Is-Ugly Duckling Steelcase Ready To Fly

Steelcase Is Why Stock Picking Matters 

We don’t want to single out Steelcase (NYSE:SCS) as a bad investment because it’s not. What it is is a uniquely positioned company within a very good industry. While furniture company’s like At Home Group (NYSE: HOME) and Haverty have seen robust growth due to the pandemic others like Steelcase have not. The difference is that those others are focused on the consumer and the home while Steelcase is focused on business. We all know what happened to business and specifically offices over the last year, no one was in them and there was very little remodeling or furniture buying to speak of. 

It’s Been A Tough Year For Steelcase 

Steelcase has not had a good year but one thing is clear in its Q4 results. The company’s cost-cutting efforts, strategic plans, and COVID-management have paid off. The company was able to maintain business if not at pre-COVID levels and do it profitably and better than previously guided despite the many headwinds. Aside from the pandemic, store closures, and the decline in business the company has had to management shipping issues that include late/sluggish traffic and rising prices. That said, the Q4 results are more than OK considering the vaccine-driven economic reopening is close at hand. 

The top-line revenue came in at $677.1 million or down -28.4% from last year. This is better than consensus by $26.7 million or 400 basis points and is a 100 basis point acceleration from the previous quarter. On an organic basis, sales are down 25% with new orders down 31% although the company reports rising interest from many of its clients. 

The key takeaway is that the company managed to remain profitable for the year. The Q4 GAAP earnings of $0.06 beat consensus by $0.07 and put the year-end total at $0.52. And that includes $1.6 million in restructuring costs aimed at repositioning for the post-pandemic world. The only worry is that the dividend is 120% of earnings but there are mitigating factors as well. The company cut the dividend by nearly half when the pandemic struck to conserve costs and the balance sheet is in good shape.

Looking forward, the company is projecting a net loss for the fiscal Q1 period but is optimistic about the rest of the year. While backlogs remain down YOY projections for revenue are up from last year and expected to accelerate into the end of the year. The 2nd quarter will be a challenging comp because of the timing of last year’s sales but second-half growth should be in the double-digit range. 

The Steelcase Dividend, How Safe Is It 

Steelcase is if nothing else a committed dividend payer. The company cut its distribution early in the pandemic and has since upped it slightly to what is now a 2.7% yield. There is some worry about the sustainability of the payout but the company appears strong enough to sustain it until the rebound gets underway. The project EPS for next year is not encouraging but take it with a grain of salt, there has been no significant analyst activity on this stock since last summer. We don’t put much stock in any consensus figures.

"As the pace of COVID vaccinations increases, many company leaders are confirming their plans to begin bringing their employees back to the office," said Jim Keane, president and CEO. "We're working with many of our customers to re-start paused projects and to engage in new opportunities by sharing what we've learned about how to make their spaces safer, more flexible and more productive. We saw strong double-digit increases in new project opportunities and customer requests for proposals in the Americas, as well as customer visits to our Grand Rapids location (both physical and virtual), in February compared to January, which supports our expectations for a strong recovery in the second half of the year."

The Technical Outlook: Steelcase Trend Is Still Up 

The trend in Steelcase is up although the stock has yet to recoup its pandemically-inspired losses of last year. The Q4 report sparked support-buying along the 30-day moving average which is a good sign but there are some risks to be aware of. While support is evident along the EMA so is resistance, couple that with down-pointing indicators in the MACD and stochastic, and our warning bells go off. In the near-term, price action may be a bit volatile if not continue lower before beginning its next move higher. If so, strong support is likely at the $14 level. If price action can maintain the EMA now, however, we expect to see price move up to the recent high but we don’t expect it to break out without a new catalyst of some sort.