Steelcase (SCS)

Office furniture manufacturer Steelcase (NYSE:SCS) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.7% year on year to $788 million. The company expects next quarter’s revenue to be around $772.5 million, coming in 3.7% above analysts’ estimates. Its non-GAAP profit of $0.26 per share was 26.2% above analysts’ consensus estimates.

Company Overview

Founded in 1912 when metal office furniture was replacing wooden alternatives, Steelcase (NYSE:SCS) is a global office furniture manufacturer that designs and produces workplace solutions including desks, chairs, architectural products, and services.

The sector faces a tepid outlook as workplace dynamics continue to evolve. Hybrid work means that enterprise demand for office furniture is lower. Consumer demand for the same products likely will not offset the loss from enterprises, as individual workers tend to have less space and need for the sector's wares. The Trump administration also possesses a high willingness to impose tariffs on key partners, which could result in retaliatory actions, all of which could pressure those selling furniture that may feature components or labor from overseas. Lastly, the COVID-19 pandemic showed that there is always a risk that something disrupts supply chains, and companies need contingency plans for this.

Steelcase's primary competitors include MillerKnoll, Inc. (formed by the merger of Herman Miller and Knoll), Haworth, Inc., and HNI Corporation (NYSE:HNI), along with numerous regional and specialized furniture manufacturers in its various global markets.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.

With $3.17 billion in revenue over the past 12 months, Steelcase is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale.

As you can see below, Steelcase’s revenue declined by 3.2% per year over the last five years, a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. Steelcase’s annualized revenue declines of 1% over the last two years suggest its demand continued shrinking.

This quarter, Steelcase grew its revenue by 1.7% year on year, and its $788 million of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 6.2% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 2.8% over the next 12 months. Although this projection suggests its newer products and services will fuel better top-line performance, it is still below the sector average.

Steelcase was profitable over the last five years but held back by its large cost base. Its average operating margin of 2.7% was weak for a business services business.

Looking at the trend in its profitability, Steelcase’s operating margin might fluctuated slightly but has generally stayed the same over the last five years, meaning it will take a fundamental shift in the business model to change.

In Q1, Steelcase generated an operating profit margin of 1.2%, down 1.9 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Steelcase, its EPS declined by 5.8% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.

In Q1, Steelcase reported EPS at $0.26, up from $0.23 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Steelcase’s full-year EPS of $1.11 to shrink by 2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Steelcase has shown poor cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.9%, lousy for a business services business.

Taking a step back, an encouraging sign is that Steelcase’s margin expanded by 4.5 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Steelcase historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6.3%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Steelcase’s ROIC averaged 2.6 percentage point increases over the last few years. This is a good sign, and we hope the company can continue improving.

Steelcase reported $387.9 million of cash and $600.7 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $208.2 million of EBITDA over the last 12 months, we view Steelcase’s 1.0× net-debt-to-EBITDA ratio as safe. We also see its $7.3 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Steelcase blew past analysts’ EPS expectations this quarter. We were also excited its revenue and EPS guidance for next quarter outperformed Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 10.9% to $11.76 immediately following the results.

Updated: May 22, 2025 at 11:35 PM EDT

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

We see the value of companies helping consumers, but in the case of Steelcase, we’re out. To kick things off, its revenue has declined over the last five years. And while its rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking. On top of that, its declining EPS over the last five years makes it a less attractive asset to the public markets.

Steelcase’s P/E ratio based on the next 12 months is 9.3x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $16.50 on the company (compared to the current share price of $10.15).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

To get the best start with StockStory, check out our most recent stock picks, and then sign up for our earnings alerts by adding companies to your watchlist. We typically have quarterly earnings results analyzed within seconds of the data being released, giving investors the chance to react before the market has fully absorbed the information. This is especially true for companies reporting pre-market.