Steelcase Reports Second Quarter Fiscal 2022 Results
Steelcase, Inc. reported second quarter revenue of $724.8 million and net income of $24.7 million, or $0.21 per share. In the prior year, Steelcase reported revenue of $818.8 million and net income of $55.5 million, or $0.47 per share and adjusted earnings of $0.55 per share. In the prior year, revenue benefited from a stronger beginning backlog due to pandemic-related restrictions on manufacturing and delivery activities during the previous quarter, and net income benefited from significant temporary cost reduction actions.
Revenue decreased 11 percent in the second quarter compared to the prior year, or 14 percent on an organic basis. Revenue declined 17 percent in the Americas, while revenue grew 10 percent in EMEA and 1 percent in the Other category. Revenue in the prior year benefited from the stronger beginning backlog, and the company estimates revenue in the Americas in the current quarter was negatively impacted by at least $40 million due to shipment delays caused by supply chain disruptions. On an organic basis, revenue declined 19 percent in the Americas and 1 percent in the Other category, while revenue grew 5 percent in EMEA.
Orders (adjusted for the impact of an acquisition and currency translation effects) grew 24 percent in the second quarter compared to the prior year, and 12 percent compared to the first quarter. Orders grew 26 percent in the Americas driven by strong growth across all geographic regions and quote types. Orders grew 23 percent in EMEA against the prior year or 43 percent excluding a $19 million project in the prior year. Orders grew 15 percent in the Other category compared to the prior year driven by very strong growth across all regions in Asia Pacific except India, which was negatively impacted by the COVID-19 pandemic.
“Our second quarter order growth of 24 percent was better than we expected, and in some parts of our business, orders approached or exceeded fiscal 2020 levels,” said Jim Keane, president and CEO. “A significant number of industry-wide supply chain disruptions have caused us to extend lead times and delay some shipments, which negatively impacted our second quarter revenue. We have not experienced any significant order cancellations as a result of these delays.”
Second quarter operating income of $33.9 million represented a decrease compared to operating income of $88.6 million and adjusted operating income of $104.2 million in the prior year, excluding the impact of restructuring costs in the Americas. The Americas reported operating income of $44.7 million, which compares to operating income of $94.6 million and adjusted operating income of $110.2 million in the prior year, with the decrease primarily attributable to lower revenue and gross margin. EMEA reported an operating loss of $1.6 million compared to an operating loss of $3.5 million in the prior year due to higher revenue in the current year. The Other category reported an operating loss of $4.2 million compared to $1.1 million of operating income in the prior year due to lower gross margin and higher operating expenses in the current year.
Gross margin of 28.5 percent in the second quarter represented a decrease of 440 basis points compared to the prior year, which included $6.9 million restructuring costs in the Americas. Gross margin declined by 550 basis points in the Americas, improved by 120 basis points in EMEA and declined by 420 basis points in the Other category. The decline in the Americas was due to the impact of lower revenue, approximately $17 million of higher inflation, net of pricing, and approximately $5 million of higher freight cost inefficiencies associated with the supply chain disruptions. The decline in the Other category was due to inefficiencies associated with pandemic-related disruptions and approximately $1 million of higher inflation, net of pricing.
“The extraordinary inflation in steel, logistics and many other commodities impacted our gross margins more significantly than we expected in the second quarter, and we now project inflation will have a more significant impact on our results over the remainder of this fiscal year than we had previously expected,” said Dave Sylvester, senior vice president and CFO. “The industry forecasts for steel costs have been revised upward and projected to last longer as they have been updated each month over the last year. Last week, in response to these unprecedented levels of inflation, we announced our third price increase of this year. We expect it will take until the second quarter of fiscal 2023 for the benefits from these three price increases to offset the current level of inflation.”
Operating expenses of $172.9 million in the second quarter represented an increase of $0.6 million compared to the prior year. The prior year included approximately $22 million of lower employee costs as a result of temporary hour and pay reductions and gains of $4.1 million from the sale of land. The current year included a $15.4 million gain from the sale of land, approximately $10 million of benefits related to workforce reductions in the prior year and $12.4 million of lower variable compensation, partially offset by approximately $6 million of higher discretionary spending and $3.2 million from an acquisition.
Income tax expense of $4.7 million in the second quarter reflected an effective tax rate of approximately 16 percent, which included $3.8 million of discrete tax benefits. In the prior year, income tax expense was $27.3 million and reflected an effective tax rate of approximately 33 percent.
Total liquidity, comprised of cash and cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $530.5 million at the end of the second quarter. Total debt was $484.5 million.
During the second quarter, the company repurchased a total of 1.9 million shares of its Class A Common Stock for a total cost of $26.6 million. A total of $29.9 million remained under the company’s share repurchase authorization at the end of the second quarter.
The Board of Directors has declared a quarterly cash dividend of $0.145 per share, to be paid on or before October 15, 2021, to shareholders of record as of October 4, 2021.
At the end of the second quarter, the company’s backlog of customer orders was approximately $715 million, which was approximately 22 percent higher than the prior year, and approximately 15 percent higher than at the end of the first quarter, on an organic basis. The backlog includes a higher than historical percentage of orders scheduled to ship beyond the third quarter. As a result, the company expects third quarter fiscal 2022 revenue to be in the range of $755 to $785 million. The company reported revenue of $617.5 million in the third quarter of fiscal 2021 which was impacted by shipment delays of approximately $60 million due to a temporary global operations shutdown. The projected revenue translates to growth of 22 to 27 percent compared to the third quarter of fiscal 2021, or organic growth of 20 to 25 percent, adjusted for an acquisition and currency translation effects.
The company expects to report earnings per share of between $0.07 to $0.11 for the third quarter of fiscal 2022. The estimate includes: (1) projected inflation, net of pricing benefits, of approximately $28 million as compared to the prior year, (2) continued supply chain disruptions and related costs similar to the second quarter, (3) projected operating expenses of between $195 to $200 million, (4) projected interest expense, investment income and other income, net, of approximately $5 million, and (5) a projected effective tax rate of approximately 28 percent. Steelcase reported earnings per share of $0.02, and adjusted earnings per share of $0.08, in the third quarter of fiscal 2021.
For the fourth quarter of fiscal 2022, the company continues to target double-digit revenue growth compared to fiscal 2021, based on the expected economic strength in most markets and the return of workers to offices around the world.
“The rise of the Delta variant has caused some U.S. customers to delay their return-to-office plans and has led to temporary uncertainty that may explain recent softening we have seen in our pipeline of project opportunities and requests for proposals in the Americas,” said Jim Keane. “Nevertheless, our orders were quite strong throughout the second quarter and remained strong in recent weeks, which is reflected in our third quarter revenue outlook. As the U.S. implements vaccine and testing mandates, businesses may see a more certain path to bringing people back to the office.”
For the full second quarter results, click here.
About Steelcase Inc.
Leading organizations around the world trust Steelcase to help them create workplaces that help people feel safe and are productive, inspiring and adaptable with our architecture, furniture and technology solutions – accessible through a network of channels, including over 800 Steelcase dealer locations. Steelcase is a global, industry-leading, and publicly traded company with fiscal 2021 revenue of $2.6 billion. For more information, visit www.steelcase.com.
Mike O’Meara – Investor Relations – (616) 246-4251
Source: Steelcase, Inc.