muscatine Journal, employees "could take the week off as a paid vacation if that's how and when they wanted to use their vacation days..."

The actions of the major manufacturers listed above, reflect the brutal reality that the last quarter of 2009 and first quarter of 2010 have been particularly sloooow, with very little project activity. How long can you hold your breath???

At Last Someone Likes Office Furniture...

The Associated Press reported today that a leading office furniture industry analyst raised his ratings on three of the four top office furniture manufacturers.

Proclaiming that "signs are beginning to emerge that suggest there may be some light at the end of the tunnel", Budd Bugatch, Director of Furnishings Research for Raymond James, raised his ratings on Knoll Inc (KNL) to "Strong Buy", Steelcase Inc (SCS) to "Strong Buy", and HNI Corporation (parent company of Allsteel) to "Outperform". Bugatch cited moderating job losses and better corporate profits driven mostly by cost cuts as the primary reasons for his optimism.

Nice to get some sunny good news, because its been long dark winter...

Ouch.... The last quarter takes a pound of flesh from the Big 4

The recession may be technically over, but you wouldn't know it by reviewing the most recently reported quarterly results from the largest domestic office furniture manufacturers:

• HNI (Parent company of Allsteel): quarterly sales down 31.5%
• Herman Miller: "Consolidated" (read slashed) another 150 jobs in October, and announced their quarterly sales down 32.4% 
• Steelcase quarterly sales down 35.9%
• Knoll quarterly sales down 36.1%

What does this all mean? Continued deep discounting on large (and not so large) projects, and a feeding frenzy over any project on the street.

Case in point, there was an estimated 40 people representing 29 different office furniture dealers and/or manufacturers at a mandatory project walk-through this past Monday.  For the time being, I don't think I'm going too far out on a limb to say it remains a "buyer's market" for office furniture.