SCS - Earnings call transcript Q3 2019

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Operator

Good day, everyone, and welcome to Steelcase’s Third Quarter Fiscal 2019 Conference Call.

As a reminder, today’s call is being recorded.

For opening remarks and introductions, I would like to turn the conference call over to Mr. Mike O’Meara, Director of Investor Relations, Financial Planning and Analysis.

Mike O’Meara

Thank you, Candice. everyone. morning, Good joining quarter for the of recap Thank results. us third financial our you for

Here are Senior me Officer; Chief with today Officer. and Chief President Financial Dave Executive and Sylvester, our Vice and Jim President Keane, our

today. this the to production Our accessible yesterday, A of call being Steelcase on which webcast ir.steelcase.com this of conference is webcast This Inc. wires and third webcast website. is release, posted quarter is earnings later will crossed be our a replay copyrighted

today references the into and comparable statement text release. the regarding include discussion are forward-looking our release statements. the Safe GAAP included our details included in of the measures Our non-GAAP financial statements earnings with and may to and of conference associated Reconciliations most the Harbor reference we this call, forward-looking in by use are to risks measures incorporating,

we Following Jim analysts. turn will now and our to and prepared Executive investors over President remarks, questions from I our Chief call will the respond to Keane. Officer,

James Keane

Thanks, good Mike, morning, and everyone.

with pleased fourth and we quarter our results good well. as quarter expect a third We’re

three results appears with than industry. and sales about of industry U.S. XX% well And BIFMA up year-over-year the pretty Americas with third which grew sales quarter. the reporting faster October. ending X% XX% reported globally organically. start Let’s growth were organically, way, the XX% basis to months We the be on again a the by for the is doing in shipment

fourth the strong first revenue of growth and years. XX% December and to organic our QX, for we supporting revenue many seen be weeks We highest the which X% to EMEA growth. grew global Our regions in in few quarter. orders in by also shipments APAC QX, strong remained we’ve reported XX% expect the Orders estimate is

share in than per XX% over earnings than I’ll a a after grew growth cover more adjusting XX% prior was year. pension per charge moment. Earnings more share reported for the Our

Americas came but we of were than higher adjustments margins gross earnings we quarter, a expected because a expected better because than tax in favorable also some good We little estimated. and

are inflation, labor prior margins and gross below primarily Our in particularly because freight. steel, year, of

We inflation, the don’t where see point we increases expect are of additional are rate a our earlier this so offsetting erosion. to year now approaching price

As recapture to time intend goes price we productivity. lost and to margin by, improved normal our increases

improvement, Our had XX% organic profit EMEA quarter growth. year-over-year revenue driven business of strong another by

deeper Our helped products developing rates. and good by organization new us higher performance partnerships client our have and sales sustain win relationships in

purchase that to we’re are can Dave initial of on overhead it, and, As Gross you and led acquisition. We defined as are But agreed our unionized month because related of of mechanics and to the every pension to for required covered make retired overall higher truck our multi-employer additional cover course, our plan one long more will have quarter. costs profitable reflects make somewhat busy, out in results. an plan the want drivers just support Orangebox thing and overtime the and that has we unexpected to some for margins accounting imagine, if charge EMEA ready exclude costs teams really now, been a working effects to Orangebox active loss challenges million the these we efficiency. our in operating factories EMEA’s recorded were lower operations in the to in that growth. related benefit and sure remarks. payments his of U.S. completely, with our that union. We the our I $XX would to call know operational

terminate us the payments required And, to make severely because that in whether we from to a possibility Termination will we additional that typically years. drivers our This their would the disclosed to monthly this payments be the have trustees today covered over underfunded. we than received series in fact, a require we trustees notifying quarter, far it XX have done past. in through letter fixed previously the in liability. the We our participation plan, our review the by is withdrawal of plan, employ XX-Ks, us fewer because could to is plan pay

We’re still we in discussion, we believe it their probable is accept so decision. will

net net to effects, earnings million per quarter million, charge $XX these share. the or $X.X and the related $X.XX tax net this payments. in Adjusted of effect Our a bonus income is amounts present the for of of value charge

It’s of talent. digital the mentioned Corporate still their same affect because supportive business, rates. we profits, all attract U.S. often that growth, of of to quarter investing Now let’s encouraging, job during because have in benchmarks the one a saw market orders plenty concerned but there’s talk the is softening market. and confidence volatility, workplace. At in trade very the economic significant could been environment third be of or work business in our recent we could to XX% thought taken about recent Brexit conditions historical In we in our stock and weeks, their hit concerns, most has investment, about. it’s patterns modernizing in proved fixed strong strategies again. that CEO actually PwC a Despite see obvious CEOs environment study. the companies be each tax nonresidential in their time, related, are survey, UK UK order but lower strategy remain versus agreed a develop

the reduce business headquarter in offset to China as confidence tensions well are that orders we’ve to on Paris for could sides. and multinationals weakness. our in related. as global U.S. some by in that wins the a help be series closely had preparing And saw had disruptions logistics. both minor watching scenarios. of some companies France more in could again, region, plans This we the we likely on impact local recently, by The affect expansion might and and Chinese between Trade We’re various But serve. weakness investment our

throughout all the that’s been While APAC has true, year. our strengthening business

are it that lot we a like expanding, there’s compete their we of business I’m refreshed products talent back feels last made next expect paying portfolio clients energy our in quarter and and behind to because has here this legacy well. but workplace in off, in The point new this and for still what and investments growth just One what it. our we saw from as is reinvest need So stepping disruption, or yes, acquisitions X% our quarter happened quarter. and

over our because LINC We developed the having invested We’re in the last and our several year increased and good a of development and made progress. expand it’s year, rates. because it’s helping number we more early than we made very ago strategies long-term win the with investment our years. win in investments targeted addressable We market We our Munich few product us helping our and pleased we’re to our improve a acquisitions of a improve us rates.

