Steelcase Reports 1Q Profit

June 21, 2005
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GRAND RAPIDS — Steelcase Inc.’s bottom line had a nearly $12 million swing in the first quarter of fiscal 2006. The world’s largest maker of institutional furniture today reported profits of $6.7 million on revenue of $676 million, compared to the $5.7 million loss of the year-ago quarter.

Revenue in the first quarter was up 13 percent, from $597.7 million in 2006.

“Steelcase is off to a strong start in 2006,” stated James Hackett, president and CEO. “We delivered results at the high end of our estimates and continued to build momentum, particularly in our North America segment, which experienced a double-digit increase in sales and significantly improved operating income performance. Our results are a clear indication that our strategy is working — and that our evolving business model is driving improved results.

“Additionally, our focus on providing a better work experience for our customers continues to drive innovation across the company. For the third year in a row, we won more product awards at NeoCon than anyone else in our industry.”

Included in first quarter results were after-tax net restructuring charges of $6.8 million primarily from facility rationalizations in Steelcase’s North America and International segments, including the consolidation within its West Michigan plants.

These charges were slightly lower than company estimates. Some of the severance and asset impairment charges the company expected in the first quarter will be incurred in future periods.

The company continues to estimate full year after tax restructuring charges of $18 million to $23 million.

Cost of sales, which does not include restructuring charges, improved 2.2 percentage points to 69.2 percent in the first quarter, primarily because of benefits from prior restructuring actions. Some of the operating improvement in the quarter was offset by disruption costs associated with ongoing facility consolidations.

Despite higher restructuring costs in the current quarter, gross margins of 29.5 percent in the first quarter improved from 28 percent in the same quarter last year. Operating expenses as a percent of sales dropped to 27 percent from 28.6 percent in the prior year.

“Each of our business segments had double digit sales growth in the first quarter,” said James Keane, chief financial officer. “We’re making good, sustained progress toward our long-term profitability goals and are seeing the benefits of our prior restructuring activities and improved pricing yield. We also reduced debt again this quarter which helps to strengthen our balance sheet.”

The company’s statement forecast 10 percent to 15 percent sales growth in the second quarter over the prior year, driven by a strong backlog. North America order rates are stable early in the second quarter, but showing slower growth over prior year comparisons.  

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