Tic-tac-toe, investors want to know: After blowing past Wall Street's earnings estimates in each of the last two quarters, can office-furniture maker Steelcase (NYSE:SCS) make it three in a row for earnings beats? We'll find out Thursday morning, when it reports its fiscal Q4 and full-year 2006 numbers.

What analysts say:

  • Buy, sell, or waffle? Just five analysts follow Steelcase today, down one from last quarter, bringing us to two buy ratings and three holds.
  • Revenues. On average, analysts expect Steelcase to post 6% quarterly sales growth, to $785.1 million.
  • Earnings. Profits, however, are predicted to leap 64% to $0.18 per share.

What management says:
Big changes were afoot at Steelcase this quarter. It won't be easy to boil them all down into a paragraph or two, but I'll do my best. First, the firm announced that it will repurchase (actually, probably already has repurchased) 2.3 million of its shares from one of its directors, his wife, and a limited partnership of which the wife is trustee. Total cost: $41.63 million -- a relative bargain, considering that the shares trade north of $20 today. The repurchase, made as part of Steelcase's existing buyback plans, nonetheless suggests that management thinks its shares are undervalued.

Second, and in further evidence of management's thinking, Steelcase's board of directors sewed a set of golden parachutes for its top managers last month. In the event the company is acquired (or in certain other, unnamed events), any of Steelcase's VIP employees who get terminated will receive severance benefits of one or two years' annual salaries and average bonuses, a prorated portion of their target bonuses for the year of termination, and accelerated payout of their long-term incentive compensation. The benefits accrue to the CEO and CFO, as well as other "Level 2" employees -- apparently including the president of Steelcase North America and two senior VPs.

What management does:
You usually see these kinds of moves in a company that's struggling, and at clear risk of being bought out. So it's strange to find them going on at Steelcase -- where business is actually going quite well. In addition to sales continuing to rise, we've been watching gross, operating, and net margins all march steadily upward for more than a year now.

Margins

6/05

9/05

12/05

3/06

6/06

9/06

Gross

29.8%

30.4%

30.7%

30.7%

30.7%

30.9%

Operating

2.8%

3.9%

4.3%

4.4%

4.6%

4.8%

Net

1.2%

1.4%

1.7%

2.1%

2.4%

2.8%
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:
In fact, things are even better than the margins alone make it seem. Whereas three months ago, I was publicly worrying about the trend of inventories growing faster than sales, that problem seems to have subsided. Reviewing the last couple of quarters' worth of income statements and balance sheets, I note that sales are up about 9% year over year, on average. Meanwhile, inventories have grown just 8%, and accounts receivable are actually shrinking -- down 3% versus last year. Hardly a situation to make executives nervous about a shark attack.

On a related note, I should point out that this fits in well with the turnaround at fellow furniture maker Herman Miller (NASDAQ:MLHR), which we heard from last week. Over there, sales grew 14%, and inventories rose 28% in the fiscal third quarter. While those would ordinarily be considered bad numbers (we like to see inventories no faster than sales), they showed a marked improvement over the trends we had tracked leading up to Miller's fiscal Q3 results. It seems the market for office furniture, at least, is alive and well.

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