Steelcase FY 3Q16 Earnings Call Notes

Steelcase’s (SCS) CEO Jim Keane on Q3 2016 Results

Saw reduction of revenue in Middle East

“we saw a reduction in revenue in the Middle East where many of our customers are directly affected by declining oil prices. At the same time, we saw growth in demand in Western Europe”

Dealing with business capital spending growth slowing

“In the Americas, we are dealing with two issues; first, business capital spending growth is slowing and our industry’s growth is also slowing; second, Steelcase is growing more slowly than the industry because of our customer mix and some product gaps we are working to address.”

Seeing orders from larger customers slow as is typical when the economy has slowed in the past

“Our orders grew faster than the industry in September, but by November, we were actually seeing year-over-year declines. It’s not across the board, in the past, when the economy has slowed, we’ve seen the largest customers are often the first to cut back and that’s what we’re seeing this quarter. We didn’t see the end of calendar year orders surge, we often see from some of our larger accounts. We’ve seen a reduction in large projects, both in terms of what we booked but also as we look into the pipeline of future opportunities. We also see less of our overall business coming from our larger customers than in the past. And orders from our larger customers were down in the quarter.”

Probably feeling the effect of a slowing economy earlier than others

“As we’ve discussed before, we probably have more of our business from large customers than the overall industry. So we are probably feeling the effect of the slowing economy a little earlier than others might. And in fact, our midsize project orders continue to grow at or above overall industry growth rates.”

We’re not sure if the slowdown in large customer business is foreshadowing further weakness

“Now, what’s going to happen next, we don’t know. Will that decline in large customer business is that just foretelling a decline that we’ll see across the entire industry? We’ve had recessions in the past, in the distant past that have been like that, but we’ve also had times in the past where we’ve seen this moment where you see one segment fall and then it comes back again. So, we can’t predict that exactly. But we’ve seen both occur in the past.”

What really changed in the most recent quarter was the drop in large projects

“In this most recent quarter, the thing that was most pronounced was the drop in the large customers, a decline in orders from large customers and a decline in large projects. And it’s not that they were doing great in the previous quarters, but we saw this decline. If you look at this year versus prior years, large customers were not dramatically up or down but the mid-size and smaller customers, you’re doing pretty well. What really changed in this past quarter was the drop in the large customer of large projects.”

Other CEOs are seeing the same thing

“I will also comment I am a member of various groups where CEOs come together and talk about what they see. And for these large customer CEOs,, some of the outlooks, for example, business roundtables, commentary recently about business capital spending, would confirm that are large customers are seeing this headwind. So, whether we look at our data or we look at economic data or we just listen to what other CEOs are saying, we’re seeing consistent concerns from that customer group about the economic outlook”

Dave Sylvester

Pleased with China

“While there remains a shadow of macroeconomic uncertainty in China, we are pleased with the traction our local sales teams continue to demonstrate.”

The first half of the quarter was strong but then there was a steep fall off

“The first half of the quarter, five weeks in September and the first two weeks of October, were actually quite good and were stronger than we were expecting. In fact, I think they’ve commented that they averaged 7% growth, and so, in the first seven weeks of the quarter. And then in the last six weeks of the quarter, we saw a 9% decline. And really, it fell off suddenly and we believe that it was largely linked to not seeing the same level of year end business from some of our largest customers.”