Early 3Q Order Flow Rebounding; Raising Estimates
We are raising our estimates following an upbeat conference call and follow-up with SCS management. Our adjusted 3QFY24 estimate, now at $0.25, is up from $0.21 and at the midpoint of guidance. Full-year FY24 guidance is now $0.80-0.90. Our new FY24 EPS estimate is $0.88, up from $0.71 pre-release and near the top end of guidance. The most valuable information tidbit from the call was the order pace through the first three weeks of 3QFY24, up 18% Y/Y. CFO David Sylvester noted that, though difficult to quantify, the comparison possibly reflects the extended pull-forward effects of 2QFY23 price increases and temporary surcharges. Accordingly, 3QFY24 is rebounding sharply versus 3QFY23. Guidance shows management confidence in better margins. It expects gross margin to be 32%, up from 2QFY24 guidance of 31.5%, despite a sequentially lower revenue guide. We note that reported 2QFY24 gross margin outperformed guidance by 170 bps, aided by better-than-forecast revenue. 2QFY24 adjusted operating margin landed at 6.2%, more than 200 bps higher than last year. SG&A was higher than expected on both an absolute and percentage of sales basis due to higher incentive compensation accruals. Balance sheet is at its strongest since FY22. With $152 million in cash, net debt/EBITDA is only 0.6x, by our math. Ending inventory, at 43 DCGS, is at its lowest level since FY22. By region, the Americas segment is posting the strongest demand. New project demand remains weak, but existing customers have been active in reconfiguring office space to accommodate the post-pandemic work environment. International segment remains slower, weighed down by weaker economics in Europe and China, offset by some resilience in South Asia.Steelcase provides furniture settings, user-centered technologies and interior architectural products. The company's furniture portfolio includes panel, fence and beam-based furniture systems, storage, fixed and height-adjustable desks, benches and tables and complementary products. The company's seating products include task chairs and seating for specific vertical markets. The company's technology solutions support group collaboration by integrating furniture and technology. The company's interior architectural products include full and partial height walls and architectural pods. The company also provides services, including workplace strategy consulting, data-driven space measurement, and lease origination services.
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