2Q22 Mixed: Results Below Plan But Orders Exceed By 24% Y/Y; Estimates Reflect Short-Term Price/Cost Pressures



KEY POINTS
  • 2Q22 sales of $724.8 MM missed our $758.5 MM by $33.7 MM and management’s guidance of $750 MM-$ 780 MM. 2Q22 diluted EPS of $0.21 missed our $0.26 estimate by $0.05 and management’s EPS guidance, which was $0.25-$0.30.
  • Our variance analyses, Exhibits 1 and 2, are on pages 11 and 12. By our math, the sales miss dragged diluted EPS by $0.01 versus our estimate. Disruptions across its supply chain (supplier delays, container shortages) during 2Q22 negatively impacted sales in its Americas segment by “at least $40 MM.” Management contends that virtually all of these orders will ship in 3Q22.
  • Inflation persisted across steel, logistics, and many other commodities and was more significant than expected and will persist in 3Q22 and 4Q22 more than previously thought. 2Q22 gross profit fell by $69.7 MM y/y, and gross margin fell by 524 bp to 23.9%. Versus our estimate, gross profit missed our guess by ~146 bp.
  • In 2Q21, revenues benefitted from a stronger beginning backlog due to pandemic-related manufacturing and delivery activity restrictions in 1Q21. Similarly, significant, temporary cost reductions, then in effect, boosted 2Q21 net income.
  • Steelcase has now initiated its third price increase of the year. All told, we peg the total price increase impact for these increases is ~15% to list prices. We think that ~50% of the increases will be realized ultimately, but it will take until mid-2023 to offset the inflation already experienced.
  • Significantly, incoming orders in 2Q22 grew by 24% y/y and by 12% organically versus 1Q22. Order growth exceeded expectations with areas approaching fiscal 2020 order levels.
  • Expense control in 2Q22 was notable, and expenses to calculate operating income fell by $8.1 MM. Yet, including sales, gross margin and operating expense, EPS missed our estimate by $0.08. A lower-than-forecast tax rate (aided by a discrete item) added $0.03 to EPS versus our estimate.
  • Management expects 3Q22 revenues of $755 MM to $785 MM and EPS of $0.07-$0.11. Its beginning backlog was $715 MM, 22% above the prior year and ~15% above the backlog at 1Q22 end. Our new estimates, summarized to the right, now reflect the less favorable near-term outlook. In 2023, we see revenues, EPS, EBITDA recovering close to our previous forecasts.
FINANCIAL SNAPSHOT

2Q22 sales of $724.8 MM missed our $758.5 MM by $33.7 MM and management’s guidance of $750 MM-$ 780 MM. 2Q22 diluted EPS of $0.21 missed our $0.26 estimate by $0.05 and management’s EPS guidance, which was $0.25-$0.30.

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