Getting Comfortable With Steelcase, Inc
Steelcase's (NYSE: SCS) rebound has been slow to come but come it has and gaining momentum it is. The fiscal Q1 results we're lackluster but hide rapidly improving fundamentals that point to sequential growth, year-over-year growth, and profitability in fiscal 2022. Among the many indications of the company's rapidly fundamental condition is the board's decision to increase the dividend. The company increases the dividend to its pre-pandemic level of $0.58 annually which is good for a yield of 3.8%. The caveat is that at least compared to the analyst consensus estimates, the company is paying out far more than it is earning. The opportunity for investors lies in the yield as well as the fact the analysts' consensus estimates are lagging behind the company's improvement.
"We are confident we are entering the recovery phase of this cycle as our backlog and project opportunity pipelines are building and many of our customers around the world are announcing plans to bring their employees back to the office over the summer," said Jim Keane, president, and CEO.
Steelcase Moves Higher On Broad-Based Improvement
Shares of Steelcase are moving higher in the pre-market session following the release of the fiscal Q1 2022 earnings report. The company reported $556.60 million in consolidated revenue for a gain of 15.3% from last year. These results are in line with analysts' consensus and driven by broad-based strength at the segment level. Organic growth accounts for 900 basis points of growth with the Americas up 8%, EMEA up 13%, and the Other category up 11%.
Moving down the report, the company recorded a 240 basis point improvement to gross margin despite what it describes as “extraordinary inflationary pressures in the steel market”. Looking forward, the company expects to see a further Improvement to margin once the April price increase and planned future price increases are fully incorporated into the results. On the bottom line, the company recorded a GAAP loss of $0.24 but beat the consensus by 6 cents and expects to be profitable in the first half of the year.
The company's guidance is perhaps the most encouraging portion of the report. The 11% year-over-year and 25% sequential increase in order volume reflect momentum that is expected to continue. In terms of backlog, the backlog is down from last year but up nearly 40% sequentially and led the company to project Q2 revenue in the range of $750 million to $780 million for the quarter. That's good for a gain of 34% over the first quarter and foreshadows similarly strong results in the back half of the year. In our view, the company should be expected to earn a minimum of $0.50 for the year compared to the $0.23 consensus and more than cover the dividend payment.
Steelcase Is Going To Start Buying Back Shares
Steelcase is still struggling with profitability in the wake of the pandemic but its balance sheet is still in good shape and there is light at the end of the tunnel. In terms of liquidity and debt, the company has more than $566 million in cash and cash equivalents versus a total debt load of $483.70 million so not a lot to worry about there. With revenue, earnings, and cash flow improving the company gave another signal of confidence and announced its intentions to start buying back its shares along with the dividend increase. The proposed plan is worth 50 million dollars Or about 3% of the market cap.
“Consistent with our growing confidence in the projected recovery of our revenue and earnings, we restored our quarterly cash dividend to its pre-pandemic level,” said Dave Sylvester, CFO. “In addition, we intend to enter into an agreement next week authorizing the repurchase of up to $50 million of our shares under Rule 10b5-1. These actions are consistent with our capital policy which targets reinvestment to support growth, a strong quarterly dividend and opportunistic share repurchases.”
The Technical Outlook: Steelcase Rockets Higher
Shares of Steelcase hit resistance in the wake of the last earnings report but look set to retest that resistance again today. The Q1 release and Q2 outlook have shares up more than 5% in the pre-market and on track to hit resistance in the coming session. A break above the $16 level would be bullish but would not get the market out of the woods. There is potential resistance at the $16.70 level that needs to be cleared before the all-clear signal can be given.
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