Steelcase Reports Revenue Increase For Quarter

Furniture World Magazine

Steelcase Inc. reported second quarter revenue of $901.8 million and net income of $31.4 million, or $0.23 per share, ahead of company estimates. Reported revenue represented an increase of 9.3 percent compared to $825.2 million in the prior year quarter. Second quarter revenue included a $22.3 million benefit from currency translation effects and a $(4.4) million unfavorable impact from net dispositions as compared to the prior year. The International segment reported 34.0 percent revenue growth driven by currency impacts and strength in Germany, China, the UK, Angola, Mexico and India. North America reported revenue growth of 2.1 percent, which included a $(14.0) million unfavorable impact related to net dispositions versus prior year. Net income of $31.4 million, or $0.23 per share, for the second quarter of fiscal 2009, compared to $37.7 million, or $0.26 per share, in the same quarter of the prior year. Included in the current quarter results were net restructuring costs totaling $(5.9) million after-tax, which compared to net restructuring credits totaling $1.1 million after-tax in the prior year quarter. "We are pleased with our better than expected performance this quarter and wish to recognize the efforts of our International team as they continue to strengthen our brand around the world," said James P. Hackett, president and CEO. "While a variety of markets are facing increased economic challenges, we continue to see evidence that our growth strategies are gaining traction and serving to further diversify our top line." Cost of sales increased 170 basis points over the prior year to 68.2 percent of revenue in the current quarter. Global commodity inflation was the largest contributor, increasing current quarter cost of sales consistent with the $15 to $20 million estimate provided last quarter. In addition, cost of sales continues to be negatively impacted by International business mix shifts and currency effects in the UK, and temporary inefficiencies related to restructuring actions in the Other category. "We continue to face tremendous commodity cost inflation, which is expected to out-pace our recent pricing actions for another quarter or two," said David C. Sylvester, vice president and CFO. "While certain commodity prices have retreated somewhat from their recent highs, they remain well above prior year levels, and the benefits of recent pricing actions, including list price adjustments in multiple markets and a commodity surcharge in North America, are just now beginning to be realized." Operating expenses of $231.7 million, or 25.7 percent of revenue, improved 130 basis points over the prior year driven largely by volume leverage and cost containment. The $8.9 million increase in absolute dollars was primarily driven by unfavorable currency translation effects as compared to the prior year. Operating income of $46.0 million compared to $55.0 million in the prior year. Current quarter results included $(9.0) million of pre-tax restructuring costs while prior year results included $1.7 million of pre-tax restructuring credits. Operating income excluding restructuring items was 6.1 percent of revenue in the current quarter, compared with 6.5 percent in the prior year. Other income, net decreased by $6.5 million largely due to lower interest income. In addition, the current quarter included non-operating gains of approximately $4.0 million which compares to $6.6 million in the prior year. The effective tax rate of 31.7 percent in the quarter reflects favorable tax adjustments related to the disposal of a non-core business in the North America segment. The company continues to estimate its effective tax rate will approximate 35 percent for the full fiscal year. Cash and short-term investments were $128.7 million, a decrease of $14.3 million from the first quarter, primarily driven by increased working capital needs related to the revenue growth in the quarter. During the quarter, the company repurchased shares under its share repurchase authorization at a total cost of $7.8 million and paid dividends of $20.2 million, or $0.15 per share. Outlook The company currently expects third quarter fiscal 2009 revenue to be within a range of $840 to $875 million, compared to $885.9 million in the prior year. Steelcase expects to report earnings for the third quarter of fiscal 2009 between $0.16 and $0.21 per share, including restructuring costs of approximately $(6) million after-tax. The earnings estimate also includes increased commodity inflation, which is expected to increase cost of sales by $15 to $20 million compared to the prior year. The company reported earnings of $0.22 per share in the third quarter of the prior year, including goodwill and intangible asset impairments, which after the reduction of related variable compensation expense and income taxes, reduced net income by $(11.3) million. "These are unprecedented economic times," concluded Mr. Hackett. "We are keeping a close watch on unfolding events and constantly evaluating the potential impact to our company. We remain cautious, and prepared to take appropriate action if conditions warrant, but we are not losing focus on the execution of our strategies for growth and margin expansion."