Companies aren't on a hiring spree right now, so it's somewhat surprising that Steelcase's (NYSE: SCS) latest numbers suggest a growing demand for office furniture.
The office-furniture manufacturer beat Street estimates by with a first-quarter bottom line of $7.5 million, a remarkable turnaround from a loss of $11.1 million in the same quarter last year. The robust numbers fueled investor interest in the stock, sending it up by 7% as trading volume more than doubled.
Financials speak
Top line grew by 18% to $639.4 million from the year earlier quarter, buoyed by growth in all markets. Sales in Europe, the Middle East, and Africa jumped 39%, while America saw growth of 23%.
In spite of rising costs, the gross profit margin remained flat, though the operating margin improved to 3.9% from 0.2%. Steelcase continues to experience strong operating leverage, with growing revenues increasingly doing a better job of absorbing fixed costs.
Although acquisitions weighed on the company's cash flows this quarter, total cash and short-term investments grew more than twofold to $398.8 million. With a debt-to-capital ratio of 43.2% and an interest coverage ratio of 3, Steelcase shouldn't have any trouble servicing its debts.
Highly competitive
Steelcase isn't the only furniture company on the upswing. Rival Herman Miller's (Nasdaq: MLHR) revenues and orders grew by 37% and 23%, respectively, from the year-ago quarter. This is the fourth consecutive quarter when both companies have reported higher earnings. Knoll (NYSE: KNL) also noted increased global demand for office furniture in its last quarterly earnings report. Clearly, there's an industry rebound under way.
However, with the likes of Staples (Nasdaq: SPLS) and Office Depot (NYSE: ODP) hanging around, competition is getting stiffer. Moreover, most analysts think the industry needs to consolidate, and according to Bloomberg, there are merger talks going on, including discussions between Office Depot and OfficeMax (NYSE: OMX).
The Foolish bottom line
Steelcase continues to focus on emerging markets, which have high growth potential. As employment numbers begin to pick up and companies expand, there should be even higher demand for its products.
With the company estimating second-quarter revenue growth of 13% to 17% and things looking better for the sector in general, it's time for Foolish investors to take note.
