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Category: Stock Market and Steelcase
Date: 20 September 2019 Stock Price: $18.39 We take a look at the 2nd quarter earnings release of their 2020 fiscal year of Steelcase one of the world's leading furniture manufacturers with revenue in their 2019 fiscal year topping $3.4 billion
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About Steelcase
Steelcase is the world’s leading manufacturer of office environments. Inspired by over 105 years of insight gained serving the world’s leading organizations, we design for a wide variety of customer needs through a comprehensive portfolio of architecture, furniture, technology and services. Our strategy is to grow by leveraging our deep understanding of the patterns of work, workers and workspaces to offer solutions for new ways of working, new customer markets and new geographies. We are recognized as a responsible company that creates social, economic and environmentally sustainable value.
Founded in 1912, Steelcase became publicly-traded in 1998. Headquartered in Grand Rapids, Michigan, USA, Steelcase is a global company with approximately 13,000 employees and fiscal year 2019 revenue of approximately $3.4 billion.
Founded in 1912, Steelcase became publicly-traded in 1998. Headquartered in Grand Rapids, Michigan, USA, Steelcase is a global company with approximately 13,000 employees and fiscal year 2019 revenue of approximately $3.4 billion.
Overview of Steelcase's latest earnings report
The numbers we are interested in (for the quarter):
- Revenue: $998 million (up from $875.8 million from the same quarter of the previous year)
- Revenue increased by 13.9% over the last 12 months
- Cost of sales: $664.5 million (up from $587.2 million for the same quarter of the previous year)
- Cost of sales increased by 13.16% over the last 12 months
- Net earnings: $60.5 million (up from $49.1 million for the same quarter of the previous year)
- Diluted income per share: $0.50 (up from $0.41 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 120.2 million (up from 119.2 million for the same quarter of the previous year)
- Cash and cash equivalents: $229.1 million
- Cash and cash equivalents per share: $1.91
- Cash and cash equivalents makes up 10.36% of Steelcase's market capital
- Cash and cash equivalents makes up 9.56% of Steelcase's total assets
- Inventories: $243.1 million
- Inventories makes up 10.15% of Steelcase's total assets
- Accounts receivable: $467.3 million
- Accounts receivable makes up 19.51% of Steelcase's total assets
- Stockholders equity of Steelcase: $889.2 million
- Stockholders equity per share: $7.9
- Steelcase is trading at 2.32 times its stockholders equity per share. It is trading within expected range as most firms tend to trade at levels between 2 and 4 times its stated stockholders equity per share.
Steelcase's management commentary on the results and earnings guidance
"We delivered one of our strongest quarters in the past 20 years, exceeding our expectations," said Jim Keane, president and CEO. "These results demonstrate the effectiveness of our growth strategies and reflect the efforts of our employees around the world. Our new products are strengthening our portfolio in all geographies, our acquisitions and partnerships are providing additional solutions to our dealers and customers, and the war for talent continues to motivate organizations to invest in workspaces that inspire their people."
Second quarter operating income of $85.3 million (or 8.5 percent of revenue) increased by $17.4 million or 26 percent compared to operating income of $67.9 million (or 7.8 percent of revenue) in the prior year. The Americas reported operating income of $90.3 million compared to $77.2 million in the prior year. The Americas' operating income margin improved 40 basis points compared to the prior year driven by higher gross margins and lower operating expenses as a percentage of revenue. EMEA reported an operating loss of $5.5 million compared to an operating loss of $6.0 million in the prior year, while the Other Category reported operating income of $8.9 million compared to $4.8 million in the prior year.
"We delivered another record level of quarterly revenue in Asia Pacific, as well as year-over-year improvement in EMEA, which posted 5 percent organic revenue growth, improvements in gross margin and lower operating expenses as a percentage of revenue," said Dave Sylvester, senior vice president and CFO. "The business environment in EMEA continues to be challenging, but our opportunity pipeline for the region reflects growth and our teams remain solidly focused on achieving profitability for fiscal 2020."
Outlook
The company expects third quarter fiscal 2020 revenue to be in the range of $920 to $945 million, which would represent 2 to 5 percent growth. The company reported revenue of $900.9 million in the third quarter of fiscal 2019, which represented a 17 percent increase and 13 percent organic growth compared to the previous year.
