Profit Boosts Steelcases Confidence

April 4, 2003
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GRAND RAPIDS — The pain of the past two years has turned Steelcase Inc. into a “much healthier” company and tested management’s mettle, executives say.

As they reported the first quarterly profit in a year, the Steelcase brass told Wall Street analysts last week that the company is prepared to generate improved profitability in the periods ahead, although a “small loss” is anticipated in the present quarter.

As the office furniture industry awaits a recovery from an unprecedented downturn, the magnitude of which Steelcase President and CEO Jim Hackett called “unlike any activity in business today,” the company is far leaner and more efficient than before, executives say.

“We firmly believe that the company, albeit much smaller than it was two years ago, is much healthier,” Hackett said during an April 1 conference call with analysts.

Hackett told analysts that the executive team at Steelcase has learned some hard lessons during the downturn, which forced the company to cut nearly 40 percent of its workforce and close plants as corporate America hit the brakes on capital spending in the wake of the national economic slump.

Steelcase’s management team, he said, “has demonstrated a capability to lead in a historical depression.”

“My generation of leadership has not faced such an event. Likely, there was some question of what it would do to me, the other leaders, and our company,” Hackett said. “And the good news in this is that the lessons learned are always cumulative, which means as the economy returns, we expect to leverage our insights into being leaner, more resolute to move quickly, and to have confidence in our ideas.”

Steelcase last week reported a $2.8 million, or 2-cents-per-share, profit for the fourth quarter that ended Feb. 28. The results easily exceeded the company’s previous guidance, as well as brokerage analysts’ expectations of a loss of 9 cents per share.

The company attributed the performance to higher than expected sales volumes and realizing the savings from cost-cutting moves made during the year faster than expected.

The earnings report included one-time after-tax gains totaling $14.8 million that pushed net income for the quarter to $17.6 million, or 12 cents per share. Among the one-time gains was $10.9 million generated through the sale of real estate and $3.9 million from the sale of leased assets.

The results for the fourth quarter of the 2003 fiscal year compares with a net loss of $34.3 million, or 23 cents per share, during the same period a year earlier that included $20.1 million in one-time after-tax charges.

Steelcase’s sales for the quarter totaled $637.8 million, down 3.4 percent from the $660.4 million during the same quarter a year ago, which included one less shipping week.

Annual sales for the 2003 fiscal year reached $2.58 billion, down 16.3 percent from the $3.08 billion in the previous year and off more than 33 percent from the $3.9 billion of two years ago when the industry’s sales freefall began. Revenues for the fiscal year include the additional shipping week and $157.1 million from acquisitions.

“It’s been a rough road,” Steelcase Chief Financial Officer James Keane said during last week’s conference call.

In the past year, Steelcase has lowered its quarterly break-even point from about $700 million to $590 million in revenues, Keane said.

The quarterly profit helped to limit Steelcase’s loss for the year to $15.2 million, or 10 cents per share. The company posted a mere $1 million in net income in the prior fiscal year.

Looking ahead, Steelcase expects sales for the present first quarter of fiscal year 2004 to track at or above fourth quarter rates, although they could dip as much as 5 percent from the previous period after adjusting for the additional shipping week.

The company expects pre-charge results of break-even to a loss of 5 cents per share for the first quarter. When one-time restructuring charges of $7 million to $10 million are added, Steelcase expects to post a quarterly net loss of $7 million to $17.5 million, or 5 cents to 12 cents per share, and then return to profitability in subsequent quarters.

“We believe that our fourth-quarter profit is a sign we are turning the corner, not because of volume, but because of our own efforts to reduce our break-even point,” Keane said. “Although we may have a small loss in the first quarter, we are on track to be profitable in the following quarters and our balance sheet is very strong as we enter this next year.”

War with Iraq, global economic uncertainty and other factors all could affect the outlook, the company said, although “we have yet to see any specific negative affect of the conflict in Iraq on customer order patterns,” Keane said.

“But we recognize there is a lot of uncertainty right now,” he said.               

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