GRAND RAPIDS, MI - Steelcase Inc. (NYSE:SCS) today reported first quarter revenue of $723.1 million and net income of $21.0 million, or diluted earnings per share of $0.17. Excluding net restructuring benefits, adjusted earnings were $0.12 per share. In the prior year, Steelcase reported $667.1 million of revenue, diluted earnings per share of $0.10 and adjusted earnings of $0.13 per share.

Organic revenue growth over the prior year was 8 percent after adjusting for approximately $4.4 million of favorable currency translation effects. In the Americas, organic revenue growth over the prior year was 6 percent. The EMEA segment posted organic revenue growth of 10 percent, driven primarily by additional shipping days in the current quarter and higher levels of project business. The Other category posted organic revenue growth of 14 percent, driven by strong project business at PolyVision.

Current quarter operating income of $36.4 million compares to operating income of $20.4 million in the prior year. First quarter adjusted operating income of $26.7 million improved modestly compared with adjusted operating income of $24.8 million in the prior year. Operating leverage from the revenue growth was largely offset by higher cost of sales.

"We believe our revenue growth in the U.S. continued to outpace the overall industry, and we were pleased to see improved project business in various markets across EMEA and Asia Pacific," said Jim Keane, president and CEO. "Earnings were lower than our expectations due to less than expected growth in the Americas and higher costs associated with product warranties, freight and distribution, some of which are expected to continue to impact our results through the second quarter."

Cost of sales of 69.8 percent of revenue in the current quarter increased 130 basis points compared to the prior year. In the Americas, cost of sales increased by 70 basis points over the prior year primarily due to higher warranty, freight and distribution costs. In EMEA, cost of sales increased by 140 basis points driven largely by disruption costs associated with the manufacturing footprint changes. The Other category cost of sales increased 330 basis points over the prior year, due to competitive pricing pressures and higher overhead costs in Asia Pacific.

Operating expenses were $191.9 million in the first quarter, an increase of $6.8 million over the prior year. This increase was largely due to higher variable compensation expense, driven in part by restructuring benefits, and unfavorable currency translation effects. As a percentage of revenue, operating expenses improved by 130 basis points.

Net restructuring benefits of $9.7 million in the current quarter included restructuring costs related to previously announced actions in EMEA and a $12.0 million gain related to the sale of an idle manufacturing facility in the Americas.

Other income, net in the first quarter of $3.5 million increased $2.3 million compared to the prior year, primarily due to higher equity in income of unconsolidated ventures.

Cash, short-term investments and the cash surrender value of company-owned life insurance totaled $398 million and total debt was $286 million at the end of the first quarter.

The Board of Directors has declared a cash dividend of $0.105 per share, to be paid on or before July 16, 2014 to shareholders of record as of July 7, 2014.

The company announced today that it has initiated procedures with the applicable works councils regarding a project to exit a manufacturing facility in France and transfer its activities to other existing facilities in the EMEA region to safeguard the company's global competitiveness. This project may involve the transfer of the operations of the facility to a third party or result in a closure, and the total costs of the project are currently estimated at $30 to $50 million, with anticipated annual savings of approximately $10 million when fully implemented.

"The action announced today represents another step of our multi-year strategy to restore profitability in this region and safeguard our global competitiveness," said Dave Sylvester, senior vice president and CFO. "Together with our plan to exit a manufacturing facility in Germany (announced in the third quarter of fiscal 2014), these actions are expected to reduce our adjusted operating losses by approximately $20 million on an annualized basis when fully implemented."

Outlook

In the Americas, first quarter orders were flat compared to the prior year, and customer order backlog at the end of the first quarter increased approximately 6 percent compared to the prior year. EMEA first quarter orders grew significantly due to favorable currency fluctuations, additional shipping days in the current quarter and strength in project business (including a large government project won in fiscal 2013 which is expected to begin shipping in the second half of fiscal 2015). As a result, EMEA customer order backlog at the end of the first quarter increased approximately 23 percent compared to the prior year. The company expects second quarter fiscal 2015 revenue to be in the range of $760 to $785 million, which reflects expected organic revenue growth in the range of 0 to 3 percent over the prior year. The company reported revenue of $757.6 million in the second quarter of fiscal 2014.

