Steelcase Results

Steelcase results flat as big customer orders falter

By Larry Adams

September 24, 2024 | 3:32 pm CDT

Photo By Steelcase

GRAND RAPIDS, Mich. — Steelcase achieved flat revenue in the second quarter and reported that order growth in the Americas was primarily driven by government, education, and healthcare customers, while orders from large corporate customers declined compared to the prior year after several quarters of strong year-over-year growth. 

“Our business continued to improve this quarter as our adjusted earnings grew 26% and we drove 3% order growth in the Americas,” said Sara Armbruster, president and CEO. “Our education business had especially strong results this quarter, which reflected the benefits of our strategy to diversify the customers and markets we serve. In the Americas, our strategy to lead the workplace transformation continued to gain traction as we have increased our market share over the past year based on available industry data through July. We expect order patterns from our largest corporate customers to return to growth in the second half of the year.”

The company, which ranks #4 on the FDMC 300 list, reported second quarter revenue of $855.8 million, net income of $63.1 million, or $0.53 per share, and adjusted earnings per share of $0.39. In the prior year, Steelcase reported revenue of $854.6 million, net income of $27.5 million, or $0.23 per share, and adjusted earnings per share of $0.31.

Revenue was approximately flat in the second quarter compared to the prior year, with a 1 percent increase in the Americas and a 4 percent decrease in International. On an organic basis, revenue grew 2 percent, with 3 percent growth in the Americas and a 4 percent decline in International. The Americas growth was driven by higher volume from large corporate, education, and government customers, while the International decline was primarily driven by continued weakness in China.

Operating income of $90.0 million in the second quarter represented an increase of $49.0 million compared to the prior year, driven by a $27.9 million benefit from a gain on the sale of land (net of related variable compensation expense), $5.7 million of lower restructuring costs, gross margin improvement in the Americas and lower operating expenses in International. The gain recorded during the quarter related to the sale of approximately 315 acres of unused land for net proceeds of $44.2 million. Adjusted operating income of $68.5 million in the second quarter represented an increase of $15.2 million compared to the prior year.

“The Americas delivered an 11% adjusted operating margin this quarter, driven by the seasonal strength of our education business and the continued progress of our profitability improvement initiatives,” said Dave Sylvester, senior vice president and CFO. “Our International segment drove $2.4 million of year-over-year improved adjusted operating results, despite the soft demand environment, and expects to be profitable in the third quarter.”

Gross margin of 34.5 percent in the second quarter represented an improvement of 130 basis points compared to the prior year driven by favorable business mix and benefits from operational performance and cost reduction initiatives.

Operating expenses of $205.1 million in the second quarter represented a decrease of $30.8 million compared to the prior year. The current year reflected a $42.1 million benefit from a gain on sale of land, a $4.3 million decrease from a divestiture, $3.7 million of lower spending and employee costs in International, $9.8 million of higher variable compensation expense (driven by the gain on the sale of land) and $2.2 million of higher information technology costs primarily related to the company’s business transformation initiative. The prior year reflected $5.1 million of gains related to the sale of an aircraft and other aviation assets.

Total liquidity, which is comprised of cash and cash equivalents, short-term investments, and the cash surrender value of company-owned life insurance, aggregated to $507.1 million at the end of the second quarter and represented an increase of $192.6 million compared to the prior year. Total debt was $446.7 million. Trailing four-quarter adjusted EBITDA of $285.3 million (or 9.1 percent of revenue) represented an increase of 16 percent compared to the prior year.

The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before October 15, 2024, to shareholders of record as of September 30, 2024.

Outlook

At the end of the second quarter, the company’s backlog was approximately $680 million, which was approximately flat compared to the prior year and contained a higher percentage of orders expected to ship within ninety days compared to the prior year. The company expects third-quarter fiscal 2025 revenue to be in the range of $785 to $810 million. The company reported revenue of $777.9 million in the third quarter of fiscal 2024. The projected revenue range translates to growth of 1 to 4 percent compared to the prior year, or 1 to 5 percent on an organic basis.

The company expects to report earnings per share of between $0.18 to $0.22 for the third quarter of fiscal 2025 and adjusted earnings per share of between $0.21 to $0.25. The company reported earnings per share of $0.26 and had adjusted earnings per share of $0.29 in the third quarter of fiscal 2024 which benefited by approximately $0.09 related to the reversal of an accrued earnout liability and gains from the sale of fixed assets.  

The third quarter estimates include:

• gross margin of approximately 32.5 to 33.0 percent, 
• projected operating expenses of between $225 to $230 million, which includes $4.3 million of amortization of purchased intangible assets, 
• projected interest expense, net of investment income and other income, net, of approximately $2 million, and 
• projected effective tax rate of approximately 27 percent.

“Based on our results through the first half of the year and our third quarter outlook, we continue to have confidence of potentially achieving the higher end of the range of our fiscal 2025 target for adjusted earnings per share of between $0.85 to $1.00,” said Dave Sylvester.

“We are pleased with our results through the first half of fiscal 2025 in which our adjusted earnings per share increased by nearly 40% compared to the prior year,” said Armbruster. “We continue to focus on developing innovative solutions to help our customers transform their workplaces and diversify the customer and market segments we serve.”

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