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Steelcase expects 3Q loss, will cut up to 900 jobs

Friday 5 December 2008

The slumping economy and volatile market conditions hurting its investments will cause office furniture maker Steelcase Inc. to post a loss for its fiscal third quarter.

The company on Thursday also said it is closing a plant in Atlanta as part of ongoing restructuring, which will result in about 300 job losses there, and it will eliminate about 300 white collar jobs worldwide as a result of the slowing economy. An additional 300 workers, mostly in Michigan, have received notice they may face layoffs. A company spokeswoman said a decision on those jobs will come in the next few weeks.

Steelcase said lower-than-expected sales and market impacts on its company-owned life insurance investments mean it now expects a modest net loss, instead of the profit of 16 to 21 cents per share it forecast in September. The company did not give a specific per-share figure in its guidance, but said it includes about $4 million of after-tax restructuring costs. With 134.3 million shares outstanding, the charge equals roughly 3 cents per share.

Steelcase now expects fiscal third quarter revenue of about $805 million, versus its previous estimate of $840 to $875 million. Analysts surveyed by Thomson Reuters, on average, expect a profit of 21 cents per share, with estimates ranging from 18 cents to 25 cents. Analyst estimates typically do not include one-time charges like restructuring.

Wall Street expects revenue of $858.5 million, with estimates ranging from $841.9 million to $873.9 million.

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Steelcase said the combination of lower orders in both its domestic and international markets and the stronger U.S. dollar have pushed down expectations.

Also, the cash surrender value, or the savings element of its company-owned life insurance policies, dropped by $27.5 million in the quarter because of market conditions. The company uses those investments as a funding source for its long-term employee benefit plan obligations, and it must record the value on its income statement, but Steelcase said the reductions have no impact on cash flow.

\"The investment strategy underlying our company-owned life insurance policies remains long-term oriented, consistent with our employee benefit plan obligations,\" said David C. Sylvester, vice president and chief financial officer. \"Accordingly, a portion of the underlying assets remain invested in the equity markets and continue to fluctuate in value consistent with the overall stock markets.\"

Job cuts are coming in different groups. About 300 workers will lose their jobs when Steelcase closes its Atlanta plant, which spokeswoman Jeanine Holquist said is a result of ongoing restructuring. The work done at that plant will move to a facility in Athens, Ala., but she said there will be a minimal amount of job transfer in the short term. The Alabama plant could add up to 250 jobs over the next two years.

The company will have eight plans in North America after Atlanta shuts down.

In addition, because of the economic slowdown, Steelcase will eliminate about 300 white-collar jobs worldwide, including positions at its European offices in Strausborg, France, its Asia offices in Hong Kong and its headquarters in Grand Rapids. Those should be completed by the end of February.

The company has also warned an additional 300 manufacturing workers, mostly in Michigan, that they face potential layoffs beginning in January. That decision will be made by the end of January.

Restructuring and job cuts are expected to save about $20 to $25 million of pre-tax restructuring costs over the next six to nine months and about $40 million a year once completed, Steelcase said.

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