- Orders grew 8% compared to prior year with 10% growth in the Americas
- Operating income improved by $10 million compared to prior year driven by International
- Strong second quarter outlook driven by education and large corporate customers
- First half outlook reflects pace towards higher end of full year income targets
Steelcase Inc. (NYSE: SCS) today reported first quarter revenue of $727.3 million, net income of $10.9 million, or $0.09 per share, and adjusted earnings per share of $0.16. In the prior year, Steelcase reported revenue of $751.9 million, net income of $1.5 million, or $0.01 per share, and adjusted earnings per share of $0.09.
Revenue decreased 3 percent in the first quarter compared to the prior year, with a 3 percent decline in both the Americas and International. On an organic basis, revenue decreased 1 percent, with a 1 percent decline in the Americas and a 2 percent decline in International. The Americas revenue was impacted by a lower beginning backlog compared to the prior year (which was affected by supply chain disruptions and extended delivery timeframes), partially offset by order growth.
Orders (adjusted for the impact of a divestiture and currency translation effects) grew 8 percent in the first quarter compared to the prior year, including 10 percent growth in the Americas and 2 percent growth in International. The order growth in the Americas was primarily driven by project business with large corporate customers and our education business. The order growth in International was driven by 4 percent growth in EMEA, partially offset by a 3 percent decline in Asia Pacific. The growth in EMEA reflected growth in most markets and a decline in Germany, and the decline in Asia Pacific included declines in most markets partially offset by strong growth in India.
“We are pleased with our first quarter results, which reflected higher than expected adjusted earnings improvement and 10% order growth in the Americas,” said Sara Armbruster, president and CEO. “Similar to the prior two quarters, our order growth was driven by our large corporate customers, as companies make investments in their office space to support the transformation of work and other workplace strategies. Additionally, we’re excited about our education business, which delivered strong first quarter order growth at the start of the peak education season.”
Operating income of $17.6 million in the first quarter represented an increase of $10.3 million compared to the prior year, and adjusted operating income of $28.2 million in the first quarter represented an increase of $8.5 million compared to the prior year. The increase was primarily due to gross margin improvement, partially offset by the impact of lower volume.
The company recorded $6.3 million of restructuring costs in the first quarter, which included $4.3 million of costs in the Americas related to cost improvement initiatives and $2.0 million of costs in International related to the closure of a distribution center and other efforts to improve operational effectiveness.
“Our International segment delivered nearly $7 million of year-over-year improvement in adjusted operating results despite lower revenue, driven in part by the benefits from our prior year restructuring actions,” said Dave Sylvester, senior vice president and CFO. “Our teams have continued to make adjustments to lower our cost structure in certain International markets as we manage through the current demand environment.”
Gross margin of 32.2 percent in the first quarter included $7.0 million of restructuring costs compared to $1.4 million of restructuring costs in the first quarter of the prior year. Excluding restructuring costs, gross margin improved 180 basis points compared to the prior year driven by pricing benefits, partially offset by the impacts of lower volume.
Operating expenses of $217.5 million in the first quarter represented a decrease of $3.1 million compared to the prior year. The decrease was driven by $7.0 million of lower spending in various functional areas and employee costs in International and $4.3 million from a divestiture, partially offset by $3.7 million of higher variable compensation expense and $3.4 million of higher information technology costs primarily related to the company’s business transformation initiative.
The company recorded income tax expense of $3.2 million in the first quarter, which represented an effective tax rate of approximately 23 percent and included $0.5 million of discrete tax benefits.
Total liquidity, which is comprised of cash and cash equivalents, short-term investments and the cash surrender value of company-owned life insurance, aggregated to $377.8 million at the end of the first quarter, and represented an increase of $177.9 million compared to the prior year. Total debt was $446.5 million. Trailing four quarter adjusted EBITDA of $273.6 million (or 8.7 percent of revenue) represented an increase of 17 percent compared to the prior year.
During the first quarter, the company repurchased 1.5 million shares of its Class A Common Stock under its repurchase authorization for a total cost of $18.7 million. A total of $87.7 million remained under the company’s share repurchase authorization at the end of the first quarter.
The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before July 15, 2024, to shareholders of record as of July 3, 2024.
Outlook
At the end of the first quarter, the company’s backlog was approximately $764 million, which was 1 percent higher than the prior year. The company expects second quarter fiscal 2025 revenue to be in the range of $850 to $875 million. The company reported revenue of $854.6 million in the second quarter of fiscal 2024. The projected revenue range translates to a decline of 1 percent to growth of 2 percent compared to the prior year, or organic growth of 1 to 4 percent.
The company expects to report earnings per share of between $0.33 to $0.37 for the second quarter of fiscal 2025 and adjusted earnings per share of between $0.36 to $0.40. The company reported earnings per share of $0.23 and adjusted earnings per share of $0.31 in the second quarter of fiscal 2024.
The second quarter estimates include:
- gross margin of approximately 35 percent,
- projected operating expenses of between $240 to $245 million, which includes $4.3 million of amortization of purchased intangible assets,
- projected interest expense, net of investment income and other income, net, of approximately $3 million and
- a projected effective tax rate of 27 percent.
“In March, we communicated our financial targets for fiscal 2025, which included organic revenue growth of 1 to 5 percent compared to fiscal 2024, adjusted operating income of between $150 to $175 million and adjusted earnings per share of between $0.85 to $1.00,” said Dave Sylvester. “With the strength of our first quarter results and second quarter outlook, we have increased confidence of achieving our targets and potentially reaching the higher end of the range for our income targets assuming relatively stable macroeconomic and geopolitical environments.”
“I’m encouraged by the number of customers from around the world we met with at the recent NeoCon trade show who are looking to us for help to energize and rejuvenate their offices,” said Sara Armbruster. “We believe our solutions are resonating as evidenced by our continued strong win rates and three consecutive quarters of year-over-year order growth.”
The full text of Steelcase’s 1Q25 earnings release, including all tables, and a replay of the company’s June 20 webcast presentation may be accessed at ir.steelcase.com.
About Steelcase Inc.
Established in 1912, Steelcase is a global design, research 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 30 creative and technology partner brands, we 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 2024 revenue of $3.2 billion. With approximately 11,300 global employees and our dealer community, we come together for people and the planet — using our business to help the world work better.