Steelcase Reports First Quarter Fiscal 2023 Results - Losses Continue
Strong growth in revenue and orders included broad-based strength in Americas and EMEA segments
Significant inflation continued to impact results, driving additional pricing actions
Acquisition of Halcon supports growth strategies with uncompromising design and master craftsmanship
Second quarter outlook anticipates seasonal revenue improvement with increased inflationary pressures and continued supply chain challenges
Steelcase Inc. today reported first quarter revenue of $740.7 million, a net loss of $11.4 million, or $0.10 per share, and an adjusted loss per share of $0.05. In the prior year, Steelcase reported revenue of $556.6 million and a net loss of $28.1 million, or $0.24 per share, and had an adjusted loss per share of $0.22.
Revenue and order growth compared to the prior year were as follows:
The revenue growth across all segments was driven by a strong beginning backlog and pricing benefits, as well as broad-based order growth in the Americas and EMEA. Revenue and order growth in the Other category was negatively impacted by COVID-related restrictions in China.
"We're pleased with our revenue growth of 33 percent, which was better than expected due to stronger incoming orders and improved order fulfillment from the adjustments we've made to mitigate the impact of supply chain disruptions," said Sara Armbruster, president and CEO. "In each of the most recent eight months of reported data, our year-over-year order growth in the Americas has outpaced our industry, and our EMEA segment has continued to deliver strong growth for the past five quarters."
Operating income (loss) and adjusted operating income (loss) were as follows:
The year-over-year improvement in operating results was driven by the benefits of higher revenue, partially offset by lower gross margin. The current year included $4.2 million of restructuring costs in the Americas.
Gross margin of 25.9 percent in the first quarter represented a decrease of 190 basis points compared to the prior year, with a 270 basis point decline in the Americas, a 60 basis point decline in EMEA and a 100 basis point improvement in the Other category. The decline in the Americas was primarily due to approximately $15 million of higher inflation, net of pricing benefits, partially offset by the benefits of higher volume. The decline in EMEA was primarily due to unfavorable currency impacts and higher overhead costs, partially offset by the benefits of higher volume and approximately $4 million of higher pricing benefits, net of inflation. The improvement in the Other category was primarily due to the benefits of higher volume and lower overhead costs, partially offset by approximately $1 million of higher inflation, net of pricing benefits.
"Inflationary pressures continued to grow this quarter across a number of commodities, and we responded by announcing our fifth price increase over the past 16 months, to be effective in July," said Dave Sylvester, senior vice president and CFO. "In addition, we recently announced a surcharge in the Americas in response to rapidly increasing costs of petroleum-based products, freight and delivery, and we have been slowing incremental spending to help offset some of the cost-price timing lag."
Operating expenses of $200.9 million in the first quarter represented an increase of $14.4 million, but a decline of 640 basis points as a percentage of revenue, compared to the prior year. The current year included $11.6 million of higher marketing, product development and sales expenses, $6.8 million of higher spending in other functional areas and $1.9 million from an acquisition, partially offset by a $4.0 million gain from the sale of land and $3.6 million of favorable currency translation effects.
Total liquidity, comprised of cash and cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $279.5 million at the end of the first quarter. Total debt was $482.4 million. Adjusted EBITDA for the trailing four quarters was $151.6 million.
The company completed the acquisition of Halcon Furniture LLC on June 10, 2022. The purchase price of $127.5 million, plus a $3.1 million adjustment for working capital, was funded from available cash and $68 million of borrowings under the company's global committed bank facility.
The Board of Directors has declared a quarterly cash dividend of $0.145 per share, to be paid on or before July 18, 2022, to shareholders of record as of July 7, 2022.
Outlook
At the end of the first quarter, the company’s backlog of customer orders was approximately $927 million, which was 52 percent higher than the prior year. Consistent with recent quarters, the backlog includes a higher than historical percentage of orders scheduled to ship beyond the end of the next quarter, and supply chain disruptions are expected to continue. As a result, the company expects second quarter fiscal 2023 revenue to be in the range of $875 to $900 million. The company reported revenue of $724.8 million in the second quarter of fiscal 2022. The projected revenue translates to growth of 21 to 24 percent compared to the second quarter of fiscal 2022, or organic growth of 20 to 24 percent.
The company expects to report earnings per share of between $0.06 to $0.10 for the second quarter of fiscal 2023 and adjusted earnings per share of between $0.11 to $0.15. The estimate includes:
projected pricing benefits, net of inflation, of approximately $10 million as compared to the prior year,
projected operating expenses of between $225 to $230 million,
projected interest expense, investment income and other income, net, of approximately $4 million, and
a projected effective tax rate of 27 percent.
The company reported earnings per share of $0.21 and had adjusted earnings per share of $0.23 in the prior year. The prior year included a $0.09 per share benefit related to a gain from the sale of land.
“We continue to drive our strategy to lead the hybrid work transformation and prioritize investments to support our key growth adjacencies,” said Sara Armbruster. “At the same time, we remain committed to achieving our fiscal 2023 financial targets and are implementing necessary pricing actions and other measures to mitigate the impacts of the escalating inflationary pressures."
