Steelcase Profits Up, But Not As Expected

September 19, 2005
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GRAND RAPIDS — Steelcase Inc.’s 8-percent increase in revenues for the quarter failed to meet Wall Street expectations for the company.

Steelcase reported revenue of $702.9 million for its second quarter of fiscal 2006. Company officials said a higher-than-expected percentage of incoming orders were scheduled for shipment in the third quarter, not the second, and that a steady stream of business will contribute to sustained profitability.

Steelcase reported net income of $13.8 million, or 9 cents per share, for the quarter, consistent with company estimates of 8 cents to 13 cents per share. This compares to net income of $7.3 million, or five cents per share, in the same quarter of the prior year.

“Steelcase’s second quarter results capped a solid start to 2006 with significantly improved first half revenue and profits,” stated James P. Hackett, president and CEO. “Steelcase employees everywhere have contributed to these improvements by focusing on our mission to provide customers with a better work experience and by their continued commitment to world-class process excellence.”

As compared to the prior year, second quarter revenue includes $11 million of service revenue and $3.8 million of revenue from acquisitions, partially offset by a $6 million reserve for contract-related contingencies. These items had the net effect of increasing revenue by 1.4 percent compared to the prior year.

Included in second quarter results were net restructuring charges totaling $6.1 million after-tax, primarily related to facility rationalization in the company’s North America and International segments, including the shuttering of its flagship Grand Rapids plant.

Net restructuring charges were $1.4 million after-tax in the prior year’s quarter.

Despite higher restructuring costs in the current quarter, gross profit of 30.4 percent in the second quarter improved from 30 percent in the same quarter last year.  Excluding these charges, gross profit improved by 1.3 percentage points.

Reported operating income was $25.3 million, or 3.6 percent of revenue, and includes restructuring charges of $9.7 million pre-tax. Operating income without restructuring charges was $35 million, or 5 percent of revenue in the current quarter compared to 2.9 percent of revenue in the prior year.

Steelcase expects third quarter sales to be 8 percent to 12 percent higher than the prior year driven by a strong backlog going into the third quarter. Order rates strengthened in August and remained strong in early September. The company expects to report earnings between 10 cents and 15 cents per share in the third quarter, including restructuring charges of $2 million to $5 million after-tax.

This reflects increased discounts from a higher mix of large project business in current backlog, and increased costs of disruption as the company begins to relocate certain production lines as part of the consolidation.    

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