Published in Manufacturing

Labor shortage creates order delays, slower growth for Steelcase

BY Sunday, June 23, 2019 07:00pm

GRAND RAPIDS — The tight labor market that many CEOs across the nation worry about these days cut into Steelcase Inc.’s quarterly sales growth.

The Grand Rapids-based office furniture maker generated $754 million in sales for the three-month period that ended May 24. That’s 9-percent higher than quarterly sales a year earlier, but a little less than what Steelcase (NYSE: SCS) expected for the first quarter of its 2020 fiscal year.

Jim Keane, president and CEO, Steelcase Inc. COURTESY PHOTO

Steelcase’s quarterly net income for the first quarter grew to $17.8 million, or 15 cents per diluted share. That compares to $17 million, or 14 cents per diluted share, a year earlier.

During the quarter, Steelcase “saw many orders placed with requested shipment dates that were further out than we typically see,” said President and CEO Jim Keane. Some U.S. clients delayed planned shipments because “they’re having problems completing construction of new office space on time because of labor shortages in the local markets,” he said.

“Our business is performing very well” and “a lot of positive forces” are driving activity, although labor shortages will continue to affect Steelcase, Keane said.

“Our outlook reflects our expectations that we’ll still see longer order-to-ship cycles because of the ongoing labor shortages,” he told brokerage analysts in a conference call to discuss quarterly results. “We are likely to continue to have customers who face project delays because of labor shortages.”

Despite that environment, Steelcase expects revenues of $970 million to $995 million in its present second quarter, an 11-percent to 14-percent increase from a year ago, “and that’s up against a pretty strong quarter in the prior year,” Keane said. Drivers of the guidance include a 15-percent increase in orders during the first quarter.

Keane expects that by the middle of the 2020 fiscal year, Steelcase will “be right on track toward our full-year targets for growth in revenue and profits.”

Steelcase ended its most recent quarter “with a high backlog and a strong pipeline of customer opportunities, which support our outlook for the second quarter,” said CFO David Sylvester. The company expects net income of 41 cents to 45 cents per share for the second quarter, and affirmed guidance of 5.5-percent to 9.5-percent revenue growth for the full fiscal year, with earnings at $1.20 to $1.35 per diluted share.

“Our pipeline of potential project activity for the balance of fiscal 2020 reflects strong growth in most markets,” Sylvester said.

The company targets organic revenue growth of 2 percent to 6 percent for the 2020 fiscal year, a target that assumes average industry growth percentages in the low single digits, Sylvester said.

In looking ahead, Keane told investors that CEO confidence in the U.S. economy “is still OK, but not as good as it was.” That slip comes as a result of tariffs and trade disputes with Mexico and China, he said.

“We were all happy to see the steel and aluminum tariffs with Mexico and Canada end, and we were appreciative that the U.S. and Mexican governments were able to reach an agreement and avoid another tariff,” Keane said.

Steelcase has been “only modestly impacted” by trade tariffs in China and is “taking steps to adjust our supply chain to further reduce the impact,” he added.

The quarterly results for Steelcase come a week before Herman Miller Inc. reports quarterly and 2019 fiscal year sales and earnings on June 27.

Analysts expect the Zeeland-based Herman Miller (Nasdaq: MLHR) to report sales of $657.2 million for the fourth quarter of its 2019 fiscal year, and full-year sales of $2.55 billion, according to an average consensus estimate.

Herman Miller is expected to report quarterly net income of 77 cents per share, and $2.85 per share in full-year earnings.

A year ago, Herman Miller reported $618 million in quarterly sales with net income of $31.8 million, or 53 cents per diluted share. For the full 2018 fiscal year, Herman Miller recorded $2.38 billion in sales and net income of $128 million, or $2.12 per diluted share.

Read 3725 times Last modified on Thursday, 27 June 2019 12:08