Office-furniture specialist Steelcase (NYSE:SCS) reports its fiscal Q1 2006 earnings bright and early Monday morning. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Six analysts follow Steelcase. Four of them say to buy it, and two counsel just holding.
  • Revenues. Wall Street expects Steelcase to post 9% sales growth to $735.2 million.
  • Earnings. Profits are predicted to rise 56% to $0.14 per share.

What management says:
Earlier this month, Steelcase posted an investor presentation on its website, outlining the firm's "strategies and long-term goals." The recurring theme of this presentation is that Steelcase is a company emerging from a transition to leaner company with more profitable growth. So far, the company has slashed approximately 40% from its total square footage of manufacturing floor space, paid down debt, and increased shipments of goods regardless.

Once the transition is complete, Steelcase aims to achieve consistent gross margins of 35% and operating margins of 10%. After tax, therefore, Steelcase presumably expects to drop to the bottom line between 6 and 7 cents out of each revenue dollar.

What management does:
So far, so good. Over the past 18 months, Steelcase has boosted its rolling gross margins 210 basis points, is nearly halfway toward its operating-margin goal, and has changed the color of its bottom line from red to black.

Margins %

11/04

2/05

5/05

8/05

11/05

2/06

Gross

28.6

28.8

29.4

29.9

30.4

30.7

Operating

0.5

1.3

2.3

3.0

3.9

4.3

Net

(0.3)

0.5

0.9

1.2

1.4

1.7
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
One aspect of the presentation does still concern me, however, and it's a page titled "economic drivers." Steelcase, you see, specializes in manufacturing office furniture. Meaning, furniture for people who work in offices. Meaning, furniture for people who have jobs. And I can't help noticing that much of the company's progress in margins improvement, sales, and profits coincides with what the economic charts depict as rising employment, falling unemployment, and declining office vacancy rates between 2003 and 2006.

Now, I'm certain that Steelcase's "right-sizing" initiatives had a lot to do with the business's turnaround in recent years. But I'm just as certain that the improved economy and rising employment made the turnaround that much easier. Long-term, I think Steelcase's strengthened balance sheet and improved fundamentals are going to serve shareholders well. But in the short term, I'd keep a close eye on the economy to decide just how well. One clue that a discerning investor eye might want to focus on: the performance of employment firms such as Kforce (NASDAQ:KFRC) or Manpower (NYSE:MAN). I suspect that should these firms begin reporting a weakening job market, weaker performance at Steelcase won't be far behind.

Competitors:

  • Herman Miller (NASDAQ:MLHR)
  • HNI (NYSE:HNI)
  • Kimball (NASDAQ:KBALB)
  • Knoll (NYSE:KNL)

And just how are those employment firms doing? Find out in:

Fool contributor Rich Smith does not own shares of any company named above.