Steelcase Inc (SCS) Q2 2025 Earnings Call Transcript Highlights: Strong EPS Growth Amid Mixed ...
Revenue: $856 million, slightly below the midpoint of the estimated range.
Adjusted Earnings Per Share (EPS): $0.39, an increase of 26% year-over-year.
Organic Revenue Growth: 2%.
Gross Margin: Improved for the ninth consecutive quarter.
Adjusted Operating Income: $15 million higher than the prior year.
Americas Segment: $13 million of adjusted operating income improvement, 3% organic revenue growth.
International Segment: $2.4 million improvement in adjusted operating results.
Cash and Short-term Investments: Increased by $127 million from Q1.
Trailing Four Quarter Adjusted EBITDA: $285 million, or 9.1% of revenue.
Liquidity: $507 million at the end of the quarter.
Share Repurchase: Approximately 200,000 shares in Q2, 1.7 million shares in the first half of fiscal 2025.
Orders: 3% growth in the Americas, 11% decline in international.
Q3 Revenue Outlook: $785 million to $810 million, reflecting 1% to 5% organic growth.
Q3 Adjusted Earnings Per Share (EPS) Outlook: $0.21 to $0.25 per share.
Q3 Gross Margin Outlook: Approximately 32.5% to 33.0%.
Q3 Operating Expenses Outlook: $225 million to $230 million.
Release Date: September 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Steelcase Inc (NYSE:SCS) reported strong earnings growth with a 26% increase in adjusted earnings per share to $0.39.
The company achieved 2% organic revenue growth and has driven year-over-year gross margin improvement for nine consecutive quarters.
Steelcase Inc (NYSE:SCS) saw significant growth in the education segment, with Smith System business growing 18% year over year.
The company has made progress in its diversification strategy, showing growth in healthcare, small- and medium-sized businesses, and consumer segments.
Steelcase Inc (NYSE:SCS) has a strong liquidity position with $507 million in liquidity, exceeding its total debt of $447 million.
Negative Points
Orders in the international segment declined by 11%, driven by declines in most major markets except India.
Revenue of $856 million was slightly below the midpoint of the estimated range provided in June.
The company faces challenges with the timing of project orders and requested delivery dates, which could impact financial results in the second half of the year.
Operating expenses are projected to be between $225 million to $230 million in Q3, which includes $4.3 million of amortization related to purchase intangible assets.
The effective tax rate is projected to be approximately 27%, which could impact net earnings.
Q & A Highlights
Q: Could you talk more about your commentary around corporate orders picking up in the second half? What are you seeing in terms of pipeline metrics that give you confidence in that outlook? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: The confidence comes from our sales team managing these accounts globally. The orders expected in Q2 came in on schedule, and the leadership feels confident about the pipeline for the balance of the year.
Q: OpEx for the quarter came in lower than expected. What drove that, and are these permanent cuts or temporary variable cuts? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: When adding back the gain net of variable compensation, OpEx was pretty close to our guidance. The lower OpEx was not due to permanent cuts.
Q: How much flexibility do you have to land in your FY25 range based on cost and efficiency moves versus orders and volumes? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: It's balanced between the two. We have ongoing work to drive margin improvements and manage the ERP cutover, but the timing of orders from large corporate customers is the biggest variable.
Q: Can you describe the win rates and market share gains in the Americas? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: Win rates are above target and higher than previous years, resulting in market share gains in the Americas based on industry information from BIFMA.
Q: What are the growth drivers outside of large corporates, and how much runway do you have there? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: Investments in vertical areas like health, education, small to midsized businesses, and government are driving growth. These sectors have significant opportunities, and our team is doing well in competing for business.
Q: Any color on the recent dealer survey showing strong numbers out west, especially in the tech industry? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: Tech is starting to wake up, with companies like Amazon expecting more in-office days. The activity levels for next year on the West Coast are looking interesting, and Southern California has been busy across various vertical markets.
Q: Can you provide an overview of the international segment's performance and internal progress? A: Sara Armbruster, President & Chief Executive Officer: The market environment varies by region. India shows strong growth, while other markets face challenges. We focus on driving efficiency, improving margins, and resetting the business where possible to drive profit improvements.
Q: Are you gaining market share in government, education, and healthcare markets, and how big a part of the business do you see this becoming? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: We don't have specific data by vertical market, but these sectors are a meaningful component of our business. Large corporate may not recover to pre-pandemic levels, so we're investing more in diversification.
Q: Is there a similar opportunity for diversification in international markets? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: Some sectors like education show opportunities in Asia-Pacific and Europe. Healthcare is more challenging. In Europe, we're focusing on winning a larger share of the large corporate business, and recent improvements in win rates are promising.
Q: How do you see the large corporate rebound in the second half, and does it reflect the general trend of improvement in project business? A: Dave Sylvester, Senior Vice President & Chief Financial Officer: Project business grew year-over-year, while continuing business was down. Large corporate is ahead on a year-to-date basis, and we speculate some pull-forward business into Q1. We're not concerned about the large corporate outlook.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.