Steelcase expects to report diluted earnings between $0.18 to $0.22 per share for the second quarter of fiscal 2015. This estimate includes approximately $0.04 per share of restructuring costs relating to previously announced restructuring projects. Adjusted for the estimated restructuring costs, the company expects to report adjusted earnings between $0.22 to $0.26 per share. The estimates also include approximately $6 million of operating costs associated with disruption. The estimates do not include any restructuring costs associated with the project announced today due to the uncertainty of the timing and amount of such costs. Steelcase reported diluted earnings per share of $0.22 and adjusted earnings per share of $0.24 in the second quarter of fiscal 2014.

"Taking into consideration a strong project pipeline and our award-winning new product introductions, we expect to continue our growth in the Americas in the second quarter, which would mark the 18th consecutive quarter of organic revenue growth," Mr. Keane said. "And we remain optimistic about the longer-term potential across EMEA and Asia Pacific as we continue to improve our competitiveness. Projects like the one we announced today are always challenging, and I am thankful for an organization dedicated to our success and ready to address those challenges."

Business Segment Results

(in millions)

 

 

 

 

 

(Unaudited)

 

 

Three Months Ended

 

 

May 30,
2014

May 24,
2013

%
Change

 

 

 

 

Revenue

 

 

 

Americas (1)

 $ 506.3

 $ 478.8

5.7%

EMEA (2)

147.6

126.7

16.5%

Other (3)

69.2

61.6

12.3%

Consolidated revenue

 $ 723.1

 $ 667.1

8.4%

 

 

 

 

Operating income (loss)

 

 

 

Americas

 $ 53.2

 $ 38.7

 

EMEA

(7.7)

(10.3)

 

Other

1.9

 

Corporate (4)

(9.1)

(9.9)

 

Consolidated operating income

 $ 36.4

 $ 20.4

 

 

 

 

 

Operating income percent

 5.0%

 3.1%

 

 

 

 

 

Revenue Mix

 

 

 

Americas (1)

 70.0%

 71.8%

 

EMEA (2)

 20.4%

 19.0%

 

Other (3)

 9.6%

 9.2%

 

 

 

 

 

 

 

 

 

Business Segment Footnotes

 

 

 

 

 

 

 

1.  The Americas segment serves customers in the U.S., Canada and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, Details and Turnstone brands.

2.  The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions.

3.  The Other category includes Asia Pacific, Designtex and PolyVision.

4.  Corporate expenses include unallocated portions of shared services functions such as information technology, human resources, finance, executive, corporate facilities, legal and research.

 

 

 

YEAR OVER YEAR ORGANIC REVENUE GROWTH BY SEGMENT

Q1 2015 vs. Q1 2014

 

Steelcase Inc.

Americas

EMEA

Other category

 

 

 

 

 

Q1 2014 revenue

 $ 667.1

 $ 478.8

 $ 126.7

 $ 61.6

Currency translation effects*

4.4

(2.4)

7.6

(0.8)

Q1 2014 revenue, adjusted

671.5

476.4

134.3

60.8

 

 

 

 

 

Q1 2015 revenue, reported

723.1

506.3

147.6

69.2

Organic growth $

 $ 51.6

 $ 29.9

 $ 13.3

 $ 8.4

Organic growth %

8%

6%

10%

14%

 

 

 

 

 

* Currency translation effects represent the estimated net effect of translating Q1 2014 foreign currency revenues using the average exchange rates during Q1 2015.

 

 

 

 

 

PROJECTED ORGANIC REVENUE GROWTH

 

 

 

Q2 2015 vs. Q2 2014

 

 

 

 

Steelcase Inc.

 

 

 

 

 

 

 

 

Q2 2014 revenue

$ 758

 

 

 

Currency translation effects*

2

 

 

 

Q2 2014 revenue, adjusted

760

 

 

 

 

 

 

 

 

Q2 2015 revenue, projected

760 - 785

 

 

 

Organic growth $

$ 0 - 25

 

 

 

Organic growth %

0% - 3%

 

 

 

 

 

 

 

 

* Currency translation effects represent the estimated net effect of translating Q2 2014 foreign currency revenues using the exchange rate at the end of Q1 2015.

