Office-furniture maker Steelcase (NYSE:SCS) resumed its winning ways last quarter, beating Wall Street consensus estimates even after stumbling a little bit back in February. But will it buckle under the pressure again, as Q2 2008 results come due Thursday morning? 

What analysts say:

  • Buy, sell, or waffle? Five analysts give Steelcase three buys, one hold, and one sell.
  • Revenues. On average, they expect nearly flat year-over-year sales of $793.9 million.
  • Earnings. Profits, however, are predicted to rise 15% to $0.23 per share.

What management says:
The big news out of Steelcase this quarter came just last week, when the furniture maker announced it was spending a little over $13 million to acquire a complementary player on the other side of the world, in the form of China's Ultra Group. The price paid for Ultra Group was roughly a third of the company's sales. The deal netted Steelcase:

  1. An expanded footprint in the Far East.
  2. A tidy, incremental revenue stream.
  3. A more profitable business than it is, at less than half the valuation Steelcase's own shares command. Read more about it here.

What management does:
Although it is far from some more profitable players in the office-furniture market -- both Herman Miller (NASDAQ:MLHR) and HNI (NYSE:HNI) have it beat on operating margins -- Steelcase is at least headed in the right direction. Rolling gross margins have climbed for three straight quarters, and the operating and net margins are both at their highest levels in the past 18 months.

Margin

2/06

5/06

8/06

11/06

2/07

5/07

Gross

30.7%

30.7%

30.7%

30.9%

31.3%

31.8%

Operating

4.2%

4.4%

4.6%

4.8%

4.4%

4.9%

Net

1.7%

2.1%

2.4%

2.8%

3.5%

3.8%

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:
Reviewing the results Steelcase put out last quarter, I observed:

About the only thing I'd quibble over is the firm's operating cash flow. It always runs negative in fiscal Q1, but it ran nearly 50% more negative this year than last. Management kind of pooh-poohed this as a function of "normal seasonal disbursements associated with accrued bonus payments and retirement plan contributions" -- but I have my doubts. ... Rest assured that we'll be paying special attention to the firm's cash flow statement next quarter to see whether this issue gets ironed out.

I'll certainly be doing that for you when we get Steelcase's news, but there's another thing or two that will also bear watching. Analysts predict, and Steelcase seemingly confirmed last quarter, that sales will be flat when Steelcase reports Thursday. This as contrasted with the firm's performance of growing sales around 8% year over year over the last two quarters, while driving inventories down an average 4%, and accounts receivable, 3%.

It's going to be difficult for Steelcase to continue this trend in an environment of stagnant sales -- but the company might have to find a way to free up cash that's now trapped in inventory.

What did we expect out of Steelcase last quarter, and what did we get? Find out in:

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

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