Steelcase, Inc. Q3 FY2024 earnings call

• Profit improvement initiatives led to 360 basis points year-over-year gross margin improvement. - Operations teams driving manufacturing and distribution efficiency, including relocation of Rancho Cucamonga distribution center to Phoenix and consolidation of seating production in Mexico and Malaysia. - Third quarter orders grew 15% overall, with 16% growth in Americas and 10% in International. - Launched CarbonNeutral options for products, expanded CarbonNeutral task seating, and introduced new chairs like Karman mesh chair in Asia Pacific. - Connected strategy with Better People, Better Planet aspiration, integrating Impact Report into Work Better magazine.

Americas segment delivered strong year-over-year profitability improvement. International segment had a turnaround, with over $9 million of adjusted operating income (over $4 million excluding earn-out adjustment) compared to nearly $15 million adjusted operating loss in the first half of the year. Americas orders grew 16% in third quarter, led by large corporate customers. International orders grew 10% year-over-year, with over 40% growth in Asia Pacific.

• Fourth quarter revenue expected $765 million to $790 million, flat organic vs prior year. - Adjusted EPS between $0.19 and $0.23. - Gross margin estimated ~31.5%, operating expenses $210M-$215M, interest expense etc. ~$3M, tax rate ~24%. - Fiscal 2025 expects organic revenue growth and improved earnings, but backlog lower than prior year may impact growth; targets midterm organic revenue growth 5%-7%, but lower growth plausible for 2025.

• Supplier disruption issues in Americas impacting order fulfillment. - Backlog down 10% vs prior year. - Dealer divestiture in fourth quarter with modest impact on revenue and margin.

Q: Reuben Garner asked about backlog math and why 2025 revenue might trail orders despite order strength.

A: Dave Sylvester said backlog will still be down vs last year, impacting revenue growth rates, with some suppliers having extended delivery dates but expected to resolve soon.

Q: Greg Burns asked about bridging fourth quarter guidance from reported to organic growth and divestiture impact.

A: Dave Sylvester said there was a dealer divestiture with modest impact, losing incremental margin and service revenue.

Q: Steven Ramsey asked about delivery issues, 2025 growth by verticals.

A: Dave Sylvester said deliveries better than year ago, peak at 14.5 weeks vs pre-pandemic 8.5 weeks; no targeted growth rates by verticals yet but large corporate continues momentum.

Q: Budd Bugatch asked about gross margin guidance and International profitability.

A: Dave Sylvester said gross margin difference due to January-February production slowdown and maintenance; expecting profitability in EMEA and Asia Pacific in Q4, seeing good activity levels in Europe.