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Steelcase challenged by European downturn

Saturday 13 April 2013

Steelcase Inc. expects to grow sales globally in its new fiscal year as executives continue to focus on restoring profitability in European operations.
One-time goodwill and tax-related charges of $77.5 million that are tied to the European, Middle Eastern and Asian division led Steelcase to report a net loss for the fourth quarter of its 2013 fiscal year.
The so-called EMEA market faces what CFO Dave Sylvester called a “challenging environment” in Europe as Steelcase continues to restructure the division, which lost $38.5 million in the fourth quarter. The loss came even as annual sales grew for the EMEA division, which accounts for more than 20 percent of corporate revenue.
For the full fiscal year that ended Feb. 22, the EMEA division recorded an operating loss of $50.9 million, versus a $9.9 million operating loss in FY 2012.
“In the longer-term, however, we believe we can be profitable in this market and that Europe is key to our building to support global customers. I’m certain of this,” said Steelcase President and CEO Jim Hackett. “The role of management in an environment like Europe, where the sands are shifting, is to make sure that the business model is defined for fitness to ensure its ability to compete, support our customer requirements and attract or retain quality employees and build shareholder value.”
Steelcase has been working for two years to globally integrate marketing, product development, engineering and design, and “there’s evidence that the higher performing global companies … are the ones who have mastered the integration of these functions as they do business around the flat world,” Hackett said.
“We’ve taken the longer, more strategic view because we believe in the globally integrated enterprise to support our growing global customer base,” he said.
In the wake of the division’s loss, Steelcase eliminated 60 positions in Europe during the quarter and expects to cut about 30 more during the present period, Sylvester said. He attributed a lot of the quarterly loss in EMEA to “the mix of business and some of the pricing competitiveness that we face in that market.”
Sylvester could not offer specific guidance on the division’s future profitability, “but I do think that they’re going to be challenged certainly for the next year or two to present any kind of meaningful profit improvement.”
“We’ve certainly improved the business. The fact that we grew the top line this year while we were reducing operating expenses, I think, is a testament to the team,” he said. “So we feel like the performance of the business is getting a little bit better. We’ve got some actions we launched in the quarter that will continue to improve the results, but we’re not planning for a miraculous turnaround in the results in the near term. It’s going to continue to require long-term investments and improvements in our fitness as well as growth from the top line.”
Overall, Steelcase reported sales of $721.4 million for the fourth quarter, which represents a 4.5-percent increase from the $690.2 million from the same period a year earlier that included $9.5 million from two large projects. Full-year sales grew 4.3 percent to nearly $2.87 billion.
Hackett was “especially proud” of a 5.2-percent quarterly sales increase in Steelcase’s Americas division to $492.9 million and an improvement in its operating margin to 10 percent.
EMEA sales for the quarter were $168.5 million, a growth of 7.1 percent from the same period a year ago. The region’s annual sales were $594.8 million, a decline of 2.6 percent compared to the prior year.
The one-time charges led Steelcase to suffer a net loss of $27.5 million for the quarter, or 22 cents per share, which compares with net income of $14.9 million, or 11 cents per share, a year earlier.
For the full fiscal year, Steelcase reported net income of $38.8 million, or 30 cents per share, compared to $56.7 million, or 43 cents per share, in FY 2012.
Executives told analysts they expect sales of $680 million to $705 million for the present first quarter of FY 2014 and net income of 9 cents to 13 cents per share. Steelcase reported sales of $675.2 million for the same period a year ago — including $20 million from two large projects in the energy sector — and net income of 14 cents per share.
“Our first quarter outlook reflects some customer hesitancy around both domestic and international fiscal issues, but it does appear the impact is fading, and we’ll tell you that our project pipeline is robust,” Hackett said.

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