Steelcase FY 4Q16 Earnings Call Notes

Steelcase’s (SCS) CEO James Keane on Q4 2016 Results

Order patterns were weak in the US likely due to weak CEO confidence

“In the Americas, order patterns continued to weaken during the quarter and in fact we had a slight year-over-year organic decline. We believe some of this is related to an ongoing decline in CEO confidence which has a strong historical correlation with BIFMA order rates. I attended the recent Business Roundtable meeting in Washington along with many other CEOs across a range of industries and it’s clear there remains a general sense of uncertainty about both economic and political factors.”

CEO confidence may have ticked up

“The most recent data that I saw that I was referring to in my comments earlier would suggest that CEO confidence dropped quite a bit about a quarter ago and then it stabilized and ticked up slightly in this most recent quarter. And if you dive into the details behind that, CEOs are less confident as they look to the future about growth in employment and a little bit more confident about increases in capital expenditures. So I wouldn’t say it’s great news but at least it’s not falling, and you have kind of this mixed bag of detail underneath it”

One concern of CEOs is being able to attract the right talent to their business

“we know we’re already in a very competitive job market. One of the top issues that CEOs face is attracting the right talent to their businesses, and when that is a concern of CEOs, that’s usually also good news for the office furniture industry because that’s when people tend to make investments in their space so they can attract the kind of people they want. So we’re hopeful that we’ll continue to see that confidence rise.”

There’s economic uncertainty all over the world

“There’s economic uncertainty all over the world of course. The tragic incidents in Belgium this week only contributed to that level of uncertainty. You also have political uncertainty in many regions around the world including United States. And whenever there is uncertainty, CEOs have a hard time making longer-term decisions. So maybe that’s as much as I’ll say for now, unless you have additional questions on that.”

We are pleased with our performance in China

“I’ll talk about China. We’re very pleased as we said earlier with our performance in Asia in general and particularly our performance in India and China this past year. We’ve been giving a lot to make sure we’ve got the right products for the market. We have a manufacturing facility, as you probably know, in China that continues to grow in importance for us in the region. We have a very strong team of people that we’ve developed over the last several years.”

Evolution in China has been from Western to local companies

“And importantly, if I were to kind of think back on our evolution in China, as well as really the rest of Asia, at first we were serving a lot of companies that we know very well from Western markets, companies that might be headquartered in the Americas or headquartered in EMEA, and that has helped us get started and establish our brand and establish our footprint and do all the things we’ve done up till now. But one of the things we’ve been doing successfully in the last couple of years is making sure we are also focusing on locally headquartered companies, Chinese headquartered companies, and making sure that our products and our relationships are relevant to them, and we’re really pleased with that success.”

Maybe the seven year cycle is just an illusion

“three of us were kind of laughing at that is because we were circulating a piece internally here over the last few weeks by somebody outside the Company who wrote about how maybe the idea that the economy follows a certain cycle of seven years for example, you often hear that number thrown out, when you go back and you actually test it, it’s not so clear that it’s seven years. Sometimes it’s shorter, sometime it’s longer, and it’s always because of some factor. So maybe the whole idea of it being kind of an inevitable time-based cycle isn’t really as relevant as will we have another financial crisis, will we have a political crisis, will we have something else that could cause uncertainty and therefore growth to slow down.”

We were seeing a slowing down but now we are feeling some resurgence of confidence

“What we felt again is that we saw some signs of a slowing down in our industry over the last several quarters, particularly as we got into December and January, but now we are feeling some resurgence of confidence, at least a flattening out of that trend. So hopefully that was a moment and hopefully we’ll see some growth develop in the quarters to come.”

David C. Sylvester

Healthcare and education showed growth

“Across vertical markets in the Americas, we experienced strong order growth in healthcare and education sectors as well as our untracked sector which includes retail customers and other vertical markets not large enough to track separately. Collectively, orders from this untracked segment comprised approximately 20% of our total orders. Most of the remainder of the 10 tracked vertical markets declined compared to the fourth quarter of the prior year.”