For the first time in 18 months, Steelcase (NYSE:SCS) stumbled last quarter, missing Wall Street's consensus estimates for Q4 profits. Will tomorrow morning's Q1 2008 report show the office furniture maker sitting pretty once again?

What analysts say:

  • Buy, sell, or waffle? Five analysts give Steelcase two buy ratings, two holds, and a sell.
  • Revenues. On average, they expect nearly 8% sales growth to $782.5 million.
  • Earnings. Profits are predicted to rise 36% to $0.19 per share.

What management says:
Following up on last quarter's news that the firm bought back 2.3 million shares from company insurers for a total cost of $41.63 million (leave your calculators in your bookbags, class, the answer is "$18.10 per share"), Steelcase announced another round of planned (and as of today, probably already completed) insider buybacks. This time, the total of four separate purchases from trust account shareholders came to 1.7 million shares, for a total of $33 million, or $19.20 per share.

Whether you want to take that as proof that the company thinks its shares undervalued, or that the company's insiders think them overvalued, is up to you. For my part, I'd suggest shareholders just be glad that both purchases were made at prices below where the shares have changed hands in recent months (the "200-day moving average") -- and that the larger purchase was made at the smaller price. They may not have gotten as good a deal as, say, Middleby (NASDAQ:MIDD) shareholders got back in 2004, but Steelcase still got a discount to the market price on its shares, and a discount is a discount.

What management does:
Moreover, the company is also improving. Rolling gross and net margins both seem to be headed up; operating margins bobbled last quarter, but other than that, they're also tracking higher. Steelcase may have a ways to go before it's as profitable as smaller rivals Herman Miller (NASDAQ:MLHR) or HNI Corp (NYSE:HNI), but at least it's headed in the right direction.

Margins

11/05

2/06

5/06

8/06

11/06

2/07

Gross

30.4%

30.7%

30.7%

30.7%

30.9%

31.3%

Operating

3.9%

4.3%

4.4%

4.6%

4.8%

4.5%

Net

1.4%

1.7%

2.1%

2.4%

2.8%

3.5%
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:
What I like best about Steelcase, though, is not just the steady upward march of its still inferior margins. What I like best is what's going on on the balance sheet. There we see a pleasant contrast in the movement of accounts receivable and inventories, as compared to sales performance.

Sales grew 6% year over year in the second half of fiscal 2007, you see. Meanwhile, inventories grew just 1%, and A/R once again dropped 3%. In both respects, that continued the trend we saw earlier in the year, and it's a very nice trend indeed. Through such splendid working capital management, Steelcase managed to grow its cash generated from operations by 60% last year. Combined with reduced capital expenditures, that yielded a more-than-doubling of free cash flow.

If Steelcase can keep up this kind of performance, or even just match the 30% profits growth that analysts predict it will achieve over the next five years, its 13.3 price-to-free-cash flow ratio is going to look mighty tempting.

For more on Steelcase and its peers, read:

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