Steelcase's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Steelcase (SCS)

Q2 2012 Earnings Call

September 22, 2011 10:00 am ET

Executives

Mark T. Mossing - Chief Accounting Officer and Corporate Controller

James P. Hackett - Chief Executive Officer, President, Director and Member of Executive Committee

Raj Mehan - IR

David C. Sylvester - Chief Financial Officer and Senior Vice President

Analysts

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Mark Rupe - Longbow Research LLC

Todd A. Schwartzman - Sidoti & Company, LLC

Jeffrey Matthews - RAM Partners, L.P.

Donald Carson - BofA Merrill Lynch, Research Division

Matthew S. McCall - BB&T Capital Markets, Research Division

Presentation

Operator

Good day, everyone, and welcome to Steelcase Second Quarter Fiscal 2012 Conference Call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the conference over to Mr. Raj Mehan, Director of Investor Relations.

Raj Mehan

Good day, everyone, and welcome to Steelcase's Second Quarter Fiscal 2012 Conference Call. As a reminder, today's call is being recorded. Thank you for joining us for the recap of our second quarter as I mentioned. Here with me today are Jim Hackett, our President and Chief Executive Officer; Dave Sylvester, our Chief Financial Officer; Mark Mossing, Corporate Controller and Chief Accounting Officer; and Terry Lenhardt, Vice President of Finance for the Americas and EMEA segment.

Our second quarter earnings release, which crossed the wires yesterday is accessible on our website. This conference call is being webcast. Presentation slides that accompany this webcast are available on ir.steelcase.com, and a replay of this call will also be posted to the site later today.

In addition to our prepared remarks, we'll respond to questions from investors and analysts. Our discussion today will include references to non-GAAP financial measures. 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. Reconciliations to the most comparable GAAP measures are included in the earnings release and webcast slides.

At this time, we're incorporating by reference into this conference call and subsequent transcript the text of our safe harbor statement included in yesterday's release. Certain statements made within the release and during this conference call constitute forward-looking statements. There are risks associated with the use of this information for investment decision-making purposes. For more details on these risks, please refer to yesterday's release and Form 8-K and the company's 10-K for the year ended February 25, 2011 and our other filings with the Securities and Exchange Commission. This webcast is a copyrighted production of Steelcase.

And with those formalities out of the way, I'll turn the call over to our President and CEO, Jim Hackett.

James P. Hackett

Thank you, Raj, and good morning to everyone. We're pleased to report today on a strong quarter for Steelcase and I'm glad we have time today to help you understand why I think it is a strong quarter. First of all, demand has remained surprisingly strong, and we continue to benefit from the restructuring and reinvention we've done in the recent years. I'll mention some more about that in a moment.

I say that the demand is surprising because our industry closely tracks metrics like GDP growth and corporate profits. We know the GDP has been sluggish but we believe there's a lot of momentum in demand due to companies needing to update their space and realize their projected operating savings from space consolidations.

If there is one number that stands out when I look at our financial report, it's the fact that our Americas business reached nearly 10% operating income as a percentage of sales, excluding restructuring costs. That's been a key goal for us. And on a quarter-to-quarter comparison, operating income before restructuring in the Americas has more than doubled compared to last year. And for Steelcase Inc. as a whole, the same measure is 3x as high when viewed on a year-to-year basis.

Now these results are attributed to teams in the field who are working hard to differentiate us, win business, install the solutions that we think matter, and to all the people who are making and supporting operational improvements in our global system. We believe it shows that our business model can produce shareholder value with demand. We see it as our value add to help create that demand and grow our top line. And my message today is that we're extremely focused on that growth goal.

As you've seen in our release and as Dave Sylvester will detail in a few moments, when you look at our global business, there are bright spots, such as continuing growth in Asia where we've had an important tipping point in our profitability. It wasn't so long ago that we were describing to you when the business wasn't producing profit, that there was a promise it would. So it's important to report that it arrived as we said it would. And there are parts of the world where we slipped a bit this quarter, such as Europe, the Middle East and Africa. And yes, we do believe the ongoing economic debate within the Eurozone added thrust to what is a normal, seasonal dip in this part of the world that comes because Europe has much of its industrial capacity idle in the late summer months, so we normally forecast that. But this affect in the Eurozone, made that a little more difficult.

So even as we see companies inclined to alter their spaces here in the Americas, we know there are reasons to be cautious in the outlook. But I don't want to be too cautious because we're paying very close attention to our usual set of economic indicators. And even though times are challenging, it will be nothing like we experienced 3 years ago during the banking crisis.

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