U.S. office furniture shipments, orders down in August

NEW YORK, Oct 3 (Reuters) - U.S. office furniture shipments fell 4 percent in August to $995 million, tipping shipments into negative territory year-to-date and heralding steeper demand declines ahead, a trade group said on Friday.

The Business and Institutional Furniture Manufacturers Association said August orders fell 1 percent to $970 million compared with a year earlier.

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

So far this year orders are flat. Shipments are down 1 percent.

Office furniture demand has weakened steadily over the past several months 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.

"Historically, the primary drivers of industry demand include business confidence, corporate profits, white-collar employment, new office construction, and office vacancy rates," Bugatch wrote. "These indicators are either negative or softening."

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, and as the world's biggest office furniture maker it is more vulnerable to industry weakness both domestically and abroad.

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.

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

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

The primary question facing office furniture, Bugatch wrote, is whether BIFMA's "dire" 2009 forecast proves accurate.

Office furniture companies' shares are cheap today relative to historical levels and even assuming a modest decline in U.S. demand they should be able to generate some earnings growth, Bugatch said.

"However, should the BIFMA forecast prove accurate, that would become considerably more challenging," he wrote.

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 Phil Berlowitz)