MillerKnoll Q1 Results: Some Positives On The Horizon, But I'm Not Convinced

seekingalpha09-24

MillerKnoll, Inc.'s Q1 earnings showed a revenue decline of 6.1% y/y and missed expectations, with adjusted EPS also falling short.Margins are tightening, and despite a slight increase in orders, the ...

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However, the cash on hand is decent enough, while interest expense on the debt isn’t too high. In the upcoming quarter, the company provided these numbers below. Revenues are slightly higher than what analysts were expecting. The company also maintained its full-year guidance of adjusted EPS of $2.20 a share.   Company's 8K Overall, a miss on top and bottom isn’t what anyone was hoping, so, understandably, the company’s share price slid on the announcement. Maybe a little too much, especially since the company maintained its full-year guidance. It appears that the demand isn’t recovering as quickly as I would have expected now that plenty of enterprises are going back to the office full-time. Comments on the Results and Outlook While the top-line growth is not where I would have liked it to be, as I mentioned in my previous article, it is good to see that orders are starting to pick up. Are we ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"MLKN":"MillerKnoll","BK4143":"办公服务与用品"},"translate_title":"MillerKnoll第一季度业绩：即将出现一些积极因素，但我不相信","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"MLKN":0.9},"content_text":"MillerKnoll, Inc.'s Q1 earnings showed a revenue decline of 6.1% y/y and missed expectations, with adjusted EPS also falling short.Margins are tightening, and despite a slight increase in orders, the economic uncertainty keeps me from starting a position.The Fed's recent interest rate cuts could boost demand, but the company's unchanged FY25 guidance raises concerns about the broader economic outlook.Given the company's fair valuation at $24 per share, I am waiting for a potential better entry point around $20 before investing.   Jacobs Stock Photography Ltd/DigitalVision via Getty Images Introduction MillerKnoll, Inc. (NASDAQ:MLKN) recently reported Q1 earnings, so I wanted to look at the numbers, give my thoughts on them, and a bit on the outlook and why I am still hesitant to start a position. The lackluster revenue performance is not appealing, and margins are set to worsen. However, the order numbers should pick up with further interest rate cuts. Nevertheless, the uncertainty in the economy keeps me on the sidelines for now. The last time I covered the company’s Q4 earnings preview, the share price underperformed the broader market by a decent margin. Q1 Results Starting from the top, MLKN’s revenues came in at $861.5m, a decrease of -6.1% y/y and a miss of $27.88m. Adjusted EPS came in at $0.36, a decrease of -2.7% y/y and a miss of $0.04. In terms of margins, gross margins came in flat y/y, at 39%, while margins came in at 1.8%, a decrease of around 60% from the year before when operating margins were 4.4%. On a GAAP basis, diluted EPS was a loss of 2 cents, compared to $0.22 of earnings in the year before. Operations across all business segments saw declines, with orders inching up slowly in the Americas and the International and Specialty segments, while Global retail was mostly negative. In terms of the company’s financial position, MLKN had around $209.7m in cash and equivalents against $1.3B in long-term debt. Is this bad? It is not great, especially when the company barely turned an operating profit this quarter. However, the cash on hand is decent enough, while interest expense on the debt isn’t too high. In the upcoming quarter, the company provided these numbers below. Revenues are slightly higher than what analysts were expecting. The company also maintained its full-year guidance of adjusted EPS of $2.20 a share.   Company's 8K Overall, a miss on top and bottom isn’t what anyone was hoping, so, understandably, the company’s share price slid on the announcement. Maybe a little too much, especially since the company maintained its full-year guidance. It appears that the demand isn’t recovering as quickly as I would have expected now that plenty of enterprises are going back to the office full-time. Comments on the Results and Outlook While the top-line growth is not where I would have liked it to be, as I mentioned in my previous article, it is good to see that orders are starting to pick up. Are we going to see this translate to a turnaround in the top-line performance? Looking at the company’s guidance for the whole year, which remained unchanged, it doesn’t seem like it. The company’s margins are still not where I would like them to be. Looking at the next quarter, it seems that, as revenues pick up slightly, margins are set to take another hit compared to the same time last year. The