Steelcase Expects More Losses

October 24, 2003
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Steelcase Inc., amid a significantly downgraded industry outlook for 2004, expects to lose money for the rest of its fiscal year.

The company, citing flat order rates through mid-October after earlier expecting a “gradual strengthening” of orders, told investors today that it has reduced North American shipment expectations by 5 percent for the third and fourth quarters of FY 2004. Steelcase also trimmed its forecasted operating income and accelerated planned restructuring charges.

As a result, Steelcase now expects to post a loss of 5 cents to 7 cents per share for the third quarter that ends Nov. 30, with $5 million to $7 million in previously anticipated pre-tax restructuring charges, on sales that are “consistent” with the $612.1 million recorded in the second quarter.

Steelcase will rack up a fourth quarter loss of 6 cents to 11 cents per share that will include pre-tax charges of $15 million to $20 million. Restructuring charges that were to occur in early FY 2005 would now occur in the fourth quarter of FY 2004, the company said.

“Steelcase is aggressively implementing its plan to improve its cost structure, and is making faster than expected progress on rationalization initiatives in North America and international,” the company stated this morning.

For the full fiscal year, the company expects to lose 10 cents to 15 cents per share.

Wall Street brokerage analysts had expected Steelcase to post a profit of 3 cents per share for the third quarter and 6 cents per share for the fourth quarter, according to First Call/Thomson Financial.

Steelcase executives last month told Wall Street analysts they expected the company to post third quarter earnings “just above breakeven,” including pre-tax restructuring charges of $5 million to $7 million, and a profit for the full fiscal year.

Amid the news from Steelcase is an updated outlook from the industry trade group BIFMA showing that a solid rebound for office furniture makers remains in the distance.

While a small upgrade for 2003 from the last forecast issued in July, the newest BIFMA outlook significantly lowers expectations for 2004.

BIFMA now forecasts shipments next year to rise just 2.5 percent, after three consecutive years of steep declines, to $8.6 billion. BIFMA in July forecast a strong 14 percent rebound in shipments next year.

The downgrade for 2004 is reflective of continued softness in corporate profit projections, office construction and hiring, BIFMA Executive Director Tom Reardon said.

“It’s still tough times out there,” Reardon said. “Until the employment projection really turns around, we’re probably not going to.”

For 2003, BIFMA now anticipates a 5.5 percent decline in industrywide shipments, from $8.89 billion to $8.4 billion. That’s an improvement in BIFMA’s July forecast that foresaw an 8.5 percent shipment decline for 2003.

Still, the decline this year will further the office furniture industry’s unprecedented, three-year plunge from a peak sales volume of $13.28 billion in 2000.

Today’s earnings warning from Steelcase comes after both Moody’s and Standard & Poor’s this month lowered the company’s credit rating.

In its action this week, Moody’s also gave Steelcase a negative rating and cited the company’s reduced revenue, operating income and cash flow that are “likely to persist over the near term, as demand for contract office furnishings remains sluggish.” Moody’s also cited the “risks associated with inefficiencies or additional charges arising from the company’s ongoing restructuring program.”

“The potential that Steelcase’s business model may require a fundamental and permanent shift away from that of a vertically integrated manufacturer to enhance its industry competitiveness, and the commensurate stress on company management, are also reflected in the negative outlook,” Moody’s said.

In its announcement today, Steelcase stated that its balance sheet “remains strong with current cash balances and debt levels comparable to the end of the second quarter. The company expects to continue to comply with all debt covenants.”           

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