8-K: Steelcase Reports Mixed Q3 Results, Americas Growth Offsets International Decline

Steelcase's third quarter fiscal 2025 results show revenue growth driven by the Americas, but a decline in international markets, with adjusted earnings per share exceeding company targets.

Summary

• Steelcase reported a 2% increase in revenue for the third quarter of fiscal year 2025, reaching $794.9 million, compared to $777.9 million in the prior year.
• The Americas segment saw a 5% revenue growth, while the International segment experienced a 6% decline.
• On an organic basis, revenue grew by 3%, with the Americas up 7% and International down 8%.
• Net income for the quarter was $19.1 million, or $0.16 per share, compared to $30.8 million, or $0.26 per share, in the prior year.
• Adjusted earnings per share were $0.30, slightly up from $0.29 in the prior year.
• The company's total liquidity increased by $152 million year-over-year, reaching $576.6 million.
• Trailing four-quarter adjusted EBITDA was $283.6 million, a 9% increase compared to the prior year.
• The company's backlog at the end of the third quarter was approximately $664 million, 5% lower than the prior year.
• For the fourth quarter of fiscal 2025, the company projects revenue between $770 and $795 million, and adjusted earnings per share between $0.20 and $0.24.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to strong performance in the Americas and exceeding earnings targets, but tempered by the decline in international markets and reduced net income.

Positives

• The Americas segment showed strong revenue growth of 5%, and 7% on an organic basis.
• Adjusted earnings per share exceeded company targets for the third quarter.
• Total liquidity increased significantly by $152 million year-over-year.
• Trailing four-quarter adjusted EBITDA increased by 9% compared to the prior year.
• Gross margin improved by 100 basis points to 33.4%.
• Orders in the first three weeks of the fourth quarter grew 15% compared to the prior year.
• The company implemented cost reduction measures projected to drive approximately $5 million of annualized cost savings by the start of fiscal 2026.

Negatives

• The International segment experienced a 6% revenue decline, and an 8% decline on an organic basis.
• Net income decreased to $19.1 million from $30.8 million in the prior year.
• Operating income decreased by $2.8 million compared to the prior year.
• The company's backlog decreased by 5% compared to the prior year.
• International results were below expectations due to demand and customer-driven shipment delays.

Risks

• The International segment's performance is a concern, with significant revenue and order declines.
• The company faces challenges in managing demand and shipment delays in international markets.
• The backlog is down 5% year-over-year, which could impact future revenue.
• The company is exposed to currency fluctuations and economic conditions that could impact results.
• The company is exposed to risks related to competitive and general economic conditions domestically and internationally.

Future Outlook

The company expects fourth quarter fiscal 2025 revenue to be in the range of $770 to $795 million, and adjusted earnings per share to be between $0.20 and $0.24. The fourth quarter includes an additional week compared to the prior year.

Management Comments

• Sara Armbruster, president and CEO, stated that the Americas business posted 7% organic revenue growth and delivered higher than expected adjusted earnings per share.
• Sara Armbruster also noted improved trends from large corporate customers near the end of the quarter and into December.
• Dave Sylvester, senior vice president and CFO, mentioned that International results were below expectations due to demand and customer-driven shipment delays.
• Dave Sylvester also stated that the company implemented additional restructuring actions and other cost reduction measures projected to drive approximately $5 million of annualized cost savings by the start of fiscal 2026.
• Sara Armbruster stated that the company's teams have successfully driven higher levels of profitability all year and that fiscal 2025 adjusted earnings per share are projected to finish above target.

Industry Context

The results reflect a mixed performance in the office furniture industry, with strong demand in the Americas contrasting with challenges in international markets. The company's focus on cost reduction and restructuring aligns with broader industry trends of adapting to changing market conditions.

Comparison to Industry Standards

• Steelcase's 2% revenue growth is moderate compared to some competitors in the office furniture sector, which have seen higher growth rates in certain regions.
• The 5% growth in the Americas is a positive sign, but the 6% decline in International is concerning, as some competitors have shown more resilience in global markets.
• The 100 basis point improvement in gross margin is a positive development, but it is important to compare this to industry benchmarks to assess its significance.
• Steelcase's adjusted EBITDA of 9% of revenue is within the range of industry standards, but it is important to compare this to specific competitors to assess its relative performance.
• Companies like Herman Miller (now MillerKnoll) and Haworth are key competitors, and their performance in similar markets should be considered for a comprehensive analysis.

Stakeholder Impact

• Shareholders will be impacted by the mixed financial results, but the dividend payment is a positive.
• Employees may be affected by restructuring actions and cost reduction measures.
• Customers in the Americas will benefit from the company's strong performance in that region.
• Customers in international markets may experience delays and reduced service levels.
• Suppliers may be impacted by changes in demand and production levels.

Next Steps

• The company will continue to focus on serving customers and supporting their workplace strategies.
• The company will continue to implement cost reduction measures.
• The company will monitor and address the challenges in the international markets.
• The company will focus on developing new solutions and evolving capabilities to better serve customers and dealers.

Key Dates

Keywords

Steelcase, furniture, office furniture, revenue, earnings, EBITDA, Americas, International, gross margin, liquidity, backlog