 

 

 

 

 

 

 

ADJUSTED EARNINGS PER SHARE

(Unaudited)

 

Three Months Ended

 

May 30,
2014

May 24,
2013

 

 

 

Diluted earnings per share

 $ 0.17

 $ 0.10

Restructuring costs (benefits) per share, net of tax

(0.05)

0.03

Diluted earnings per share, adjusted

 $ 0.12

 $ 0.13

 

 

 

 

 

 

PROJECTED ADJUSTED EARNINGS PER SHARE

(Unaudited)

 

Three Months Ended

 

August 29,
2014
(projected)

August 23,
2013

 

 

 

Diluted earnings per share

$ 0.18 - 0.22

 $ 0.22

Restructuring costs per share, net of tax

0.04

0.02

Diluted earnings per share, adjusted

$ 0.22 - 0.26

 $ 0.24

 

 

 

 

 

 

 

 

 

 

 

Steelcase Inc.

 

 

 

 

 

(Unaudited)

 

Three Months Ended

 

May 30,
2014

May 24,
2013

Revenue

 $ 723.1

 100.0%

 $ 667.1

 100.0%

Cost of sales

 504.5

 69.8

 457.2

 68.5

Restructuring costs (benefits)

 (10.5)

 (1.5)

 0.2

 — 

Gross profit

 229.1

 31.7

 209.7

 31.5

Operating expenses

 191.9

 26.5

 185.1

 27.8

Restructuring costs

 0.8

 0.2

 4.2

 0.6

Operating income

 $ 36.4

 5.0%

 $ 20.4

 3.1%

Interest expense, investment income and other income, net

 (0.5)

 — 

 (2.6)

 (0.4)

Income before income tax expense

 35.9

 5.0

 17.8

 2.7

Income tax expense

 14.9

 2.1

 4.6

 0.7

Net income

 $ 21.0

 2.9%

 $ 13.2

 2.0%

 

 

 

 

 

Operating income

 $ 36.4

 5.0%

 $ 20.4

 3.1%

Add: restructuring costs (benefits)

 (9.7)

 (1.3)

 4.4

 0.6

Adjusted operating income

 $ 26.7

 3.7%

 $ 24.8

 3.7%

 

 

 

 

 

Americas

 

 

 

 

 

(Unaudited)

 

Three Months Ended

 

May 30,
2014

May 24,
2013

Revenue

 $ 506.3

 100.0%

 $ 478.8

 100.0%

Cost of sales

 345.9

 68.3

 323.5

 67.6

Restructuring costs (benefits)

 (11.6)

 (2.3)

 0.2

 — 

Gross profit

 172.0

 34.0

 155.1

 32.4

Operating expenses

 118.8

 23.5

 115.4

 24.1

Restructuring costs

 — 

 — 

 1.0

 0.2

Operating income

 $ 53.2

 10.5%

 $ 38.7

 8.1%

Add: restructuring costs (benefits)

 (11.6)

 (2.3)

 1.2

 0.2

Adjusted operating income

 $ 41.6

 8.2%

 $ 39.9

 8.3%

 

 

 

 

 

EMEA

 

 

 

 

 

(Unaudited)

 

Three Months Ended

 

May 30,
2014

May 24,
2013

Revenue

 $ 147.6

 100.0%

 $ 126.7

 100.0%

Cost of sales

 111.7

 75.6

 94.0

 74.2

Restructuring costs

 1.1

 0.8

 — 

 — 

Gross profit

 34.8

 23.6

 32.7

 25.8

Operating expenses

 41.7

 28.3

 39.8

 31.4

Restructuring costs

 0.8

 0.5

 3.2

 2.5

Operating loss

$ (7.7)

 (5.2)%

$ (10.3)

 (8.1)%

Add: restructuring costs

 1.9

 1.3

 3.2

 2.5

Adjusted operating loss

$ (5.8)

