Steelcase Reports Revenue Growth For 4th Quarter

Furniture World Magazine

Steelcase Inc. announced fourth quarter and fiscal year 2008 financial results. Steelcase reported fourth quarter revenue growth of 15.8 percent to $901.3 million. Net income of $30.6 million, or $0.22 per share, compared to $29.3 million or $0.20 per share in the prior year. The company also announced the acceleration of various strategic cost reduction actions over the next nine to twelve months, which are expected to generate annualized savings of approximately $25 million after-tax. For fiscal 2008, revenue grew 10.4 percent over the prior year to $3.4 billion, and earnings per share increased 29.2 percent over the same period to $0.93. "Fiscal 2008 marked another year of improved profitability and fitness of the business," said James P. Hackett, president and CEO. "We are pleased with the improvements each business segment is making in its operating efficiency while pursuing targeted growth strategies." Fourth Quarter Results Reported revenue of $901.3 million for the fourth quarter increased 15.8 percent, compared to $778.4 million in the prior year quarter. The increase in revenue was largely driven by the International segment which grew 32.6 percent over the prior year and represented 30.9 percent of reported revenue in the current quarter. In addition, revenue benefited from an extra shipping week in the current quarter and approximately $26 million of favorable currency translation effects compared to the prior year. Net income increased to $30.6 million, or $0.22 per share in the fourth quarter of fiscal 2008, lower than company estimates of $0.23 to $0.28 per share. Current quarter net income was negatively impacted by specific operational challenges in the International segment and lower cash surrender value appreciation on company-owned life insurance policies in the North America segment. The company reported earnings per share of $0.20 in the prior year, which included $(6.1) million of after-tax restructuring costs. In addition, the prior year included favorable tax adjustments and goodwill and intangible asset impairment charges, which, when combined with related adjustments to variable compensation expense, had the net effect of increasing last year's fourth quarter net income by $10.8 million. Cost of sales was reduced to 68.2 percent of sales in the fourth quarter, a 50 basis point improvement compared to the prior year. The net improvement was a result of increased volume leverage, pricing and the benefits from prior restructuring actions in North America, offset in part by the operational challenges in the International segment and lower cash surrender value appreciation on company-owned life insurance policies. The improvement, in addition to lower restructuring costs, increased gross margin to 31.9 percent in the current quarter from 30.3 percent in the prior year. Operating expenses were $240.4 million or 26.7 percent of sales compared to $231.3 million or 29.7 percent of sales in the prior year. Prior year expenses included $11.7 million of non-cash intangible asset and goodwill impairment charges. Current quarter operating expenses reflect the costs associated with an extra week of operations, increased spending on longer-term growth initiatives, the unfavorable impact of currency translation effects and lower cash surrender value appreciation on company-owned life insurance policies. These increases were offset in part by lower variable compensation costs. Operating income of $46.8 million in the fourth quarter compared with $2.8 million in the prior year, which included $(9.3) million of restructuring costs, in addition to the items previously noted. Fiscal Year 2008 Results Revenue for fiscal 2008 increased 10.4 percent to $3.4 billion compared to $3.1 billion last year. Fiscal 2008 revenue included an extra shipping week due to the timing of the fiscal year-end, approximately $73 million from favorable currency translation effects and $(70.1) million from dealer deconsolidations, net of acquisitions, as compared with the prior year. Reported net income increased 24.6 percent to $133.2 million or $0.93 per share. Net income in fiscal 2007 was $106.9 million, or $0.72 per share, which included net restructuring costs of $(15.6) million after-tax. Operating income of $202.8 million compared with $113.7 million in the prior year, which included $(23.7) million of pre-tax restructuring costs. Operating income excluding restructuring costs was $202.4 million versus $137.4 million in the prior year. Cash and short-term investments aggregated $264.0 million at the end of fiscal 2008. During the year, the company returned nearly $500 million to shareholders in the form of regular quarterly dividends, a special cash dividend of $247.5 million in January 2008 and share repurchases of $165.3 million throughout the year. Total debt at the end of the fiscal year was $258.7 million. "From an operational perspective, the fundamentals of our business remain strong," said David C. Sylvester, vice president and CFO. "However, various economic indicators suggest our industry may continue to moderate in the near- term and face increasing inflationary headwinds at the same time. As a result, we intend to take this opportunity to accelerate various strategic actions to improve our operating margins." Mr. Sylvester continued, "The actions, which will take place over the next nine to twelve months, are targeted toward further modernizing our industrial system, improving the profitability at PolyVision and rebalancing our workforce to better align with our growth opportunities." Outlook The company expects first quarter fiscal 2009 revenue growth to be in a range of plus or minus two percent compared to the prior year. The International segment is expected to continue its expansion, while the North America segment is expected to be impacted by on-going economic uncertainty in the U.S. and the effect of dealer deconsolidations within the last four quarters. Steelcase expects to report earnings per share for the first quarter of fiscal 2009 between $0.14 and $0.19, including restructuring costs of approximately $(7) million after-tax. These estimates reflect increasing inflationary concerns and potential disruption associated with the planned restructuring actions. The company reported earnings per share of $0.23 in the first quarter of the prior year, including restructuring costs of $(1.1) million after-tax. The company is not providing full year revenue or earnings estimates. However, it is estimating full year restructuring costs of $25 to $30 million after-tax, including the amounts estimated above for the first quarter. These anticipated charges relate primarily to planned facility closures, production moves and specific workforce reductions within our North America segment and Other category. The restructuring actions, once completed, are expected to generate annualized savings of approximately $25 million after-tax. Mr. Hackett concluded, "Our company has an established track record of implementing the changes necessary to improve profitability and shareholder value. The execution of our growth strategies around the world requires improved fitness in all areas of our business, particularly in uncertain economic times. The actions we are announcing today will help us do just that." About Steelcase Inc. Steelcase, the global leader in the office furniture industry, helps people have a better work experience by providing products, services and insights into the ways people work. The company designs and manufactures architecture, furniture and technology products. Founded in 1912 and headquartered in Grand Rapids, Michigan, Steelcase (NYSE: SCS - News) serves customers through a network of over 600 independent dealers and approximately 13,000 employees worldwide. Fiscal 2008 revenue was $3.4 billion. Learn more at www.steelcase.com.