we began expect look Elm we new year, from developed, including orders taking products investments next to impact see to those traction just partnerships workplace, more West As and this more for which the from we week.

our So is, the point is strategy working.

stay agile. have We to

we’re to decade, have strategy we’re year, started several XXXX. respond year a we fiscal done expecting We the ago, optimistic in the be that and a over quarter best change. it of year to for believe one is the itself track We’ve years about We business had on conditions fiscal quickly working. but times goal achieve with XXXX, we’ve this to outlook and that as

for thank you Dave I’ll to a at company. it our interest So your deeper our turn over in look for results.

David Sylvester

quarter first, financial Jim, I patterns and cover sheet outlook our results good for noting where quarter. And fourth quarter comparisons. will our third balance will morning, and our I and flow the Thank from before into sequential our talk and expectations year-over-year cash then everyone. and getting results differed you, about order highlighting

quarter highest the line As double-digit quarter reported and another Jim prior adjusted guidance over the exceeded top-end in revenue of earnings. XX year. The of September, a in XX% quarterly our quarter The the of for represented and the with the provided was and the we earnings in growth in of million $X.XX years. said, last estimates revenue we’ve we increase represented in reported revenue the $XXX strong

I some just additional Before into detailed few the Jim highlights, a which referenced. I get want share to results, of

again declined details it revenue to as high our but this in strength, start the strong growth the EMEA for growth well order And Asia the organic order quarter, in quarter, patterns the with PolyVision Americas, and Pacific quarter. Designtex. end fourth the share which during outlook strong relatively of posted growth order of a as the helped November moderately while in double-digit continued few more the the wanted at quarter, backlog in levels this drive patterns moments, December. I orders early their of quarter, as to saw contributed the will we strength referencing First, driven and by and improvement into about order we I our in

the million after of year. $X.XX tax to to tax effect growth approximately was benefit, earnings earnings adjustment by variable very foreign quarter, tax $X.XX, Second, adjusted exceeding XX% increasing the the this strong of of prior credits, effects. which earnings favorable compensation of still had without consideration the $X.X the a adjusted Even compared included related again

from being operating begin a of related we points points. expect the these significant charge, favorable compensation pension our largely covered, fourth exceeding with benefits margin plus approximately for pricing adjustment. dampened benefits the Jim of strong XXX operating and to Americas Third, actions despite the increased which XX labor quarter, XX variable start freight costs, offset Adjusted basis due year. to the net margin have been In since fiscal pricing was the the basis X.X% reduced by experiencing and the achieved segment which by points the the Americas impact another X.X% by June basis of operating we items, just associated April our to margin, commodity the tax inflation

a business the prior acquisition million was Lastly, the recurring to operational results our improvement effects with the in $X.X shifts challenges a growth, improvement year related by purchase detail I in more in backlog. initial of operating $X.X despite EMEA associated and and loss associated improvement which in the will acquired of some inventory a the achieved accounting revenue driven operations and unfavorable Orangebox, some the cover EMEA with included to million And moment. in operating mix $X.X compared was million which in

largely by favorable it delays. from relative in in estimates, than our the were with plus was As some stronger the revenue these it Americas, order some line In our project of benefited relates incentive to worth impact minuses but reduced growth, but mentioning. expectations, results included benefits to pluses revenue our expected total adjustments and to our quarter third accruals,

the installation amount the typical of of and higher and Our near adjustments delivery of perspective, category. But EMEA Americas, completion. in in of than make adjusted extensions more estimated From quarter customers our an and/or length than as $X.XX schedules, other projects per earnings earnings share. to the were extended a dates $X.XX often experienced to were adjustments request we significant and similar impacts the range the $X.XX

