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Bear of the Day: Steelcase (SCS)

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Steelcase Inc. (SCS - Free Report) recently posted a disappointing fiscal third quarter with Q4 guidance below the consensus. This Zacks Rank #5 (Strong Sell) sees things turning around by fiscal 2019 however.

Steelcase is one of the largest office environment makers in the world. Founded in 1912 and headquartered in Grand Rapids Michigan, it has global operations.

Met the Estimate in the Third Quarter

On Dec 19, Steelcase reported its fiscal third quarter 2018 results and met the Zacks Consensus of $0.21.

Revenue fell 2% to $772.1 million from $786.5 million in the year ago period.

The Americas saw a 4% decline due to reduced demand for day-to-day business from both large and smaller customers, including lower revenue from legacy products and applications. The orders for day-to-day were down sharply in the beginning of the quarter but were flat for November.

On the other hand EMEA saw revenue growth of 4% but an organic revenue decline of 1%.

The company said it was getting increasingly confident about next year due to its recent improvements in their project win rates. In addition, customer and dealer reaction to its new products have been positive.

Guided Under Consensus for Q4

Steelcase gave fourth quarter guidance of between $0.14 and $0.18. This was well under the Zacks Consensus of $0.24.

"There are three potential items which are not reflected in our earnings estimate for the fourth quarter that we estimate could significantly impact our results," said Dave Sylvester, the CFO.  

"Two of these items are related to potential reductions in the U.S. and French statutory tax rates, which those governments are currently considering and if enacted in the fourth quarter could require us to record non-cash charges to reduce the value of our deferred tax assets.  In addition, a potential transaction related to an unconsolidated affiliate could result in a pre-tax gain in the fourth quarter."

"We have not included these items in our earnings estimate as there are a number of factors relating to these items which are outside of our control," he said.

It's not surprising, then, that the analysts lowered fourth quarter as well as full year fiscal 2018 estimates.

2 analysts cut full year 2018 to $0.82 from $0.90 over the last week.

That's an earnings decline from fiscal 2017 of 22.4%.

They also got bearish about 2019 despite the company's more upbeat outlook on that year. The 2019 Zacks Consensus Estimate fell to $0.97 from $1.06 since the earnings report.

That does show a rebound in the earnings, with an earnings bounce of 18.4%.

Shares Stuck in a Range

Despite the overall markets rallying big over the last 2 years, Steelcase shares haven't really gone anywhere.

Shares aren't cheap either. Steelcase trades with a forward P/E of 18.2.

However, shareholders are being rewarded for their patience with a dividend yielding 3.5%.

If you must buy in this industry, you might want to consider Herman Miller, Inc. (MLHR - Free Report) instead. It's a Zacks Rank #3 (Hold) but it's expected to grow earnings by 7.2% in fiscal 2018.

Zacks Editor-in-Chief Goes "All In" on This Stock

Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.

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