UPDATE: Steelcase (SCS) Tops Q3 EPS by 11c, Revenues Beat; Offers FY20 EPS Guidance Above Consensus, Q4 Revenue Views Below Consensus

(Updated - December 17, 2019 4:12 PM EST)

Steelcase (NYSE: SCS) reported Q3 EPS of $0.46, $0.11 better than the analyst estimate of $0.35. Revenue for the quarter came in at $955 million versus the consensus estimate of $934.7 million.

• Operating margin increased 290 basis points to 7.9%; EPS improved 48% to $0.46
• Revenue grew 6% to $955 million, driven by strong organic growth in the Americas
• EMEA delivers $7 million improvement in operating income and is profitable for the fiscal year to date

"We're proud to deliver another quarter of outstanding results, including a 28% improvement in adjusted earnings and terrific year-over-year increases in operating margins in the Americas and EMEA," said Jim Keane, president and CEO. "Our teams continue to execute against our strategies for growth and profit improvement. We continue to capitalize on the investments we've made in new product development and drive initiatives for improving our cost structure."

Third quarter operating income of $75.1 million (or 7.9 percent of revenue) increased by $29.7 million or 65.4 percent compared to operating income of $45.4 million (or 5.0 percent of revenue) in the prior year. The prior year included an $11.2 million pension charge, which had the effect of reducing operating income by $7.5 million after consideration of the related variable compensation expense. The Americas reported operating income of $74.7 million compared to $52.0 million in the prior year. Adjusted for the $8.4 million net impact of the pension charge in the prior year, operating income in the Americas increased by $14.3 million, driven primarily by the $52.3 million increase in revenue, which included higher realization of list price adjustments. EMEA reported operating income of $6.3 million compared to an operating loss of $0.7 million in the prior year, driven by gross margin improvement initiatives and cost reduction efforts. The Other category reported operating income of $3.3 million compared to $4.2 million in the prior year.

"Our $7 million year-over-year profit improvement in EMEA this quarter is reflective of our teams executing against our strategies as we sustained a high level of revenue while driving improvements in gross margin and operating expenses," said Dave Sylvester, senior vice president and CFO. "Our year-to-date profitability demonstrates our ability to drive continued improvement in our business, despite an overall economic environment that continues to be challenging, and puts us in a great position to achieve our near-term target of being profitable in EMEA for fiscal 2020."

GUIDANCE:

Steelcase sees Q4 revenues of $905-$930 million, versus the consensus of $950 million.

Steelcase sees FY2020 EPS of $1.41-$1.45, versus the consensus of $1.35. Steelcase sees FY2020 revenues of $3.7 billion, versus the consensus of $3.71 billion.

The company expects fiscal 2020 revenue to approximate $3.7 billion, with revenue in the fourth quarter expected to be in the range of $905 to $930 million. The company reported revenue of $3.4 billion in fiscal 2019, with $912.4 million in the fourth quarter. Adjusted for the impact of an additional week in fiscal 2020 and unfavorable currency translation effects, the projected revenue range for the fourth quarter translates to an expected organic decline of 2 to 5 percent compared to the fourth quarter of fiscal 2019, which reflected revenue growth of 18 percent and organic revenue growth of 15 percent compared to the previous year.

"Our fourth quarter estimate is impacted by the favorable shipment timing we experienced in the third quarter, which included benefits from the timing of Thanksgiving which fell in Q3 of the prior year compared to Q4 of the current year," said Dave Sylvester. "We estimate that the fourth quarter will be negatively impacted by $20 million or more compared to the prior year as a result of that timing. We're pleased our revenue outlook for the full fiscal year is consistent with the targets we established at the beginning of the year as our industry has remained resilient, even as corporate capital spending has been under pressure, and our growth strategies have driven gains in our market share." Steelcase expects to report diluted earnings per share between $1.41 to $1.45 for fiscal 2020, including an estimate for the fourth quarter of $0.30 to $0.34. Steelcase reported diluted earnings per share of $1.05 and adjusted earnings of $1.20 per share in fiscal 2019, with earnings per share of $0.19 and adjusted earnings of $0.29 per share in the fourth quarter.

"Our expectation for earnings per share for the full fiscal year would put us well above the $1.20 to $1.35 range we established at the start of the year," said Jim Keane. "As we look out beyond the end of this fiscal year, we believe we will continue to grow faster than the industry and deliver strong earnings growth as we drive value from our acquisitions, continue to improve our profitability in EMEA and continue to invest in new product development and other growth initiatives."

For earnings history and earnings-related data on Steelcase (SCS) click here.

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