Steelcase Reports First Quarter Results

Steelcase Reports First Quarter Results  Initiates Additional Project to Strengthen Competitiveness in EMEA  GRAND RAPIDS, Mich., June 26, 2014 (GLOBE NEWSWIRE) -- Steelcase Inc. (NYSE:SCS) today reported first quarter revenue of $723.1 million and net income of $21.0 million, or diluted earnings per share of $0.17. Excluding net restructuring benefits, adjusted earnings were $0.12 per share. In the prior year, Steelcase reported $667.1 million of revenue, diluted earnings per share of $0.10 and adjusted earnings of $0.13 per share.  Organic revenue growth over the prior year was 8 percent after adjusting for approximately $4.4 million of favorable currency translation effects.In the Americas, organic revenue growth over the prior year was 6 percent.The EMEA segment posted organic revenue growth of 10 percent, driven primarily by additional shipping days in the current quarter and higher levels of project business.The Other category posted organic revenue growth of 14 percent, driven by strong project business at PolyVision.  Current quarter operating income of $36.4 million compares to operating income of $20.4 million in the prior year.First quarter adjusted operating income of $26.7 million improved modestly compared with adjusted operating income of $24.8 million in the prior year.Operating leverage from the revenue growth was largely offset by higher cost of sales.  "We believe our revenue growth in the U.S. continued to outpace the overall industry, and we were pleased to see improved project business in various markets across EMEA and Asia Pacific," said Jim Keane, president and CEO."Earnings were lower than our expectations due to less than expected growth in the Americas and higher costs associated with product warranties, freight and distribution, some of which are expected to continue to impact our results through the second quarter."  Cost of sales of 69.8 percent of revenue in the current quarter increased 130 basis points compared to the prior year.In the Americas, cost of sales increased by 70 basis points over the prior year primarily due to higher warranty, freight and distribution costs. In EMEA, cost of sales increased by 140 basis points driven largely by disruption costs associated with the manufacturing footprint changes.The Other category cost of sales increased 330 basis points over the prior year, due to competitive pricing pressures and higher overhead costs in Asia Pacific.  Operating expenses were $191.9 million in the first quarter, an increase of $6.8 million over the prior year.This increase was largely due to higher variable compensation expense, driven in part by restructuring benefits, and unfavorable currency translation effects.As a percentage of revenue, operating expenses improved by 130 basis points.  Net restructuring benefits of $9.7 million in the current quarter included restructuring costs related to previously announced actions in EMEA and a $12.0 million gain related to the sale of an idle manufacturing facility in the Americas.  Other income, net in the first quarter of $3.5 million increased $2.3 million compared to the prior year, primarily due to higher equity in income of unconsolidated ventures.  Cash, short-term investments and the cash surrender value of company-owned life insurance totaled $398 million and total debt was $286 million at the end of the first quarter.  The Board of Directors has declared a cash dividend of $0.105 per share, to be paid on or before July 16, 2014 to shareholders of record as of July 7, 2014.  The company announced today that it has initiated procedures with the applicable works councils regarding a project to exit a manufacturing facility in France and transfer its activities to other existing facilities in the EMEA region to safeguard the company's global competitiveness.This project may involve the transfer of the operations of the facility to a third party or result in a closure, and the total costs of the project are currently estimated at $30 to $50 million, with anticipated annual savings of approximately $10 million when fully implemented.  "The action announced today represents another step of our multi-year strategy to restore profitability in this region and safeguard our global competitiveness," said Dave Sylvester, senior vice president and CFO."Together with our plan to exit a manufacturing facility in Germany (announced in the third quarter of fiscal 2014), these actions are expected to reduce our adjusted operating losses by approximately $20 million on an annualized basis when fully implemented."  Outlook  In the Americas, first quarter orders were flat compared to the prior year, and customer order backlog at the end of the first quarter increased approximately 6 percent compared to the prior year.EMEA first quarter orders grew significantly due to favorable currency fluctuations, additional shipping days in the current quarter and strength in project business (including a large government project won in fiscal 2013 which is expected to begin shipping in the second half of fiscal 2015).As a result, EMEA customer order backlog at the end of the first quarter increased approximately 23 percent compared to the prior year.The company expects second quarter fiscal 2015 revenue to be in the range of $760 to $785 million, which reflects expected organic revenue growth in the range of 0 to 3 percent over the prior year.The company reported revenue of $757.6 million in the second quarter of fiscal 2014.  Steelcase expects to report diluted earnings between $0.18 to $0.22 per share for the second quarter of fiscal 2015. This estimate includes approximately $0.04 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 $0.22 to $0.26 per share.The estimates also include approximately $6 million of operating costs associated with disruption.The estimates do not include any restructuring costs associated with the project announced today due to the uncertainty of the timing and amount of such costs.  Steelcase reported diluted earnings per share of $0.22 and adjusted earnings per share of $0.24 in the second quarter of fiscal 2014.  "Taking into consideration a strong project pipeline and our award-winning new product introductions, we expect to continue our growth in the Americas in the second quarter, which would mark the 18^th consecutive quarter of organic revenue growth," Mr. Keane said. "And we remain optimistic about the longer-term potential across EMEA and Asia Pacific as we continue to improve our competitiveness.Projects like the one we announced today are always challenging, and I am thankful for an organization dedicated to our success and ready to address those challenges."  