$X.XX other EMEA and as than from as tax the Americas, a I Beyond expected higher shortfalls offset ago, by in in corporate the better we part the performance in experienced adjustment costs. moment mentioned well the category,

were unfavorable Americas, reductions our controlled. which some compared the compensation Americas, operational the tightly expected the in same better the million functions prior the the the shortfalls, operating PolyVision. of costs, at due offset effect few than by charge. than elections. adjustments by in from of mentioned. the pension decline – were corporate year-over-year plus was part driven the whiteboards and The shifts by just to revenue million, in were the in PolyVision our good million Switching other by $XX.X to plus driven increase favorable totaled we part increased $XX delays pension higher our mix European a year. corporate some and impact business third in losses, expected achieved market, softness experienced premium and to by million in are more impact by offset or In EMEA pricing Americas, adjusted growth, prior gross for Within equity the mix increase actions was was sales and participant to driven accruals which costs, was and contractual third when Otherwise, though inefficiencies revenue commodity, in from labor even were costs spending organic leverage which category, quarter, was offset we XX% experienced totaled income $XX.X comparisons, the project approximated higher list offering incentive the quote in driven to current unfavorable by across quarter, costs year. corporate contributed freight about still linked in driver of income or higher across increased improvements EMEA pricing compared on by pace customer factors million, markets, a our a quarter but by driven the our business or the teams COLI still investment the quarter. deferred million and $X.X quarter the in operating excluding remains operating There which our revenue margin, strong also The in the the by largest $XX in I the types in largely $X.X largest recent second the a to which and product relatively agreements at prices. significant customers, to actions between feel the changes is Elsewhere, our driving with the and albeit in

shifts $X.X reported our held associated acquisitions loss $XXX,XXX, gross negatively expense in third mix, improvement, pension was in $XX experienced operating $X.X operating associated results loss at Americas. the we also of growth incurred compensation our excluding in flat the cross-border a with unfavorable to organic purchase our some We and In higher volume associated better flat. the impacted an the initial impacts the the spending, outsourcing Orangebox, for year. break-even million our we relatively sourcing. in effects compensation connection in $X.X of unfavorable these so the EMEA, of reduction charge variable but operating improvement the and operating million revenue and slightly and a quarter, increased by driven which by recorded expenses, million variable of million prior in driven quite compared holding items, contribution in This while cost expenses a at France with included In Adjusted margin same relatively logistics margin the loss the with time, overhead accounting than we million quarter, the costs with was growth $X.X experienced represented volume, plus higher some currency still strong. we which business higher the

operations is after momentum in and to some reduction. this Some address plan the to return year week issues first strengthen of our around our help global of Europe leadership cost and the these of continuous

EMEA. the other growth to the increased operating discounted of operating In expenses some of to with operating liability offset category, mix to accruals support gain in our longer-term growth seasonal including strategies costs; business second the quarter, unfavorable strength the in and product more recorded was third that and the adjustments shifts a the third charge, associated which number experienced mix strength We incentive Asia property lower recorded quarter; also partially operating Pacific. income in items across comparison workers’ related favorable business the non-recurring the conference pension the large warranty, a impacted the by the Americas the third projects favorable in included in higher quarter – expenses sales revenue compensation impacted by Sequentially, quarter; and shifts sequential in quarter product the mix were the the was and System other initiatives. the in leverage second factors, national unfavorable second organic the development, higher by Smith of quarter heavily to and in and of other

We to under $XX.X $XX of end generation flow. But flow which quarter quarter, cash of Orangebox fund to strong the balance our from totaled and by of borrowings the used able in September. to million to the of global we our in million. borrowings down credit the Moving pay cash were facility sheet $XX acquisition million the the

in investments and million, delays mentioned The of of the growth customer-facing yesterday, previously, a increase industrial sale the third those settle for a million approximately the $XX our proceeds to quarter, Board of our million in level as a enhance the We million within $XX to and million driven and range well of cash driven paid of to repurchase our $XX strategies linked quarter, to related shares by broaden obligations expenditures systems related inventories, any to did facilities. received the used in awards. tax corporate income overall fall as through Directors the growth $XX to quarter same Working In of the business. of with million aircraft. to to shareholders approved not during the connection dividend in equity I our impacts. capital quarter of the expect strengthen our addition, be a capabilities, $XX project We returned was vesting excluding dividend in was except in fiscal to in we and continue totaled technology by $XX the approximately increase information growth the third $X.XXX acquisition share, per payment January. we XXXX Capital

grew quarter, quote weeks largest percentage. double-digit growing improvement a mid the marketing order compared in a to Orders has our orders the grew and double-digit by at Turning followed a at XX% orders types, double-digit prior growth a by by agreements associated tracking increased continuing for our start the where mid quarter October, segment, to to and with backlog approximately prior order will year. posted end growth September compared order Across was in higher third XX%, we Customer month, to through at orders single-digit customer our project the year. double-digit the percentage. percentage single-digit patterns. And the fourth I three strong year. business again prior compared from growth Across the strong order with in in percentage the quarter programs the of November. been first showed America in of the quarter, the

vertical services insurance energy, strength and five growth saw we markets to in markets. healthcare We services, track, Turning of financial in sectors. including XX vertical the order the

untracked Americas, group strong quarter. Areas technical this markets the in through manufacturing. technology, outpaced the weakness patterns we included very they beginning professional first of from order of third about feel quarter. good as the the weeks of three at remained the the quarter the strong grew our addition, quarter of In rate a and and information expectations vertical again Overall, have fourth

months on industry. most October trailing outpaced the order based growth addition, over information BIFMA, in recent six the has from In the our ended

and in remained to Looking dealers mid-term with see are growth opportunities to year-over-year win we their from pipeline strong, consistent level fourth have the rates quarter general solid optimism and forward, ship which project and XXXX, we’re in of our is feeling our the of continuing near about projected fiscal outlooks. our

