Webcast. Fourth Quarter Fiscal Year 2016 Results. Quarter ended February 26, 2016

Transcription

1 Webcast Fourth Quarter Fiscal Year Results Quarter ended February 26,

2 Forward-looking statements From time to time, in written and oral statements, the company discusses its expectations regarding future events and its plans and objectives for future operations. These forward-looking statements generally are accompanied by words such as "anticipate," "believe," "could," "estimate," "expect," "forecast," "intend," "may," "possible," "potential," "predict," "project," or other similar words, phrases or expressions. Forward-looking statements involve a number of risks and uncertainties that could cause actual results to vary from the company s expectations because of factors such as, but not limited to, competitive and general economic conditions domestically and internationally; acts of terrorism, war, governmental action, natural disasters and other Force Majeure events; changes in the legal and regulatory environment; restructuring activities; changes in raw materials and commodity costs; currency fluctuations; changes in customer demands; and the other risks and contingencies detailed in the company s most recent Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission. Steelcase undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Updating of information This presentation is provided as a supplement to our earnings release conference call and webcast on the date stated on the cover and is intended to be read in connection with the information provided therein and the related earnings press release. The information contained in this presentation is provided as of the date stated on the cover and may be superseded by information disclosed in our subsequent Form 10-Q, Form 10-K or other filings with the Securities and Exchange Commission. We undertake no obligation to update, amend or clarify this presentation, or any forward-looking statements included herein, whether as a result of new information, future events or otherwise. Basis of presentation Reference to a year relates to the fiscal year, ended in February of the year indicated, rather than the calendar year, unless indicated by a specific date. Additionally, Q1, Q2, Q3 and reference the first, second, third and fourth quarter, respectively, of the fiscal year indicated. All amounts are in millions, except share and per share data, data presented as a percentage, currency exchange rates or as otherwise indicated. NYSE: SCS Webcast March 23, 2

3 Table of Contents 04 Results 05 Steelcase Inc. 11 Americas Segment 12 EMEA Segment 13 Other Category 14 Q Outlook 17 Supplemental Slides NYSE: SCS Webcast March 23, 3

4 RESULTS Current Quarter Revenue Mix SEGMENT VIEW GEOGRAPHIC VIEW 18% EMEA 31% Rest of world 9% Other 73% Americas 69% U.S. BUSINESS SEGMENTS The Americas segment serves customers in the U.S., Canada, the Caribbean Islands and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the Steelcase, Coalesse and Turnstone brands. The EMEA segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase and Coalesse brands, with an emphasis on freestanding furniture systems, storage and seating solutions. The Other category includes Asia Pacific, Designtex and PolyVision. NYSE: SCS Webcast March 23, 4

5 RESULTS Steelcase Inc. Highlights (Unaudited) (Unaudited) Three Months Ended Three Months Ended February 26, February 27, 2015 November 27, 2015 Revenue $ % $ % $ % Cost of sales Restructuring costs Gross profit Operating expenses Restructuring costs Operating income Interest expense (4.4) (0.6) (4.4) (0.6) (4.5) (0.6) Investment income Other income (expense), net (0.6) (0.1) Income before income tax expense Income tax expense (benefit) (47.4) (6.4) Net income $ % $ % $ % Diluted earnings per share $0.62 $0.18 $0.28 Net income The increase compared to the prior year was driven by two significant items: the reversal of the valuation allowance recorded against net deferred tax assets in France and a gain on the partial sale of an investment in an unconsolidated affiliate. Net of the variable compensation and income tax impact, these significant items increased net income by $52.6, or $0.42 per share. Operating income The decrease compared to the prior year was driven by higher variable compensation primarily related to the significant items and higher operating expenses in the Americas, partially offset by lower cost of sales as a percentage of revenue and a $2.8 reduction in restructuring costs. Other income, net The year-over-year increase was primarily due to the gain on a partial sale of an investment in an unconsolidated affiliate. Income tax expense The income tax benefit of $47.4 in the quarter included a $56.0 benefit from the reversal of a valuation allowance recorded against net deferred tax assets in France and approximately $2 related to the reinstatement of the U.S. research tax credit. NYSE: SCS Webcast March 23, 5