Business Segment Results (in millions)                                                                                                 (Unaudited)                                                       Three Months Ended                                                May 30,          May 24,         %                                  2014             2013            Change                                                                 Revenue                                                          Americas (1)                     $506.3         $478.8        5.7% EMEA (2)                         147.6            126.7           16.5% Other (3)                        69.2             61.6            12.3% Consolidated revenue             $723.1         $667.1        8.4%                                                                 Operating income (loss)                                          Americas                         $53.2          $38.7          EMEA                             (7.7)            (10.3)           Other                            —                1.9              Corporate (4)                    (9.1)            (9.9)            Consolidated operating income    $36.4          $20.4                                                                          Operating income percent         5.0%            3.1%                                                                            Revenue Mix                                                      Americas (1)                     70.0%           71.8%           EMEA (2)                         20.4%           19.0%           Other (3)                        9.6%            9.2%                                                                                                                                            Business Segment Footnotes                                                                                                       1. The Americas segment serves customers in the U.S., Canada 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, Details and Turnstone brands. 2. The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase 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 expenses include unallocated portions of shared services functions such as information technology, human resources, finance, executive, corporate facilities, legal and research.    YEAR OVER YEAR ORGANIC REVENUE GROWTH BY SEGMENT Q1 2015 vs. Q1 2014                      Steelcase Inc.     Americas     EMEA         Other                                                                    category                                                                 Q1 2014 revenue       $667.1           $478.8     $126.7     $61.6 Currency translation  4.4                (2.4)        7.6          (0.8) effects* Q1 2014 revenue,      671.5              476.4        134.3        60.8 adjusted                                                                 Q1 2015 revenue,      723.1              506.3        147.6        69.2 reported Organic growth $      $51.6            $29.9      $13.3      $8.4 Organic growth %      8%                 6%           10%          14%                                                                 * Currency translation effects represent the estimated net effect of translating Q1 2014 foreign currency revenues using the average exchange rates during Q1 2015.                                                                 PROJECTED ORGANIC REVENUE GROWTH                                  Q2 2015 vs. Q2 2014                                                                    Steelcase Inc.                                                                                              Q2 2014 revenue       $ 758                                       Currency translation  2                                           effects* Q2 2014 revenue,      760                                         adjusted                                                                 Q2 2015 revenue,      760 - 785                                   projected Organic growth $      $ 0 - 25                                    Organic growth %      0% - 3%                                                                                                     * Currency translation effects represent the estimated net effect of translating Q2 2014 foreign currency revenues using the exchange rate at the end of Q1 2015.                                                                                                                                      ADJUSTED EARNINGS PER SHARE                          (Unaudited)                                                     Three Months Ended                                                     May 30,       May 24,                                                      2014          2013                                                                   Diluted earnings per share                           $0.17       $0.10 Restructuring costs (benefits) per share, net of tax (0.05)        0.03 Diluted earnings per share, adjusted                 $0.12       $0.13                                                                                                                                     PROJECTED ADJUSTED EARNINGS PER SHARE                (Unaudited)                                                     ThreeMonths Ended                                                      August 29,    August 23,                                                     2014          2013                                                      (projected)                                                                   Diluted earnings per share                           $0.18 - 0.22 $0.22 Restructuring costs per share, net of tax            0.04          0.02 Diluted earnings per share, adjusted                 $0.22 - 0.26 $0.24                                                                                                                                          Steelcase Inc.                                                                                                   (Unaudited)                                             Three Months Ended                                             May 30,          May 24,                                              2014             2013 Revenue                                      $723.1 100.0% $667.1 100.0% Cost of sales                                504.5   69.8   457.2   68.5 Restructuring costs (benefits)               (10.5)  (1.5)  0.2     — Gross profit                                 229.1   31.7   209.7   31.5 Operating expenses                           191.9   26.5   185.1   27.8 Restructuring costs                          0.8     0.2    4.2     0.6 Operating income                             $36.4  5.0%   $20.4  3.1% Interest expense, investment income and      (0.5)   —     (2.6)   (0.4) other income, net Income before income tax expense             35.9    5.0    17.8    2.7 Income tax expense                           14.9    2.1    4.6     0.7 Net income                                   $21.0  2.9%   $13.2  2.0%                                                                     Operating income                             $36.4  5.0%   $20.4  3.1% Add: restructuring costs (benefits)          (9.7)   (1.3)  4.4     0.6 Adjusted operating income                    $26.7  3.7%   $24.8  3.7%                                                                     