Steelcase Profiting In All Segments

September 24, 2004
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GRAND RAPIDS — Restructuring efforts at Steelcase Inc. have begun to pay off through higher profitability.

Steelcase recorded its best quarterly earnings in more than three years in the most recent quarter while posting a 6.4 percent sales gain.

“We’re seeing better gross margins than we’ve seen in some time,” Chief Financial Officer James Keane told brokerage analysts last week during a conference call to discuss Steelcase’s latest quarterly results.

“This quarter we saw real evidence of progress in long-term profitability goals,” Keane said.

The company last week reported revenue of $651 million for the second quarter that ended Aug. 27, up from the $612.1 million in the same period a year earlier.

Sales were bolstered by $21 million in revenues from the consolidation of furniture dealerships, $8.6 million in favorable currency translations, and $8.3 million generated through a surcharge implemented in the previous quarter in response to rising steel prices.

Gains in large projects and the education and health-care sectors also combined to push sales higher, executives said.

Net income for the quarter was $7.3 million, or 5 cents per share, which compares with an operating loss of $3.2 million, or 2 cents per share, a year ago. Steelcase reported net income of $18.3 million in the same period last year, which included a $21.3 million after-tax gain from the sale of its Atwood marine division.

Second quarter earnings exceeded the expectations of brokerage analysts and executives’ earlier guidance that Steelcase would break even or record a loss of 5 cents per share in the quarter.

We are seeing benefits from our multi-year restructuring effort, improved productivity from lean manufacturing initiatives and top-line growth from our larger customers and in key vertical markets,” Steelcase President and CEO Jim Hackett said.

All of Steelcase’s business segments reported improved profitability during the quarter as on-going restructuring efforts helped to push the corporate gross margin to 30 percent, up from 28 percent in the prior quarter and 27.4 percent in the second quarter of the previous fiscal year.

The company has targeted gross margins of 35 percent.

Year to date, Steelcase’s revenues were $1.24 billion, up 6.9 percent from the $1.16 billion during the first six months of the previous fiscal year.

Net income midway through the 2005 fiscal year totaled $1.6 million, or 1 cent per share, which compares with $4.7 million, or 3 cents per share, in the same period during the previous fiscal year.

For the present third quarter, Steelcase projects sales to grow 4 percent to 8 percent over the $614.5 million in same period of the prior year. The company anticipates the steel surcharge will generate  $8 million in the quarter.

Steelcase expects net income to break even at 5 cents per share in the third quarter, including after-tax restructuring charges of $1 million to $3 million.

As with other players in the office furniture industry, Steelcase remains concerned with rising steel prices. Higher operating costs in energy and employee health coverage are also pressuring margins, the company said.

The steel surcharge implemented in the first quarter was intended to offset higher commodity prices, Keane said, and does not contribute to the bottom line.

Hackett said the steel surcharge was necessary to protect profitability.

“Not dealing with commodity increases is problematic and in fact, I would argue, is dangerous,” Hackett said.    


Financial Outlook


Revenue

2Q 2005: $651 million

2Q 2004: $612.1 million

YTD 2005: $1.24 billion

YTD 2004: $1.16 billion

Net Income

2Q 2005: $7.3 million, 5 cents EPS

2Q 2004: $18.1 million, 12 cents EPS*

YTD 2005: $1.6 million, 1 cent EPS

YTD 2004: $4.7 million, 3 cents EPS

*Includes an $18.1 million after-tax gain through the sale of Atwood Marine.

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