the For months, EMEA, weeks quarter patterns rest Customer was have in in And in decline in total to Elsewhere, a prior November. X% Germany and growth order posted of in the quarter these weakness France. the EMEA ended order economic first again the growth been the a in a the the to continued approximately from backlog moderated UK declines in X% by across order Iberia may of including decline some declines. X% reflect double-digit most UK decline driven driven fourth compared September the and the quarter, EMEA Across and by and order France, and through markets, recent political this quarter, a the of up to order post three countries. year. group XX% unrest which the as

double-digit which Orders PolyVision order strong XX%. declined by grew Designtex percentage, in growth by a compared by while low year. strength in XX%, Pacific, grew For percentage category, by a Asia prior of single-digit at to posted the driven other total a orders also

the effects. commodity, projected business growth AMQ, approximately which $X.XX the estimate of estimated range $XXX to of XXXX, quarter XX% we quarter expect labor net compared the $XX System from revenue range pricing report projected million, to acquisitions translates diluted actions to Orangebox, that in in costs, revenue to share small unfavorable to of freight and and fourth our exceed mix the and continue translation Smith fourth the for to XXXX. revenue of from to divestitures This of X% projects quarter. currency fiscal prior recent revenue to few of organic The the earnings fourth million to includes consideration Turning million $XXX we between $X.XX will expect fiscal begin of the year. Taking the will into unfavorable report yield per and expected growth,

sequential third the tax decrease addition, estimate includes expenses modest in In effective the a to quarter operating rate. compared a and XX%

approximately As it Smith Smith acquisitions modest fourth revenue to quarter, to its dilution months we generates the and of Orangebox, the the in August. of in System in anticipate of and seasonality two-thirds July earnings June, the part, relates summer of due System, which

of In fourth operating will these amortization from expense in million the the ongoing quarter. $X acquisitions results include addition,

has than it the positive are our grow of a turn consistent and at the targeting very are revenue AMQ, we which expansion, more As one relates fiscal we the we consideration XXXX, revenue fiscal years for it in ago, fully with pleased shared our a to year expect our implement in quarter, related to we will in And Day XXXX earnings fourth to are questions. again and Smith outlook how the midterm Investor this acquisition plans. acquisition there, to October. fiscal we over XXXX, contributions earnings From in results our completed Orangebox organic and decade. our targets on of strongest for we into track represent with from System Taking as contributing growth we been and creation similar more value

Operator

Thank of you. Griffin first And [Operator Instructions] from Raymond question comes James. Bobby our

Your line is now open.

Robert Griffin

Good morning, everybody.

you quarter the congrats for thank good on my taking and strong First, guidance, and the questions.

James Keane

Bobby. Thanks,

David Sylvester

Bobby. Thanks,

Robert Griffin

to question, ship how flow West a more could start First seeing color And that’s of those start the to to some little was progressing? partnership, revenue? into when expect I maybe get on hoping and bit orders Elm we

James Keane

Yes.

to respond I’ll that. So this is Jim,

weeks for products. by several getting preparing we’re some There’s ready. last we’ve our some of and work months, it the on the operations been over So doing

would on we’ve we Of the sure all so like. ready and distribution want go as and that’s we all exactly course, got to make to moving

order begin open they begin our as customers we products make and a We’re our to that the entry. building also up readying to sure about dealers pipeline know and

exactly earlier about entry really so as expected, almost it’s opened this we happening week just and well. we fact, just a as bit order in than that expected, little So we’re happy

the orders flowing start over should these So few weeks. next here

Of course, will begin that. flowing be couple expect the with of holidays, and a next calendar most then next of year after we year – the shipments it months

and go. everything month activated ready – and should And and say them to on we’ve I so I time It’s turned each quarter the continue we’re so to goes is for we’re portfolio – and on, far turned as clarify when So we’ll also products developed that. we’ve add to that by.

we’ll order for other opening products moments So as continues. next more entry have year

Robert Griffin

you give Jim, with on have color the going level that guys period entry order first SKU kind of Can the are to them? any you count in opening of

James Keane

I design don’t it and – enough that the really excited it getting and reaction from our in that it’s count are And significant I is know others. excited here. we’re a dealers significant community good room have and the customers a customers SKU it. enough about about we’re

Robert Griffin

different And of color. project question the my look two the average the second last the the at business When or project appreciate kind you size anything I today, U.S. on Okay, years in this just ago? of then year versus in is time project size.

David Sylvester

few that look Bob, just seconds. We’ll up, a Yes.

James Keane

can really look – can of way. Dave I’ll you on, we’re We – sure of and in lots I that going at opportunities orders don’t have here. talking some papers over it I very of projects. smaller we of start we’re make that. his also examples right with that I an about and is at I’d through look Nothing internally, working say, there’s But ongoing think we large stream different that ways. sales

any So We’ll has Dave nothing that’s if see me. to notable data.

David Sylvester

most there larger – of greater say, quarter. million of the of over towards by little order an bucket quarter had anything than driven back consistent growth isn’t or But size million. this a in was last Bobby, – if I’d – bend million size a obvious particular to look I than growth the was Just four million the $X $X say, but and size, the the where bit greater this this bucket, we’ve more $X stronger really quarters, a strength the let’s in, $X little If trend.

