MillerKnoll(US:MLKN)2022-12-22 04:00Financial Data and Key Metrics Changes - Consolidated net sales for Q2 2023 were just under $1.1 billion, an increase of 4% on a reported basis and 8% organically compared to the same quarter last year [23] - Consolidated orders totaled $1 billion, which is 12.5% below prior year levels on a reported basis and 9% lower organically [23] - Adjusted diluted earnings per share came in at $0.46, compared to $0.54 in the same period last year [31] Business Line Data and Key Metrics Changes - In the Americas Contract segment, sales were $530 million, an increase of 6% year-over-year, while order levels decreased 17% to $474 million [25] - Global Retail segment sales were $272 million, a decrease of 3% on a reported basis but up 1% organically; new orders totaled $298 million, down 8% on a reported basis [26] - International Contract & Specialty segment sales totaled $265 million, reflecting a 7% increase on a reported basis and up 15% organically [28] Market Data and Key Metrics Changes - Strong order growth was noted in India, South Korea, and the Middle East, while there was softening in China, France, and Ireland [29] - The Americas backlog was down year-on-year by about 21%, standing at approximately $456 million at the end of Q2 [94] Company Strategy and Development Direction - The company emphasizes diversifying its business model, expanding its global retail business to over $1 billion in annual revenue, and leveraging synergies from the acquisition of Knoll [9][10] - The focus remains on contract wins, retail success, and delivering shareholder commitments despite macroeconomic uncertainties [10][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to reach customers through various channels and markets, despite current macroeconomic challenges [20] - The company anticipates a gradual improvement in retail profitability over the next two quarters, aiming for high single-digit operating margins by the end of the fiscal year [27][41] Other Important Information - The company reported a liquidity position of $428 million at the end of Q2, with $60 million generated from cash flow operations during the quarter [32] - The company is proactively taking steps to improve near-term profit and cash flow outlook, expecting annualized expense reductions between $30 million and $35 million [34] Q&A Session Summary Question: Can you discuss the inventory issues in the Retail segment? - Management explained that high demand and supply chain difficulties led to inventory buildup, which is being addressed through a promotional strategy and is expected to normalize by Q4 [38][41] Question: What is the outlook for order strength in the Retail segment? - Management noted that while orders have softened in the residential home furnishings market due to macroeconomic uncertainty, they believe they are capturing a larger market share compared to competitors [42][44] Question: How does the company view the total addressable market in U.S. core office furnishings? - Management acknowledged the challenges but emphasized the strategic position gained through the acquisition of Knoll and the diversification of their business model [46][49] Question: Can you elaborate on the progression of order patterns in North America? - Management indicated that order activity has been somewhat flat, with a notable decline in October and November, but recent days have shown improvement [56][57] Question: What are the expectations for price-cost dynamics in the upcoming quarter? - Management expects incremental positive benefits from net pricing and anticipates a shift to positive commodity costs, although production leverage may be a headwind [65][66] Question: What is the outlook for the International segment? - Management highlighted the faster return to office in international markets and the potential for growth in regions where they currently lack presence [80][84]