6 RESULTS Steelcase Inc. Highlights Revenue CURRENT YEAR QUARTER OVER PRIOR YEAR QUARTER SEQUENTIAL QUARTER OVER QUARTER (17.4) (40.8) 2015 Currency translation effects Acquisition Organic growth Q3 Currency translation effects Organic decline Revenue Organic revenue growth was 1% over the prior year quarter. The Americas and EMEA both posted organic revenue growth of less than 1% while the Other category grew 4%. On a sequential quarter basis, organic revenue declined 5%, slightly higher than historical seasonality. NYSE: SCS Webcast March 23, 6

7 RESULTS Steelcase Inc. Highlights Operating Expenses CURRENT YEAR QUARTER OVER PRIOR YEAR QUARTER (3.5) 2015 Currency translation effects Acquisition Variable compensation Other Operating expenses After adjusting for currency translation effects and an acquisition, current quarter operating expenses increased compared to the prior year primarily due to higher variable compensation associated with the significant items, higher sales and marketing costs in the Americas and costs related to the Munich Learning + Innovation Center in EMEA. NYSE: SCS Webcast March 23, 7

8 RESULTS Steelcase Inc. Highlights Revenue CURRENT YEAR OVER PRIOR YEAR 3, ,060.0 (110.1) 2015 Currency translation effects Acquisition, net of divestitures Organic growth Revenue Organic revenue growth was 3% over the prior year. We realized organic revenue growth of 3% in the Americas, 1% in EMEA and 4% in the Other category. NYSE: SCS Webcast March 23, 8

9 RESULTS Steelcase Inc. Highlights Operating Expenses CURRENT YEAR OVER PRIOR YEAR (24.1) 2015 Currency translation effects Acquisition, net of divestitures Variable compensation Other Operating expenses After adjusting for currency translation effects and an acquisition, operating expenses increased compared to the prior year primarily due to higher variable compensation associated with the significant items and overall higher profitability, higher sales and marketing costs in the Americas and costs related to the Munich Learning + Innovation Center in EMEA. NYSE: SCS Webcast March 23, 9

10 RESULTS Quarterly Cash Flow Data (unaudited) February 27, 2015 May 29, 2015 August 28, 2015 November 27, 2015 February 26, OPERATING ACTIVITIES Net income $22.8 $20.0 $37.2 $35.6 $77.5 Depreciation and amortization Gain from partial sale of investment in unconsolidated affiliate (8.5) Deferred income taxes (11.5) (10.5) (71.1) Restructuring gain on sale of fixed asset (2.9) Non-cash stock compensation Equity in income of unconsolidated affiliates (3.6) (3.3) (3.3) (4.5) (2.4) Dividends received from unconsolidated affiliates Changes in accounts receivable, inventories and accounts payable 10.7 (13.1) (24.1) Changes in employee compensation liabilities 33.6 (77.3) Changes in assets related to derivative instruments (12.8) (0.4) (0.2) Changes in VAT recoverable (0.7) 0.4 (7.6) (13.6) (8.1) Changes in other operating assets and liabilities 0.5 (33.7) (20.3) Other, net 0.1 (1.4) 0.4 (1.9) 3.3 Net cash provided by (used in) operating activities 80.7 (35.8) INVESTING ACTIVITIES Capital expenditures (28.5) (24.2) (23.2) (22.6) (23.4) Proceeds from disposal of fixed assets (1.6) Changes in investments, net (0.5) (69.6) 36.7 Proceeds from partial sale of investment in unconsolidated affiliate 18.0 Other, net (4.7) (6.5) (0.1) (0.2) (0.6) Net cash provided by (used in) investing activities (15.8) (3.8) (23.7) (91.8) 31.5 FINANCING ACTIVITIES Dividends paid (12.9) (15.1) (14.0) (14.0) (13.9) Common stock repurchases (1.0) (11.5) (0.4) (2.4) (42.1) Excess tax benefit from vesting of stock awards Borrowings and repayments of debt, net (0.7) (0.5) (0.7) 18.7 (1.2) Net cash provided by (used in) financing activities (13.8) (25.6) (13.6) 4.6 (55.5) Effect of exchange rate changes on cash and cash equivalents (3.4) (0.8) (1.3) (0.7) (0.3) Net increase (decrease) in cash and cash equivalents 47.7 (66.0) 50.9 (11.1) 31.6 Cash and cash equivalents, beginning of period Cash and cash equivalents, end of period $176.5 $110.5 $161.4 $150.3 $181.9 NYSE: SCS Webcast March 23, 10

