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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.

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Equity Bottom-Up

<h3>KEY POINTS</h3>
<ul>
<li>Steelcase reported financial results Monday after the close for its 3QFY23 ended November 25, with earnings slightly higher than estimates and revenues slightly below.</li>
<li>Revenue was $827 million. Our estimate was $839 million and consensus was $837 million. EPS on a GAAP basis was $0.10, a penny ahead of our estimate, and a penny below consensus. On an adjusted basis, EPS was $0.20, $0.02 ahead of our estimate and consensus.</li>
<li>The positive EPS variance is attributable to tight cost controls. Operating expenses came in $9 million and 85 bps lower than our model. Restructuring and reduced headcount are expected to save $30 million a year.</li>
<li>Results also benefited from improved gross margin, up 120 bps versus the prior year. Margin improvement was less than we expected. The Americas segment had a 280-bps Y/Y improvement. Those margins benefited from improved pricing in the Americas. Margins remain under pressure in markets outside the Americas, declining 240 bps in EMEA and 230 bps in the Other segment.</li>
<li>Company guidance for 4Q anticipates sequentially lower revenue, in the $740-765 million range, below our current estimate and consensus. Adjusted EPS of $0.11-0.15 is below our estimate, but slightly better than consensus. The guidance anticipates continued tight expense control and a $10 million gain on the sale of fixed assets.</li>
<li>The company will hold a conference call this morning at 8:30 am ET. We will have revised estimates and a new model after the call. A tabular summary of quarterly results is below.</li>
</ul>
<h2>THE COMPANY</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>
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<div class="content-remarks">
<p>Source: Company Filings, WTR Research</p>
</div>
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<h3>DISCLOSURES</h3>
<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 Rex Henderson, CFA who are the writers of this report, covers the Consumer Hardlines sector for WTR. Mr. Bugatch and Mr. Henderson, CFA 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

Steelcase reported financial results Monday after the close for its 3QFY23 ended November 25, with earnings slightly higher than estimates and revenues slightly below.
Revenue was $827 million. Our estimate was $839 million and consensus was $837 million. EPS on a GAAP basis was $0.10, a penny ahead of our estimate, and a penny below consensus. On an adjusted basis, EPS was $0.20, $0.02 ahead of our estimate and consensus.
The positive EPS variance is attributable to tight cost controls. Operating expenses came in $9 million and 85 bps lower than our model. Restructuring and reduced headcount are expected to save $30 million a year.
Results also benefited from improved gross margin, up 120 bps versus the prior year. Margin improvement was less than we expected. The Americas segment had a 280-bps Y/Y improvement. Those margins benefited from improved pricing in the Americas. Margins remain under pressure in markets outside the Americas, declining 240 bps in EMEA and 230 bps in the Other segment.
Company guidance for 4Q anticipates sequentially lower revenue, in the $740-765 million range, below our current estimate and consensus. Adjusted EPS of $0.11-0.15 is below our estimate, but slightly better than consensus. The guidance anticipates continued tight expense control and a $10 million gain on the sale of fixed assets.
The company will hold a conference call this morning at 8:30 am ET. We will have revised estimates and a new model after the call. A tabular summary of quarterly results is below.

THE COMPANY
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).



Source: Company Filings, WTR Research


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 Rex Henderson, CFA who are the writers of this report, covers the Consumer Hardlines sector for WTR. Mr. Bugatch and Mr. Henderson, CFA 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.

3QFY23 EPS Edges Ahead of Estimates; Outlook Remains Challenging; Revenue and EPS Expected to Be Sequentially Lower

Steelcase Inc Cl A

3QFY23 EPS Edges Ahead of Estimates; Outlook Remains Challenging; Revenue and EPS Expected to Be Sequentially Lower