HomeMost PopularInvesting A Rollercoaster Ride: MillerKnoll's Mixed Q3 Earnings Sends Stock Tumbling

A Rollercoaster Ride: MillerKnoll’s Mixed Q3 Earnings Sends Stock Tumbling

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MillerKnoll, Inc. (MLKN) recently reported its third-quarter fiscal 2024 results, leaving investors with a mixed bag of emotions. While the company outperformed expectations on earnings, its net sales fell short, resulting in a steep decline in stock value.

After the earnings announcement, MLKN shares plummeted by 12.9% during after-hours trading but managed to recover slightly, rising by 1.8% on the following trading day.

The company’s year-over-year financials reflected a decrease in both top and bottom lines. The Americas segments faced challenges in the contract and retail divisions, while the International and Specialty segment showed more resilience, driven by contract demand. Despite a shortfall in consolidated orders for the quarter, there was a noticeable improvement as the period progressed. In February, there was a modest 2.8% increase in consolidated orders compared to the previous year.

MillerKnoll remains optimistic about its strategies focused on diversification, international expansion, technological investments, streamlined processes, and innovation, showing faith in its ability to navigate the turbulent market waters.

Mixed Results in Detail

MillerKnoll reported adjusted earnings of 45 cents per share, surpassing the Zacks Consensus Estimate by a penny. However, this figure marked a 16.7% decline from the previous year. Net sales of $872.3 million missed expectations by 4.2% and were down 11.4% from the prior-year quarter.

Organic sales dipped by 10.1%, mainly due to weak performance in the Americas contract and retail segments. External factors such as high interest rates, geopolitical tensions, and slow housing market conditions in the U.S. contributed to the lackluster demand across the company’s operations.

The company faced a 6.2% decline in total orders for the quarter, with noticeable improvements observed as the quarter advanced, although falling short of initial expectations.

Operational Highlights and Challenges

In the fiscal third quarter, MillerKnoll managed to improve its gross margin by 450 basis points, reaching 38.6% compared to the previous year. The company attributed this increase to inventory management, controlled input costs, pricing strategies, and ongoing synergy efforts, marking the fifth consecutive quarter of margin expansion.

Operating expenses dwindled by 6.4%, amounting to $294.2 million, reflecting the company’s emphasis on cost optimization and capturing synergies. Despite this, the adjusted operating margin contracted to 6.7% from 7.5% year-on-year.

Segment Performances

Across key segments, MillerKnoll faced varying challenges. The Americas Contract segment saw a 9% decline in net sales, with a corresponding 9.2% organic decrease. Contrarily, the International Contract and Specialty segment reported a 10.4% drop in sales, along with a 10.6% organic decrease. The Global Retail segment also struggled, with a 17% decrease in net sales and an 11.3% organic decline.

While new orders saw declines across all segments, operational margins fluctuated with varying impacts on profitability across divisions.

Financial Outlook

As of March 2, 2024, MillerKnoll had $558 million in liquidity, showcasing stability amidst challenging times. The company experienced a cash flow of $60.6 million in the third quarter, enabling it to repurchase shares and manage its capital efficiently.

Looking ahead, the company provided guidance for the fourth quarter and fiscal 2024. It anticipates continued challenges in sales, with a projected range of $880-$920 million for the next quarter and adjusted earnings per share in the range of 49-57 cents.

Industry Comparison and Investor Highlights

Amidst this backdrop, MillerKnoll retains a Zacks Rank #3 (Hold). For investors seeking alternatives, companies like Adtalem Global Education Inc., Ralph Lauren Corporation, and Hyatt Hotels Corporation present compelling options with strong market positions and growth potential.

While MillerKnoll’s recent performance may be disheartening, the market remains unpredictable, and salvaging value from investments requires a keen eye and a steady nerve in today’s financial landscape.

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