11 RESULTS Americas Segment Highlights REVENUE ADJUSTED OPERATING INCOME (% of revenue) % % % % % 2015 Q1 Q2 Q Q1 Q2 Q3 Revenue Organic revenue growth compared to the prior year was $3.6, or less than 1%, after adjusting for currency translation effects and the impact of an acquisition. Product categories Four out of seven categories grew in, led by Health, Architectural Solutions and Turnstone. Technology and Furniture declined compared to the prior year. Vertical markets Federal Government, Technical/Professional, Manufacturing and Health Care experienced strong growth rates, while Insurance and Energy declined yearover-year. Geographic regions The West Business Group posted modest growth, while the East and South Business Groups declined. Contract type Continuing business and marketing programs grew, while project business declined year-over-year. Adjusted operating income The decline in adjusted operating income compared to the prior year was driven by higher variable compensation costs associated with the significant items, an unfavorable shift in business mix, approximately $3 of unfavorable inventory adjustments and higher sales and marketing costs, partially offset by lower material and freight costs and improvements in negotiated pricing. NYSE: SCS Webcast March 23, 11

12 RESULTS EMEA Segment Highlights REVENUE ADJUSTED OPERATING LOSS (% of revenue) (6.7) (4.6)% (9.6) (8.0)% (14.3) (11.2)% (12.6) (9.3)% (7.4) (5.4)% 2015 Q1 Q2 Q Q1 Q2 Q3 Revenue The organic revenue growth compared to the prior year was $1.3 or less than 1% after adjusting for currency translation effects. France and Iberia posted organic revenue growth while the Middle East, United Kingdom and Germany declined. Adjusted operating loss Compared to the prior year, adjusted operating results included a 140 basis point improvement in cost of sales driven by lower disruption costs and inefficiencies and initial savings associated with the manufacturing footprint changes, offset in part by an unfavorable shift in business mix. This improvement was more than offset by an increase in operating expenses due to higher variable compensation associated with the significant items and costs related to the Munich Learning + Innovation Center. NYSE: SCS Webcast March 23, 12

13 RESULTS Other Category Highlights REVENUE ADJUSTED OPERATING INCOME (% of revenue) % % % % % 2015 Q1 Q2 Q Q1 Q2 Q3 OTHER (The Other category includes Asia Pacific, Designtex and PolyVision.) Revenue The organic revenue growth compared to the prior year was $2.3 or 4%. Strong growth in Asia Pacific was offset by a decline at PolyVision while Designtex experienced mid-single-digit growth. Adjusted operating income The increase in adjusted operating income compared to the prior year was driven by Asia Pacific. NYSE: SCS Webcast March 23, 13

14 Q OUTLOOK Revenue FORECAST QUARTER OVER PRIOR YEAR QUARTER FORECAST SEQUENTIAL QUARTER OVER QUARTER (1.9) (6.4) (3%) - 1% (1.4) (8% - 4%) Q1 Currency translation effects Acquisition Organic (decline) growth Q1 2017, projected Currency translation effects Organic decline Q1 2017, projected REVENUE Expect Q revenue in the range of $690 - $715, which reflects an expected range of an organic revenue decline of 3% to organic revenue growth of 1% compared to the prior year. The company reported revenue of $705.5 in Q1. NET INCOME Expect Q diluted earnings per share in the range of $ $0.16. This estimate includes approximately $0.02 per share of restructuring costs related to previously announced restructuring projects. Expect Q adjusted earnings per share in the range of $ $0.18. Reported diluted earnings per share in Q1 were $0.16, and adjusted earnings per share were $0.17. NYSE: SCS Webcast March 23, 14