management mentioned that the reason for slightly lower margins for Q2 is due to the company rotating out of higher gross margins, retail sales, and some specialty brands. Seems to me that the company is changing its product mix quite a bit. I usually like to see companies sticking to higher-margin businesses, but here, it appears that the company is going for sales numbers as a priority, which may not be because they chose to do it. It most certainly is dictated by the market conditions. Demand is picking up for higher turnover products that come with lower margins. We saw that orders are showing growth. I am expecting these numbers to contribute to the company’s top line over the coming quarters. The main positive I see for the company that will shift merchandise is the interest rate cut that happened right before the company announced its earnings. The Fed finally cut interest rates by 50bps. I was expecting 25bps, but as the polls came in favor of 50bps, it was clear Fed Chair J. Powell was going to cut more aggressively. Over the next while, the Fed is going to continue to cut further, which makes everything cheaper to borrow and will certainly drive growth once again. I expect further cuts will translate to a turnaround in the company’s top-line performance. However, it is rather odd that the company isn’t expecting (for now at least) the interest rate cuts to change its FY25 guidance. The company could be lowballing its estimates and keeping the model unchanged, so it gets a beat or can increase guidance in the later quarters. Judging from the comments made by Debbie Propst, President of Global Retail, she expects nothing but positive outcomes from the decision. On the other hand, I am a little worried that the reason Jerome Powell cut 50bps is that he is not telling us the full story. At the rate cut meeting, he mentioned the economy is doing fantastic and, as usual, avoided answering questions outright. Could it be that the economy isn’t doing too well right now, and it needed stimulation once again? If this is the case, I expect further downward revisions in employment numbers and probably GDP numbers. Thereafter, I am expecting volatility in the markets to continue and most likely go down over the short term. There’s a chart that’s doing the rounds because of how unnerving it looks. The chart below shows when the Fed cuts rates, a recession follows shortly. It has been like that for a while, so is it this time different? Are we still in for a “soft landing”? Who knows?   Market Watch Let’s look at what I would be willing to pay for the company, given the uncertainties of its operating performance and overall market volatility. Valuation Once again, I am going to approach this with quite a conservative mindset. The company’s lackluster top-line performance and tight margins are not giving me comfort for now. Furthermore, the company still has a lot of debt on its books. This isn’t as worrying as it was before the Fed rate cuts, but still, it is a lot, and if the company’s operational performance doesn’t improve, it becomes quite risky. I redid the model from scratch to see how much my assumptions changed over time, and it looks like not much. I am still going with around 4% CAGR over the next decade for revenue growth. The company’s 10-year CAGR is around 6%, but the last 3-year CAGR was -4.1%.   Author For margins, I am modeling slight improvements over time to keep it somewhat conservative. However, I am using the company’s adjusted numbers, which I don’t like to use, but many companies quote these to show the “true value” of its operations. Therefore, I’ll play along.   Author For the discounted cash flow, or DCF, I went with around 10% WACC as my discount, a 2.5% terminal growth rate, and I also discounted the final intrinsic value by 30%. The reasons I am so cautious are the lackluster top-line performance, tight margins, a lot of debt, and the uncertainty of the overall economic outlook. With that said, the company’s (conservative) intrinsic value is $24 a share, which means it is trading at its fair value.   Author Closing Comments To be honest, it’s not a bad deal, given such tough assumptions above. So, why am I not upgrading my rating? The same reasons as above, but mainly because I would like to see what is going to happen in the overall economy over the coming months, which may bring the company further down. I think it is not a bad time to buy the company at this price range, which was brought on by the miss in earnings. However, I will be patient and see if I can get an even better deal once we get more clarity on what is going to happen over the coming months.  I have set a price alert at $20 a share and will revisit it if necessary before pulling the trigger and starting a position.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2469106442"}