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SI

STEELCASE INC (SCS)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 FY25 revenue was $0.795B and diluted EPS was $0.16; adjusted EPS was $0.30, which finished above management’s guidance range and reflected strong Americas performance and gross margin expansion to 33.4% (+100 bps YoY).
  • Americas delivered 7% organic revenue growth and 8.1% adjusted operating margin, while International declined and posted an operating loss, driven by demand softness and competitive discounting.
  • Management guided Q4 FY25 revenue to $0.770–$0.795B and adjusted EPS to $0.20–$0.24; fourth-quarter gross margin is expected at ~33.5%, OpEx $230–$235M, and tax rate ~27%.
  • Early Q4 orders (first three weeks of December) grew 15% YoY (vs +7% a year ago), with several large projects scheduled beyond quarter-end; management flagged a laminate supplier disruption post-Hurricane Helene as a risk to Q4 shipments.
  • Street consensus data from S&P Global was unavailable due to access limits; thus, beats/misses vs Street cannot be assessed. Management reiterated FY25 adjusted EPS expected to finish above the $0.85–$1.00 target.

What Went Well and What Went Wrong

What Went Well

  • Americas strength: 7% organic revenue growth; adjusted operating margin 8.1% with revenue driven by government, large corporate, healthcare, and education customers. “Our Americas business posted 7% organic revenue growth … and we delivered higher than expected adjusted earnings per share.” — CEO Sara Armbruster.
  • Gross margin expansion: Q3 GM of 33.4% (+100 bps YoY) from revenue growth in the Americas and cost reduction initiatives, marking the tenth consecutive quarter of YoY GM expansion.
  • Liquidity and capital returns: Total liquidity rose to $576.6M (exceeded total debt), quarterly dividend of $0.10 declared; ~400K shares repurchased in Q3, >$60M returned YTD.

What Went Wrong

  • International underperformance: Revenue down 6% YoY; operating loss of $(5.5)M; order decline of 8% YoY, with competitive discounting pressure, particularly in Western Europe.
  • Other expense headwind: Non-cash pension plan annuitization charge of $15.2M drove other expense, net to $(12.6)M.
  • ERP timing/costs: ERP go-live shifted to Q2 FY26; FY26 operating costs to increase by >$20M due to expensing implementation, with expected inefficiencies around cutover.

Financial Results

Quarterly Trend (Q1–Q3 FY25)

MetricQ1 FY25Q2 FY25Q3 FY25
Revenue ($USD Millions)$727.3 $855.8 $794.9
Diluted EPS ($USD)$0.09 $0.53 $0.16
Adjusted EPS ($USD)$0.16 $0.39 $0.30
Gross Margin %32.2% 34.5% 33.4%
Operating Margin %2.4% 10.5% 5.2%
Adjusted Operating Income ($USD Millions)$28.2 $68.5 $47.3

Q3 FY25 vs Q3 FY24

MetricQ3 FY24Q3 FY25YoY
Revenue ($USD Millions)$777.9 $794.9 +2%
Diluted EPS ($USD)$0.26 $0.16 (0.10)
Adjusted EPS ($USD)$0.29 $0.30 +$0.01
Gross Margin %32.4% 33.4% +100 bps
Operating Margin %5.6% 5.2% (40) bps

Segment Breakdown (Revenue and Operating Margin)

Segment MetricQ1 FY25Q2 FY25Q3 FY25
Americas Revenue ($USD Millions)$554.4 $688.0 $614.7
Americas Operating Margin %3.3% 14.8% 7.6%
International Revenue ($USD Millions)$172.9 $167.8 $180.2
International Operating Margin %(0.5)% (7.2)% (3.1)%

KPIs

KPIQ1 FY25Q2 FY25Q3 FY25
Backlog ($USD Millions)~$764 ~$680 ~$664
Total Liquidity ($USD Millions)$377.8 $507.1 $576.6
Total Debt ($USD Millions)$446.5 $446.7 $446.9
TTM Adjusted EBITDA ($USD Millions, % of Rev)$273.6; 8.7% $285.3; 9.1% $283.6; 9.0%
Company Organic Order Growth YoY (%)+8% (1)% (1)%

Notes:

  • Q3 adjusted EPS ($0.30) exceeded prior guidance ($0.21–$0.25).
  • International adjusted operating income swung to a loss; Americas adjusted operating income expanded.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueQ4 FY25N/A$770–$795M New
Adjusted EPSQ4 FY25N/A$0.20–$0.24 New
Gross Margin %Q4 FY25N/A~33.5% New
Operating Expenses ($M)Q4 FY25N/A$230–$235 (incl. $4.3M amort.) New
Non-Operating (net)Q4 FY25N/A~$(1)M expense New
Effective Tax RateQ4 FY25N/A~27% New
FY25 Adjusted EPSFY25$0.85–$1.00 Projected to finish above target Raised (qualitative)
DividendQ3 FY25$0.10 declared in prior quarters $0.10 declared for Jan 13, 2025 Maintained
International ProfitabilityQ3 FY25“Expects to be profitable in Q3” Operating loss $(5.5)M Missed

