Steelcase, Inc. Q4 FY2024 earnings call

• Strong earnings growth with year-over-year gross margin improvement of 140 basis points for the seventh consecutive quarter. Full fiscal year earnings per share more than doubled, and adjusted earnings per share increased by over 60%. • International segment showed improvement with over $3 million of adjusted operating income in Q4, following a challenging first half where it had a $15 million adjusted operating loss. • Orders grew 4% overall in Q4, with 8% growth in the Americas led by large corporate customers. • New product launches: EMEA's Orangebox brand launched Beyond the Desk modular upholstery system; AMQ's Personality Plus task chair and Steelcase Learning Agree Chair for education customers. • Business transformation initiative focused on optimizing and automating business processes, including implementing a new enterprise resource planning system.

The International segment posted over $3 million of adjusted operating income in the fourth quarter, following strong results in the third quarter. The Americas saw 8% growth in orders during the fourth quarter. No specific revenue contribution percentages were mentioned.

• First quarter revenue expected to be in the range of $715 million to $740 million, down 3% to approximately flat on an organic basis compared to prior year. Adjusted earnings per share expected between $0.08 and $0.12. • Fiscal 2025 organic revenue growth target within 1% to 5%. Targeted gross margin between 32.5% and 33.5%, operating expenses between $215 million to $220 million, interest expense and other non-operating items to net to approximately $2 million of expense, and effective tax rate of approximately 27%. • Capital expenditures targeted between $75 million to $85 million, including higher investment for the new ERP system as part of business transformation.

• Supply chain disruptions impacting beginning backlog and delivery times. • Inflationary pressures still affecting costs, though some materials costs have come down. • Order volatility in different regions, such as softness in EMEA and continued softness in China.

Q: Talk about internal preorder activity and how it relates to mid-single-digit organic growth outlook.

A: Dave Sylvester says preorder activity remains relatively high, with high confidence in project opportunity pipelines where sales teams rate projects as high confidence and that portion of the pipeline still reflects growth.

Q: Price-cost trend and inflation impact.

A: Dave Sylvester mentions continued incremental pricing benefits from previous actions offsetting inflation, with some materials costs up and down but still inflated from the peak.

Q: Long-term margin target.

A: Dave Sylvester states targeting a 6% to 7% adjusted operating margin in the midterm.

Q: Capital allocation priorities.

A: Dave Sylvester mentions reinvestment in the business, potential acquisitions to accelerate strategies, dividend as a way to return value to shareholders, and noting share repurchase opportunities.

Q: Demand growth and selling cycle.

A: Sara Armbruster and Dave Sylvester discuss demand changes due to customers rethinking spaces, but selling cycle doesn't seem dramatically different; lead times on orders are still longer than pre-pandemic.

Q: ERP implementation.

A: Dave Sylvester says they are in the design-build phase of ERP, targeting go-live next fiscal year in the Americas and rolling out to International segments thereafter, staying with SAP and aiming to customize less.

Q: Project growth drivers.

A: Sara Armbruster attributes project growth to large organizations recognizing the importance of in-office presence for business success.

Q: Working capital impact.

A: Dave Sylvester talks about managing inventories down to normalized levels from supply chain disruptions, with working capital expected to grow relative to sales as organic sales grow.