Steelcase Reports Fourth Quarter and Fiscal 2022 Results
Fourth quarter results:
Orders grew 27% and revenue increased 11% compared to prior year, with broad-based growth across all segments
Significant inflationary pressures and supply chain disruptions continued to impact operating results
Outlook:
First quarter guidance reflects significant revenue growth over prior year and continuation of supply chain disruptions and inflationary pressures
Company targets strong revenue and earnings growth in fiscal 2023 driven by expected benefits of pricing actions and anticipated stronger demand from companies transforming their offices to support hybrid and in-person work
GRAND RAPIDS, Mich., March 23, 2022 (GLOBE NEWSWIRE) -- Steelcase Inc. (NYSE: SCS) today reported fourth quarter revenue of $753.1 million and a net loss of $2.2 million, or $0.02 per share. In the prior year, Steelcase reported revenue of $677.1 million and net income of $6.6 million, or $0.06 per share.
Revenue increased 11 percent in the fourth quarter compared to the prior year. The revenue growth was broad-based across all segments, with 8 percent growth in the Americas, 18 percent growth in EMEA and 19 percent growth in the Other category. On an organic basis, revenue grew 12 percent, with 7 percent growth in the Americas, 23 percent growth in EMEA and 19 percent growth in the Other category. In the fourth quarter of the prior year, the company estimates revenue benefited from shipment delays of approximately $50 million in the Americas and approximately $10 million in EMEA due to a temporary operations shutdown in the third quarter.
Orders (adjusted for the impact of acquisitions and currency translation effects) grew 27 percent in the fourth quarter compared to the prior year. Orders grew 29 percent in the Americas, 28 percent in EMEA and 9 percent in the Other category compared to the prior year.
"Our order growth of 27 percent this quarter reflects the investments our customers are making in their workplaces as they increasingly invite their employees back to the office and seek improved engagement, collaboration, focus and connection," said Sara Armbruster, president and CEO. "We are pleased our year-over-year order growth in the Americas has outpaced our industry for each of the most recent five months of reported data. Over that same period, in-office attendance in major U.S. cities has increased, which we believe is supporting the growth we've been seeing in the larger markets."
Fourth quarter operating income of $2.1 million represented a decrease of $4.6 million compared to $6.7 million in the prior year, which included a $1.6 million restructuring charge in the Americas. The decrease was driven by lower gross margin and higher operating expenses, partially offset by the benefits of higher revenue. The Americas reported operating income of $3.6 million compared to $12.1 million in the prior year. EMEA reported operating income of $2.3 million compared to an operating loss of $0.5 million in the prior year. The Other category reported operating income of $4.3 million compared to $2.9 million in the prior year.
Gross margin of 26.1 percent in the fourth quarter represented a decrease of 230 basis points compared to the prior year, with a 310 basis point decline in the Americas, an 80 basis point decline in EMEA and a 160 basis point decline in the Other category. The decline in the Americas was due to approximately $22 million of higher inflation, net of pricing benefits, and approximately $9 million of higher freight and labor costs and inefficiencies associated with the supply chain disruptions in the current year, partially offset by the benefits of higher revenue. The decline in EMEA was primarily due to higher freight costs associated with supply chain disruptions, while the decline in the Other category was due to higher inflation, net of pricing benefits.
"Continued inflation, net of pricing benefits, and supply chain disruption costs impacted our earnings in the quarter by over $30 million, or approximately $0.15 per share," said Dave Sylvester, senior vice president and CFO. "During the quarter, we announced an unprecedented fourth price increase in twelve months in response to the ongoing significant inflation. We’re also continuing to make adjustments in our supply chain and within our operations aimed at improving the reliability of our delivery dates to customers and reducing the freight and labor costs we've been incurring."
