Steelcase Sees Flat Sales This Year

June 21, 2002
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Steelcase Inc. sees little chance ahead for a sustained improvement in business through the rest of the year, although aggressive cost cutting will enable the company to stem its operating losses and perhaps break even for the fiscal year.

While much of the talk about the U.S. economy is about a rebound, “data in our business would show that’s not true yet,” Steelcase Chief Executive Officer James Hackett told brokerage analysts in a June 20 conference call to discuss the company’s first-quarter results.

Hackett, however, sees some positives in the quarterly results. Operating losses weren’t quite as bad as the previous quarter and exceeded expectations, and some small market categories did show improvement during the period. The quarter was also one of the better periods of the last five quarters and represents “a step out of this funk,” Hackett said.

“As we will look back, we’ll find that this is the bottom of the curve and we’re on our way out,” he said.

But even with those glimmers of hope and the view that the office furniture industry downturn has begun to bottom out, Steelcase still appears far from declaring a recovery.

“I would never have imagined being in this position 16 months ago,” Hackett said. “The sustenance of the downturn has baffled us.”

Steelcase is proceeding on the premise that flat sales will continue through the rest of the fiscal year and is “operating under a no-growth presumption,” Chief Financial Officer James Keane said.

“We are planning our business assuming there will be little or no significant recovery in demand for the remainder of the year,” Keane said.

The quarter saw Steelcase’s revenues fall by $262.1 million, or 28.9 percent, from $905.2 million during the same period a year ago to $643.1 million this year. The steep decrease in revenues would have been even deeper had it not been for the $43.5 million attributed to acquisitions made over the past year.

Steelcase’s revenues during the first three months of FY 2003 were down by nearly a third from the first quarter of FY 2001, prior to when the industry downturn began, falling by $310.6 million from the $953.7 million in the comparable period two years ago.

Steelcase posted a first-quarter loss of $15.4 million, or 10 cents per share. The loss includes a one-time, after-tax charge of $8.4 million. Minus the charge, Steelcase’s operating loss of 5 cents per share was better than Wall Street’s expectation of an 8-cent per-share loss.

The FY 2003 first-quarter loss compares with net income of $23.9 million, or 16 cents per share, during the same period a year ago.

Steelcase, which has cut its work force about 30 percent since the downturn began in December 2000, expects second-quarter results of break even to a loss of 5 cents per share before anticipated one-time, after-tax charges of $5 million to $8 million, Keane said. He sees a “modest profit” coming for Steelcase for the second half of the fiscal year and the potential to break even for the full year as a result of continued cost-cutting.

Orders in the second quarter will track at the first quarter’s rate, Keane said.

Overall shipments in the office furniture industry are forecast to fall 13 percent during 2002, to $9.5 billion, with a solid recovery coming next year, according to the latest outlook from the Business and Institutional Furniture Manufacturers Association. That’s on top of a 17.4 percent decline recorded in 2001, when shipments fell by $2.3 billion, from $13.2 billion to $10.9 billion.

BIFMA forecasts an increase of 9 percent in industrywide shipments during 2003.

Further indications on the industry’s condition will come next week when Herman Miller Inc. releases fourth-quarter and annual results for its 2002 fiscal year. Brokerage analysts polled by FirstCall/Thomson Financial expect Herman Miller to report an operating loss of 6 cents per share.

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