Steelcase Is Six Months From Profit

September 30, 2002
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GRAND RAPIDS — Steelcase Inc. doesn’t expect to return to profitability for another six months at the earliest, as the company struggles with continued declines in sales while embarking on further cost and job cuts.

Another 500 to 800 salaried positions are due for elimination in the next two quarters, as Steelcase works to further reduce its break-even point and return to profitability in the wake of continued revenue declines.

“There’s little solace in knowing that a business hovers near break-even,” Steelcase President and CEO James Hackett told brokerage analysts during a Sept. 24 conference call to discuss the company’s second quarter results. “It’s just not in our blood.”

Neither are profits for the immediate future.

Steelcase, after recording a $7.3 million net loss for the second quarter, expects to post a loss in the current third quarter of its 2003 fiscal year and move close to break-even during the fourth quarter.

Steelcase expects to post a pre-charge loss of 5 cents to 10 cents per share in the third quarter on anticipated revenues of $650 million, a sales level that will represent the lowest volume since the office furniture industry’s tumble began nearly two years ago. Charges for the third quarter are expected to come in between $4 million and $7 million.

The fourth quarter will bring a loss of 5 cents per share to break-even, with offsetting after-tax charges and gains of $8 million to $12 million each.

For the third quarter, Steelcase last week reported revenues of $659.3 million, down 16.8 percent from the $792.5 million in the same period a year earlier, and off about 36 percent from the $1.03 billion of two years ago, just prior to when the industry downturn began.

Halfway through its 2003 fiscal year, Steelcase had revenues of $1.3 billion, down 23.3 percent from $1.69 billion at the mid-way point of FY 2002 and off 35.8 percent from two years ago.

Operationally, Steelcase did hit break-even and would have recorded a meager $300,000 profit for the second quarter had it not been for a $7.9 million, non-recurring, after-tax charge related to restructuring.

Executives were happy that Steelcase was nearing the break-even point in its operations, and with a sequential 2.5 percent increase in sales from the previous first quarter.

But a series of factors that have negatively affected business confidence and capital spending levels in recent weeks interrupted a recovery that was just beginning to build in early August, creating a new dip in sales for the present quarter that’s expected to continue into the fourth quarter, Chief Financial Officer James Keane said.

“A pattern of softness developed,” Keane said.

That new round of softness pushed Steelcase into examining further cuts aimed at further lowering the break-even point in an industry that has been dramatically changed by the downturn.

“We aren’t delighted with the state of the economy, and rather than use it as an excuse, it’s a catalyst to assess how much of our cost structure represents a way the industry was and may never return to,” Hackett said.

The announcement of second quarter results last week were followed quickly by a separate announcement that James Stelter, Steelcase’s senior vice president of sales, marketing and dealer alliances, will leave the company in mid-November after 25 years of service, including more than four years in his present position.

Hackett, in the news release, said Stelter was leaving “to pursue new opportunities and challenges.” Asked about the change during last week’s conference with analysts, he said the departure was not a reflection of Steelcase’s present performance.

Steelcase’s executive team, he said, has become “quite seasoned and effective with making decisions the company has never had to face.

“I do not fault any one of the people that sit in the roles they have today for the current company performance. In fact, quite the opposite,” Hackett said.

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