Steelcase FY 1Q16 Earnings Call Notes

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Longer time between orders and shipments because customers are taking on more ambitious changes in their work environments

“We have spoken before about how in the Americas, we are seeing a longer period between orders and shipments. As we expected, that pattern continued this quarter. We are getting a better sense of why this is happening. It is clear that customers are taking on more ambitious changes to their work environments instead of simply refreshing the existing design and these changes often involve more construction, even when they are only renovating an existing space.”

Construction issues unrelated to furniture. Also dealers can see they need to reserve capacity

“These customers place orders earlier than normal since their design is complete earlier and planned shipment dates of furniture are often delayed because of construction issues not involving furniture. There are other reasons as well. Today, we have better tools than in the past for our dealers to see our production capacity, and with demand increasing, they have every reason to place their orders early to reserve capacity in the system.”

Demand from middle markets has grown faster than large customers

“Our analysis of BIFMA data and our own order patterns suggest demand for midmarket customers may have grown faster than from the larger customers.”

Feeling good about North America,Europe and Middle East are question marks

“Overall, we are feeling good about how our Americas business is developing for the rest of this year. As for the European economy, questions remain of course about Greece and the impact of Russian sanctions. Our business in Eastern Europe has been affected by the political turmoil and our Middle East business is softer, because of lower oil prices.”

Seeing strength in export markets in Western Europe though

“However, we are also seeing signs of strength in export markets in Western Europe and our order patterns in many of those countries are reflecting that strength.”

Activity by vertical

“Across vertical markets in the Americas, orders grew in the federal government, insurance, financial services, technical professional, state and local government and manufacturing sectors, while information technology and healthcare declined modestly against the prior year.

Orders from the energy sector grew modestly in the first quarter following a significant decline in the previous quarter. We expect this sector to be challenged for the foreseeable future while oil prices remain depressed. Most energy sector construction projects that were well underway are being completed, but many future projects have been postponed and continue [ph] considerably.”

We are able to insource capabilities that we had previously outsourced

“In the Americas, we went through a shift towards outsourcing for a while. This is going back maybe 10 years now. While we were in a transition from the very vertically integrated model to the model we have today. Now, interestingly, and now that we have reached higher level of efficiency in our Americas footprint, we have been able to in-source some of the things that we had previously outsourced.”

Companies with 25-50m in revenue are leading the growth

“if you double-click and triple-click on some of the data, what you see is that the companies that are in the $25 million to $50 million of revenue size are the ones that are leading the growth and that suggest to us that it is possible that that demand is coming from smaller company, and with small company starting to come into the recovery.

That potential that we could be seeing, you know, an acceleration of the cyclical recovery, but I very intentionally use the word may in my quote, because we do not really know, but we like what we are seeing.”

We don’t think the competitive environment is any different than it has been

“The industry is always competitive and in the Americas that has always been true as long as I have been in these various roles. We have talked about that. There are some great manufacturers out there and we compete. I do not really feel it is being any different today than it ever was. There were some saber-rattling perhaps, but if you look at what is actually happening in the marketplace, we have not seen evidence of that.”

You win because of products and relationships. You lose on the same things, but people will tell you price

“you win, because you have got the right products, you have got the right relationships. When you lose, you might be told you lost because of price, but really you lost because you did not have the right relationships and the right products, so that is our philosophy on this.’

Harder to have price competition in an environment with a lot of small projects

” the idea of price competition probably becomes more acute when you have some very large projects that are defining the marketplace. That was maybe more true a couple of years ago than it is today. Today it is much more broadly balanced between projects continuing smaller business and so the idea that you are going to go out and try to change your market share dramatically by being very aggressive on a project – does not work as well when there are not many projects out there.”