Tweaking Estimates: Margins Improve, Sales Moderate
This note revises our estimates for Steelcase following its 3QFY24 earnings call. In short, for 4QFY24, we up our margin assumption, moderate our revenue assumption slightly, and shave our adjusted EPS estimate by $0.01. Steelcase reported strong margins and steady orders in the 3QFY24 on Tuesday evening. Adjusted EPS came in at $0.30, or about $0.05 ahead of our estimate. Results were helped by an asset sale and the reversal of an accrued earn-out. The asset sale had been anticipated in guidance and included in estimates. Guidance for 4QFY24 landed slightly below our prior revenue estimate, causing us to revise our 4QFY24 estimate to $786 million, down from $798 million. Adjusted 4QFY24 EPS is now $0.22 versus $0.23 previously. Our FY25 EPS estimate remains at $1.00. Management provided an early view on FY25. Beginning backlog will be lower than FY2024 due to an improved pace of deliveries this year, which implies that sales growth will lag order growth. We note that FY25 will be a 53-week year, with an extra week of business and expense in 4Q. We continue to model solid margins through 2025. Our forecast assumes gross margin remains in the 32% range through the year, while we see the operating expense line remaining in the $222 million per 13-week quarter range. That’s above the last two quarters of FY24 on better revenue, but well below the first half. Steelcase continues to make progress on manufacturing and distribution efficiency. 3QFY24 marked a turning point for the International segment, which showed an operating profit for the first time since 3QFY23 and only the second time since FY22. Continued improvement in EMEA and Asia could drive upside to estimates. Results and our model are attached.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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