3Q22 Sales and Earnings Miss; Incoming Orders +40% Y/Y; Backlog ~$800 million Forward Estimates Moderated



KEY POINTS
  • 3Q22 Results: On December 16 2021 Steelcase reported consolidated 3Q22 revenues of $738.2 million thereby missing our $778.8 million estimate by $40.6 million, and the lower end-point of management’s $755-$785 million guidance. The miss versus our estimate was a drag to EPS of ~$0.01, by our math. This link will take the reader to our December 17 2021 note, reviewing the 3Q22 results. Our conslidated variance analysis is also attached for reader convenience.
  • Forward Guidance: Management guided 4Q22 consolidated revenues to be $740-$765 million (9-13% overall growth), and EPS to be breakeven. The company expects consolidated gross margin rate to be between 26.5% and 27%, and total company operating expenses used to compute operating profit of $193-$198 million. Notably, ending 3Q22 backlog was ~$800 million, ~47% above 3Q21 and ~13% above that at the end of 2Q22 on an organic basis. Emphasizing the push-out issue, management commented that ~20% of the backlog will ship after 4Q22. Our new estimates reflect a more cautious view but a significant recovery in EPS and EBITDA in 2023 and 2024.
  • SCS—The Bull Case: Due to its focus on workplace furnishings, the near-term and longer-term fortune of SCS remains captive to the path and timing of COVID. Today, COVID’s current variants, Delta and Omicron, make knowing COVID’s near-term path impossible. Irrespective, SCS bulls believe that society will soon have (or has) the tools—testing, vaccines, and/or therapetuics—to enter a post-COVID world. And a post-COVID world in which work settings will be permanently hybrid or ultimately less-so, seems highly likely to benefit SCS, given Steelcase’s financial strength, operating discipline, and global capabilities.
  • SCS—The Bear Case: SCS bears naturally point to COVID and its variants—current and future—that caused and continue to cause delays in the timing of a return to the workplace for major organizations. Additionally, short-term commodity inflation, labor shortages, and supply chain disruptions catalyzed disappointing operating results and lowered expectations, thereby bolstering the bear case near-term. That said, the recent order surge and ending backlog foretell higher revenues. And three already-initiated price increases suggest that the cost/price gap will moderate and reverse, although the unfavorable skew seems likely to persist until mid calendar year 2022.
ESTIMATES

3Q22 Results: On December 16 2021 Steelcase reported consolidated 3Q22 revenues of $738.2 million thereby missing our $778.8 million estimate by $40.6 million, and the lower end-point of management’s $755-$785 million guidance. The miss versus our estimate was a drag to EPS of ~$0.01, by our math. This link will take the reader to our December 17 2021 note, reviewing the 3Q22 results. Our conslidated variance analysis is also attached for reader convenience.

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