June 22, 2011
Steelcase Reports Revenue and Earnings Significantly Above Expectations Momentum Projected to Continue in Second Quarter
GRAND RAPIDS, Mich., June 22, 2011) -- Steelcase Inc. (NYSE:SCS) today reported first quarter revenue of $639.4 million and net income of $7.5 million, or $0.06 per share, both above company estimates. Excluding restructuring costs, adjusted earnings equaled $0.10 per share. Steelcase reported $541.8 million of revenue and a net loss of $(0.08) per share in the first quarter of the prior year.
Organic revenue growth in the first quarter was broad-based and totaled 23 percent over the prior year after adjusting for the negative impact of $(35) million associated with the deconsolidation of IDEO, approximately $10 million related to favorable currency translation effects and $5 million from a dealer acquisition completed during the current quarter.
"Customers are responding very well to our insight-led solutions for the interconnected workplace," said James P. Hackett, president and CEO. "By staying invested in multiple growth initiatives during the worst of the recession, we established a strong foundation for the revenue growth which occurred across all of our segments again this quarter."
Current quarter operating income of $15.0 million represents an improvement of $16.4 million over the prior year. Excluding restructuring costs, first quarter adjusted operating income of $24.9 million improved $23.8 million compared to the prior year, driven largely by organic revenue growth but impacted by commodity costs which were approximately $9 million higher than the prior year.
Cost of sales was 69.8 percent of revenue in the current quarter compared with 69.9 percent in the prior year. Higher commodity costs and the impact of deconsolidating IDEO were more than offset by higher absorption of fixed costs associated with the revenue growth in the quarter and benefits from previous restructuring activities.
Operating expenses in the first quarter were $168.2 million compared with $161.9 million in the prior year. The increase was largely due to higher variable compensation expenses, partially offset by the impact of deconsolidating IDEO which had the effect of reducing operating expenses.
Interest expense was $8.4 million in the current quarter which included $4.0 million of interest expense associated with the February 2011 issuance of senior notes. The company plans to use the net proceeds from this issuance, together with available cash on hand, to repay $250 million of outstanding senior notes due in August 2011.
Cash, short-term investments and the cash surrender value of variable life company-owned life insurance (COLI) totaled $510.8 million and total debt was $543.5 million at the end of the first quarter.
The Board of Directors of Steelcase Inc. today declared a quarterly cash dividend of $0.06 per share to be paid on or before July 15, 2011 to shareholders of record as of July 1, 2011.
"The operating leverage associated with the year-over-year organic revenue growth remained strong again this quarter," said David C. Sylvester, senior vice president and CFO. "Our first quarter adjusted operating income increased by $24 million compared to the prior year, despite higher commodity costs of approximately $9 million, which were only modestly offset by recent price list adjustments."
First quarter orders, which grew by more than 25 percent compared to the prior year, benefited from strength in the Americas in advance of a May 16th price list adjustment. The company expects second quarter fiscal 2012 revenue to be in the range of $670 to $695 million. This estimate includes an assumption of approximately $15 million from favorable currency translation effects compared to the prior year, as well as revenue from a dealer acquisition completed during May 2011. The company reported revenue of $599.8 million in the second quarter of fiscal 2011, which included $35 million of revenue from IDEO, which is no longer consolidated. Adjusting for these impacts, the company projects organic revenue growth in the range of 13 to 17 percent over the prior year.
Steelcase expects to report earnings between $0.06 and $0.10 per share for the second quarter of fiscal 2012, including restructuring costs of approximately $0.09 per share. These estimates also contemplate approximately $11 million of higher commodity costs compared to the prior year and approximately $4 million of incremental interest expense associated with the senior notes issued in February 2011. Steelcase reported earnings of $0.02 per share in the second quarter of fiscal 2011.
Mr. Hackett concluded, "We are at an important intersection. While the broader economic recovery remains challenged by a variety of headwinds, many of our customers are facing the realities of deferred spending during a decade in which various forces are having exponential consequences on their work environments. We believe our research partnerships and insight-led approach to product development and space applications represent a significant competitive advantage for our company."Business Segment Results (in millions) As of the end of the first quarter of fiscal year 2012, we realigned our reportable segments for financial reporting purposes primarily as a result of the previously announced organizational changes to strengthen our position as a globally integrated enterprise. The accompanying segment date for the prior period has been reclassified to reflect these realignments.
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