Steelcase Reports Second Quarter Results -- Revenue and Earnings Exceed Expectations
Strong Growth Projected for Third Quarter
GRAND RAPIDS, Mich., Sept. 22, 2010 -- Steelcase Inc. (NYSE:SCS) today reported second quarter revenue of $599.8 million and net income of $2.8 million, or $0.02 per share, both ahead of company estimates. Excluding restructuring costs, adjusted earnings equaled $0.08 per share. Steelcase reported $578.1 million of revenue and break-even net income in the second quarter of the prior year.
Organic revenue growth in the second quarter was 8 percent over the prior year after adjusting for negative impacts of $(13) million from the deconsolidation of dealers completed in the last twelve months and approximately $(11) million related to unfavorable currency translation effects.
"We are pleased to report positive momentum in our second quarter, with a highlight being organic revenue from our International customers rising 15 percent over the prior year," said James P. Hackett, president and CEO. "Our International and North America segments expect a solid third quarter, fueled by double-digit order growth this quarter compared to the prior year."
The current quarter operating profit of $6.5 million represents an improvement of $7.5 million over the prior year operating loss of $(1.0) million, which included $9.8 million of income associated with an increase in cash surrender value of variable life company-owned life insurance policies ("variable life COLI income"). Current quarter results include $(13.0) million of restructuring costs compared to $(17.4) million of restructuring costs in the prior year. Adjusted for these items, second quarter adjusted operating income of $19.5 million improved $12.9 million compared to the prior year.
"I am pleased with the expansion we are seeing in our operating margin at this stage of the economic recovery," said David C. Sylvester, vice president and CFO. "We experienced good operating leverage from volume growth across our business, and improvements at PolyVision, Asia Pacific and Coalesse contributed significantly to the operating results this quarter."
Cost of sales was 69.6 percent of revenue in the current quarter compared with 69.8 percent in the prior year. The benefits from previous restructuring activities and higher absorption of fixed costs associated with the revenue growth in the quarter were largely offset by lower variable life COLI income compared to prior year and a current quarter charge to increase warranty reserves related to a pending retrofit project.
Operating expenses in the second quarter were $162.8 million compared with $158.6 million in the prior year which included the favorable impacts of variable life COLI income and a property tax settlement totaling $6.1 million. Current quarter expenses benefited from previous restructuring activities and other cost reduction efforts plus the effect of dealer deconsolidations, but were partially offset by variable compensation expense and the reinstatement of salaries to fiscal 2009 levels.
Other income, net includes a recovery of a reserve recorded in conjunction with an unconsolidated joint venture and variable life COLI income, which is now recorded as a non-operating item given the designation of these assets as an additional source of corporate liquidity.
Income tax expense for the second quarter included miscellaneous charges for discrete tax items.
Cash, short-term investments and the cash surrender value of variable life company-owned life insurance totaled $253.5 million and total debt was $298.8 million at end of the second quarter.
Orders grew by double-digit percentages in the International and North America segments in the second quarter, compared to the prior year, and reflected an increase in project activity compared to recent quarters. The company expects third quarter fiscal 2011 revenue to be in the range of $625 to $650 million. This estimate includes an assumption of approximately $(19) million from unfavorable currency translation effects. The company reported revenue of $616.1 million in the third quarter of fiscal 2010, which included $21 million of revenue from dealers which have since been deconsolidated. Adjusting for these impacts, the company projects organic revenue growth in the range of 8 to 13 percent over the prior year.
Steelcase expects to report net income of $0.07 to $0.11 per share for the third quarter of fiscal 2011, including restructuring costs of approximately $(0.03) per share. Steelcase reported break-even earnings per share in the third quarter of fiscal 2010.
"We believe our strategic growth investments are contributing significantly to the improved demand we are reporting today," Mr. Hackett said. "Though there is still some uncertainty in the global economy at a macro level, these investments should support our company's growth as the economy continues to stabilize."
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