Steelcase Reports First Quarter Fiscal 2024 Results
- Year-over-year revenue and earnings growth realized in very dynamic environment
- Gross margin improvement of 530 basis points compared to the prior year driven by pricing benefits and operational efficiencies
- Outlook projects first half of fiscal 2024 being ahead of pace against full year financial targets
Steelcase Inc. (NYSE: SCS) today reported first quarter revenue of $751.9 million, net income of $1.5 million, or $0.01 per share, and adjusted earnings per share of $0.09. In the prior year, Steelcase reported revenue of $740.7 million, a net loss of $11.4 million, or $0.10 per share, and an adjusted loss per share of $0.05.
Revenue increased 2 percent in the first quarter compared to the prior year, and was flat on an organic basis, including 2 percent organic growth in the Americas and a 7 percent organic decline in International. The Americas growth was primarily driven by higher pricing but also benefited from faster order fulfillment patterns, partially offset by a lower beginning backlog. The decline in International was primarily driven by lower beginning backlog and continued macroeconomic concerns.
Orders (adjusted for the impact of an acquisition, divestitures and currency translation effects) declined 7 percent compared to the prior year, which had grown 22 percent compared to the first quarter of fiscal 2022. Orders declined 6 percent in the Americas and 11 percent in International. The order decline in the Americas was primarily due to a decline in project business, partially offset by growth in continuing business. The order decline in International was across most markets in EMEA and China, partially offset by growth across all other markets in Asia Pacific. On a consolidated basis, orders grew 21 percent sequentially versus the fourth quarter of fiscal 2023, which is consistent with the seasonal increase in the prior year.
“In the Americas, faster order fulfillment patterns, higher than expected incoming orders early in the quarter and favorable pricing benefits drove our revenue and earnings above our expectations,” said Sara Armbruster, president and CEO. “Our revenue from large corporate and government customers was better than we expected, despite the environment remaining challenging. Our win rate remains strong as our differentiated solutions are helping our customers evolve their spaces.”
Operating income of $7.3 million in the first quarter represented an increase of $19.9 million and 270 basis points as a percentage of revenue compared to the prior year. Adjusted operating income of $19.7 million in the first quarter (which excludes $8.1 million of restructuring costs and $4.3 million of amortization of purchased intangible assets) represented an increase of $24.3 million compared to the prior year. The increase in adjusted operating income was driven by a $28.1 million improvement in the Americas, partially offset by a $3.8 million decline in International. The increase in the Americas was primarily driven by higher revenue and improved gross margin, partially offset by higher operating expenses. The decrease in International was primarily driven by lower revenue and higher operating expenses, partially offset by improved gross margin.
“Our International segment reported an adjusted operating loss of $4.5 million in the first quarter, which is expected to worsen in the second quarter due to seasonality and the impact of continued economic uncertainty on our demand levels,” said Dave Sylvester, senior vice president and CFO. “As a result of the softening trends, we announced a series of restructuring actions during the quarter in our International segment.”
Gross margin of 31.2 percent in the first quarter represented an increase of 530 basis points compared to the prior year and reflected a 650 basis point improvement in the Americas and a 180 basis point improvement in International. Year-over-year pricing benefits, net of inflation, were approximately $80 million. In addition to the pricing benefits, the Americas gross margin improvement was driven by improved operational efficiencies, partially offset by lower volume, and International gross margin was impacted by lower volume.
“Similar to recent quarters, our gross margin improvement this quarter reflected the benefits from the pricing actions we’ve implemented to recover the significant inflationary costs we’ve absorbed over the past two years,” said Dave Sylvester. “In addition, our supply chain reliability in the Americas has improved significantly, which contributed to our improved operational performance and faster order fulfillment patterns during the quarter.”
Operating expenses of $220.6 million in the first quarter represented an increase of $19.7 million compared to the prior year, which included a $4 million gain on sale of land. The remaining increase was driven by $9.0 million of higher variable compensation expense and $6.2 million from an acquisition.
The company recorded income tax expense of $1.4 million in the first quarter, which represented an effective tax rate of approximately 48 percent and included $0.6 million of discrete tax expense. Adjusted for the discrete items, the company’s effective tax rate approximated 26 percent.
Total liquidity, comprised of cash and cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $199.9 million at the end of the first quarter. Total debt of $446.5 million represented a $34.7 million decrease compared to the end of the fourth quarter, as the company repaid a maturing note payable during the quarter. Adjusted EBITDA for the trailing four quarters was $234.7 million.
The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before July 17, 2023, to shareholders of record as of July 6, 2023.
At the end of the first quarter, the company’s backlog of customer orders was approximately $775 million, which was 20 percent lower than the prior year. Backlog in the prior year was 52 percent higher than at the end of the first quarter of fiscal 2022 in part due to the impacts of supply chain disruptions and extended delivery timeframes. Orders through the first three weeks of the second quarter of fiscal 2024 grew modestly compared to the prior year. As a result, the company expects second quarter fiscal 2024 revenue to be in the range of $815 to $840 million. The company reported revenue of $863.3 million in the second quarter of fiscal 2023. The projected revenue range translates to a decline of 3 to 6 percent, including on an organic basis, compared to the prior year.
The company expects to report earnings per share of between $0.13 to $0.17 for the second quarter of fiscal 2024 and adjusted earnings per share of between $0.19 to $0.23. The company reported earnings per share of $0.17 and adjusted earnings per share of $0.21 in the second quarter of fiscal 2023.
The second quarter estimates include:
- gross margin of approximately 31.5 percent (compared to 29.1 percent in the prior year), with projected pricing benefits, net of moderate inflation, of approximately $65 million as compared to the prior year,
- projected operating expenses of between $225 to $230 million, which includes $4 million of amortization of purchased intangible assets and $8 million of expected gains from the sale of fixed assets,
- estimated restructuring charges of approximately $4 million,
- projected interest expense, investment income and other income, net, of approximately $4 million and
- a projected effective tax rate of 26 percent.
“Through the first half of the year, we expect to be ahead of pace on achieving our fiscal 2024 financial targets in part due to better than expected results from our large corporate customers,” said Sara Armbruster. “While we continue to navigate through an uncertain environment around the world, we are focused on continuing to improve our profitability and being the leader in the transformation of the workplace.”
Steelcase will discuss first quarter results and business outlook on a conference call at 8:30 a.m. Eastern time tomorrow. The webcast of this call and the full text of the company’s 1Q24 earnings release, including all tables, may be accessed at ir.steelcase.com.
About Steelcase Inc.
Established in 1912, Steelcase is a global design and thought leader in the world of work. We help people do their best work by creating places that work better. Along with more than 35 creative and technology partner brands, we research, design and manufacture furnishings and solutions for the many places where work happens — including learning, health and work from home. Our solutions come to life through our community of expert Steelcase dealers in approximately 770 locations, as well as our online Steelcase store and other retail partners. Founded in Grand Rapids, Michigan, Steelcase is a publicly traded company with fiscal year 2023 revenue of $3.2 billion. With 12,000 global employees and our dealer community, we come together for people and the planet — using our business to help the world work better.