STEELCASE REPORTS FOURTH QUARTER RESULTS
Americas Momentum Continues to Drive Strong Operating Margin Most recent snapshot demonstrates commitment.
GRAND RAPIDS, March 25, 2014 – Steelcase Inc. (NYSE:SCS) today reported fourth quarter
revenue of $779.4 million and net income of $23.9 million, or diluted earnings per share of $0.19. Excluding net restructuring benefits, adjusted earnings were $0.18 per share. Steelcase reported $721.4 million of revenue and a diluted loss per share of $0.22 in the fourth quarter of the prior year. Excluding restructuring costs and goodwill impairment charges, adjusted earnings were $0.28 per share in the prior year. Prior year results also included foreign tax credit benefits, tax valuation allowance adjustments and environmental reserve adjustments, which had the aggregate net effect of increasing earnings by approximately $0.10 per share.
Organic revenue growth over the prior year was 2 percent after adjusting for approximately $42.0 million associated with an extra week of shipments in the current quarter. The Americas and Other category, driven largely by Asia Pacific, posted organic revenue growth of 6 percent and 11 percent respectively, compared to the prior year. Revenue in the Americas continues to reflect a higher mix of project business from some of the company’s largest corporate customers compared to the prior year. The EMEA segment posted an organic revenue decline of 13 percent compared to the prior year, which included revenue from several large projects.
Current quarter operating income of $54.2 million compares to an operating loss of $45.2 million in the prior year. Fourth quarter adjusted operating income of $51.4 million (or 6.6 percent of revenue) improved significantly compared with adjusted operating income of $34.6 million (or 4.8 percent of revenue) in the prior year. The improvement was driven by strength in the Americas, lower Corporate costs and improved results in the Other category, partially offset by continued weakness in EMEA.
“The Americas segment continues to deliver exemplary performance, realizing an adjusted operating margin of 11.5 percent in the fourth quarter and for fiscal 2014 and gaining market share in the U.S. for the third consecutive year,” said James P. Keane, president and CEO. “Our investment in research and our ability to monetize our insights through new products and applications are helping to drive these strong results.”
Cost of sales improved 100 basis points to 68.6 percent of revenue in the current quarter compared to 69.6 percent in the prior year. Cost of sales in the Americas improved by 200 basis points while cost of sales in EMEA increased by 330 basis points. The improvement in the Americas was driven by favorable business mix, higher absorption of fixed costs associated with the organic revenue growth (including benefits of improved pricing) and various cost reduction efforts. The increase in cost of sales for EMEA was driven by approximately $4 million of costs associated with changes in the EMEA manufacturing footprint, lower absorption of fixed costs associated with the organic revenue decline (including higher competitive discounting) and unfavorable business mix. The current quarter results in EMEA also included a favorable adjustment to accrued expenses compared to an unfavorable adjustment to warranty reserves in the prior year. Operating expenses in the fourth quarter were $193.2 million compared with $184.5 million in the prior year.
Beyond the extra week of operating costs of approximately $10.3 million in the current quarter, the year-over-year comparison was also impacted by higher spending in the Americas and higher variable compensation expense. Offsetting these increases were the benefits of restructuring activities and other cost reduction efforts in EMEA compared to the prior year. In addition, Corporate costs in the prior year included $3.6 million in environmental reserve adjustments.
Other income (expense), net in the fourth quarter of $(5.4) million compared to $2.4 million in the prior year. The current quarter included $6.0 million of charges related to a minority equity investment and $2.9 million of foreign exchange losses compared to small foreign exchange gains in the prior year.
Income tax expense of $20.7 million in the current quarter included approximately $3 million of additional tax valuation allowance adjustments and other discrete charges and resulted in an overall effective tax rate of approximately 46 percent for the fourth quarter.
“The unfavorable impacts of the non-operating items and tax adjustments recorded this quarter were reduced by lower than expected variable compensation expense linked to those charges and the deferral of an expected facility sale and related gain from the fourth quarter to the first quarter of fiscal 2015,” said David C. Sylvester, senior vice president and CFO. “Setting aside the lower variable compensation expense associated with these items, adjusted operating income was otherwise better than expected.”
Cash, short-term investments and the cash surrender value of company-owned life insurance totaled $476 million and total debt was $287 million at the end of the fourth quarter.
In the fourth quarter, the company repurchased approximately 1.2 million shares under its share repurchase authorization program at a total cost of $16.9 million and paid a cash dividend of $0.10 per share. The Board of Directors today declared a cash dividend of $0.105 per share, to be paid on or before April 14, 2014 to shareholders of record as of April 4, 2014.
Fiscal 2014 Results
For fiscal 2014, the company recorded $3.0 billion of revenue and net income of $87.7 million, or diluted earnings per share of $0.69. Adjusted earnings per share were $0.82. In fiscal 2013, the company recorded $2.9 billion of revenue and net income of $38.8 million, or diluted earnings per share of $0.30. Adjusted earnings per share were $0.88. Fiscal 2013 results also included foreign tax credit benefits, tax valuation allowance adjustments and environmental reserve adjustments that had the aggregate net effect of increasing earnings by approximately $0.10 per share.
Organic revenue growth in fiscal 2014 was 2 percent, which compared to 5 percent in fiscal 2013. The Americas and the Other category, driven by PolyVision, posted organic revenue growth of 5 percent and 2 percent, respectively, while EMEA experienced an 8 percent organic revenue decline. Operating income of $165.9 million for fiscal 2014 compares to operating
income of $59.3 million in fiscal 2013. Adjusted operating income grew 20 percent to $185.4 million in fiscal 2014 as compared to $153.9 million in the prior year.
“Adjusted operating income in the Americas improved 170 basis points to 11.5 percent of revenue in fiscal 2014 compared to fiscal 2013,” said Mr. Sylvester. “However, EMEA posted its third consecutive annual adjusted operating loss this year. We remain focused on the implementation of our multi-year strategy necessary to safeguard our global competitiveness and restore profitability in this region.”
The company repurchased approximately 3.2 million shares under its share repurchase authorization program during fiscal 2014 at a cost of $43.3 million and paid $50.2 million in quarterly dividends. Approximately $93 million remained under the company’s share repurchase authorization program as of the end of fiscal 2014.
For over 100 years, Steelcase Inc. has helped to create great experiences – wherever work happens – 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.