Steelcase's CEO Discusses Q4 2012 Results - Earnings Call Transcript

Steelcase (SCS)

Q4 2012 Earnings Call

March 23, 2012 11:00 am ET

Executives

Raj Mehan -

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

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

Mark T. Mossing - Chief Accounting Officer and Corporate Controller

Terry Lenhardt -

Unknown Executive -

Analysts

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

Chad Bolen

Todd A. Schwartzman - Sidoti & Company, LLC

Presentation

Operator

Good day, everyone, and welcome to Steelcase's Fourth 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 and Assistant Treasurer. Please go ahead.

Raj Mehan

Thank you, Ally. Good morning, everyone. Thank you for joining us for the recap of our fourth quarter and fiscal year 2012 financial results. Here with me today are Jim Hackett, our President and Chief Executive Officer; Dave Sylvester, our Senior Vice President and Chief Financial Officer; Mark Mossing, Corporate Controller and Chief Accounting Officer; and Terry Lenhardt, Vice President Finance for the Americas and EMEA segments.

Our fourth quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast, and presentation slides that accompany this webcast are available on ir.steelcase.com. The 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 this earnings release and webcast slides.

At this time, we're incorporating by reference into this conference call and the subsequent transcript 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, 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 Inc. 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, everyone. It's been exactly one week since our company officially turned 100 years old. And it has been an honor and privilege to celebrate with our employees around the world. Now more on my thoughts about the anniversary at the end of these comments. But first, I want to talk about the results for this quarter. And I can't help but point out the irony that we're stepping back from our 100-year history of being in business to focus on the last 90 days. The management team has worked extremely hard at rebuilding our business in recent years, and I want to confirm with this report that we are about building long-term value. This quarter brings us to the close of a fiscal year in which our net income more than doubled. And overall, we're pleased with the continued momentum in our top line this quarter, particularly the 13% organic revenue growth in the Americas. We are outperforming the industry right now in that same region.

Now elsewhere, we saw a modest growth in EMEA with positive results in some countries and declines in others. This resulted in 4% organic growth. Asia Pacific, it continues to grow nicely. In fact, I just returned last week from employee meetings in various locations in Asia. This area of the world plans on setting and hitting some aggressive targets in the coming year.

So today, I want to relate that we are very positive about the sales side. It is true that I would have liked to see more of that revenue fall to the bottom line this quarter. And I'd be having serious discussions with the leaders about this if I thought this was a systemic problem. But I think it's largely a matter of timing of orders, which came in later in the quarter that were entered but not shipped and some unusual factors such as inventory and warranty reserve adjustments. And because our execution has been solid lately, I'm sure you expected the same thing.

Now we're very aware with this call that our operational performance did not meet expectations of this quarter. But let me call out 2 areas that contributed to the missed targets in the specific quarter and try and create an awareness that longer term there are areas of confidence and optimism. First, we believe we would begin to realize net savings in the fourth quarter from our most recent manufacturing consolidations. They're well on their way, and we are seeing benefits. It's just that they are being offset right now by other transition costs. And the decision to have parallel capacity during this period is at the core of these additional costs. Dave will add much more detail to this in the discussion in a few minutes.

But my insight for you is one of the things we've learned that is if we go too fast in these moves, we will run the risk of greater customer disruption. So we worked hard with that parallel structure to avoid that pitfall. We do expect net savings to begin in the first quarter as we complete the transition of our seating production.

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