Steelcase FY 2Q17 Earnings Call Notes

Steelcase’s (SCS) CEO James Keane on Q2 2017 Results

Stronger orders

“The good news for the Americas is that we had stronger orders in August and those have continued through the first three weeks of September. We are in the midst of annual dealer meetings and they have been quite enthusiastic about the new products we launched earlier this year. Orders for those products are gaining momentum and are doing better than we estimated. Dealers are also responding positively to the work we’ve done to address growing demand for informal spaces including better merchandising of our ancillary portfolio. At a broader level, our backlog of high confidence opportunities in the Americas has strengthened for the second half of the year. So, we’re expected to grow our topline third quarter.”

Not seeing anything that looks like a recession

“Yes, so, we’ve seen recessions before in our industry and they are characterized by significant and sustained drops in order patterns. And that’s not really what we’re seeing this time. And they are usually also characterized by economic news that’s somewhat profound. So, whether it was the banking crisis or it was the drop in the NASDAQ back in 2001, you can usually point to some external factor that’s profound and say there’s a connection there. Sometimes there’s a lag between when you see it and when we see our orders, but we’re not really seeing that kind of connection now.”

For the most part people see an economy stuck in neutral

“I was in Washington last week meeting with CEOs of a lot of our customers at a kind of a general CEO conference. And I had a lot of discussions about how people are seeing the economy. And the way I’d characterize it is that there’s a lot of uncertainty, but for the most part people see it as an economy that is stuck in neutral, just a very slow growth or no growth economy in the United States.”

It doesn’t feel like an economy that’s poised to grow quickly

“We all know what the Fed did this week. It is clear that they have an interest in raising interest rates, but decided not to again based on the economic news that they are seeing. So, I think everybody is looking at it the same way. It just doesn’t feel like it’s an economy that’s poised to grow quickly. But on the other hand there is not really anything that’s pushing it down. ”

David Sylvester

Performance in verticals

“From a vertical market perspective, some of the largest declines were in sectors that had strong double-digit percentage growth in the prior year; for example, federal government, financial services, technical professional and insurance services, or in sectors where you might expect a significant decline because of known headwinds like energy. But we also saw a significant decline in the information technology sector which was closer to flat in the second quarter of the prior year.”

Continue to closely monitor EMEA

“We continue to closely monitor the overall demand environment in EMEA as various headwinds continue to pressure consumer and business confidence raising concern that even a small shift in confidence could destabilize the already fragile environment.”

Notable decline in Germany

“Customer order backlog for EMEA ended the quarter down 7% compared to the prior year. The decline in orders during the current quarter was driven by continued weakness in the Middle East and Africa largely driven by low prices as well as the U.K. likely impacted by Brexit, but it’s also a market where we believe we should be doing better and have recently appointed new leadership. Germany also declined by a notable percentage compared to strength in the prior year. These declines were reduced by strong growth in Spain despite uncertainty related to recurring elections and France which is continuing to improve following the leadership changes we made a year ago.”

Larger project business has been coming back

“we’ve been talking about on the last several calls, more of the mid-sized projects or mid-size continuing orders has been okay or decent for the last three quarters. Larger project business has been an area of decline for us up until the most recent quarters. So, the current quarter that grew modestly versus a modest decline last year. And I think that’s linked to the improvement in the project pipeline that we started talking about in June.”