Steelcase's Big Quarter

December 16, 2005
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GRAND RAPIDS — Driven by 17.4 percent growth in its North America segment, Steelcase Inc. revenue spiked 11.4 percent to $750.7 million in its third quarter of fiscal 2006. This coupled with reported profits of $19.1 million, or $0.13 per share, consistent with estimates of $0.10 to $0.15 per share and an astonishing 90 percent over the year-ago $10.1 million.

Year to date, profits were up $27.9 million to $39.6 million, a 238 percent increase over the same period last year.

The company reported improved results in all three of its business segments.

“We significantly improved our results even as we worked through the many challenges associated with making changes to our business model,” said company president James Hackett in a press release this morning. “These changes will reduce complexity and cost, improve customer value and satisfaction, and create a platform for strong, profitable growth.”

Included in third quarter results were net restructuring charges of $4.6 million primarily due to the plant closings in Grand Rapids and elsewhere in the North America and international segments.

Despite higher restructuring costs, gross margin of 29.8 percent in the third quarter improved 1.9 percentage points from 27.9 percent in the year-ago quarter. Excluding restructuring charges, gross margin improved by 2.5 percentage points.

Cost of sales improved by 2.5 points to 69.4 percent in the third quarter, driven by a 4.0 percentage point improvement in the North America segment. Improved pricing yield, leverage from higher sales volume, lower overhead spending and gains in labor productivity all contributed to the improvement.

Compared to the year ago quarter, revenue included $12.8 million from services, $8.4 million from acquisitions and a $6 million loss from currency translation, a net impact on revenue of 2.3 percent.

The company expects fourth quarter revenue to follow normal seasonal patterns and decline slightly from the third quarter. On a year-over-year basis, revenue is expected to be 4 percent to 8 percent higher than the very strong prior year quarter. Steelcase expects to report earnings between 7 cents and 12 cents per share in the fourth quarter.

It has updated its three-year plan and continues to target gross margins of 35 percent, operating expenses of 25 percent and operating income of 10 percent of revenue.     

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