Office furniture maker Steelcase (NYSE: SCS ) reported a stunningly successful start to its fiscal year 2008 yesterday. Both sales and earnings exceeded analyst expectations by significant margins, with quarterly sales gaining 11% over fiscal Q1 2007 levels, and per-share profits rocketing 92%.
Result: The stock fell 6%.
Huh?
Yeah, that was pretty much my reaction, too. With its peers in the home furniture industry -- everyone from Bassett (Nasdaq: BSET ) to Furniture Brands (NYSE: FBN ) , and Ethan Allen (NYSE: ETH ) to Stanley (Nasdaq: STLY ) -- reporting lower year-over-year profits, you'd think furniture investors would be happy to find a furniture maker whose profits are headed in the other direction. Like office-furniture rival Herman Miller (Nasdaq: MLHR ) , Steelcase is doing just that, yet its share price gets pummeled. Why?
The answer, it seems, is guidance. Peering forward into fiscal Q2 2008, Steelcase predicts flat revenues versus last year, and per-share earnings between $0.21 and $0.26. Those numbers factor in both restructuring charges (that hurt earnings) and "non-operating gains" (that add about $0.02 per share). Compared to last year's Q2 earnings of $0.18, including similar-sized restructuring charges, though, management appears to be predicting apples-to-apples growth in earnings of about 6% to 33% on almost no sales growth. Unfortunately, that's not good enough for Wall Street, which apparently wants to see $0.27 per share next quarter, and not a penny less (and certainly not a penny-and-a-nickel less). So my guess is that the shares fell yesterday for the simple reason that Steelcase refused to promise what Wall Street wanted it to deliver.
My Foolish take
From this Fool's perspective, though, Wall Street is being petty -- and wrong. Steelcase delivered superb results from just about every perspective save that viewed through a crystal ball. It wasn't just sales and earnings that excelled. The firm also executed well on the business basics, collecting bills efficiently (accounts receivable declined 3%) and moving inventory (down 6% versus last year's Q1) -- all while selling more stuff.
About the only thing I'd quibble over is the firm's operating cash flow. It always runs negative in fiscal Q1, but it ran nearly 50% more negative this year than last. Management kind of pooh-poohed this as a function of "normal seasonal disbursements associated with accrued bonus payments and retirement plan contributions" -- but I have my doubts. How exactly can you call a 50% year-over-year jump "normal"? Rest assured that we'll be paying special attention to the firm's cash flow statement next quarter, to see whether this issue gets ironed out.
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Fool contributor Rich Smith does not own shares of any company named above.
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