Steelcase Inc. reported revenue totaling U.S. $674.1 million for its third quarter ended Nov. 26, 2004. Revenue for this quarter increased 9.7 percent compared to $614.5 million in the prior year quarter and was up 3.5 percent from the second quarter of fiscal 2005.
Revenue included $19.8 million of sales from dealers consolidated in fiscal 2005 and $9.6 million from the impact of the steel surcharge implemented in North America during the first quarter. The third quarter also benefited by $11.2 million from favorable currency translation effects in the company's International segment compared to last year.
Steelcase reported net income of $10.1 million, or $0.07 per share, for the third quarter of fiscal 2005, better than company estimates of breakeven to $0.05 per share. This compares to a net loss of $(9.5) million, or $(0.06) per share in the same quarter of the prior year. Reported results include net restructuring charges of $(1.2) million after-tax and a $6.5 million tax reserve reduction. This reserve was originally taken in response to a fiscal 1997 tax deduction challenged by the IRS. The company now expects the matter will be favorably settled given a recent case precedent.
Gross margins of 27.9 percent in the third quarter were up from 27.1 percent in the prior year quarter, primarily because of lower restructuring costs in the current quarter. On a sequential quarter basis, higher discounts, higher material costs, disruption related to plant consolidations, and inventory adjustments caused margins to decline from 30.0 percent in the second quarter.
Steelcase reduced operating expenses as a percent of sales to 27.0 percent from 27.8 percent in the prior year and 27.3 percent in the second quarter. This improvement was related to continued cost control and leverage from higher sales volume, partially offset by variable compensation accruals. Operating expenses increased in absolute dollars compared to the prior year because of newly consolidated dealers and unfavorable currency translation effects. Other income included gains on venture investments of $2.2 million after-tax in the third quarter.
The company said it is profitable on a year to date basis with reported net income of $11.7 million. Year-to-date income from continuing operations is $10.7 million compared with a loss of $(27.5) million for the same period last year.
"We continue to build momentum in the form of increased revenues across each of our business segments," said James P. Hackett, president and CEO. "We are also improving profitability despite challenges created by rising raw material prices around the world."
Steelcase increased cash by $32 million to $272 million in the third quarter. The company reduced debt by $4 million, to a quarter-end balance of $325 million.
"We continue to generate positive cash flow, and have now accumulated the largest cash balance since we've been a public company," said James P. Keane, chief financial officer. "We've also strengthened our balance sheet by reducing our debt during the quarter and since the beginning of the year."
Steelcase expects to report fourth quarter revenue comparable to the third quarter and approximately 20 percent higher than the prior year. The company expects earnings to approximate breakeven, including anticipated restructuring charges of $(3) to $(6) million after-tax in the fourth quarter. The company expects to be profitable for the year.
"We expect to be profitable this year thanks to the hard work of Steelcase employees," Mr. Hackett said. "We have a lot of work still ahead of us, but the strategies are working and the impact is beginning to be reflected in our financial performance."
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