15 Q OUTLOOK Costs and Savings Associated with Manufacturing Footprint Changes Actual Actual 2017 and beyond Actual Actual Actual Projected Total Q1 Q2 Q3 Total Q1 Q2 Q3 Total Total Average EUR/USD Rate Restructuring costs Wisches, France facility exit (1) 1 Durlangen, Germany facility closure Total EMEA segment High Point, North Carolina facility closure (Americas segment) Disruption costs & inefficiencies (recorded in cost of sales & operating expenses) Wisches, France facility exit Durlangen, Germany facility closure Total EMEA segment High Point, North Carolina facility closure (Americas segment) Cumulative savings Wisches, France facility exit Durlangen, Germany facility closure 6 Total EMEA segment High Point, North Carolina facility closure (Americas segment) NOTES Disruption costs and inefficiencies (recorded in cost of sales) include labor premiums paid to employees during transition periods and labor inefficiencies caused by work stoppages or slowdowns resulting from restructuring activities. They also include incremental logistics costs caused by split shipments (linked to labor inefficiencies) and interim supply chains during production moves as well as employee overlap, change management, recruitment and other project expenses. Lastly, these costs include duplicate labor and overhead at the new Czech Republic facility and other plants impacted by production moves. We believe these costs are temporary and will be eliminated from our cost structure once the manufacturing changes are complete and the industrial model returns to normal levels of operating efficiency. Durlangen, Germany facility closure completed in. Remaining restructuring and disruption costs for High Point, North Carolina facility closure expected to occur in Q NYSE: SCS Webcast March 23, 15

16 Q OUTLOOK Costs and Savings Associated with Manufacturing Footprint Changes DISRUPTION COSTS + INEFFICIENCIES CUMULATIVE SAVINGS (3) (9) (9) (7) (6) (6) (6) (5) (2) Q1 FY15 Q2 FY15 Q3 FY15 FY15 Q1 FY16 Q2 FY16 Q3 FY16 FY16 FY17 and beyond -- Projected -- Q1 FY15 Q2 FY15 Q3 FY15 FY15 Q1 FY16 Q2 FY16 Q3 FY16 FY16 FY17 and beyond -- Projected -- (4) (2) (28) (23) 23 6 FY14 FY15 FY16 FY Projected ---- FY14 FY15 FY16 FY17 and beyond ---- Projected ---- NYSE: SCS Webcast March 23, 16

17 SUPPLEMENTAL SLIDES Non-GAAP Financial Measures These webcast slides contain certain non-gaap financial measures. A non-gaap financial measure is defined as a numerical measure of a company s financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the statements of income, balance sheets or statements of cash flow of the company. Pursuant to the requirements of Regulation G, the company has provided a reconciliation of non-gaap financial measures to the most directly comparable GAAP financial measure. The non-gaap financial measures used within these webcast slides are: (1) organic revenue growth (decline), which represents the change in revenue excluding currency translation effects and the impacts of acquisitions and divestitures; (2) adjusted operating income (loss), which represents operating income (loss), excluding restructuring costs (benefits); and (3) adjusted earnings per share, which represents earnings per share, excluding restructuring costs (benefits), net of tax. These measures are presented because management uses this information to monitor and evaluate financial results and trends. Therefore, management believes this information is also useful for investors. NYSE: SCS Webcast March 23, 17

18 SUPPLEMENTAL SLIDES Reconciliation of Non GAAP Measures Organic Revenue Growth (Decline) YEAR OVER YEAR ORGANIC REVENUE GROWTH BY SEGMENT vs Steelcase Inc. Americas EMEA Other category 2015 revenue $749.9 $538.8 $145.2 $65.9 Currency translation effects* (17.4) (5.3) (10.1) (2.0) 2015 revenue, adjusted revenue $747.9 $545.3 $136.4 $66.2 Acquisition (8.2) (8.2) revenue, adjusted Organic growth $ $7.2 $3.6 $1.3 $2.3 Organic growth % 1% 1% 1% 4% * Currency translation effects represent the estimated net effect of translating prior quarter foreign currency revenues using the average exchange rates during the current quarter. YEAR OVER YEAR ORGANIC REVENUE GROWTH BY SEGMENT vs Steelcase Inc. Americas EMEA Other category 2015 revenue $3,059.7 $2,180.7 $595.4 $283.6 Divestitures (3.2) (3.2) Currency translation effects** (110.1) (19.0) (79.2) (11.9) 2015 revenue, adjusted 2, , revenue $3,060.0 $2,256.0 $520.6 $283.4 Acquisition (22.6) (22.6) revenue, adjusted 3, , Organic growth $ $91.0 $71.7 $7.6 $11.7 Organic growth % 3% 3% 1% 4% **Currency translation effects represent the net effect of translating prior year foreign currency revenues using the average exchange rate on a quarterly basis during the current year. NYSE: SCS Webcast March 23, 18

