Release Date: December 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Steelcase Inc (SCS, Financial) reported a 3% organic revenue growth in Q3, with adjusted earnings of $0.30 per share, exceeding expectations.
- The Americas segment showed strong performance with 7% organic revenue growth and an adjusted operating margin of 8.1%.
- Steelcase Inc (SCS) has achieved year-over-year gross margin expansion for the tenth consecutive quarter.
- The company has seen improved order trends from large corporate customers and increased activity from technology customers.
- Steelcase Inc (SCS) is making significant progress in its healthcare business, delivering strong revenue growth and supporting health organizations with evidence-based solutions.
Negative Points
- The international segment underperformed with an 8% decline in revenue, primarily due to soft orders and customer-driven project shipment delays.
- Steelcase Inc (SCS) is facing competitive discounting pressures in international markets, particularly in Western Europe.
- The company is navigating supply chain disruptions due to a laminate supplier affected by Hurricane Helene, which could impact future revenue.
- There is a projected increase in capital expenditures to approximately $100 million for fiscal 2025, partly due to ERP system development.
- Steelcase Inc (SCS) anticipates inefficiencies during the ERP system cutover, which may affect gross margin improvements in fiscal 2026.
Q & A Highlights
Q: Can you clarify the $20 million ERP implementation cost and how much of it is one-time?
A: David Sylvester, Senior Vice President, Chief Financial Officer, explained that the $20 million is related to implementation costs, not inefficiencies. The year-over-year swing is $20 million, with an estimated $10 million being one-time costs. Further details will be confirmed by Mike O'Meara.
Q: How do you interpret the recent 15% order growth in the first three weeks of December?
A: David Sylvester noted that the 15% growth is on top of a 7% growth from the previous year, indicating strong demand. The timing of large corporate orders played a role, and the company is seeing these orders materialize as expected.
Q: What are the expectations for international growth and restructuring impacts?
A: David Sylvester stated that the company is targeting profitability in the International segment through volume growth and cost reductions. The restructuring activities over the past 18 months are expected to contribute to this goal.
Q: Can you discuss the competitive discounting pressures in the international markets?
A: David Sylvester mentioned that the competitive discounting is broad-based, particularly in Western Europe, due to challenging volume levels. The company is strategically using discounts to engage customers and expand in certain markets.
Q: How does the potential for new tariffs impact your business?
A: David Sylvester explained that while current tariffs are included in the guidance, potential new tariffs are not. The company is evaluating contingency plans, including building inventory and considering supply chain adjustments, particularly concerning maquiladoras in Mexico.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