 (3.9)%

$ (7.1)

 (5.6)%

 

 

 

 

 

Other category

 

 

 

 

 

(Unaudited)

 

Three Months Ended

 

May 30,
2014

May 24,
2013

Revenue

 $ 69.2

 100.0%

 $ 61.6

 100.0%

Cost of sales

 46.9

 67.8

 39.7

 64.5

Restructuring costs

 — 

 — 

 — 

 — 

Gross profit

 22.3

 32.2

 21.9

 35.5

Operating expenses

 22.3

 32.2

 20.0

 32.5

Restructuring costs

 — 

 — 

 — 

 — 

Operating income

$ — 

 — %

 $ 1.9

 3.0%

Add: restructuring costs

 — 

 — 

 — 

 — 

Adjusted operating income

$ — 

 — %

 $ 1.9

 3.0%

 

 

 

 

 

Corporate

 

 

 

 

 

(Unaudited)

 

Three Months Ended

 

May 30,
2014

May 24,
2013

Operating loss

$ (9.1)

 

$ (9.9)

 

Add: restructuring costs

 — 

 

 — 

 

Adjusted operating loss

$ (9.1)

 

$ (9.9)

 

Webcast

Steelcase will discuss first quarter results and business outlook on a conference call and webcast at 11:00 a.m. Eastern time today. Links to the webcast are available at ir.steelcase.com. Related presentation slides will be available on the company's website shortly after this press release is issued.

Non-GAAP Financial Measures

This earnings release contains certain non-GAAP financial measures. A "non-GAAP financial measure" is defined as a numerical measure of a company's financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flow of the company. Pursuant to the requirements of Regulation G, the company has provided a reconciliation above of non-GAAP financial measures to the most directly comparable GAAP financial measure.

The non-GAAP financial measures used within the company's earnings release are: (1) organic revenue growth (decline), which represents the change in revenue excluding currency translation effects and the impacts of acquisitions and divestitures;  (2) adjusted operating income (loss), which represents operating income (loss), excluding restructuring costs (benefits) and goodwill and intangible asset impairment charges; and (3) adjusted earnings (loss) per share, which represents earnings (loss) per share, excluding restructuring costs (benefits) and goodwill and intangible asset impairment charges, net of tax. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors.

About Steelcase Inc.

For over 100 years, Steelcase Inc. has helped create great experiences for the world's leading organizations, across industries. We demonstrate this through our family of brands - including Steelcase®, Coalesse®, Designtex®, Details®, PolyVision® and Turnstone®. Together, they offer a comprehensive portfolio of architecture, furniture and technology products and services designed to unlock human promise and support social, economic and environmental sustainability. We are globally accessible through a network of channels, including over 800 dealer locations. Steelcase is a global, industry-leading and publicly traded company with fiscal 2014 revenue of $3.0 billion.

 

STEELCASE INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in millions, except per share data)

 

 

 

 

Three Months Ended

 

May 30,
2014

May 24,
2013

Revenue

 $ 723.1

 $ 667.1

Cost of sales

 504.5

 457.2

Restructuring costs (benefits)

 (10.5)

 0.2

Gross profit

 229.1

 209.7

Operating expenses

 191.9

 185.1

Restructuring costs

 0.8

 4.2

Operating income

 36.4

 20.4

Interest expense

 (4.4)

 (4.4)

Investment income

 0.4

 0.6

Other income, net

 3.5

 1.2

Income before income tax expense

 35.9

 17.8

Income tax expense

 14.9

 4.6

Net income

 $ 21.0

 $ 13.2

 

 

 

Earnings per share:

 

 

Basic

 $ 0.17

 $ 0.10

Diluted

 $ 0.17

 $ 0.10

Weighted average shares outstanding - basic

125.3

126.5

Weighted average shares outstanding - diluted

126.6

127.9

 

 

 

Dividends declared and paid per common share

 $ 0.105

 $ 0.100

 

 

 

STEELCASE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in millions, except share data)

 

 

 

 

May 30,
2014

February 28,
2014

ASSETS

Current assets:

 

 