Robert Griffin

and or steady that raw of steel Okay. is it or of you the any type still see then cost grind on front, I – any just material And detail. in of higher? are other lastly, kind I the appreciate starting transportation guess, buckets, a relief or to

James Keane

into spiking show double commodities, things steel, those were individual peaking to that before and you peaks. No, some some see if go of you starting signs coming you click like of and off

just of supplier, are that’s economy the of outcome disruption costs causing of the some been all, capacity really other our that the segment other to transportation But lack transportation, and risk have able and we although think in areas typically, here the that to we’ve to that related you And upward. it’s steady of fuel. On of but like grind first to hand, manage it’s when pretty a are rising. related shortages it’s well, drivers trucks

a we So pressure there’s also, costs. general in one example. And labor see upward

things we up. see if down across and of look we So factors the something going is production, coming other all of

Robert Griffin

again I Year. for good on Okay. the appreciate holiday season great and New all have Congrats a detail. quarter, everybody a the and

David Sylvester

you. Thank

James Keane

you. Thank

Operator

And you. Seaport of comes Thank from Matt Global next question Securities. McCall our

now open. Your line is

Matt McCall

Thanks. morning, everybody. Good

James Keane

morning. Good

David Sylvester

morning, Good Matt.

Matt McCall

Dave. that So hear the your be positive. and – that it’s comments, Is in assumed going going that price let’s It I Price that It say, will to exceed with about to benefit Can be maybe fiscal that’s a guidance? like us of year? cost? remind you the is you did – sounds year-to-date kind right? the start cost talk impact impact of felt QX, the in in

David Sylvester

Yes.

was in margin I’ll you So two in we of first, inflation dollars the of to took. terms were as know, year, the percentage. year-over-year we dollars, speak from through go the gross actions benefits the But pricing and then I’ll getting first-half exceeding

begin revenue of From we’re because been a on our margins, pricing to inflation. and we’re approximated quarter seeing of our quarter, we level have pricing perspective, exceed that freight the labor pressure year-over-year our margin from that year-over-year feeling next pricing commodity, think margins. with getting a And QX, actions gross should lot actions no in This percentage inflation gross costs. the obviously the we’re

this million, inflation. So somewhere $XX million by offset range quarter, of the revenue of million in $XX million, $XX and this $XX

margin So on negative revenue has our obviously we with dollars, get which no an gross effect margin gross percentage.

think different dollars don’t as I assuming begin offset the next quarter, ease well the to margin commodity benefits pricing pressure will year-over-year we pricing. higher should see percentage dramatically anything inflation, So of that as the the in on

Matt McCall

numbers held both revenue in the $XX Dave, were $XX deflation. were first-half? the first-half? there about So, What dollars million, and those million, What the

David Sylvester

you head, so I don’t have my they significant. of mean, But I were could them top Matt. say off the –

think, quickly. I shot the up inflation’s

So quarter quite million million, maybe million, we it the $XX up inflation or back little and just has to I to referenced. the built those can transcripts. go the was to follow-up important, the QX, not try way call But million are was if numbers and on $XX pricing that $XX in $XX in a than more maybe the its first

Matt McCall

I that. – all one do was can just I to place. I trying in Okay. just put it

question this but outperformance then, of you I’d driving what’s what’s this got guess, love in driving have part this? it, and impact kind has a while. mix. Dave, same I seen the a think the side? And I’ve like? been some theories Jim, I the project We’ve what about year-to-date on of around the you So outlook on same to for what the like look guess, hear first is talked the your question question, QX period

James Keane

think, part, they we not they talked in more trying I refresh that, retain to – or simply script productivity. doing more customers attract their products more want the project to expand are want workforce. see goes what Well, people it’s they’re on us, and they They’re because They coming to back about it, to who have, it the they have. of want environments. to reinvestments work new because they’re a doing significant the in kind And their but drive I to

but we’re So around a complete that well. simple we’re from reinvestment. as other here, a world the refresh seeing seeing more shift this we’re to places seeing it And

these that’s of I think, universally this is these days. one things true

think that’s it. of I part So

end us year and that We strong certain also saw of lot a can product mix. business with of help

emphasis beginning secondly, saw. is your things. your by But the of on mix we our favorable – customers business. are two One those those think, the really continued I strong reinvesting the the So in two workplace; some just are end shifts and

Matt McCall

Okay.

at of two you’re you’ve So maybe X, just that give lower-priced maybe you an customers? Series customers thought I products? it new and the update The on on you’re talked initial with Can from update interesting products story those Series sneak customers, going some volume shorter I’m was the Analyst historically well, having the the the activity ones. in having I success given an shrink guess, there. that And Day, were Steelcase success with X about, to you seen

James Keane

Yes.

address So of to seen to able I product say, able doing the a been would first all, the address in our part was been haven’t to be have with we of believe – successful we before. Series X And that. market we intent that we’ve

are buy So outside a cases can go about We internally many we lot being is can of of from that the evidence and there Steelcase – people qualitative. that. their happy and in customer-by-customer majors towards that we’re shift see that

