Steelcase (NYSE:SCS) Earnings Confirm Sector Damage As Businesses Shift to Work From Anywhere

On the heels of disappointing earnings from competitor Herman Miller (NASDAQ:MLHR), Steelcase (NYSE:SCS) delivered their own poor earnings report that fell short of analysts’ forecasts on the top and bottom lines.

After the markets closed on June 30, the Grand Rapids-based furniture manufacturer reported adjusted losses per share of 18 cents. That was four cents worse than the adjusted per-share loss of 14 cents that was expected. The company also fell short on revenue delivering $482.8 million. Analysts were estimating $530.3 million.

And like Herman Miller, Steelcase’s numbers were worse on a year-over-year basis as well. Last year the company had an adjusted EPS of 15 cents per share on revenue of $824.3 million.

When you put it all together the company had an operating loss of $52.3 million as opposed to an operating income of $27.6 million at this same point in 2019.

The numbers were going to be miserable and they were. Offices simply don’t need to fill massive purchase orders for office furniture if their employees are working remotely. The question is what will the future hold for the company for the rest of this year? And an equally interesting, and maybe more important, question is what the future will hold as offices reimagine their workspaces.

The Novel Coronavirus Accelerated a Trend That Already Existed

Kate Lister, President of Global Workforce Analytics, says “our best estimate is that 25-30% of the workforce will be working-from-home multiple days a week by the end of 2021.”

All of this would seem to bode negatively for a company like Steelcase. But the company has had to be thinking about this. The trend towards working from home has only been accelerated by the pandemic.

Global Workforce Analytics estimates that 56% of the U.S. workforce has a job that is compatible with remote work. And research from Gallup from as far back as 2016 shows that 43% of the workforce at that time was working from home at least part of the time.

Steelcase is Already Reimagining the Post Covid-19 Workspace

There are companies like Google NASDAQ: GOOGL and Twitter NYSE: TWTR who are allowing workers to work from home indefinitely. But the vast majority of companies and employees are looking forward to returning to an office.

For businesses that rely on collaboration, there are limitations to video communication and remote work. There’s no substitute for getting the right people in a room with a white board and markers and diving deeply into an issue.

But this isn’t likeY2K technology upgrades. Businesses didn’t have a heads up about the pandemic. And many of the office trends of the last decade have mirrored the popular open concept that is a design feature of many homes.

But the reality of retaining a physical distance from employees and the need for personal items to be guarded is going to change the way workers go back to work.  And that is where Steelcase is marketing an opportunity. As the company says in its own material.

“Companies that try to return to the way things were before COVID-19 will probably struggle. They need to reinvent because volatility is inevitable, and the workplace needs to be ready to rapidly respond to the next disruption. The role of the workplace in a post-COVID-19 world is more important than ever.”

Is the Worst Behind Steelcase?

There is no simple answer for if the worst is over. It seems that every day we get good news or bad news regarding the possibility of a vaccine. But it’s becoming clear that an efficient, effective vaccine may not be available for some time. And even when it is available, many of the measures that businesses are taking during the pandemic will remain in place.

And let’s not forget that while Steelcase is often associated with office furniture, two of their top three sectors are the educational and health care sectors. To say the least, both of these segments will be looking to rework classrooms and workspaces.

But then there’s the question of what will budgets allow? Schools will be under tremendous financial following several months with no students in classrooms. And hospitals and health care facilities are only now just beginning to recover the lost revenue from postponed medical care.

In their presentation to investors, the company pointed out that companies had made a significant investment in their workspaces prior to the pandemic. I’m not so sure that the environment will be the same in a post-pandemic world.

The other headwind is that some businesses may simply decide to flee from offices in high rent areas as part of a larger movement to cut costs. This may be particularly true of call centers or with other disciplines where the work can easily be done remotely.

I’m not concerned about Steelcase’s ability to survive the pandemic. But I’m very concerned about the short-term outlook for revenue and profits. For that reason, there’s no rush to buy on this dip.