Cash and cash equivalents

 $ 158.3

 $ 201.8

Short-term investments

 84.8

 119.5

Accounts receivable, net

 322.1

 306.8

Inventories

 161.1

 151.5

Deferred income taxes

 47.8

 56.0

Prepaid expenses

 20.8

 19.3

Other current assets

 29.2

 35.0

Total current assets

 824.1

 889.9

 

 

 

Property, plant and equipment, net

 377.5

 377.0

Company-owned life insurance ("COLI")

 155.2

 154.3

Deferred income taxes

 79.6

 85.1

Goodwill

 108.3

 108.1

Other intangible assets, net

 16.2

 16.6

Investments in unconsolidated affiliates

 54.4

 53.0

Other assets

 40.9

 42.7

Total assets

 $ 1,656.2

 $ 1,726.7

 

 

 

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:

 

 

Accounts payable

 $ 220.0

 $ 212.5

Short-term borrowings and current portion of long-term debt

 2.6

 2.6

Accrued expenses:

 

 

Employee compensation

 87.3

 152.8

Employee benefit plan obligations

 17.5

 26.1

Customer deposits

 17.2

 16.0

Product warranties

 20.4

 17.5

Other

 107.8

 110.7

Total current liabilities

 472.8

 538.2

 

 

 

Long-term liabilities:

 

 

Long-term debt less current maturities

 283.8

 284.4

Employee benefit plan obligations

 146.9

 151.1

Other long-term liabilities

 65.0

 75.9

Total long-term liabilities

 495.7

 511.4

Total liabilities

 968.5

 1,049.6

 

 

 

Shareholders' equity:

 

 

Common stock

 — 

 — 

Additional paid-in capital

 3.7

 — 

Accumulated other comprehensive income

 0.3

 0.8

Retained earnings

 683.7

 676.3

Total shareholders' equity

 687.7

 677.1

Total liabilities and shareholders' equity

 $ 1,656.2

 $ 1,726.7

 

 

 

STEELCASE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)

(in millions)

 

 

 

 

Three Months Ended

 

May 30,
2014

May 24,
2013

OPERATING ACTIVITIES

 

 

Net income

 $ 21.0

 $ 13.2

Depreciation and amortization

 14.7

 14.1

Deferred income taxes

 13.0

 0.7

Restructuring costs (benefits)

 (9.7)

 4.4

Non-cash stock compensation

 9.6

 10.8

Equity in income of unconsolidated affiliates

 (3.7)

 (1.7)

Dividends received from unconsolidated affiliates

 2.3

 0.7

Other

 (1.8)

 (1.3)

Changes in operating assets and liabilities:

 

 

Accounts receivable

 (15.0)

 (16.6)

Inventories

 (9.5)

 (10.4)

Other assets

 (10.5)

 (2.5)

Accounts payable

 7.6

 14.1

Employee compensation liabilities

 (74.4)

 (48.0)

Employee benefit obligations

 (14.6)

 (16.4)

Accrued expenses and other liabilities

 (1.6)

 (0.4)

Net cash used in operating activities

 (72.6)

 (39.3)

 

 

 

INVESTING ACTIVITIES

 

 

Capital expenditures

 (15.8)

 (18.4)

Proceeds from disposal of fixed assets

 19.0

 0.9

Purchases of investments

 (27.0)

 (9.8)

Liquidations of investments

 62.8

 66.4

Other

 9.8

 (0.4)

Net cash provided by investing activities

 48.8

 38.7

 

 

 

FINANCING ACTIVITIES

 

 

Dividends paid

 (13.6)

 (12.5)

Common stock repurchases

 (5.9)

 (31.7)

Excess tax benefit from vesting of stock awards

 — 

 (1.1)

Repayments of long-term debt

 (0.6)

 (0.6)

Net cash used in financing activities

 (20.1)

 (45.9)

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 0.4

 (0.8)

 

 

 

Net decrease in cash and cash equivalents

 (43.5)

 (47.3)

Cash and cash equivalents, beginning of period

 201.8

 150.4

Cash and cash equivalents, end of period

 $ 158.3

 $ 103.1

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