What to Expect When Steelcase Reports Earnings

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Global office environments manufacturer Steelcase (NYSE: SCS) reports on the first quarter of its fiscal 2020 year on June 19. The corporation is coming off a successful fourth quarter of 2019, capping a year in which revenue improved by 13% and operating income rose 5% against the prior year. Shares of Steelcase have been volatile year to date, but have managed to climb 16% since Jan. 1. Let's briefly look at what investors should expect when Steelcase issues its report on Wednesday after the close of trading.

Management's guidance

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In its fiscal fourth-quarter 2019 earnings filing, Steelcase's management provided top- and bottom-line guidance for revenue and earnings per share. The company has advised investors to expect revenue to land between $830 million and $855 million. At the midpoint of this range, the company will achieve revenue expansion of close to 12%. After adjusting for the effect of acquisitions and foreign currency translation, the revenue projection equals organic growth of 7% to 10%.

As for diluted earnings per share (EPS), management is projecting a range of $0.16-$0.20. At the midpoint, earnings will notch a solid increase of 29% over the prior-year quarter's diluted EPS of $0.14.

Vital trends to watch

After eyeballing headline results on the 19th, shareholders should dig into a handful of important trends to gauge the relative strength of Steelcase's earnings. The company's largest division, its Americas segment, has recently booked quarterly double-digit year-over-year revenue increases in the low teens. This performance has been undergirded by steady organic order flow improvement in the midsingle digits. At $2.5 billion, North American revenue comprised roughly 72% of Steelcase's total top line last year, so its performance will largely determine overall company results in the first quarter.

Similarly, Steelcase's Europe, Middle East, and Africa (EMEA) segment has recently grown at a double-digit rate: Revenue jumped 18% last year to $617 million. Steelcase has beefed up its presence in the lucrative European market as of late. Both revenue and order flow are benefiting from the company's acquisition of British collaborative furniture design firm Orangebox in September of 2018. Look for segment revenue to again hit a mid- or high-teens expansion rate in the first quarter.

Pricing is a third trend for investors to track when Steelcase hands its scorecard to investors next week. The company was able to partially offset higher raw material costs and climbing labor and freight expense in fiscal 2019 by raising prices in conjunction with cost-cutting programs. In Steelcase's earnings conference call last quarter, management noted that it had set another price adjustment to take effect in April. Executives are likely to briefly discuss the impact of this latest price increase on the quarter in their upcoming earnings call.

Impact of the first quarter on fiscal 2020

While management has projected a strong first quarter, Steelcase's full-year outlook indicates a murkier picture for the entirety of fiscal 2020. Revenue is expected to slow to a growth rate of 5.5%-9.5%, which implies organic revenue improvement of just 2%-6%.

This curbing of top-line momentum affects projected full-year earnings, as the company is carrying higher overhead due to recent acquisitions and partnerships with smaller manufacturers and design firms. Management anticipates that fiscal 2020 diluted EPS will range between $1.20 and $1.35. At the midpoint, this will notch year-over-year growth of 21%, a decent result that is nonetheless lower than first-quarter projected EPS growth of 29%, and well below the 54% EPS leap Steelcase achieved in fiscal 2019 versus fiscal 2018.

Of course, uncertainty over Brexit (which affects European operations) and continued uncertainty over import tariffs in the U.S. inform management's cautiousness on the 2020 top-line forecast. But the first quarter may bring some clarity to the full-year outlook. Investors shouldn't be surprised to see a revision to Steelcase's fiscal 2020 guidance -- positive or negative -- when the organization reports on Wednesday.

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Asit Sharma has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.