Americas                                                                                                         (Unaudited)                                             Three Months Ended                                             May 30,          May 24,                                              2014             2013 Revenue                                      $506.3 100.0% $478.8 100.0% Cost of sales                                345.9   68.3   323.5   67.6 Restructuring costs (benefits)               (11.6)  (2.3)  0.2     — Gross profit                                 172.0   34.0   155.1   32.4 Operating expenses                           118.8   23.5   115.4   24.1 Restructuring costs                          —      —     1.0     0.2 Operating income                             $53.2  10.5%  $38.7  8.1% Add: restructuring costs (benefits)          (11.6)  (2.3)  1.2     0.2 Adjusted operating income                    $41.6  8.2%   $39.9  8.3%                                                                     EMEA                                                                                                             (Unaudited)                                             Three Months Ended                                             May 30,          May 24,                                              2014             2013 Revenue                                      $147.6 100.0% $126.7 100.0% Cost of sales                                111.7   75.6   94.0    74.2 Restructuring costs                          1.1     0.8    —      — Gross profit                                 34.8    23.6   32.7    25.8 Operating expenses                           41.7    28.3   39.8    31.4 Restructuring costs                          0.8     0.5    3.2     2.5 Operating loss                               $(7.7)  (5.2)% $(10.3) (8.1)% Add: restructuring costs                     1.9     1.3    3.2     2.5 Adjusted operating loss                      $(5.8)  (3.9)% $(7.1)  (5.6)%                                                                     Other category                                                                                                   (Unaudited)                                             Three Months Ended                                             May 30,          May 24,                                              2014             2013 Revenue                                      $69.2  100.0% $61.6  100.0% Cost of sales                                46.9    67.8   39.7    64.5 Restructuring costs                          —      —     —      — Gross profit                                 22.3    32.2   21.9    35.5 Operating expenses                           22.3    32.2   20.0    32.5 Restructuring costs                          —      —     —      — Operating income                             $—     —%    $1.9   3.0% Add: restructuring costs                     —      —     —      — Adjusted operating income                    $—     —%    $1.9   3.0%                                                                     Corporate                                                                                                        (Unaudited)                                             Three Months Ended                                             May 30,          May 24,                                              2014             2013 Operating loss                               $(9.1)         $(9.9)   Add: restructuring costs                     —             —       Adjusted operating loss                      $(9.1)         $(9.9)    Webcast  Steelcase will discuss first quarter results and business outlook on a conference call and webcast at 11:00 a.m. Eastern time today. Links to the webcast are available at ir.steelcase.com. Related presentation slides will be available on the company's website shortly after this press release is issued.  Non-GAAP Financial Measures  This earnings release contains certain 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 statements of income, balance sheets or statements of cash flow of the company.Pursuant to the requirements of Regulation G, the company has provided a reconciliation above of non-GAAP financial measures to the most directly comparable GAAP financial measure.  The non-GAAP financial measures used within the company's earnings release are: (1) organic revenue growth (decline), which represents the change in revenue excluding currency translation effects and the impacts of acquisitions and divestitures; (2) adjusted operating income (loss), which represents operating income (loss), excluding restructuring costs (benefits) and goodwill and intangible asset impairment charges; and (3) adjusted earnings (loss) per share, which represents earnings (loss) per share, excluding restructuring costs (benefits) and goodwill and intangible asset impairment charges, net of tax.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 generally are accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project," or other similar words, phrases or expressions. 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; restructuring activities; changes in raw materials and commodity costs; currency fluctuations; changes in customer demands; 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 100 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®, Details®, PolyVision® and Turnstone®. 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 dealer locations. Steelcase is a global, industry-leading and publicly traded company with fiscal 2014 revenue of $3.0 billion.   STEELCASE INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (in millions, except per share data)                                                                                                     Three Months Ended                                              May 30,   May 24,                                               2014      2013 Revenue                                       $723.1  $667.1 Cost of sales                                 504.5    457.2 Restructuring costs (benefits)                (10.5)   0.2 Gross profit                                  229.1    209.7 Operating expenses                            191.9    185.1 Restructuring costs                           0.8      4.2 Operating income                              36.4     20.4 Interest expense                              (4.4)    (4.4) Investment income                             0.4      0.6 Other income, net                             3.5      1.2 Income before income tax expense              35.9     17.8 Income tax expense                            14.9     4.6 Net income                                    $21.0   $13.2                                                        Earnings per share:                                     Basic                                         $0.17   $0.10 Diluted                                       $0.17   $0.10 Weighted average shares outstanding - basic   125.3     126.5 Weighted average shares