What happened

Shares of office furniture maker Steelcase (SCS -3.03%) are looking kind of rusty Wednesday, falling 11.3% through 12:30 p.m. EDT, despite reporting strong sales and earnings for its fiscal second quarter last night.

Heading into Q2, analysts had forecast that the company would earn $0.37 per share (pro forma) on sales of only $782.6 million. In fact, Steelcase says it earned $0.55 on sales of $818.8 million.  

Glowing red stock chart arrow trending down

Image source: Getty Images.

So what

What's wrong with that, you may ask? A few things, actually. First and foremost, the $0.55 that Steelcase says it earned in Q2 referred only to pro forma profits. Earnings as calculated according to generally accepted accounting principles (GAAP) were only $0.47, which represented a 6% year-over-year decline.

Secondly, sales declined even more -- down 18%, despite beating estimates and having "a strong beginning backlog of customer orders." And things could get worse before they get better.

Now what

As bad as the Q2 news was, Q3 could be worse. The rate of "year-over-year order decline rates [may] have moderated for four consecutive months," as management says -- but they're still declining, and heading into Q3, Steelcase boasts a backlog of customer orders 8% below where it was a year ago.

Result: With new orders coming in at a rate 38% below what Steelcase saw at this time last year, the company is now forecasting Q3 revenue of only $690 million to $725 million (the Street wants to see $704 million), with pro forma profits ranging from $0.12 to $0.18 per share (so likely falling below Street consensus estimates of $0.18). That sales number, by the way, could fall as much as 28% below last year's Q3 -- and GAAP earnings could fall as low as $0.07 per share, as much as 85% below last year's profit.  

In short, the recession is continuing to maul Steelcase. No wonder its shareholders are unhappy.