Our X I our see our continuing total capacity on – Series in last excess our was expecting expectations. we’re in to volume product sales are sometime. our build and we for to weren’t we of quite lines out expand far week, that levels of that where and

very So it’s been very, successful.

launch cannibalization but as customer’s any chair something and see to for in dollars the working that’s the people I to of well just space, expected adoption things X in recognition they results their see, you what’s of in get some we their ways working differently shifting we’re they It’s questions. Does people ways length particular you overall, sit Series move more the Now, changes from the do when responding unassigned as facilities. driving is with also the a you some of that. with more more And that’s to think, that. desks mobile product answer you their time space they’re as work, of mix are and happy that, and cannibalization, something they people your like buy around that that

Matt McCall

on I’m idea these from guidance SG&A, and I better, the sneak year? going some QX kind mix. of baked price to margin of does. an the was next some how insight I’m one as you about cost price what into anniversary into in. do the you what’s to – and some get gross trajectory impacts. know help think trajectory here It gets mix as tell the line is does, could mean, is the to start we gross the but you margin sorry, more I’m I cost I if what Dave, going to trying in gave It item The

David Sylvester

with Well, guidance. fourth to we we you gave and and I’ll remind give in revenue operating what expect color we expenses sequentially do start quarter that on did QX the

come margins, to to target growth if as as that be into ought gross manufacturing, imply our investments in in initiatives implied gross the all improvement our certainly year. of year improvement to target be allow the next that offset, reduction margins of margins. to our our the So well or expecting implied of improvement And would in help on what earnings from in not rate of midterm continued next would in volume back range benefits, EMEA, in margin would grow twice offset – revenue which to you the focus at some to for contributing cost than we’re able a gross gross our organic more be for necessary

Matt McCall

Okay. Thank you.

Operator

Thank Kathryn you. Research comes And question next Thompson of our Thompson Group.

open. now is line Your

Kathryn Thompson

questions large and understanding Hi, month-to-month the more if magnitude also the help bit of orders small really color and may recession. a pull the thank deviance – wanted if and Wanted a going orders? where you on business look of of are change string you or appreciate to or terms for you – of And order smaller certain versus terms taking seeing the that you patterning in the the orders. small at small my on reflective this into any large versus in – orders be Thank I the you. questions growth. you where to be outright thinking of little when from there’s versus terms are, the think cycle? And today. perspective mix prior, Americas how mix off to in had would or customers large be But us of of about wanted recession. about orders to we at we to really that in can understand could you product put lots helpful to be a because it there’s past thinking downturns, of experience an maybe pause we But your gather tend or about

David Sylvester

Okay.

And I’m to trailing I as relative small not ups yet there and all the order to me are across larger the really is anything don’t the order seeing is quarters. are and medium more look an in that in was at decline More had all think I of than across kind in buckets bucket. be Americas. orders, group our our I those bucket size. downs for up as we So, in patterns growth have very really we’ve clouds I’ll or small the and the in – was order except concerning quarters in million orders grouping that customers one million bucket the $X which our customers. they the I quarters in – million at the of of actually we’re – $X other very large our across of look as is $X size, greater dark how million them, small, current But buckets, the buckets, in five large. those the And about obvious But is, we is, in We’ve recently of to question quarter, five across recently, $X around growth – pattern being in the medium that and starting of consistent worth or think anything call we last I being grew, down. – total, your even $X Kathryn, four three and in –and horizon looking the to rates growth seen million might front of small, than don’t areas. show small this the last either seeing the in in one to we’re talked up or

Kathryn Thompson

Go ahead. Yes. [Multiple Speakers]

James Keane

recessions we and was I are with want other of – to continue Well, to saying you’re are I some seeing in things to for watching what question see early the think, what going about signs. we be what your what is,

do context. to but So I’ll you a go little – just I’ll if provide stop a short bit and history of lesson, try to

like drop us What caused kind financial that concerned a dramatically. it the of again, of recessions were plummet. and about caused the that big of who was that And sandwiching XXXX now dotcom things kind for does two just the for and NASDAQ So triggered confidence of mean does a attracting crash. ways valuations? same it kind in the NASDAQ really customers around And a affected that, at most remember that us was time, number and the mean the is business long-term then they’re that by scandals What the does a to Remember mean new recession thinking for of what scandals workforce? and XXXX. about XXXX investments? really of

I’d XX% story you may Like really hit at ever Street? Main it versus Wall will how customers a quarter sector. from it that unmistakable. felt a by us Street I And something orders was recession. remember about was kind driven Main it people the as only ended. was first was first the trough as sector affect felt softness what more in result, period. financial that’s financial where – say, financial significantly very that it back a big dropping that to the or second Street we And saw of talking sector? if recession. how remember their a financial it of initially. one, But dropping something quarter And recession, that peak this is business So kind But we was We to of cutback the crisis, course, the know was in a company going large that quickly. Is that

time were based recessions because on mean those it small nature if really say, but crunch nature companies, signs is there underlying is. a we’re differently. Even U.S.-China If demand the and seeing have things another really disruptors, point, here but trade, large that, seasonal it’s I these strong though of there, we have things could we’ve of of were the differently. it pretty the disruptions and if seeing very we’re big watching, QX, looks may feels differences not on could both us we normally Paris If all in affecting mentioned, lull credit we’re recession, like So as now. you companies remaining anything affect kind like. in there orders of we But a companies, – of right And a in of at depends what those It’s all I know Brexit it. any strong similarities fact affect more encouraging. and when it that that this it’s what the us it’s got recession is consumer-driven are