Steelcase expects to report diluted earnings per share between $0.33 to $0.37 for the third quarter of fiscal 2020. Steelcase reported diluted earnings per share of $0.31, and adjusted earnings per share of $0.36, in the third quarter of fiscal 2019. The prior year included a $3.6 million favorable tax adjustment, which had the impact of increasing diluted earnings by approximately $0.02 per share, after consideration of the related variable compensation effect.
"The outlook in our industry remains positive," said Jim Keane. "We believe there is significant potential to expand our earnings by continuing to improve our profitability in EMEA, leveraging our broadened product portfolio and delivering on the value creation plans for our acquisitions.”
Second quarter operating income of $85.3 million (or 8.5 percent of revenue) increased by $17.4 million or 26 percent compared to operating income of $67.9 million (or 7.8 percent of revenue) in the prior year. The Americas reported operating income of $90.3 million compared to $77.2 million in the prior year. The Americas' operating income margin improved 40 basis points compared to the prior year driven by higher gross margins and lower operating expenses as a percentage of revenue. EMEA reported an operating loss of $5.5 million compared to an operating loss of $6.0 million in the prior year, while the Other Category reported operating income of $8.9 million compared to $4.8 million in the prior year.
"We delivered another record level of quarterly revenue in Asia Pacific, as well as year-over-year improvement in EMEA, which posted 5 percent organic revenue growth, improvements in gross margin and lower operating expenses as a percentage of revenue," said Dave Sylvester, senior vice president and CFO. "The business environment in EMEA continues to be challenging, but our opportunity pipeline for the region reflects growth and our teams remain solidly focused on achieving profitability for fiscal 2020."
Outlook
The company expects third quarter fiscal 2020 revenue to be in the range of $920 to $945 million, which would represent 2 to 5 percent growth. The company reported revenue of $900.9 million in the third quarter of fiscal 2019, which represented a 17 percent increase and 13 percent organic growth compared to the previous year.
Steelcase expects to report diluted earnings per share between $0.33 to $0.37 for the third quarter of fiscal 2020. Steelcase reported diluted earnings per share of $0.31, and adjusted earnings per share of $0.36, in the third quarter of fiscal 2019. The prior year included a $3.6 million favorable tax adjustment, which had the impact of increasing diluted earnings by approximately $0.02 per share, after consideration of the related variable compensation effect.
"The outlook in our industry remains positive," said Jim Keane. "We believe there is significant potential to expand our earnings by continuing to improve our profitability in EMEA, leveraging our broadened product portfolio and delivering on the value creation plans for our acquisitions.”
Steelcase (NYSE:SCS) stock price history
The image below, obtained from Google, shows the stock price history of Steelcase (NYSE: SCS) since its listing. And it hasn't been a particularly good time for Steelcase stockholders. Up until the start of the trading day yesterday (20 September) the company's stock basically moved sideways over the last 5 years. However the last trading day for the stock (yesterday 20 September 2019) the stock surged 9.86% to end the day at $18.39. The strong surge in the stock price of Steelcase yesterday means that over the last 5 years the stock price of Steelcase has increased modestly by 9.9%. While a positive return achieved is not a bad thing, the opportunity cost of holding Steelcase is high though, as other stock we value recently saw returns over a 5 year period of well above 100%. The stock is currently trading at a lot closer to its 52 week high than it is to its 52 week low which to us is a clear indication that the short term sentiment and momentum of Steelcase's stock is positive.
Steelcase (NYSE: SCS) latest stock valuation
So based on the earnings report of Steelcase (NYSE:SCS) and the latest earnings guidance provided what do we value Steelcase (SCS) stock at? Based on this the group our target (full value) price for Steelcase at $21.10 a stock. We therefore believe the stock of Steelcase (SCS) is undervalued
We usually suggest long term fundamental and value investors look to enter the stock at least 10% below our target price, which in this case is $21.10 Therefore we believe the a good entry point into the stock is below $19. We therefore rate Steelcase as a buy and we believe that it will tick upwards to levels closer to our target (full value) price in coming weeks and months
We usually suggest long term fundamental and value investors look to enter the stock at least 10% below our target price, which in this case is $21.10 Therefore we believe the a good entry point into the stock is below $19. We therefore rate Steelcase as a buy and we believe that it will tick upwards to levels closer to our target (full value) price in coming weeks and months