FREE

Revising Revenue and EPS Estimates Following 1QFY25 Results; Improving Margins and Solid Order Growth Underwrite Future Earnings

We introduce our new revenue and earnings estimates and full financial model following Steelcase’s 1QFY25 earnings beat versus consensus and WTR estimates. Steelcase posted 1QFY25 adjusted EPS of $0.16 versus $0.09 in 1QFY24, beating consensus of $0.10 and our estimate of $0.11. 1QFY25 revenue of $727.3 million missed slightly, down 1% organically versus 1QFY24 and below our estimate of $729.6 million. Continued strong new orders and improving margins the (continuing) story. Organic orders in the Americas (+10%) and International (+2%) continue to build on momentum noted in prior quarters. Likewise, margin improvement (consolidated GM% +103 bps to 32.2% versus prior year; Americas GM% +139 bps to 33.4% versus prior year) continues to build as operational efficiencies and better pricing offset flattish revenues. Our new 2QFY25 EPS estimate of $0.36, at the lower end of management’s guidance, reflects improved margins but takes a ‘wait-and-see’ view on revenue growth. For the year, we see revenue up modestly (+2.6% Y/Y) and now project FY25 EPS of $0.97. This comports with management’s full-year guidance, reiterated with the 1QFY25 earnings release, suggesting that “with the strength of our first-quarter results and second-quarter outlook, we have increased confidence of achieving our targets and potentially reaching the higher end of the range for our income targets.” We are encouraged by order growth strength as it increasingly looks like hybrid work is entrenching. As recently noted in the Furniture/Furnishings Weekly, hybrid office work arrangements seem to have settled in at 30% in the US, up from mid- to high single-digit rates before the pandemic lockdowns. At least some of the recent order growth seems to reflect the fact that companies are investing in new, more collaborative working modes. Refreshing older spaces to encourage return-to-work also seem to play a role in this order strength. Both trends should continue to play an important role in driving growth even as the macro environment remains relatively subdued. Operational improvements, pricing power, and cost discipline should continue to drive margin strength. While our current revenue outlook remains conservative given current macro trends, when revenue growth accelerates, we expect to see management’s work in these areas drive incremental bottom-line improvements. Our new financial model and a recap of 1QFY25 results are included below.