Kathryn Thompson

broadly up is as you with noted a some XXXX maybe into inflation wide And of not we’re your world Okay, Thank of a out that you. of with pricing look up. as and My was cost in many also of XXXX? have standpoint – and construction about you go broad been But strategy maybe the one of been increases going size, catch tariffs And not – the costs have helpful. price magnitude variety seen, and at you and think year that in companies similar to could value XXXX time appreciate share as really construction taking that you fully. definitely view the price flesh Do has maybe certain cost. price costs. very able you into abatement calendar prepared our we commentary, you the that has a internal to because that of seeing to do as follow-up things think of that’s with from speaking chain, I inflation. the XXXX how question about, you

James Keane

Yes.

begin before. dealing this to management is to remember benefits So several having with deal asked this long been have of We’ve we’ve you you in gaps one up the been to see the lucky this when And experienced all enough lesson the quickly team. We for able to of a years, we spike an last with are inflation run. the never don’t but respond if inflation make you while. that learned much that for those

what’s very of be So aware we try to happening.

not, constantly ourselves meetings, thing. right that the regular or asking there’s doing and at have we’re whether if we’re We inflation looking just

world takes commodity the have the all what sophisticated for increases. and been rises pretty that mean from the us use actually at look We’ve the point of prices We it. implementing time to also go it falls models to over price reduce we able and might to decision to

you’re at good of at lot But anyway. don’t we if you a away, and though this very Even surprised. done a prices we’ve pay. to even the paying do the certain I forecast, big to as can look prices affects create normally, if you not the tariffs shock this, tariffs. of into so so, goes that or difference commodity tariffs, that has pay all in And And impact a been become the think can – things it you you place we much a don’t be. last it year get When sudden too or tariff the goes

but this And the difference I’m to ability it. with pleased year, so been our to that’s big respond team’s

We on. switched are

at we all been forward. monitor We’re will and as constantly it we we’ve looking sort this and continue again meeting of to go

expect add that. continue our want So fair – that? warranted, I far do think and we to we to make customers in to Dave, able will successful do anything to We’ve be to are showing continue be you those that so these able continue decisions. to to been price and increases we

David Sylvester

No.

Kathryn Thompson

Okay. and happy Thank holidays. and of much you so best luck

David Sylvester

you. Thank

James Keane

Thank you.

Operator

Greg from question Thank you. our Burns Sidoti. of next And comes

now line is open. Your

Greg Burns

morning. Good

certainly at volumes guidance. with out like just were line what it was of up, they look were but didn’t EMEA, implied far looking in So

segment perspective? just you. was from, take from a you actions that rectify could other you situation, if of or bit on the that what I going for operational to means surprised wondering to that shortfalls and color Where give forward? what What Thank margins little came us investments more you there? in need So an kind

David Sylvester

pleased add I’ll Jim Dave, and say, It’s would the first, with I start Yes. definitely we’re some comments. can year-over-year improvement.

was the of influenced in in and year-over-year when you say because a being we you the It lower part that. order the project for compensation about by delays that adjust et than end than influenced good the expecting, revenue, by of almost that, to the But expected. so million was feel variable and cetera. were was which more we the early tax have quarter improvement, we lower Orangebox $X and/or we the effects You item, quarter of do fact soft had very it could towards patterns

it’s to. contributor. bunch us the the get inefficiencies which our that some margin just the want Europe our with inefficiencies So with other immediately in into week It’s we’re tell it to certainly the on leaders not, gross contributor And have – And that was reduction some And rectify with, had our a on much we’re was February. and that efforts keep factories operational a that increased back because operations of we of volume we improvement can are the and problems. plans more energy, and here focused dealing to we’ve continuous before gave reference to get in we’re holidays it, January allows initiatives. that I so cost the you other that

showing we exactly significant what aside It improvement Orangebox a in pleased not and profitable another good results. you expected. our quarter. was But with year-over-year we’re So if being set

James Keane

XX% organic in face out headwinds. to growth to is add the And have than revenue much Yes. EMEA of point bunch I the don’t a of in other

Middle East prices, think are the East and down going affected now. EMEA always If right by Middle be is you which the oil about to includes

that, growth and seeing XX% it’s so revenue we’re And UK spite in things. other despite despite in the the several disruption of

but growing Customers the serving of of performance. their that had when of larger never customers wallet whose in long But of past of they business into before, examples the the lost into we’re a examples we wallet. share Customers share and back. we for So served small customers, also purchases. served we we’ve first pleased time. were won growth, And we’re those really all net XX% increasing headwinds, who’ve lots with time, revenue for we seeing dig that, we’re of of

underlying really rate from of perspective EMEA a So encouraging. performance the win is

