GRAND RAPIDS — While business leaders generally view the Biden administration’s vaccine mandate as an added burden on employers, Steelcase Inc. President and CEO Jim Keane thinks it could help accelerate the return to normalcy and prop up the struggling contract furniture industry.
In a conference call with analysts to discuss the company’s quarterly results, Keane cited the rise of the delta variant and plateauing vaccination rates as reasons many of Steelcase’s customers have delayed returning their workforces to the office, which was expected to ramp up around Labor Day.
“We sense many of our customers are quite eager to get their employees back to the office, and in fact, many companies have established vaccine mandates in recent weeks,” Keane said in the call. “The Biden administration recently announced federal mandates we believe will provide a clearer path for our customers and their employees and is a real positive for our business.”
The Grand Rapids-based Steelcase can use all the positives it can get, particularly as it faces supply chain disruptions and rising costs of goods, all of which continue to hamper earnings for the global contract furniture manufacturer.
The company incurred $17 million in inflationary cost pressures for steel and other commodities and an extra $5 million in freight costs stemming from various supply chain disruptions in the most recent quarter that ended Aug. 27.
As a result, executives opted to raise prices for an “unprecedented” third time this year.
When asked how customers are reacting to the pricing increases, Keane said the company hasn’t experienced any delays or “dampening of demand,” although he acknowledged that “there is risk always.”
“Everyone is going to say, ‘Wow, OK, what’s going on?’” Keane said. “Those conversations are energetic, but we have a lot of facts on our side. Steel inflation has been 150 percent since before COVID, just as an example, and that’s extraordinary. It’s unprecedented as far as I can remember, and customers get that. They’re seeing it across lots of other things that they buy.”
For the most recent quarter, Steelcase generated $724.8 million in revenues, which was off 11 percent compared to a year ago when the company started with a stronger backlog of orders. As well, the lower earnings were driven by a 17-percent dip in revenue for the company’s Americas segment, which racked up $40 million in expenses related to shipment delays.
Steelcase reported net income of $24.7 million, or 21 cents per diluted share, less than half of last year’s $55.5 million, or 47 cents per share.
“Our teams have been resilient and are working diligently to overcome the challenges,” Keane said in the call with analysts. “When our suppliers have been late, we’ve expedited logistics and run overtime to catch up. When commodity sourcing has been difficult, we found alternative supply sources and sometimes changed product materials. As ocean freight has become less reliable, we’ve increased our safety stocks ordered earlier to allow for longer port transit, and we incurred airfreight when needed to meet critical customer commitments.
“It’s a long list of challenges, but we’ve seen minimal cancellations given that these disruptions are impacting our entire industry.”
On the upside, Steelcase said orders rose 24 percent during the quarter and are approaching levels last seen during its 2020 fiscal year, which ran from March 2019 through February 2020, just prior to the COVID-19 pandemic taking hold in the U.S. market.
The company moved into its present third quarter with a $715 million backlog in orders, up 22 percent from the same time last year. However, executives expect a higher percentage of those orders than is typical will ship after the third quarter, leading to a delayed effect on the company’s financial performance.
In issuing guidance on the present quarter, Steelcase said it expects to generate $755 million to $785 million in revenue, higher than the $617.5 million it generated in the same period a year ago when the company also incurred $60 million in order delays stemming from a cyberattack that forced a temporary operations shutdown.
In the next quarter, executives said the company is trending toward double-digit year-over-year revenue growth “based on the expected economic strength in most markets and the return of workers to offices around the world.”
Even so, Dave Sylvester, senior vice president and CFO of Steelcase, said the cost inflation is expected to have “a more significant impact on our results” than initially expected throughout the second half of the company’s fiscal year.
As Keane looks ahead, he said Steelcase also is gaining more clarity about how customers will approach their office needs in the future.
“We have more confidence now about how the workplace of the future will take shape,” Keane told analysts in the call. “While there are extremes at either end, the mainstream perspective is the office will remain the primary place for work because of the informal interactions critical to productivity, innovation and culture.
“It’s also clear that most companies will offer employees a hybrid work experience, giving more permission for them to occasionally work from home or other locations. Those who don’t will struggle to compete for talent.”