Steelcase Reports Fourth Quarter and Fiscal 2024 Results
- Fourth quarter results
- Orders grew 4% compared to prior year driven by 8% growth in the Americas
- Gross margin improved 140 basis points compared to prior year
- Earnings per share increased 38% compared to prior year
- Fiscal 2024 results
- Gross margin improved 360 basis points compared to fiscal 2023
- Earnings per share increased 127% compared to fiscal 2023
- Total liquidity strengthened by $238 million during fiscal 2024
- Company provides financial targets for fiscal 2025
Steelcase Inc. (NYSE: SCS) today reported fourth quarter revenue of $775.2 million, net income of $21.3 million, or $0.18 per share, and adjusted earnings per share of $0.23. In the prior year, Steelcase reported revenue of $801.7 million, net income of $15.7 million, or $0.13 per share, and adjusted earnings per share of $0.19.
Revenue decreased 3 percent in the fourth quarter compared to the prior year, with a 2 percent decline in the Americas and a 6 percent decline in International. On an organic basis, revenue decreased 1 percent, with revenue approximately flat in the Americas and a 6 percent decline in International. The Americas results were driven by a lower beginning backlog compared to the prior year (which was impacted by supply chain disruptions and extended lead times), partially offset by order growth. The International decline was broad based across most markets in EMEA and China, largely related to macroeconomic factors.
Orders (adjusted for the impact of divestitures and currency translation effects) grew 4 percent in the fourth quarter compared to the prior year, including 8 percent growth in the Americas and a 6 percent decline in International. The order growth in the Americas was primarily driven by large corporate customers in both continuing and project business. The order decline in International was driven by a 12 percent decline in EMEA, partially offset by 24 percent growth in Asia Pacific.
“I’m proud of the earnings improvement our teams delivered again this quarter, capping off a strong fiscal 2024 in which our net income more than doubled from the prior year,” said Sara Armbruster, president and CEO. “Our 8 percent order growth in the Americas in the fourth quarter was driven by our large corporate customers, and we believe this is reflective of customers investing to create inspiring workplaces as they call for a stronger in-office presence.”
Operating income of $25.7 million in the fourth quarter represented a decrease of $3.0 million compared to the prior year, and adjusted operating income of $34.4 million in the fourth quarter represented a decrease of $4.2 million compared to the prior year. The decrease was primarily due to the prior year including $9.2 million of gains on the sales of fixed assets in the Americas, offset in part by a $5.2 million increase in the valuation of an acquisition earnout liability (of which $2.6 million was recorded in each of the Americas and International segments). The impact of lower volume in the current year was offset by higher pricing benefits.
“Our International segment continued to deliver improved profitability this quarter, with adjusted operating results increasing by more than $6 million versus the prior year despite lower revenue,” said Dave Sylvester, senior vice president and CFO. “We’ve delivered two consecutive quarters of strong adjusted operating income, reflecting significant improvement as compared to the first half adjusted operating loss of $15 million.”
Gross margin of 31.2 percent in the fourth quarter represented an increase of 140 basis points compared to the prior year. The increase was driven by higher pricing benefits and operational improvements, partially offset by the impacts of lower volume.
Operating expenses of $213.5 million in the fourth quarter represented an increase of $6.7 million compared to the prior year. The prior year included $9.2 million of gains on the sales of fixed assets, offset in part by a $5.2 million increase in the valuation of an acquisition earnout liability. The remaining increase included $5.2 million of higher variable compensation expense, partially offset by a $4.5 million decrease from divestitures.
Investment income of $2.9 million in the fourth quarter represented an increase of $2.6 million compared to the prior year due to a higher level of cash and cash equivalents and improved investment returns. Other income, net of $4.3 million in the fourth quarter represented an increase of $1.7 million compared to the prior year primarily due to net favorable impacts related to unconsolidated affiliates.
The company recorded income tax expense of $5.3 million in the fourth quarter, which represented an effective tax rate of approximately 20 percent and included $0.9 million of discrete tax benefits.
Total liquidity, comprised of cash and cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $485.5 million at the end of the fourth quarter, representing an increase of $60.9 million from the end of the third quarter. Total debt was $446.3 million. Trailing four quarter adjusted EBITDA of $264.0 million (or 8.4 percent of revenue) represented an increase of 26 percent compared to the prior year.
