Tweaking FY25 Estimates; Encouraged by Orders and Cash Flow
We are publishing new estimates for our Steelcase economic model after its solid 4QFY24 earnings. Adjusted EPS of $0.23 beat our estimate as well as consensus. Revenue of $775.2 million modestly missed estimates. 1QFY25: We tweaked our non-GAAP (adjusted) EPS estimate to $0.11 ($0.10 previously). Our $730 million revenue estimate ($745 million previously) is bracketed by guidance of $715-740 million. First-quarter revenue will be dampened by a low beginning backlog. FY25: Full-year diluted non-GAAP (adjusted) EPS estimate, reflecting additional SGA expense, is now $0.90 ($0.97 previously) on consolidated revenue of $3,286 million ($3,258 million previously). Our refreshed revenue estimate accounts for the 14th week in 4QFY25 that adds ~$60 million of revenue but not much incremental earnings, given the extra week of expenses. As articulated earlier, we are encouraged by 4QFY24 order growth of 8% in the Americas and continued strong growth into February (+10%). We see demand recovery after the upheaval of the pandemic and its aftermath. Metrics that correlate with office furniture demand, including return-to-office, corporate profits, and CEO confidence, are improving. Steelcase benefits from its legacy relationships and developing new projects. The margin improvement story is now well established. The inflation impact has been accommodated in price recovery. Yet, some supply chain disruption continues as production lead times are still a bit extended. Irrespective, gross margin rose 140 bps Y/Y in the most recent report and guidance anticipates continued, if more modest, expansion into FY25. The Steelcase financial condition is solid. In FY24, its liquidity increased by $238 million from improved earnings, $120 million in lower working capital, $49 million in asset sales, and $50 million in expanded credit facility. Longer term, we are modeling earnings growth conservatively. For prudence, we stay at the low end of management’s revised targets of 4-6% organic revenue growth, with operating margins at 6-7%.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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