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Water Tower Research is a leading equity research firm that provides research on micro, small and mid cap companies.

Water Tower Research was founded by Wall Street veterans after witnessing a fundamental shift in the investment research industry with the result being a declining knowledge base among investors, a lack of awareness and a shrinking pool of fundamental research being conducted on companies across the small-cap and micro-cap spectrum. The same issues are now increasingly occurring in the mid-cap space. This sea change within the investment community is impacting not only the companies themselves but also current shareholders and potential investors. With significantly less active sell-side sponsorship by Wall Street, a substantial information gap has developed between companies and various constituents in the financial community. The net result is fewer channels for insight and information to flow between companies and investors.

Research from Water Tower Research

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Equity Bottom-Up

<h2>KEY POINTS</h2>
<div></div>
<ul>
<li>After market close on June 22, Steelcase reported 1Q23 results, which ended May 27. In its earnings release, management also provided its outlook for 2Q23. Management will host its earnings conference call June 23 at 8:30 am EDT. We will refresh estimates following the call.</li>
<li>Revenue and order growth were the key positives in 1Q23. Consolidated 1Q23 sales were $740.1 million, up 33% from $556.6 million in 1Q22 and $53.3 million better than our $687.4 million estimate. Organic revenue growth was impressive across all three operating segments, up 38.2% in the Americas, 36.5% in EMEA, and 13.2% in the smaller Other segment. Overall, organic revenues grew by 35.3% in 1Q23.</li>
<li>Organic order growth was also strong, up 22% overall, with Americas +25%, EMEA+19%, and Other +4%. Impressively, order growth in the Americas segment outpaced BIFMA reported results in each of the last eight months. Additionally, EMEA has grown strongly over the previous five quarters.</li>
<li>Incoming order growth remained strong, up 27% organically in 4Q22, with growth across the three reporting segments. Order growth was strongest in the Americas segment and CEO Armbruster noted that its growth rate had outpaced that reported by BIFMA in each of the last eight months.</li>
<li>Continuing a trend, the backlog remained elevated at $927 million, 52% better than at the end of 1Q22. 1Q23 EPS was $(0.10), beating our $(0.20) estimate and management’s outlook for $(0.15) to $(0.20). The better-than-forecast results reflect a beat on sales and good expense control.</li>
<li>Not surprisingly, with energy costs surging, inflation and supply chain disruptions persist. Steelcase responded by announcing its fifth price increase in the last 16 months as well as a surcharge in Americas.</li>
<li>Guidance for 2Q23 included sales of $875-900 million versus our current $873.9 million estimate. That said, net income as well as EPS of $0.06 to $0.10 (before credit for adjusted items) misses our $0.29 estimate due to lower than our forecasted gross profits.</li>
</ul>
<h2>COMPANY OVERVIEW</h2>
<p>Steelcase is one of America’s great companies. Named 15 times by&nbsp;Fortune Magazine&nbsp;as one of the world’s most admired companies, Steelcase is a global market share leader for commercial/contract furniture. Its global capabilities and research-based approach make it a preferred partner for organizations in any part of the world.</p>
<p>Steelcase defines its purpose as “Unlocking human promise by transforming work, worker and workplace.” In this way, the company affirms its mission to the workplace. Today, the company’s family of brands include Steelcase®, Coalesse®, Designtex®, Smith System®, AMQ®, Turnstone®, and Orangebox®.</p>
<p>The Steelcase growth strategy is to translate research-based insights into products, applications, and experiences. Today, Steelcase goes to market through ~800 independent and company-owned dealer locations (~400 in its Americas segment, ~340 in its EMEA segment, and ~60 in its Other segment). The company has 65 locations in 17 countries; of which 15 are dedicated to manufacturing (seven in the Americas, five in EMEA, and three in the Other segment).</p>
<h2>DISCLOSURES</h2>
<div></div>
<p>Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.<br><br>WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.<br><br>Budd Bugatch and Darin Ostrowski who are the writers of this report, covers the Consumer sector for WTR. Mr. Bugatch and Mr. Ostrowski including members of their household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.<br><br>Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.<br><br>WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.<br><br>WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.<br><br>The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.<br><br>The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.<br><br>All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.</p>

