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4QFY24 Adjusted EPS of $0.67 Tops WTR Estimate of $0.55 on Strong Margins; Order Growth Trends a Positive in the Quarter

EPS topped our estimate and consensus on margin strength. MillerKnoll posted 4QFY24 EPS of $0.67 versus $0.40 in 4QFY23 on continued margin strength even as the macro environment remains challenging. Adjusted EPS beat consensus of $0.54 and our estimate of $0.55. Better pricing, cost discipline, and operational efficiencies drove margin growth in all three reporting segments despite negative revenue comparisons in Americas Contract (AC) and Global Retail (GR). The consolidated revenue decline obscures improving order growth and improving fundamentals ‘under the hood.’ Total revenue of $888.9 million fell 7.1% (-5.2% on an organic basis), with AC revenue down 12.3% on an organic basis, partially offset by slightly higher sales in GR and positive (+3.8%) sales in International Contract (IC) on an organic basis. These headline revenue numbers belie what we believe to be the real story here: improving order growth and top-of-funnel activity translating into new orders, especially in the critical North American market. Total orders were up 3% on an organic basis to $933 million, reflecting a nice improvement in AC (+5.7% Y/Y and up more than 14% from 3QFY24, with improvement each month in the quarter) and modest improvement in GR (+0.9% organically) even as new orders in IC came in flat relative to the prior year. The better-than-expected earnings were driven by margin expansion and cost discipline. MLKN is reaping the gains from its ongoing restructuring efforts following the Knoll acquisition, efficiency gains, better pricing, and cost discipline. Consolidated GM % increased 257 bps to 39.6%, with IC GM % up 219 bps to 44.9% and GR GM % up 709 bps to 45.8% leading the way. Operating Margin % reached 14.5% in IC and 8.6% in GR, with solid cost discipline even as demand remains challenged, powering a 235-bp improvement in consolidated adjusted operating margins to 8.3%. Guidance is prudently conservative given macro conditions; operating leverage on better revenue represents the upside. 2QFY25 revenue guidance is for flat to slightly down sales ($872-912 million) with adjusted EPS of $0.38-0.44. This is slightly below our current estimates. FY25 adjusted EPS guidance of $2.10-2.30 is in line with our current estimate. Given the current growth environment, guidance is conservative but warranted. The upside from positive operating leverage on better revenue growth and improving orders should drive the next chapter of the valuation story. Timing remains the question. The balance sheet remains solid, and management continues to return capital to shareholders. Net debt to EBITDA is 2.63x, while MLKN returned $194 million in dividends and buybacks in FY24. Revised WTR estimates and our new financial model will be forthcoming shortly. The variance analysis is attached.