2QFY23 EPS Beats Estimates; 3QFY23 Guidance Modestly Lower; Quarterly Dividend Cut to $0.10 from $0.145



KEY POINTS
  • After market close on September 21, Steelcase reported results for its 2QFY23, which ended August 28. In its earnings release, management also gave its 3QFY23 outlook. It will host its earnings conference call today at 8:30 am EDT. We will refresh and publish new estimates after the call. We review 2QFY23 results in the next few bullets and summarize management guidance for 3QFY23 on page two and suggest several issues that may be of interest for the earnings call and stock action. Our variance analysis is on page three.
  • Gross margin improvement and cost control were key positives in 2QFY23. GAAP EPS was $0.17, exceeding our $0.10 estimate. Adjusted EPS of $0.21 beat our $0.15 estimate and consensus of $0.13.
  • Consolidated sales of $863.3 million grew 19% Y/Y versus $724.8 million in 2QFY22 but were ~$15 million below our $878.5 million estimate. Given a better-than-forecast operating margin, the revenue miss had a negligible effect on EPS versus our estimate. 2QFY23 organic revenues grew +20% and were positive in all three reporting segments: +21% in Americas, 12% in EMEA, and 21% in Other.
  • Overall organic order growth slowed, yet was +5% Y/Y. By segment, organic order Y/Y changes were: Americas +7%, EMEA +4%, and Other -8%. The drag in Other orders was due mainly to the Asia-Pacific markets, with volume declines in all geographies except India. Americas order growth remained positive against a backdrop of flat to falling orders across the industry, exemplified by BIFMA. At 2QFY23 end, the backlog of undelivered orders was ~$946 million, still elevated and +38% Y/Y. The rate of order fulfillment remains hampered by supply chain disruptions.
  • Estimated price realization of $80 million less implied inflation of $50 million yielded a $30 million benefit and boosted gross margin to 29.1%, +60 bp versus 2QFY22, adding ~$0.05 per share versus our estimate. Operating expenses of $221.4 million were ~$5 million below our estimate. Given lower sales than forecast, the op expense ratio met our forecast.
COMPANY OVERVIEW

Steelcase is one of America’s great companies. Named 15 times by Fortune Magazine as one of the world’s most admired companies, Steelcase is a global market share leader for commercial/contract furniture. Its global capabilities and research-based approach make it a preferred partner for organizations in any part of the world.

Steelcase sees its purpose as “unlocking human promise by transforming work, worker, and workplace”, thereby affirming its mission to the workplace. Today, the company’s family of brands include Steelcase®, Coalesse®, Designtex®, Smith System®, AMQ®, Turnstone®, and Orangebox®.

The Steelcase growth strategy is to translate research-based insights into products, applications, and experiences. Today, Steelcase goes to market through ~800 independent and company-owned dealer locations (~400 in its Americas segment, ~340 in its EMEA segment, and ~60 in its Other segment). The company has 65 locations in 17 countries, of which 15 are dedicated to manufacturing (seven in its Americas segment, five in EMEA, and three in Other).

• After market close on September 21, Steelcase reported results for its 2QFY23, which ended August 28. In its earnings release, management also gave its 3QFY23 outlook. It will host its earnings conference call today at 8:30 am EDT. We will refresh and publish new estimates after the call. We review 2QFY23 results in the next few bullets and summarize management guidance for 3QFY23 on page two and suggest several issues that may be of interest for the earnings call and stock action. Our variance analysis is on page three.

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