KEY POINTS


After market close on June 22, Steelcase reported 1Q23 results, which ended May 27. In its earnings release, management also provided its outlook for 2Q23. Management will host its earnings conference call June 23 at 8:30 am EDT. We will refresh estimates following the call.
Revenue and order growth were the key positives in 1Q23. Consolidated 1Q23 sales were $740.1 million, up 33% from $556.6 million in 1Q22 and $53.3 million better than our $687.4 million estimate. Organic revenue growth was impressive across all three operating segments, up 38.2% in the Americas, 36.5% in EMEA, and 13.2% in the smaller Other segment. Overall, organic revenues grew by 35.3% in 1Q23.
Organic order growth was also strong, up 22% overall, with Americas +25%, EMEA+19%, and Other +4%. Impressively, order growth in the Americas segment outpaced BIFMA reported results in each of the last eight months. Additionally, EMEA has grown strongly over the previous five quarters.
Incoming order growth remained strong, up 27% organically in 4Q22, with growth across the three reporting segments. Order growth was strongest in the Americas segment and CEO Armbruster noted that its growth rate had outpaced that reported by BIFMA in each of the last eight months.
Continuing a trend, the backlog remained elevated at $927 million, 52% better than at the end of 1Q22. 1Q23 EPS was $(0.10), beating our $(0.20) estimate and management’s outlook for $(0.15) to $(0.20). The better-than-forecast results reflect a beat on sales and good expense control.
Not surprisingly, with energy costs surging, inflation and supply chain disruptions persist. Steelcase responded by announcing its fifth price increase in the last 16 months as well as a surcharge in Americas.
Guidance for 2Q23 included sales of $875-900 million versus our current $873.9 million estimate. That said, net income as well as EPS of $0.06 to $0.10 (before credit for adjusted items) misses our $0.29 estimate due to lower than our forecasted gross profits.

COMPANY OVERVIEW
Steelcase is one of America’s great companies. Named 15 times by&nbsp;Fortune Magazine&nbsp;as one of the world’s most admired companies, Steelcase is a global market share leader for commercial/contract furniture. Its global capabilities and research-based approach make it a preferred partner for organizations in any part of the world.
Steelcase defines its purpose as “Unlocking human promise by transforming work, worker and workplace.” In this way, the company affirms its mission to the workplace. Today, the company’s family of brands include Steelcase®, Coalesse®, Designtex®, Smith System®, AMQ®, Turnstone®, and Orangebox®.
The Steelcase growth strategy is to translate research-based insights into products, applications, and experiences. Today, Steelcase goes to market through ~800 independent and company-owned dealer locations (~400 in its Americas segment, ~340 in its EMEA segment, and ~60 in its Other segment). The company has 65 locations in 17 countries; of which 15 are dedicated to manufacturing (seven in the Americas, five in EMEA, and three in the Other segment).
DISCLOSURES

Water Tower Research (“WTR”) is a professional publisher of investment research reports on public companies and, to a lesser extent, private firms (“the Companies”). WTR provides investor-focused content and digital distribution strategies designed to help companies communicate with investors.  WTR is not a registered investment adviser or a broker/dealer nor does WTR provide investment banking services. WTR operates as an exempt investment adviser under the so called “publishers’ exemption” from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940. WTR does not provide investment ratings / recommendations or price targets on the companies it reports on. Readers are advised that the research reports are published and provided solely for informational purposes and should not be construed as an offer to sell or the solicitation of an offer to buy securities or the rendering of investment advice. The information provided in this report should not be construed in any manner whatsoever as personalized advice. All users and readers of WTR’s reports are cautioned to consult their own independent financial, tax and legal advisors prior to purchasing or selling securities.  Budd Bugatch and Darin Ostrowski who are the writers of this report, covers the Consumer sector for WTR. Mr. Bugatch and Mr. Ostrowski including members of their household have no personal or business-related relationship to the subject company other than providing digital content and any ancillary services WTR may offer.  Unless otherwise indicated, WTR intends to provide continuing coverage of the covered companies. WTR will notify its readers through website postings or other appropriate means if WTR determines to terminate coverage of any of the companies covered.  WTR is being compensated for its research by the company which is the subject of this report. WTR receives no more than a maximum of $10,500 per month from a given client and is required to have at least a 6-month commitment. None of the earned fees are contingent on, and WTR’s client agreements are not cancellable for the content of its reports. WTR does not accept any compensation in the form of warrants or stock options or other equity instruments that could increase in value based on positive coverage in its reports.  WTR or an affiliate may seek to receive compensation for non-research services to covered companies, such as charges for presenting at sponsored investor conferences, distributing press releases, advising on investor relations and broader corporate communications and public relations strategies as well as performing certain other related services (“Ancillary Services”). The companies that WTR covers in our research are not required to purchase or use Ancillary Services that WTR or an affiliate might offer to clients.  The manner of WTR’s research compensation and Ancillary Services to covered companies raise actual and perceived conflicts of interest. WTR is committed to manage those conflicts to protect its reputation and the objectivity of employees/analysts by adhering to strictly-written compliance guidelines.  The views and analyses included in our research reports are based on current public information that we consider to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy, completeness, timeliness, or correctness. Neither we nor our analysts, directors, officers, employees, representatives, independent contractors, agents or affiliate shall be liable for any omissions, errors or inaccuracies, regardless of cause, foreseeability or the lack of timeliness of, or any delay or interruptions in the transmission of our reports to content users. This lack of liability extends to direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, losses, lost income, lost profit or opportunity costs.  All investment information contained herein should be independently verified by the reader or user of this report. For additional information, all readers of this report are encouraged to visit WTR’s website www.watertowerresearch.com.

1Q23 Sales and Operating Results Beat; 2Q23 Guidance Below Estimates; Energy Costs the Culprit

Steelcase Inc Cl A

1Q23 Sales and Operating Results Beat; 2Q23 Guidance Below Estimates; Energy Costs the Culprit