3Q22 Earnings Update Sales Miss Due to Americas Shortfall Other Segments in Line Cost/Price/Supply Chain Pressures Persist Incoming Orders Up 40%, Exceeding Expectations Consolidated Ending Backlog $800 Million
|52 Week Range||$10.96-$16.85|
|Avg. Daily Vol. (30 day)||771,731|
|Shares Out (MM)||118.6|
|Market Cap (MM)||$1,304|
|Insiders Own %||4.5%|
|Short Int./% of Float||20K/0.17%|
|Debt to Equity||0%|
|Revenue TTM (MM)||$318.3|
|Fiscal Year End||February|
- After the market close Thursday, December 16, 2021, Steelcase reported its 3Q22 sales and earnings. It also issued its outlook for its 4Q22. Management will host its 3Q22 earnings conference call today, Friday, at 8:30 am eastern.
- 3Q22 consolidated sales were $738.2 million, up 19.5% versus 3Q21. Sales grew by ~$121 million y/y with all three operating segments (Americas, EMEA, and Other) posting robust organic and reported growth.
- Irrespective of the sales growth, consolidated y/y incoming order growth, at +40% (ex acquisitions and currency effects), was also exceptionally strong. This augurs well for revenues in upcoming quarters. Americas orders grew 36% y/y, EMEA +31% y/y, and Other +87% y/y (due to exceptional growth across Asia including 100% growth in India and China). The consolidated ending backlog was $800 MM, organically up 47% versus 3Q21 and +13% versus 2Q22.
- Irrespective of the reported strength in sales and orders, extraordinary inflation, persisting supply chain disruptions, and customer requests to delay deliveries continue to hamper earnings. Americas has been and continues to be the hardest hit segment. Management estimates that “at least” $35 million of Americas backlog will ship in 4Q22 versus 3Q22 and versus $40 million of sales that indeed did shift from 2Q22 to 3Q22.
- 3Q22 consolidated operating income grew to $15.9 million versus break-even reported for 3Q21. Given the persistent supply chain and inflation issues, however, Americas operating income was down y/y while EMEA and Other posted gains y/y. EMEA operating income was notable at $8.3 million and with a 4.9% operating margin.
- 3Q22 diluted EPS was $0.08 flat with adjusted diluted EPS for 3Q21. Reported diluted EPS missed our $0.09 estimate (also consensus as we know it) by $0.01. Our variance analyses, attached, shows the comparisons in tabular format. Some of the prior year percentages make a variance calculation tricky. That said, the key issue was the Americas sales miss in 3Q22. We expect that will be a major focus on the earnings call.
- The other issue for the stock near-term will be 4Q22 guidance:
- The impressive backlog notwithstanding, management guided for 4Q22 revenues to be $740-$765 million, +9%-13% versus $677.1 million reported for 4Q21. Irrespective, management guided to an “approximate break-even EPS versus $0.06 reported in 4Q21. In expounding, management expects the 4Q22 inflation cost-price gap to be ~$20 million; gross margin to land at 26.5% to 27%; continued supply chain disruptions; some unfavorable product mix shipment; and total expenses of $193-$198 million (some increase due to that Viccarbe acquisition).
- The Steelcase financial condition remains strong with unrestricted cash and COLI life insurance of $445 million versus total debt of $483 million. We peg net debt / TFQ EBITDA at ~1.8x.
- On balance, there are good reasons to be optimistic about the stock. (1) Forward revenues look to be strong. (2) Three price increases are likely to gain traction during F2023. (3) Some indications of moderating commodity inflation are now emerging. (4) Hybrid work (part office/part home) seems destined to gain traction and strength.
- No doubt, this has been a difficult period for Steelcase—COVID followed by supply chain and rapid inflation. We think management has navigated the environment well. It maintained its financial strength, has initiated needed pricing actions, accommodated various and changing supply chain disruptions in the process, and introduced new products for the future environment of work.
After the market close Thursday, December 16, 2021, Steelcase reported its 3Q22 sales and earnings. It also issued its outlook for its 4Q22. Management will host its 3Q22 earnings conference call today, Friday, at 8:30 am eastern.
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