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY25)Current Period (Q3 FY25)Trend
AI/technology initiativesFocus on workplace transformation and large corporate projects; diversification efforts highlighted (Q1). Education strength; market share gains in Americas (Q2). “Design AI-ready workplaces”; community-based design to support screen-based collaboration and privacy. Increasing focus
Supply chainNot highlighted (Q1/Q2).Laminate supplier disruption post-Hurricane Helene; mitigation ongoing; potential impact to Q4 shipments. Emerging risk
Tariffs/macroFlat/slightly negative industry backdrop in Americas; cautious outlook (Q2). Evaluating contingency plans for potential new tariffs (China/Taiwan/Mexico); some inventory build ahead of possible changes. Elevated uncertainty
Product performanceEducation strength in Q2; diversified growth drivers. Healthcare revenue growth; strong project execution for large health system (7,500 pieces). Positive
Regional trendsInternational improved adj. results despite lower revenue (Q1); China weakness persisted (Q2). Americas +7% organic revenue; International orders (8)% YoY; competitive discounting in Western Europe; China green shoots and sequential APAC order growth. Mixed (Americas improving; International weak but stabilizing)
ERP transformationBusiness transformation initiative; higher IT spend (Q1/Q2). ERP go-live shifted to Q2 FY26; >$20M FY26 expense impact; cutover inefficiencies anticipated. Near-term cost headwind, long-term benefit

Management Commentary

  • “Our Americas business posted 7% organic revenue growth this quarter … and we delivered higher than expected adjusted earnings per share.” — Sara Armbruster, CEO.
  • “Our International results in the third quarter were below our expectations … we implemented additional restructuring actions … projected to drive approximately $5 million of annualized cost savings by the start of fiscal 2026.” — Dave Sylvester, CFO.
  • “We are now targeting to go live [ERP] in the second quarter of fiscal 2026 … the fiscal year-over-year annual impact to operating costs is expected to be more than $20 million.” — Dave Sylvester, CFO.
  • “Orders in the first three weeks of December were strong, growing 15% … [but] included a number of large projects scheduled to ship beyond the end of the quarter.” — Dave Sylvester, CFO.

Q&A Highlights

  • ERP cost cadence and cutover: FY26 operating costs to rise >$20M as implementation costs are expensed; inefficiencies expected around go-live due to production ramp-down/up.
  • Orders momentum: First three weeks of December +15% YoY vs +7% a year ago; large corporate pipeline converting; some shipments beyond quarter-end.
  • International competitive dynamics: Broad-based competitive discounting in Western Europe amid challenged volumes; strategic discounting used to disrupt incumbents.
  • Tariff exposure: Evaluating contingencies across supply chain buckets (industry suppliers, China/Taiwan, Mexico maquiladoras); inventory build ahead of potential changes.
  • Government back-to-office: Very low occupancy cited; potential demand improvement as agencies return, offset by possible workforce reductions.
  • Supply chain disruption: Laminate supplier impacted by Hurricane Helene; recovery underway but catch-up may extend beyond Q4.

Estimates Context

  • S&P Global consensus estimates for Q3 and Q4 could not be retrieved due to access limitations; as a result, we cannot quantify beats/misses vs Street at this time. Values from S&P Global are unavailable due to daily request limits.
  • Relative to company guidance: Q3 adjusted EPS of $0.30 exceeded guidance ($0.21–$0.25), and management projects FY25 adjusted EPS to finish above the $0.85–$1.00 target.

Key Takeaways for Investors

  • Americas momentum and share gains are intact; adjusted margin strength and backlog shipment timing supported Q3 upside on adjusted EPS.
  • Watch International trajectory: restructuring actions (~$5M annualized savings) and signs of stabilization (Germany, Middle East, China) vs competitive pricing pressure in Western Europe.
  • Near-term risks: Laminate supply disruption could affect Q4 shipments; early Q4 orders are strong, but timing pushes some revenue beyond quarter-end.
  • ERP is a 2026 inflection: Expect FY26 opex headwind (> $20M) and cutover inefficiencies; benefits from streamlined processes and capability should begin post go-live.
  • Macro/cycle catalysts: Large corporate and technology sectors showing improving in-office expectations; Business Roundtable confidence uptick supports capex/hiring outlook.
  • Policy watch: Potential new tariffs could affect supply chains (China/Taiwan/Mexico); management is building inventory and planning contingencies.
  • Capital allocation steady: Liquidity exceeds debt; dividend maintained; ongoing buybacks; provides cushion amid transformation and macro uncertainty.