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Steelcase Inc. (NYSE:SCS) reports preliminary financial results for the quarter ended 2012-08-31.

Steelcase Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise).

Steelcase Inc.'s analysis versus peers uses the following peer-set: HNI Corp. (NYSE:HNI), Herman Miller Inc. (NASDAQ:MLHR), Okamura Corp. (7994), Knoll Inc. (NYSE:KNL), Itoki Corp. (7972) and Fursys Inc. (016800). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million)2012-08-312012-05-312012-02-292011-11-302011-08-31
Revenues744.9675.2690.2719.4700.5
Revenue Growth %10.3(2.2)(4.1)2.79.6
Net Income29.513.014.622.011.9
Net Income Growth %126.9(11.0)(33.6)84.958.7
Net Margin %4.01.92.13.11.7
ROE % (Annualized)17.27.58.312.66.7
ROA % (Annualized)7.03.13.44.92.4

Valuation Drivers

Steelcase Inc. trades at a lower Price/Book multiple (1.7) than its peer median (2.9). The market expects Steelcase Inc. to grow at about the same rate as its chosen peers (P/E of 14.9 compared to peer median of 15.0) and to maintain the peer median return (ROE of 11.3%) it currently generates.

The company's median net profit margins of 2.8% and relative asset efficiency (asset turns of 1.6x compared to peer median of 1.3x) give it some operating leverage. Steelcase Inc.'s net margin continues to trend upward and is above (but within one standard deviation of) its five-year average net margin of 1.2%.

Economic Moat

The company enjoys both better than peer median annual revenue growth of 12.8% and better than peer median earnings growth performance 173.0%. Steelcase Inc. currently converts every 1% of change in annual revenue into 13.5% of change in annual reported earnings. We view this company as a leader among its peers.

Steelcase Inc.'s current return on assets is around the same as its peer median (4.4% vs. peer median 4.8%). This recent performance contrasts with its less than peer median return on assets over the past five years (1.7% vs. peer median 4.1%) suggesting that the company's relative operating performance is improving.

The company's gross margin of 32.5% is around peer median suggesting that Steelcase Inc.'s operations do not benefit from any differentiating pricing advantage. In addition, Steelcase Inc.'s pre-tax margin of 4.1% is also around the peer median suggesting no operating cost advantage relative to peers.

Growth & Investment Strategy

Steelcase Inc.'s revenues have grown at about the same rate as its peers (-4.8% vs. -4.7% respectively for the past three years). Similarly, the stock price implies median long-term growth as its P/E ratio is around the peer median of 14.9. The historical performance and long-term growth expectations for the company are largely in sync.

Steelcase Inc.'s annualized rate of change in capital of 0.4% over the past three years is greater than the peer median of -0.4%. This relatively high investment has generated a less than peer median return on capital of 1.8% averaged over the same three years. The relatively high investment and low current returns lead us to believe that the company is betting heavily on the future.

Earnings Quality

Steelcase Inc.'s net income margin for the last twelve months is around the peer median (2.8% vs. peer median of 2.8%). This average margin and relatively conservative accrual policy (1.9% vs. peer median of 0.5%) suggests possible understatement of its reported net income.

Steelcase Inc.'s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.

Trend Charts

Company Profile

Steelcase, Inc. is engaged in furnishing the work experience in office environments. It offers a comprehensive portfolio of products and services for the workplace. Steelcase designs for a wide variety of customer needs through its three core brands: Steelcase, Turnstone and Coalesse. These brands are focused on the office furniture segment and also extend their capabilities to serve needs in areas, such as healthcare, education and distributed work. Steelcase was founded by Peter Martin Wege, Walter D. Idema and David Hunting Sr. on March 14, 1912 and is headquartered in Grand Rapids, MI.

Disclaimer

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Source: Earnings Analysis For Steelcase Inc.