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Revenue of $705.5 million and net income of $20.0 million
Steelcase Inc. (NYSE:SCS) today reported first quarter revenue of $705.5 million and net income of $20.0 million, or diluted earnings per share of $0.16. Excluding net restructuring costs, adjusted earnings were $0.17 per share. In the prior year, Steelcase reported $723.1 million of revenue, diluted earnings per share of $0.17 and adjusted earnings of $0.12 per share.
Organic revenue growth over the prior year was 3 percent after adjusting for approximately $34.1 million of unfavorable currency translation effects and the impact of small divestitures. In the Americas, organic revenue growth over the prior year was 3 percent, while EMEA posted organic revenue growth of 1 percent, and the Other category was essentially flat.
Current quarter operating income of $33.5 million compares to operating income of $36.4 million in the prior year. Excluding net restructuring costs, first quarter adjusted operating income of $35.4 million improved by $8.7 million compared to the prior year. The year-over-year improvement was driven by the Americas segment, which posted an adjusted operating margin of 10 percent, representing a 180 basis point improvement over the prior year. EMEA reported an adjusted operating loss that exceeded prior year, largely due to disruption costs and inefficiencies associated with previously-announced manufacturing footprint changes. These changes are expected to be completed later this fiscal year.
“The Americas had an impressive first quarter, with a strong improvement in adjusted operating margin,” said Jim Keane, president and CEO. “At the same time, organic revenue growth in the Americas was dampened by a significant decline across the energy vertical market, and we continued to experience a significant number of customer requests for extended delivery dates.”
Cost of sales was 68.7 percent of revenue in the current quarter, a decrease of 110 basis points compared to the prior year. In the Americas, cost of sales as a percentage of revenue improved 170 basis points over the prior year driven by benefits of improved pricing, continued cost reduction efforts and lower freight, distribution and warranty costs, offset in part by an unfavorable shift in business mix. In EMEA, cost of sales increased by 370 basis points driven largely by disruption costs and inefficiencies associated with the manufacturing footprint changes.
Operating expenses of $185.1 million in the first quarter represented a decrease of $6.8 million compared to the prior year primarily due to favorable currency translation effects. As a percentage of revenue, operating expenses improved by 20 basis points.
Net restructuring costs of $1.9 million in the current quarter included a gain of $2.8 million associated with the sale of the Corporate Development Center compared to net restructuring benefits of $9.7 million in the prior year, which included a $12.0 million gain associated with the sale of a manufacturing facility. Both facilities were exited as a result of restructuring activities in prior years.
Other income, net decreased by $1.5 million in the first quarter compared to the prior year, primarily due to higher foreign exchange losses and lower equity in income of unconsolidated ventures in the current year.
The effective tax rate for the quarter was 36.5% compared with 41.5% in the prior year, reflecting the impact of implementing a new transfer pricing model in EMEA during the fourth quarter of fiscal 2015.
Cash, short-term investments and the cash surrender value of company-owned life insurance totaled $317 million and total debt was $282 million at the end of the first quarter.
The Board of Directors has declared a cash dividend of $0.1125 per share, to be paid on or before July 15, 2015 to shareholders of record as of July 6, 2015.
Outlook
In the Americas, first quarter orders increased 8 percent compared to the prior year and continued to include a significant amount of orders with requested delivery dates more than 90 days from the order date. As a result, order backlog at the end of the first quarter was approximately 15 percent higher than the prior year. EMEA first quarter orders grew modestly compared to the prior year, which included a large project in France. Orders across all businesses in the Other Category grew over the prior year, led by 13 percent growth in Asia Pacific. As a result, the company expects second quarter fiscal 2016 revenue to be in the range of $785 to $810 million, which reflects expected organic revenue growth of 3 to 6 percent over the prior year. The company reported revenue of $786.7 million in the second quarter of fiscal 2015.
“For the first time in several quarters, order growth in the Americas reflected growth from all business types – project, continuing and marketing programs, suggesting the cyclical recovery may be strengthening,” said Dave Sylvester, senior vice president and CFO. “Project activity continues to drive the order growth, with small to medium sized projects leading our growth in three out of the last four quarters.”
Steelcase expects to report diluted earnings of between $0.27 to $0.31 per share for the second quarter of fiscal 2016. This estimate includes approximately $0.03 per share of restructuring costs relating to previously announced restructuring projects. Adjusted for the estimated restructuring costs, the company expects to report adjusted earnings between $0.30 to $0.34 per share. These estimates also include approximately $6 million of expected disruption costs and inefficiencies associated with the manufacturing footprint changes in EMEA. Steelcase reported diluted earnings per share of $0.24 and adjusted earnings per share of $0.27 in the second quarter of fiscal 2015.
“Our new products and applications continue to receive strong endorsement, as evidenced by the multiple product and design awards we earned at Neocon earlier this month,” said Jim Keane. “This recognition and the demand for our knowledge and solutions continue to illustrate how we are leading our industry and the transformation of workplaces around the world.”
