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Bear of the Day: Steelcase Inc. (SCS)

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When a management team decides to invest in product development and sale and marketing initiatives it is intended to help overall revenues in the future, but this long term vision at times mutes near term earnings.  This is the situation facing our Zacks Bear of the Day, Steelcase Inc. (SCS - Free Report) .  

This Zacks Rank #5 (Strong Sell) company is a designer and manufacturer of products used to create high-performance work environments. Its product portfolio includes furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services. The company reports two geographic furniture segments: North America and International.

Recent Earnings Results

Management posted Q1 18 earnings on June 21 where they missed both the Zacks consensus earnings and revenue estimates.  In their America’s segment, they saw year over year changes in revenues -2.8%, orders -3%, and SG&A as a percentage of sales increased from +24.7% to +26.2%. Management cited “increased investment in product development and sales & marketing” as the cause of the increased costs.  In their EMEA (Europe, Middle East and Africa) segment year over year revenues dropped by -9.7%, and posted a normalized operating loss of -$8.6 million.  

Management’s Take

According to Jim Keane, president and CEO, “Our industry is changing as customers begin to adopt dramatically different spaces that support new ways of working," said Jim Keane.  "We expect to increase our investments in new products and partnerships relevant to their emerging needs.  These investments are intended to help us broaden our addressable market and create new growth opportunities for the future.  The success of the products we launched in recent years, and the awards and other recognition we earned at the Neocon trade show give us confidence that customers and influencers agree we are on the right track.”

Price and Earnings Consensus Graph

Due to the poor earnings report, not so strong guidance, and increased expenses the stock price and future earnings estimates have both declined.

Steelcase Inc. Price and Consensus

Steelcase Inc. Price and Consensus | Steelcase Inc. Quote

Declining Earnings Estimates

After the disappointing Q1 results, earnings estimates for Q2 18, Q3 18, FY 18 and FY 19 all saw reductions; Q2 18 dropped from $0.38 to $0.23, Q3 18 fell from $0.34 to $0.27, FY 18 declined from $1.22 to $0.95, and FY 19 was trimmed from $1.37 to $1.10.

Bottom Line

While management’s plans to improve their line of products looks as it will pay off in the long term; the short term out-look for the company is choppy at best.
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