Office furniture orders up but slump seen

NEW YORK (Reuters) - U.S. office furniture orders rose 1 percent in July to $940 million compared with a year earlier, but year-to-date orders and shipments are flat, heralding double-digit declines in 2009, a trade group said on Wednesday.

The Business and Institutional Furniture Manufacturers Association said July shipments rose 1 percent to $930 million, year-over-year.

But the trade group said it expects full-year orders and shipments to fall 2.4 percent and 3.9 percent, respectively. In 2009, BIFMA is projecting a drop in both orders and shipments of slightly more than 10 percent.

Demand has yet to collapse, but it has slowed after mid-to-high single-digit growth in 2006 and mid-single-digit growth in 2007, Raymond James analyst Budd Bugatch wrote in a note to clients.

Bugatch has a cautious outlook for the office furniture industry based on deterioration in macroeconomic drivers such as business confidence, corporate profits and new office construction.

"Despite our concern that industry demand will remain challenged for the next several months or more, we would reiterate our belief that any downturn will not match the magnitude of the 2001-2003 decline," Bugatch wrote.

He reaffirmed his "outperform" ratings on Herman Miller Inc (MLHR.O) and Knoll Inc (KNL.N) and his "market perform" ratings on Steelcase Inc (SCS.N) and HNI Corp (HNI.N).

Steelcase is priced at a modest premium to its peers, while HNI is exposed to both the lower end of the office furniture market and the housing slump, as it also makes hearth products, Bugatch said.

"We would remind investors that due to its exposure to small business, HNI will likely be the first among peers to benefit when the economy begins to recover," Bugatch wrote.

Herman Miller has lessened its reliance on the North American office furniture market by expanding its health-care business and developing emerging technologies.

Knoll focuses on higher-end products, which generate attractive profit margins.

BIFMA compiled its July report from 38 companies that account for about 75 percent of the industry's volume.

(Reporting by Helen Chernikoff, editing by Richard Chang)