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Steelcase Inc. Reports Operating Results (10-Q)

July 01, 2009 | About:
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Steelcase Inc. (SCS) filed Quarterly Report for the period ended 2009-05-29.

Steelcase Inc. is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems seating storage desks casegoods interior architectural products technology products and related products and services. The company reports two geographic furniture segments: North America and International. Steelcase Inc. has a market cap of $787.6 million; its shares were traded at around $5.9 with a P/E ratio of 20.4 and P/S ratio of 0.2. The dividend yield of Steelcase Inc. stocks is 5.4%.

Highlight of Business Operations:

Cost of sales increased to 70.9% of revenue in Q1 2010, a 340 basis point deterioration compared to Q1 2009. We estimate that the majority of the deterioration was due to lower fixed cost absorption related to lower volume, which had the effect of increasing cost of sales as a percent of revenue compared to the prior year. The deterioration in cost of sales was partially mitigated by benefits from prior restructuring activities and other cost reduction efforts, an increase in cash surrender value of COLI of $9, a reduction of $6 in variable compensation expense, lower commodity costs of approximately $6, and temporary reductions in employee salaries and retirement benefits of $5.

Operating expenses decreased by $59.7 in Q1 2010 compared to the same period last year. The decrease was primarily due to benefits from prior restructuring activities and other cost reduction efforts, a reduction of $14 in variable compensation expense, favorable currency translation effects of approximately $9, an increase in cash surrender value of COLI of $6, and temporary reductions in employee salaries and retirement benefits of $5. Operating expenses increased as a percent of revenue due to reduced volume leverage.

We recorded restructuring costs of $2.8 in Q1 2010, compared to $7.2 in Q1 2009. The 2010 charges primarily related to the consolidation of a manufacturing facility in the North America segment and employee termination costs related to the reduction of our global white-collar workforce. Over the past 15 months we have launched various restructuring actions that we estimate resulted in $15 to $20 of cost savings in Q1 2010 compared to Q1 2009. See Note 12 to the condensed consolidated financial statements for additional information.

North America revenue, which accounted for 53.9% of consolidated revenue in Q1 2010, decreased by $136.8 or 31.8% from the same period last year. A divestiture in Q2 2009 had the effect of decreasing revenue by $8.6 in the current quarter as compared to the prior year. Current quarter revenue was also negatively impacted by approximately $7 from currency translation effects related to our subsidiary in Canada. The remaining decrease in revenue was primarily due to decreased volume across most of our vertical markets (except for the U.S. Federal government), geographic regions and product categories. The revenue declines within state and local government, healthcare and higher education were much less than the declines experienced in other vertical markets. In addition, we experienced deeper declines in day-to-day business compared to project-related revenue.

Cost of sales as a percent of revenue increased 240 basis points compared to the same period last year. We estimate the majority of the deterioration was the result of lower fixed cost absorption related to lower volume. The deterioration in cost of sales was partially offset by benefits from prior restructuring activities and other cost reduction efforts, an increase in cash surrender value of COLI of $8.6, variable compensation expense which was $5 lower than in Q1 2009, lower commodity costs of approximately $5, improved price yields from customers continuing to migrate from old price lists, and temporary reductions in employee salaries and retirement benefits of $4.

Operating expenses decreased by $19.7 in Q1 2010 compared to the same period last year. The decrease was driven by approximately $9 related to favorable currency translation effects and $1 related to divestitures completed during the last four quarters. Benefits from prior restructuring activities and other cost reduction efforts and a $3 reduction in variable compensation expense also contributed to the decrease in operating expenses. Operating expenses increased as a percent of revenue due to reduced volume leverage.

Read the The complete ReportSCS is in the portfolios of John Rogers of ARIEL CAPITAL MANAGEMENT LLC.

Rating: 4.5/5 (2 votes)

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