Release Date: June 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Steelcase Inc (SCS, Financial) reported strong earnings growth with adjusted earnings per share of $0.16, a 78% increase compared to the previous year.
- The company achieved year-over-year gross margin improvement for the eighth consecutive quarter.
- Steelcase Inc (SCS) saw 8% overall order growth in Q1, with the Americas segment experiencing a 10% increase.
- The company launched several new innovative solutions, including the Ocular View, Campers & Dens, and new collections in collaboration with the Frank Lloyd Wright Foundation.
- Steelcase Inc (SCS) announced a commitment to reach net zero carbon emissions by 2050, positioning itself as a leader in sustainability within the industry.
Negative Points
- Revenue for the first quarter was slightly below the prior year, indicating potential challenges in maintaining consistent sales growth.
- The company consumed $59 million of cash from operating activities in Q1, partly due to higher seasonal disbursements.
- International segment revenue fell short of expectations, despite improvements in gross margins and lower spending.
- Orders from large corporate customers showed a modest decline in Q1 compared to the prior year.
- The company is still in the early to mid stages of achieving its $50 million cost-saving target, with other challenges dampening net improvements in gross margins.
Q & A Highlights
Steelcase Inc (SCS) Q1 2025 Earnings Call Highlights
Q: Congrats on the strong start to the year. Can you talk about what drove the improvements in gross margin on a year-over-year basis and how to think about that gross margin line as the year progresses?
A: The improvements were driven by several factors, including remaining pricing benefits from actions taken last year, strong operational performance, and favorable business mix. The second quarter is expected to continue this trend due to strong absorption of overhead and fixed costs from the education business.
Q: Any consistent feedback from customers at NeoCon? Does it feel like there's a turning point in terms of the return to the office and the need to invest in the office?
A: We saw high-quality visits at NeoCon with a lot of customers actively working on projects. There was a healthy diversity of clients, including a strong contingent from the West Coast and international clients. This supports our positive outlook.
Q: How far along are you in the progress towards the $50 million savings target laid out at Analyst Day?
A: We are in the early to mid-innings. While we've made significant improvements, other challenges have dampened the net impact. We are launching additional initiatives and expect more significant net improvements in the future.
Q: Do you think gross margins can get back past prior peaks?
A: Yes, we believe the business should be operating at a structurally higher gross margin once all initiatives are realized.
Q: How sustainable is the current demand given that market indicators like the ABI index remain subdued?
A: We believe the current demand is not just due to delays but also reflects a restart of projects. The industry has been growing modestly, but we've been growing at a faster rate due to strong win rates and staying invested in hybrid work solutions.
Q: How are customers thinking about redesigning their offices for hybrid work in terms of space per employee and spend per employee?
A: We see an increase in space per employee driven by the need for more ancillary, social, and informal spaces. There is also a shift from benching applications to more freestanding furniture and privacy solutions.
Q: How should we think about margin structure and replacement cycles in our modeling?
A: Gross margins are generally consistent across products, with seating having a higher margin. The lifecycle of office furniture is shortening due to frequent changes in work design, leading to more churn and potentially higher spend per workstation.
Q: Is the return-to-office chapter over, and are we now focused on implementing hybrid models?
A: Hybrid work was already a trend before the pandemic and has accelerated. We continue to see organizations defining their hybrid work strategies, which drives demand for our solutions. The return-to-office is a steady march, not a sprint, with many organizations still moving towards more in-person work.
Q: Are you seeing green shoots of traditional business coming back where companies are hiring and expanding?
A: Yes, we see growth in certain industries and regions. For example, India and certain sectors are experiencing growth and investing in their workforce.
Q: Are you seeing an uptick in education due to federal stimulus dollars or state-led funding initiatives?
A: Both federal stimulus dollars and state-led efforts are driving investment in education. Higher education institutions are also investing to attract students, faculty, and research funding.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
