Steelcase Inc. (SCS)

[MiamiGent]

SCS Steelcase Reports Second Quarter Results
BY GlobeNewswire 4:01 PM ET 09/19/2012

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GRAND RAPIDS, Mich., Sept. 19, 2012 (GLOBE NEWSWIRE) -- Steelcase Inc. (SCS) today reported second quarter revenue of $744.9 million and net income of $29.5 million, or $0.23 per share. Excluding restructuring costs, adjusted earnings were $0.25 per share. Revenue and earnings per share were ahead of company estimates. Steelcase (SCS) reported $700.5 million of revenue and earnings of $0.09 per share in the second quarter of the prior year, including restructuring costs of approximately $0.06 per share.

Organic revenue growth in the second quarter was 10 percent after adjusting for unfavorable currency translation effects and the net impact of acquisitions and divestitures. The Americas posted 10 percent organic growth over the prior year while EMEA experienced 17 percent organic growth. Revenue growth in the Americas and EMEA was broad-based and included a higher mix of project business from some of the company's largest corporate customers.

"The Americas reported another strong quarter, achieving double-digit organic revenue growth for the eighth consecutive quarter and posting a double-digit adjusted operating income margin of over 12 percent," said James P. Hackett, president and CEO. "This performance is a testament to our strategy and the successful execution of our business model changes over the last several years."

Current quarter operating income of $46.8 million compares to $25.4 million in the prior year. Excluding restructuring costs, second quarter adjusted operating income of $50.5 million compares with $37.7 million in the prior year. The improvement was driven largely by organic revenue growth in the Americas and EMEA, but gross margins were negatively impacted by a higher mix of project business from some of the company's largest corporate customers.

"The EMEA results reflected significant organic revenue growth in the quarter and an improvement in adjusted operating results compared to the prior year, due in part to a strong backlog at the start of the quarter," said David C. Sylvester, senior vice president and CFO. "Nevertheless, economic uncertainty remains very high in Europe and so we remain committed to improving our business model across the region."

Cost of sales improved to 68.9 percent of revenue in the current quarter compared to 69.7 percent in the prior year. Higher absorption of fixed costs associated with the revenue growth in the quarter, as well as year-over-year benefits from recent pricing adjustments (net of commodity cost changes) and restructuring actions (net of related disruption costs), were partially offset by the impact of a shift in business mix.

Operating expenses in the second quarter were $181.0 million compared with $174.9 million in the prior year. The increase was largely due to increased spending on sales, product development and other initiatives in the Americas and Asia Pacific.

Interest expense was $4.6 million in the current quarter compared to $7.6 million in the prior year, which included $3.6 million of interest expense associated with senior notes repaid during August 2011. These notes were repaid with proceeds from the issuance of replacement notes in February 2011.

Investment income of $1.3 million in the current quarter compared to an investment loss of $2.6 million in the prior year. The improvement was primarily due to higher gains in the cash surrender value of variable life company-owned life insurance (COLI).

The company repurchased 0.9 million shares at a cost of $7.6 million in the second quarter. The company has $136 million of remaining availability under its existing share repurchase authorization.

Cash, short-term investments and the cash surrender value of variable life COLI totaled $270.8 million and total debt was $291.9 million at the end of the second quarter.

The Board of Directors of Steelcase Inc. (SCS) today declared a cash dividend $0.09 per share, to be paid on or before October 12, 2012 to shareholders of record as of October 1, 2012.

New Members of the Board of Directors

The Board of Directors also announced the appointment of Lawrence J. Blanford to the Steelcase Inc. (SCS) Board of Directors. Mr. Blanford is the President and CEO and a director of Green Mountain Coffee Roasters, Inc., a leader in specialty coffee and coffee makers. "As the CEO of a consumer-focused company, Larry brings additional insights that make him a valuable addition to our board," stated Robert C. Pew III, Chair of the Steelcase Inc. (SCS) Board of Directors.

Mr. Blanford joins R. David Hoover as the newest members of the Steelcase Inc. (SCS) Board. Mr. Hoover, who was elected by shareholders in July, is the Chairman of Ball Corporation, a supplier of high quality packaging products and aerospace and other technologies and services. Mr. Hoover served as CEO of Ball Corporation from 2001 to 2011. "Dave has a long history of service on the boards of directors of public companies, which provides a valuable corporate governance perspective for our board," said Mr. Pew.

Outlook

Second quarter order growth in the Americas approximated 8 percent compared to the prior year, or approximately 6 percent when adjusted for the estimated pull-forward impact of a May 2011 price increase. EMEA orders in the second quarter declined by approximately 8 percent compared to the prior year but grew approximately 2 percent in constant currency. The company expects third quarter fiscal 2013 revenue to be in the range of $710 to $735 million. This estimate includes an assumption of approximately $12 million from unfavorable currency translation effects compared to the prior year, as well as $4 million of revenue from recent dealer acquisitions completed in the second quarter. The company reported revenue of $719.4 million in the third quarter of fiscal 2012. Adjusting for these impacts, the company projects third quarter organic revenue growth in the range of 0 to 3 percent over the prior year.

Steelcase (SCS) expects to report earnings between $0.16 and $0.20 per share for the third quarter of fiscal 2013, including restructuring costs of approximately $0.03 per share. Steelcase reported earnings of $0.17 per share in the third quarter of fiscal 2012, including restructuring costs of approximately $0.02 per share.

"The third quarter outlook is somewhat inconsistent with normal seasonal patterns, but not entirely surprising given the strong project business we have experienced in recent quarters," Mr. Hackett said. "While we continue to watch the macroeconomic environment closely, we remain encouraged by our recent gains in U.S. market share and the growing need for many of our customers to modernize their work environments."