Steelcase Inc. (SCS) recently reported a big earnings beat for the first quarter of its fiscal 2012. Organic revenue surged 23% year-over-year and a relatively high degree of operating leverage led to large earnings growth in the quarter.
It was the company’s 4th consecutive positive earnings surprise.
Analysts are projecting the momentum to carry over throughout the rest of the year and into fiscal year 2013. Based on consensus estimates, EPS is expected to surge 95% this year and 55% next year. It is a Zacks #2 Rank (Buy) stock.
In addition to this spectacular growth, the company pays a dividend that yields 2.3%.
Company Description
Steelcase, Inc. is an international office furniture company. It designs and manufactures furniture systems, seating, storage, desks, casegoods, interior architectural products, technology products and related products and services.
The company is headquartered in Grand Rapids, Michigan and has a market cap of $1.5 billion.
First Quarter Results
On June 22, Steelcase reported first quarter earnings per share of 10 cents, well ahead of the Zacks Consensus Estimate of 5 cents. The company reported a loss of 8 cents per share in the same quarter last year.
Consolidated revenue rose 18% to $639.4 million. Organic revenue soared 23% as growth was strong in both the Americas (the U.S., Canada and Latin America) and Europe, the Middle East and Africa (EMEA).
Adjusted operating income jumped from just $1.1 million to $24.9 million as the company leveraged its fixed expenses. The adjusted operating margin improved from 0.2% of sales to 3.9%.
Outlook
Management expects to carry its strong momentum into the second quarter. The company expects organic revenue growth of 13-17% and adjusted EPS of 15 to 19 cents per share. The Zacks Consensus Estimate is right in the middle at 17 cents.
Analysts have been raising their estimates off of the strong first quarter, sending shares to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts are projecting big growth for SCS over the next two years. The 2012 Zacks Consensus Estimate is 59 cents, a 95% increase over 2011 EPS. The 2012 consensus estimate is 91 cents per share, corresponding with 55% EPS growth.
Dividend
In addition to outstanding earnings growth potential, Steelcase pays a dividend that yields a solid 2.3%.
The company recently raised its quarterly dividend from 4 cents per share to 6 cents. However, Steelcase did slash its dividend from 15 cents per share to 8 cents in late 2008, and then from 8 cents to 4 cents in mid-2009.
Shares of SCS jumped higher off the strong beat, but valuation is still reasonable. It trades at 19.1x forward earnings, a slight premium to the industry average of 17.9x, but this seems more than justified given the company’s enormous growth prospects over the next two years.
The stock also trades at 2.1x book value, a significant discount to the industry average of 5.6x.
The Bottom Line
Steelcase has strong earnings momentum behind it with 4 consecutive positive earnings surprises and rising estimates. Analysts expect big growth from the company over the next years too. With a dividend yield of 2.3% and reasonable valuation, Steelcase could provide outstanding returns for investors in the near future.
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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