Steelcase Reports Second Quarter Fiscal 2020 Results

• Revenue grew 14% to $998 million, driven by strong organic growth and acquisitions
  
• Operating margin increased 70 basis points to 8.5%; earnings per share improved 22% to $0.50
• Third quarter outlook projects continued growth against a strong prior year

GRAND RAPIDS, Mich., Sept. 19, 2019 (GLOBE NEWSWIRE) -- Steelcase Inc. (NYSE: SCS) today reported second quarter revenue of $998.0 million and net income of $60.5 million, or diluted earnings of $0.50 per share.  In the prior year, Steelcase reported $875.8 million of revenue and net income of $49.1 million, or diluted earnings of $0.41 per share.

Revenue increased 14 percent in the second quarter compared to the prior year, reflecting double-digit growth across all segments.  The growth included benefits from acquisitions and organic revenue growth of 9 percent, which was driven by high order backlog at the beginning of the quarter.  Orders (adjusted for currency translation effects, acquisitions and divestitures) grew 3 percent compared to orders in the second quarter of fiscal 2019, which grew 12 percent compared to the previous year.

"We delivered one of our strongest quarters in the past 20 years, exceeding our expectations," said Jim Keane, president and CEO.  "These results demonstrate the effectiveness of our growth strategies and reflect the efforts of our employees around the world.  Our new products are strengthening our portfolio in all geographies, our acquisitions and partnerships are providing additional solutions to our dealers and customers, and the war for talent continues to motivate organizations to invest in workspaces that inspire their people."

Second quarter operating income of $85.3 million (or 8.5 percent of revenue) increased by $17.4 million or 26 percent compared to operating income of $67.9 million (or 7.8 percent of revenue) in the prior year.  The Americas reported operating income of $90.3 million compared to $77.2 million in the prior year.  The Americas' operating income margin improved 40 basis points compared to the prior year driven by higher gross margins and lower operating expenses as a percentage of revenue.  EMEA reported an operating loss of $5.5 million compared to an operating loss of $6.0 million in the prior year, while the Other Category reported operating income of $8.9 million compared to $4.8 million in the prior year.

"We delivered another record level of quarterly revenue in Asia Pacific, as well as year-over-year improvement in EMEA, which posted 5 percent organic revenue growth, improvements in gross margin and lower operating expenses as a percentage of revenue," said Dave Sylvester, senior vice president and CFO.  "The business environment in EMEA continues to be challenging, but our opportunity pipeline for the region reflects growth and our teams remain solidly focused on achieving profitability for fiscal 2020."

Gross margin of 33.4 percent in the second quarter represented an increase of 40 basis points compared to the prior year, with a 30 basis point improvement in the Americas, a 60 basis point improvement in EMEA and a 90 basis point improvement in the Other category.  The improvement was driven by pricing benefits, lower commodity costs, and higher absorption of fixed costs, partially offset by unfavorable business mix and investments to support growth initiatives.

Operating expenses of $248.2 million in the second quarter represented an increase of $27.5 million, but an improvement of 30 basis points as a percentage of revenue, compared to prior year.  The increase in expense was primarily driven by $9.2 million from acquisitions, the impact of a $7.5 million property gain in the prior year and higher spending to drive growth, partially offset by $1.8 million of favorable currency translation effects.

Interest expense of $6.7 million in the second quarter represented an increase of $1.8 million compared to $4.9 million in the prior year due to the higher level of outstanding debt.

Income tax expense of $21.6 million in the second quarter reflected an effective tax rate of 26.3 percent.  In the prior year, income tax expense was $18.1 million and reflected an effective tax rate of 26.9 percent.

Total liquidity, comprised of cash, cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $385.3 million and total debt was $485.0 million 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 14, 2019, to shareholders of record as of September 30, 2019.

Outlook

The company expects third quarter fiscal 2020 revenue to be in the range of $920 to $945 million, which would represent 2 to 5 percent growth.  The company reported revenue of $900.9 million in the third quarter of fiscal 2019, which represented a 17 percent increase and 13 percent organic growth compared to the previous year.
           
Steelcase expects to report diluted earnings per share between $0.33 to $0.37 for the third quarter of fiscal 2020.  Steelcase reported diluted earnings per share of $0.31, and adjusted earnings per share of $0.36, in the third quarter of fiscal 2019.  The prior year included a $3.6 million favorable tax adjustment, which had the impact of increasing diluted earnings by approximately $0.02 per share, after consideration of the related variable compensation effect.

"The outlook in our industry remains positive," said Jim Keane.  "We believe there is significant potential to expand our earnings by continuing to improve our profitability in EMEA, leveraging our broadened product portfolio and delivering on the value creation plans for our acquisitions.”

Business Segment Footnotes

1. The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse, Turnstone, Smith System, AMQ and Orangebox brands.
2. The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase, Orangebox and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions.
3. The Other category includes Asia Pacific, Designtex and PolyVision.
4. Corporate costs include unallocated portions of shared service functions, such as information technology, corporate facilities, finance, human resources, research, legal and customer aviation, plus deferred compensation expense and income or losses associated with company-owned life insurance.

Webcast
Steelcase will discuss second quarter results and business outlook on a conference call at 8:30 a.m. Eastern time tomorrow.

Non-GAAP Financial Measures
This earnings release contains non-GAAP financial measures.  A “non-GAAP financial measure” is defined as a numerical measure of a company’s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the condensed consolidated statements of income, balance sheets or statements of cash flows of the company.  Pursuant to the requirements of Regulation G, the company has provided a reconciliation above of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

The non-GAAP financial measures used within this earnings release are: (1) organic revenue growth, which represents the change in revenue excluding estimated currency translation effects and the impacts of acquisitions and divestitures; and (2) adjusted earnings per share, which includes earnings per share, excluding charges related to a multi-employer pension plan and the related variable compensation and income tax effects. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors.

Forward-looking Statements
From time to time, in written and oral statements, the company discusses its expectations regarding future events and its plans and objectives for future operations.  These forward-looking statements discuss goals, intentions and expectations as to future trends, plans, events, results of operations or financial condition, or state other information relating to us, based on current beliefs of management as well as assumptions made by, and information currently available to, the company.  Forward-looking statements generally are accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project, "targets," or other similar words, phrases or expressions.  Although we believe these forward-looking statements are reasonable, they are based upon a number of assumptions concerning future conditions, any or all of which may ultimately prove to be inaccurate.  Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from the company's expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; changes in raw material, commodity and other input costs; currency fluctuations; changes in customer demand; and the other risks and contingencies detailed in the company's most recent Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission.  Steelcase undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise.

About Steelcase Inc.
For over 105 years, Steelcase Inc. has helped create great experiences for the world's leading organizations, across industries.  We demonstrate this through our family of brands - including Steelcase®, Coalesse®, Designtex®, PolyVision®, Turnstone®, Smith System®, Orangebox® and AMQ®.  Together, they offer a comprehensive portfolio of architecture, furniture and technology products and services designed to unlock human promise and support social, economic and environmental sustainability.  We are globally accessible through a network of channels, including over 800 Steelcase dealer locations.  Steelcase is a global, industry-leading and publicly traded company with fiscal 2019 revenue of $3.4 billion.

1. These amounts include restricted cash of $3.5 and $2.5 as of February 22, 2019 and February 23, 2018, respectively.
2. These amounts include restricted cash of $4.8 and $3.5 as of August 23, 2019 and August 24, 2018, respectively.

Restricted cash primarily represents funds held in escrow for potential future workers’ compensation and product liability claims.  Restricted cash is included as part of Other assets in the Condensed Consolidated Balance Sheets.