Steelcase Reports Third Quarter Fiscal 2024 Results
- Orders grew 15% compared to prior year and improved modestly on a sequential basis
- Gross margin improved 360 basis points compared to prior year
- International generated operating income of $6.6 million
- Total liquidity strengthened by $110 million during the third quarter
Steelcase Inc. (NYSE: SCS) today reported third quarter revenue of $777.9 million, net income of $30.8 million, or $0.26 per share, and adjusted earnings per share of $0.30. In the prior year, Steelcase reported revenue of $826.9 million, net income of $11.4 million, or $0.10 per share, and adjusted earnings per share of $0.20.
Revenue decreased 6 percent in the third quarter compared to the prior year, including 5 percent in the Americas and 7 percent in International. On an organic basis, revenue decreased 6 percent, including 4 percent in the Americas and 11 percent in International. The organic decline was driven by a lower backlog at the start of the third quarter.
Orders (adjusted for the impact of divestitures and currency translation effects) grew 15 percent in the third quarter compared to the prior year. Orders grew 16 percent in the Americas and 10 percent in International. The order growth in the Americas was primarily driven by large corporate customers in both continuing and project business. The order growth in International was primarily driven by Asia Pacific. On a consolidated basis, orders grew 1 percent sequentially versus the second quarter.
“Consistent with our expectations, orders remained relatively stable on a sequential basis this quarter and reflected strong growth versus the prior year,” said Sara Armbruster, president and CEO. “Our 16 percent year-over-year growth in the Americas was driven by our large corporate customers, which we believe is representative of the strength of our offering as companies invest in their workplaces to support new ways of working.”
Operating income of $43.8 million in the third quarter represented an increase of $23.3 million compared to the prior year, and adjusted operating income of $50.1 million in the third quarter represented an increase of $12.4 million compared to the prior year. The current year included a $9.5 million benefit from a decrease in the valuation of an acquisition earnout liability ($4.7 million was recorded in the Americas and $4.8 million was recorded in International) and $5.4 million of gains on the sale of land and other fixed assets in the Americas.
“Our third quarter earnings per share benefited by approximately $0.10 related to the reversal of an accrued earnout liability and gains from the sale of fixed assets, which was $0.06 higher than the third quarter impact we had expected from $10 million of projected gains from the sale of fixed assets,” said Dave Sylvester, senior vice president and CFO. “Setting aside the impact of these items, our third quarter results were in line with our expectations, as the impact of lower-than-expected revenue was offset by a more favorable gross margin and lower operating expenses.”
Gross margin of 32.4 percent in the third quarter represented an increase of 360 basis points compared to the prior year. The increase was driven by higher pricing benefits and operational improvements, partially offset by the impact of lower volume.
Operating expenses of $206.5 million in the third quarter represented a decrease of $1.6 million compared to the prior year. Operating expenses benefited from a $9.5 million decrease in the valuation of an acquisition earnout liability and $5.4 million of gains on the sale of land and other fixed assets, partially offset by $7.4 million of higher variable compensation expense and $2.7 million unfavorable currency translation effects.
Total liquidity, comprised of cash and cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $424.6 million at the end of the third quarter, representing an increase of $110.1 million from the end of the second quarter. Total debt was $446.1 million. Trailing four quarter adjusted EBITDA of $264.2 million (or 8.3 percent of revenue) represented an increase of 49 percent compared to the prior year.
The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before January 16, 2024, to shareholders of record as of January 4, 2024.
Outlook
At the end of the third quarter, the company’s backlog of customer orders was approximately $699 million, which was 10 percent lower than the prior year. Orders through the first three weeks of the fourth quarter of fiscal 2024 grew 7 percent compared to the prior year. As a result, the company expects fourth quarter fiscal 2024 revenue to be in the range of $765 to $790 million. The company reported revenue of $801.7 million in the fourth quarter of fiscal 2023. The projected revenue range translates to a decline of 1 to 5 percent compared to the prior year, or organic growth (decline) of (2) to 1 percent.
The company expects to report earnings per share of between $0.16 to $0.20 for the fourth quarter of fiscal 2024 and adjusted earnings per share of between $0.19 to $0.23. The company reported earnings per share of $0.13 and adjusted earnings per share of $0.19 in the fourth quarter of fiscal 2023.
The fourth quarter estimates include:
- gross margin of approximately 31.5 percent (compared to 29.8 percent in the prior year),
- projected operating expenses of between $210 to $215 million, which includes $4.3 million of amortization of purchased intangible assets,
- projected interest expense, investment income and other income, net, of approximately $3 million and
- a projected effective tax rate of 24 percent.
“We are proud of the progress we’ve been making in fiscal 2024 to improve our profitability which has supported the increase in our stock price this year,” said Sara Armbruster. “We’ve strengthened our liquidity largely through our strong earnings and working capital improvements, allowing us to continue investing in our growth strategies to lead the workplace transformation and diversify the customer and market segments we serve.”
The full text of Steelcase’s 3Q24 earnings release, including all tables, and a replay of the company’s Dec. 20 conference call webcast, including presentation slides, 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.
