Office-furniture maker Steelcase
Steelcase reported a 16.8% increase in YOY quarterly revenues to $700.5 million, and operating income jumped a whopping 93% to $37.7 million. The surprising revenue leap came from a spike in American sales, almost all of which was able to be realized as operating income because the company was able keep selling, general, and administrative expenses very near their 2010 level, reporting only a modest 7% bump.
Strong sales in the Americas, which grew by an impressive 31.4%, are the big standout here.
EMEA (Europe, Middle East, and Africa) revenues showed a 10% increase. However, operating losses in the EMEA business widened to $13.8 million. Not very encouraging, in my opinion.
Revenue from other sources, which includes the Asia-Pacific region, PolyVision, and Designtex branded products, plunged 25%. Though the Asia-Pacific region alone witnessed an increase in orders and stayed profitable, PolyVision was hurt as funding cuts by local and state governments reduced schools' technology investments. But otherwise, on the macro revenue level, it's been great for Steelcase so far.
Going great ... ?
Despite all the madness in the stock market and the global economy, not to mention the sluggish domestic GDP numbers, demand has been surprisingly high for Steelcase. Since one would reasonably expect companies to be hanging onto their sacks of cash in these troubled times, Steelcase's revenues may seem a bit surprising. Some have theorized that this contradictory trend was mainly driven by clients who consolidated their office space and needed to redecorate.
However, despite the thrust in demand, earnings fell below expectations, largely because of higher commodity costs and foreign exchange losses. But Steelcase wasn't alone in facing these issues. Industry competitors Herman Miller
The Foolish bottom line
Steelcase's lower-than-expected earnings came as no surprise to me. I feel that despite posting a relatively good set of numbers (albeit below analysts' expectations), the company still faces lots of challenges in the coming months from global economic uncertainty and the fears of a second recession. These conditions could negatively affect corporate spending and, eventually, Steelcase's revenues. There's only so much cost-cutting companies can do -- at some point, belt-tightening businesses hit the limit on office-space consolidation and redecorating. I'd stay on the sidelines for now until some positive development takes place in terms of the broader economic outlook.
Fool contributor Keki Fatakia holds no shares in any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.