What Steelcase's Earnings Say About the Return to the Office?

Key Points

• Steelcase stock is down approximately 6% after lowering its guidance for the upcoming quarter. 
• The company is beginning to overcome inflation pressures but is forecasting weakening demand. 
• A reduced dividend may cause income investors to stay away. 

Steelcase (NYSE: SCS) stock is dropping following a mixed earnings report. In this case, the company beat on earnings but missed on revenue.  

Normally, higher profits would be a cause for celebration. In this earnings season, however, investors are paying more attention to the company’s guidance. And on that front, Steelcase offered little to encourage investors.  

The company also lowered its forecast for both revenue and profits for next quarter. It’s now projecting revenue to be between $825 and $850 million. The high end of that range would still be about $13.5 billion less than what it posted in this quarter. And for earnings per share (EPS), the company is looking at range of 17 cents to 21 cents (analysts were expecting 22 cents). 

On the one hand, the fact that earnings are forecast to drop isn’t surprising. But, in this case, it’s important for investors to understand the reason why Steelcase is lowering its guidance. As a company that relies on workers returning to work, Steelcase’s outlook suggests that many businesses are reassessing what the office of the future (or at least the next few years) will look like. 

In this article, we’ll look at what Steelcase said in its report and why it could be a leading indicator of what is coming for the next several quarters. 

Winning One Battle in a Larger War 

Like many manufacturers, Steelcase has been affected by rising producer costs. However, the company noted that while inflation was still “significant” the company’s year-over-year pricing benefits exceeded inflation for the first time since the end of their 2021 fiscal year (which ended in February 2021).  

But getting their pricing aligned will be a hollow victory if orders can’t keep pace. And that appears to be the case. Steelcase is citing a decline in incoming orders plus “lower than expected return-to-office trends in the Americas.” in response the company announced it was planning to cut about $20 million in planned spending which includes eliminating up to 180 salaried positions. 

The work-from-anywhere trend has been weighing on SCS stock for the better part of a year. The stock nearly doubled in the twelve months following the onset of the pandemic. Many investors were optimistic about the company’s plans to reimagine office space. It wasn’t too much of a leap to suggest that companies would have to upgrade their office furniture as part of this reimagining. 

However, this may be a time when the numbers don’t lie. And that may mean Steelcase stock will struggle until the economy turns around. Investors will get another reference point when MillerKnoll (NASDAQ: MLKN) reports earnings later this month.

Cutting the Dividend 

Another concern that Steelcase investors need to consider is that the company announced a dividend cut. The company’s dividend will now pay out a per-share dividend of 10 cents per share, down from 14 cents per share. That brings the annual payout to 40 cents per share which is 31% lower than the prior level. 

This isn’t a surprising move, and they may not be the last company to take this approach. Interestingly, after initially cutting its dividend at the onset of the pandemic, Steelcase managed to increase it twice since then. This cut will take it back to 2020 levels, which also means the dividend is back where it was 10 years ago.  

Some Final Thoughts on SKS Stock 

Prior to earnings, analysts tracked by MarketBeat gave Steelcase a $12 price target which would be about a 40% upside from its current price. But the period around earnings reports is always a time to approach with great caution. It’s likely that several analysts will reassess their thinking on SCS stock in the coming days. That could produce much more downside risk to owning the stock.