19 SUPPLEMENTAL SLIDES Reconciliation of Non GAAP Measures Organic Revenue Growth (Decline) and Adjusted Earnings per Share PROJECTED ORGANIC REVENUE GROWTH (DECLINE) Year over year Sequential Q vs. Q1 Q vs. Prior quarter revenue $705.5 $747.9 Currency translation effects* (1.9) (1.4) Prior quarter revenue, adjusted Q revenue, projected $690 - $715 $690 - $715 Acquisition (6.4) Q projected revenue, adjusted Organic growth (decline) $ ($20) - $5 ($56) - ($32) Organic growth (decline) % (3%) - 1% (8%) - (4%) ADJUSTED EARNINGS PER SHARE Diluted earnings per share $0.62 Restructuring costs per share, net of tax 0.02 Diluted earnings per share, adjusted $0.64 PROJECTED ADJUSTED EARNINGS PER SHARE Q vs. Q1 Projected Q Q1 Diluted earnings per share $ $0.16 Restructuring costs per share, net of tax Diluted earnings per share, adjusted $ $0.17 * Currency translation effects represent the estimated net effect of translating prior quarter foreign currency revenues using the exchange rates at the end of the most recent quarter. NYSE: SCS Webcast March 23, 19

20 SUPPLEMENTAL SLIDES Reconciliation of Non GAAP Measures Adjusted Operating Income (Loss) ($ and % of revenue) Steelcase Inc Q1 Q2 Q3 $ % $ % $ % $ % $ % Operating income $ % $ % $ % $ % $ % Add: restructuring costs Adjusted operating income $ % $ % $ % $ % $ % Americas 2015 Q1 Q2 Q3 $ % $ % $ % $ % $ % Operating income $ % $ % $ % $ % $ % Add: restructuring costs (benefits) (2.0) (0.4) Adjusted operating income $ % $ % $ % $ % $ % EMEA 2015 Q1 Q2 Q3 $ % $ % $ % $ % $ % Operating loss ($12.4) (8.6)% ($13.5) (11.3)% ($24.9) (19.5)% ($14.9) (11.0)% ($10.9) (8.0)% Add: restructuring costs Adjusted operating loss ($6.7) (4.6)% ($9.6) (8.0)% ($14.3) (11.2)% ($12.6) (9.3)% ($7.4) (5.4)% Other category 2015 Q1 Q2 Q3 $ % $ % $ % $ % $ % Operating income $ % $ % $ % $ % $ % Add: restructuring costs Adjusted operating income $ % $ % $ % $ % $ % NYSE: SCS Webcast March 23, 20

21 SUPPLEMENTAL SLIDES significant items - impact on earnings per share Tax valuation allowance reversal in France Gain from partial sale of investment in an unconsolidated affiliate Impact of significant items on variable compensation expense* Total Impact on operating income (13.7) (13.7) Impact on other income, net Impact on income tax benefit (expense) 56.0 (3.1) Impact on net income $56.0 $5.4 ($8.8) $52.6 Impact on diluted earnings per share $0.42 * For variable compensation purposes, the impact of the tax valuation allowance reversal in France will be recognized over a three year period beginning in fiscal. Fiscal variable compensation impact by segment: Americas ($10.6), EMEA ($1.8), Other ($0.7) and Corporate ($0.5). NYSE: SCS Webcast March 23, 21

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