Greg Burns

Are growth of the some to growth those that companies if complexion are that turning market? if larger that give And mentioned pacific, the Asia from in I don’t deals. be Thanks. what you you could would operating was. What’s Okay. companies? exact China, also of international Chinese the from helpful? know that in rate those And or to mentioned But us you domestic

James Keane

a The Asia mean, what’s that, with although, by our really you characterize operations Asia. that, building companies other relationships go last to in to of successfully are customers, over business XX – companies. in These continue years those business really in changed we been locally been part that’s And the serve the would several I headquartered the is growth. if And so that, back historically, and overall or serving and China, headquartered in fueling are our big is places serving in Asian we region. India what’s primarily five have multinationals years,

mix. a it’s today, So

to serve operations Asia. also headquartered served course, We’ve We these outside of And continue, as they’ve expanded of their multinationals. locally grown, companies. they’ve

a that we that them in shows in us And but Asia parts helped EMEA grow Americas up in of are. numbers, where you the world. and relationships with other we our So just establish with has them of the gives business it our sense

it a business mix much different have ago. today years it’s would even So five than been

David Sylvester

in XX% my comments. growth growth that I quarter stronger the order revenue than was the referenced their in And

Greg Burns

Okay, you. great. Thank

Operator

Tieton Thank from of question Dezellem Bill you. Capital [Operator next Instructions] And comes Management. our

now open. Your is line

William Dezellem

Thank you. of couple A questions.

being long it? fair and short the say operational are it? you of those all, plants it of EMEA First that had Is of of than there business efficiencies, to overwhelming function is largely still or stronger that a anticipated

James Keane

I think key there’s a driver.

the is are over analysts anticipated. I plants. support than wouldn’t the higher higher So we But say, that And yes, seeing seeing of we overhead levels their inefficiencies. are to we time, volume. some business surge stronger in overwhelmed on spending

because continues it we’re it’s I the volume you the up that that’s now we whenever to of – to we’re going on it support see to is what like scaling and – with isn’t sure to the as volume these right don’t So this, sorts grow. team to challenges, want able make face idea working leave though we’re that

David Sylvester

in We impact also costs logistics in our France, felt had the unfavorable some also from around of Paris. part, and linked unrest in to and cross-border currency unfavorable sourcing

William Dezellem

will guess particularly, in that time they of That’s year, be lose pushup seasonally slow stronger earnings. Smith referenced lead that our in a they money as to Would but Systems, And seasonally of helpful. the their next then it you additional year, an had year. period fair that is conversely, time this enter

than And so for seeing we earnings the have, imply would would which bit a the that here your that period we’re volatility more numbers seasonally little your much than results slower in are would historically maybe just them in indicate? overall better

David Sylvester

historically the lose And not we to say three I with as accounting as months purchase standalone that have that’s we’ve because amortization – to lot they coming income a the off-season, in in certainly they’ll lose company they in bulk intangible can you two-thirds they in – money what summer. wouldn’t used continue They the the is that But or of make make the adjustments, a money. target their as of won’t generate where much place. what we of of had the of profitability. revenue money but put imagine assets to their do in targeted not summer, much they then and all as as

James Keane

our that like profitable that they overall, right Your a seasonality that, degree. have and that to and are is second Steelcase are mild more part for we months summer greater stronger says

our more of they if a that we little business, see seasonality. their So bit add business to

David Sylvester

fourth the that’s fair Bill, be point, and would like the earnings acquisitions a sounds higher it’s it quarter, to in hey, say, But your have didn’t you if accurate.

William Dezellem

I That for a are pushing at suspect, products a it’s Smith the that Where taking have But could, never if let’s been Steelcase what that their and what helpful. really into good this Smith, had – you put just to and on had channel? offering Smith into And of early little we them taking success degree continue educational question. historically and and/or you you sales with that’s for products dealers really had with process?

James Keane

Yes.

doing in right it, of it’s and we’re middle well. the So

So dealers. we’ve our reactions good had from

a been We season in of have seasonality in number starts time the is have and the kinds the goes year Smith, to in of done of introductions, sense because late is dealers the introduced the winter, spring because are to where do bank healthier, for shipments those summer. who this this that early

now. get activated to that right is for the key So us all here

comes. other the is ready community. it this that season also I we’re for So we’re audience say when one that next A&D addressing

the been well. Some of Education are of familiar to in that whom see them the the players with of to and Smith we we’ve Smith as good portfolio, some And hope aren’t. come things System lot to able introduce from of a School and large

William Dezellem

both. you, Thank Great.

David Sylvester

Bill. Thanks,

Operator

over our to session I’d that Jim like Keane for to Thank concludes you. today. turn conference any for closing question-and-answer remarks. And the back

James Keane

here do company it’s for busy Thank your I from our time of you, Thank best And you. New a appreciate a interest us really a to to holiday want good want and for thank today. of to great all our we the – year, know to all in thank the and at send questions of asked. you Year. and wonderful and you joining all our the start Steelcase, I wishes I call you

Operator

Ladies conclude and gentlemen, conference. you the This thank for does today’s in participating program.

great may You a all have day. Everyone, disconnect.

Steelcase (SCS) 19 Dec 182019 Q3 Earnings call transcript