outstanding - diluted 126.6     127.9                                                        Dividends declared and paid per common share  $0.105  $0.100    STEELCASE INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in millions, except share data)                                                                                                                        May 30,    February 28,                                                        2014       2014 ASSETS Current assets:                                                   Cash and cash equivalents                              $158.3   $201.8 Short-term investments                                 84.8      119.5 Accounts receivable, net                               322.1     306.8 Inventories                                            161.1     151.5 Deferred income taxes                                  47.8      56.0 Prepaid expenses                                       20.8      19.3 Other current assets                                   29.2      35.0 Total current assets                                   824.1     889.9                                                                  Property, plant and equipment, net                     377.5     377.0 Company-owned life insurance ("COLI")                  155.2     154.3 Deferred income taxes                                  79.6      85.1 Goodwill                                               108.3     108.1 Other intangible assets, net                           16.2      16.6 Investments in unconsolidated affiliates               54.4      53.0 Other assets                                           40.9      42.7 Total assets                                           $1,656.2 $1,726.7                                                                  LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:                                              Accounts payable                                       $220.0   $212.5 Short-term borrowings and current portion of long-term 2.6       2.6 debt Accrued expenses:                                                 Employee compensation                                  87.3      152.8 Employee benefit plan obligations                      17.5      26.1 Customer deposits                                      17.2      16.0 Product warranties                                     20.4      17.5 Other                                                  107.8     110.7 Total current liabilities                              472.8     538.2                                                                  Long-term liabilities:                                            Long-term debt less current maturities                 283.8     284.4 Employee benefit plan obligations                      146.9     151.1 Other long-term liabilities                            65.0      75.9 Total long-term liabilities                            495.7     511.4 Total liabilities                                      968.5     1,049.6                                                                  Shareholders' equity:                                             Common stock                                           —        — Additional paid-in capital                             3.7       — Accumulated other comprehensive income                 0.3       0.8 Retained earnings                                      683.7     676.3 Total shareholders' equity                             687.7     677.1 Total liabilities and shareholders' equity             $1,656.2 $1,726.7    STEELCASE INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited) (in millions)                                                                                                                                 Three Months Ended                                                            May 30,   May 24,                                                             2014      2013 OPERATING ACTIVITIES                                                  Net income                                                  $21.0   $13.2 Depreciation and amortization                               14.7     14.1 Deferred income taxes                                       13.0     0.7 Restructuring costs (benefits)                              (9.7)    4.4 Non-cash stock compensation                                 9.6      10.8 Equity in income of unconsolidated affiliates               (3.7)    (1.7) Dividends received from unconsolidated affiliates           2.3      0.7 Other                                                       (1.8)    (1.3) Changes in operating assets and liabilities:                          Accounts receivable                                         (15.0)   (16.6) Inventories                                                 (9.5)    (10.4) Other assets                                                (10.5)   (2.5) Accounts payable                                            7.6      14.1 Employee compensation liabilities                           (74.4)   (48.0) Employee benefit obligations                                (14.6)   (16.4) Accrued expenses and other liabilities                      (1.6)    (0.4) Net cash used in operating activities                       (72.6)   (39.3)                                                                      INVESTING ACTIVITIES                                                  Capital expenditures                                        (15.8)   (18.4) Proceeds from disposal of fixed assets                      19.0     0.9 Purchases of investments                                    (27.0)   (9.8) Liquidations of investments                                 62.8     66.4 Other                                                       9.8      (0.4) Net cash provided by investing activities                   48.8     38.7                                                                      FINANCING ACTIVITIES                                                  Dividends paid                                              (13.6)   (12.5) Common stock repurchases                                    (5.9)    (31.7) Excess tax benefit from vesting of stock awards             —       (1.1) Repayments of long-term debt                                (0.6)    (0.6) Net cash used in financing activities                       (20.1)   (45.9)                                                                      Effect of exchange rate changes on cash and cash            0.4      (0.8) equivalents                                                                      Net decrease in cash and cash equivalents                   (43.5)   (47.3) Cash and cash equivalents, beginning of period              201.8    150.4 Cash and cash equivalents, end of period                    $158.3  $103.1  CONTACT: Investor Contact:          Raj Mehan          Investor Relations          (616) 246-4251                   Media Contact:          Lauren Parker          Corporate Communications          (212) 931-6143  Steelcase Inc. 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