New York, December 29--High steel costs are still hurting the bottom line at U.S. office furniture companies, even as sales hit their highest levels in years.
After a year of struggling with high steel prices through surcharges and price increases, most office furniture makers are still unable to fully pass price increases along to their customers, analysts said.
"Steel prices are kind of really the big wild card" going into the new year, said Morningstar analyst Anthony Chukumba.
"There's not a whole lot these guys can do to hedge themselves," he added. "They try price increases and surcharges, but they can't pass these on, not in this competitive environment."
Office furniture companies have been struggling to win back customers since the dot-com bubble burst and companies deferred spending on office renovations and supplies. But now with signs of economic recovery, sales have skyrocketed, contract orders are up and backlogs are looking better, the companies say.
This month, both Steelcase Inc. and Herman Miller Inc. reported their strongest quarterly sales in almost two years. Quarterly revenues at Steelcase, the world's largest office furniture manufacturer, gained about 9.7 percent from a year ago.
Herman Miller beat industry expectations as sales rose 11.5 percent on the year.
However, both companies said high steel prices played a role in squeezing margins during the quarter.
"Raw materials cost continued to increase this quarter. Some indications show that they have started to level out, but they are definitely having an impact on our margins," Herman Miller Chief Executive Brian Walker said on a Dec. 16 conference call.
Price increases have had only a modest effect on margins, analysts said, as companies still face pricing pressures.
HNI Corp. warned investors this month it expected high steel costs to hurt fourth-quarter profits by $8 million to $10 million.
Though Steelcase saw slight margin growth due to its steel cost surcharge and favorable currency translations, it still plans to implement a 4.5 percent price increase in some regions in January.
Rising demand even has Knoll Inc., coming back to the market after five years as a private company. The company went public this month -- a sign that it is counting on improving demand for office furniture, analysts said.
In any case, analysts said the recovery is unlikely to inspire the kind of lavish decorating sprees common at offices in the 1990s.
"The likely rate of future trend line growth will not match the rates of the past two decades, which consistently outpaced the rate of GDP growth," said Raymond James Financial analyst Budd Bugatch in a research note on Tuesday.