Operating expenses of $194.3 million in the fourth quarter represented an increase of $8.6 million, but a decline of 160 basis points as a percentage of revenue, compared to the prior year. The current year included approximately $9 million of higher marketing, product development and sales expenses, $4.7 million from acquisitions and approximately $4 million of higher discretionary spending and employee costs in other functional areas, partially offset by $9.2 million of lower variable compensation expense.
Total liquidity, comprised of cash and cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $368.9 million at the end of the fourth quarter. Total debt was $482.5 million.
The Board of Directors has declared a quarterly cash dividend of $0.145 per share, to be paid on or before April 14, 2022, to shareholders of record as of April 4, 2022.
Fiscal 2022 Results
For fiscal 2022, the company recorded $2.8 billion of revenue and net income of $4.0 million, or earnings per share of $0.03. In fiscal 2021, the company recorded $2.6 billion of revenue, net income of $26.1 million, earnings per share of $0.22 and adjusted earnings per share of $0.52.
Revenue increased 7 percent in fiscal 2022, with a 3 percent increase in the Americas, a 17 percent increase in EMEA and a 14 percent increase in the Other category. On an organic basis, fiscal 2022 revenue represented an increase of 4 percent compared to the prior year, with a 1 percent increase in the Americas, a 15 percent increase in EMEA and a 12 percent increase in the Other category.
Operating income for fiscal 2022 of $20.1 million declined compared to $43.0 million of operating income for fiscal 2021, and represented a $69.1 million decrease compared to $89.2 of adjusted operating income for fiscal 2021. The decrease was driven by approximately $80 million of inflation, net of pricing benefits, approximately $26 million of higher freight and labor costs and inefficiencies associated with supply chain disruptions, and $57.2 million of higher operating expenses, partially offset by the benefits from higher revenue. Operating expenses in the prior year benefited from approximately $41 million of lower employee costs as a result of temporary hour and pay reductions.
"Fiscal 2022 brought significant challenges to our business, but our teams rallied to implement actions to address the supply chain challenges and inflationary pressures and drove 25 percent order growth as we focused on executing our strategy to help people work better," said Sara Armbruster.
Outlook
At the end of the fourth quarter, the company’s backlog of customer orders was approximately $787 million, which was 77 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 first quarter fiscal 2023 revenue to be in the range of $680 to $705 million. The company reported revenue of $556.6 million in the first quarter of fiscal 2022. The projected revenue translates to growth of 22 to 27 percent compared to the first quarter of fiscal 2022, or organic growth of 24 to 28 percent.
The company expects to report a loss per share of between $0.15 to $0.20 for the first quarter of fiscal 2023, which compares to a reported loss of $0.24 per share in the prior year. The estimate includes: (1) projected inflation, net of pricing benefits, of approximately $10 million as compared to the prior year, (2) projected operating expenses of between $195 to $200 million, (3) projected interest expense, investment income and other income, net, of approximately $4 million, and (4) a projected effective tax rate of 27 percent.
For fiscal 2023 the company is targeting organic revenue growth of 15 to 20 percent and earnings per share of between $0.50 to $0.70.
The fiscal 2023 targets reflect the following assumptions and expectations:
higher demand driven by increased return to office and investments to support hybrid work
pricing benefits, net of inflation, of between $120 to $140 million compared to fiscal 2022
the impacts of supply chain disruptions abating modestly over the year
operating expenses of between $880 to $900 million, including higher investments in marketing, product development and sales, increased discretionary spending, and higher variable compensation and other employee costs
approximately $16 million of interest expense, investment income and other income, net
an effective tax rate of 27 percent
The company is targeting net income in the second quarter which would more than offset the first quarter net loss driven by seasonally higher revenue and higher pricing benefits.
"In fiscal 2023, we expect to realize more of the benefits from the momentum we've been seeing in our order patterns, as our pricing actions catch up with inflation and the impacts from supply chain disruptions abate," said Sara Armbruster. "We've remained focused on the changing needs of people and organizations through our research, and we've centered our product development investments on solving for these needs. We expect this focus will drive additional growth as companies update their workplaces to support a new era of hybrid work."