“Our liquidity increased by $238 million in fiscal 2024, driven by our improved earnings, $120 million of lower working capital, and $49 million of proceeds from fixed asset sales,” said Dave Sylvester. “We also entered into an amended credit agreement this quarter which extended the expiration date to 2029 and expanded the available capacity from $250 million to $300 million.”
The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before April 15, 2024, to shareholders of record as of April 3, 2024.
Fiscal 2024 Results
For fiscal 2024, the company recorded $3.2 billion of revenue, net income of $81.1 million, earnings per share of $0.68 and adjusted earnings per share of $0.93. In fiscal 2023, the company recorded $3.2 billion of revenue, net income of $35.3 million and earnings per share of $0.30 and adjusted earnings per share of $0.56.
Revenue declined 2 percent in fiscal 2024 compared to the prior year, with a 1 percent decrease in the Americas and a 7 percent decrease in International. On an organic basis, fiscal 2024 revenue represented a decline of 2 percent compared to the prior year, with revenue approximately flat in the Americas and an 8 percent decline in International.
Operating income for fiscal 2024 of $117.8 million represented an increase of $52.3 million compared to $65.5 million of operating income for fiscal 2023. Adjusted operating income for fiscal 2024 of $157.5 million represented an increase of $50.0 million compared to $107.5 million of adjusted operating income for fiscal 2023. The increase in adjusted operating income was driven by pricing benefits and operational improvements, partially offset by lower volume and higher operating expenses. Operating expenses in fiscal 2024 reflected $20.4 million of benefits related to gains on the sales of fixed assets and an earnout liability adjustment, as compared to $7.7 million of net benefits in fiscal 2023 for similar items.
“Our fiscal 2024 results reflected our efforts to recover the inflationary pressure on costs from the previous two years and drive improved profitability,” said Sara Armbruster. “We delivered a 360 basis point improvement in gross margin, and we more than doubled our earnings per share. As we focus on leading the transformation of the workplace and helping our customers create inspiring workplaces, we’re energized by our order growth from our large corporate customers.”
Outlook
At the end of the fourth quarter, the company’s backlog of customer orders was approximately $625 million, which was 8 percent lower than the prior year. Orders through the first three weeks of the first quarter of fiscal 2025 grew 10 percent compared to the prior year. As a result, the company expects first quarter fiscal 2025 revenue to be in the range of $715 to $740 million. The company reported revenue of $751.9 million in the first quarter of fiscal 2024. The projected revenue range translates to a decline of 2 to 5 percent compared to the prior year, or approximately flat to a decline of 3 percent on an organic basis.
The company expects to report earnings per share of between $0.05 to $0.09 for the first quarter of fiscal 2025 and adjusted earnings per share of between $0.08 to $0.12. The company reported earnings per share of $0.01 and adjusted earnings per share of $0.09 in the first quarter of fiscal 2024.
The first quarter estimates include:
- gross margin of approximately 32 percent,
- projected operating expenses of between $215 to $220 million, which includes $4.3 million of amortization of purchased intangible assets,
- projected interest expense, investment income and other income, net, of approximately $2 million and
- a projected effective tax rate of 27 percent.
For fiscal 2025, the company is targeting 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. Fiscal 2025 includes an additional week compared to fiscal 2024, which is excluded from the organic revenue growth target.
The fiscal 2025 targets reflect the following assumptions and expectations, as compared to fiscal 2024:
- a mid-single digit order growth rate, including continued growth from large corporate customers, offset by the beginning backlog of customer orders which was 8 percent below the prior year,
- an improvement in gross margin to between 32.5 and 33.5 percent,
- increased operating expenses driven by higher investments in the company’s business transformation initiative, strategic growth initiatives and employee costs (the year-over-year comparison is also impacted by $20.4 million of benefits in the prior year related to gains on the sales of fixed assets and an earnout liability adjustment), and
- projected interest expense, investment income and other income, net, of approximately $11 million and an effective tax rate of 27 percent.
“As we look to fiscal 2025, we are excited about the progress we made in fiscal 2024 to improve our profitability and the momentum we’ve seen with our large corporate customers,” said Sara Armbruster. “We are targeting mid-single digit order growth in fiscal 2025 as we execute our strategies to lead the workplace transformation and diversify the customer and market segments we serve.”
Webcast
Steelcase will discuss fourth quarter results and business outlook on a conference call at 8:30 a.m. Eastern time tomorrow.
The full text of the company’s 4Q23 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 30 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 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.
