Steelcase Inc. (NYSE: SCS) today reported first quarter revenue of $815.7 million and net income of $22.1 million, or $0.16 per share.

Reported revenue increased 0.9 percent compared to $808.5 million in the prior year quarter, consistent with company estimates. As compared to the prior year, first quarter revenue included a $30.6 million benefit from currency translation effects and a $10.9 million unfavorable impact from dealer deconsolidations, net of acquisitions. The International segment reported 29.1 percent revenue growth driven by strength in Germany, the Middle East, Benelux, Africa and Latin America. North America reported a decline in revenue of 9.0 percent compared to a strong prior year quarter. In addition, the comparison included an unfavorable impact from dealer deconsolidations of $20.1 million which represented nearly half of the decline in North America.

Net income of $22.1 million, or $0.16 per share, was in line with company estimates of $0.14 to $0.19 per share. This compared to net income of $33.6 million, or $0.23 per share, in the same quarter last year.

Reported results included net restructuring costs of $(4.7) million after-tax which primarily related to facility rationalization and workforce reductions. Net restructuring costs were $(1.1) million after-tax in the prior year quarter.

Cost of sales was 66.8 percent of revenue, a 30 basis point decrease compared to the prior year. North America cost of sales fell 190 basis points, driven by a $3.8 million favorable property tax settlement and the benefits of prior restructuring actions, offset in part by steel and fuel related inflation. The improvement in the North America segment was largely offset by increases in cost of sales as a percent of revenue within the International segment and Other category. The International performance was negatively impacted by currency effects in the U.K. and higher costs of sales in a few small markets. Cost of sales increased in the Other category as a result of lower overhead absorption and temporary inefficiencies related to current restructuring actions. In addition, the prior year quarter included lease termination gains in our Financial Services subsidiary.

Gross margin of 32.6 percent was essentially flat compared to the prior year. The current quarter included $(4.8) million in restructuring costs as compared to $(1.7) million in the prior year.

"The revenue diversification strategy we have been focused on is generating benefits," said James P. Hackett, president and CEO. "Our growth in new geographies and vertical markets in North America is providing a degree of stability in an otherwise volatile demand environment."

Operating expenses increased to $227.0 million or 27.8 percent of revenue from $215.7 million or 26.7 percent of revenue in the prior year. The increase in absolute dollars was primarily driven by unfavorable currency translation effects, offset in part by lower variable compensation expense.

Operating income of $36.8 million compared with $48.3 million in the prior year. Restructuring costs totaled $(7.2) million in the current quarter compared to $(1.7) million in the prior year.

Other income, net decreased to $1.5 million from $7.4 million in the prior year, largely due to lower interest income.

Cash and short-term investments decreased to $143.0 million from $264.0 million at the end of fiscal 2008 due to normal seasonal disbursements associated with annual bonus payments and retirement plan contributions, as well as share repurchases. The company repurchased approximately 3.8 million shares in the first quarter at a total cost of $46.3 million. The company has approximately $228 million remaining on its current repurchase authorization.

"Global inflationary pressures have accelerated in recent months, particularly in the areas of steel and fuel related commodities," said David C. Sylvester, vice president and CFO. "While price adjustments are being implemented to address the initial wave of inflation, the realization of benefits will take some time, plus inflation continues to escalate."

Outlook

The company expects second quarter fiscal 2009 revenue to increase three to seven percent over the prior year revenue of $825.2 million. The revenue estimate includes favorable currency translation effects of approximately $25 million.

Steelcase expects to report earnings for the second quarter of fiscal 2009 between $0.15 and $0.20 per share, including restructuring costs of approximately $(7) million after-tax. The earnings estimate also includes increased effects of commodity inflation of $15 to $20 million compared to the prior year.

The company reported earnings of $0.26 per share in the second quarter of the prior year, including restructuring credits of $1.0 million after-tax. In addition, the prior year results benefited from significantly higher other income, net related to non-operating gains and interest income.

Mr. Hackett concluded, "As we manage our business through the current
turbulence of inflation and economic uncertainty, we are excited to see many of our growth strategies come to life, including the launch of Coalesse, our new brand that addresses the boundaries between work and life, and the introduction of several award-winning new products at our recent industry trade show, NeoCon."

About Steelcase Inc.

Steelcase, the global leader in the office furniture industry, helps people have a better work experience by providing products, services and insights into the ways people work. The company designs and manufactures architecture, furniture and technology products. Founded in 1912 and headquartered in Grand Rapids, Michigan, Steelcase (NYSE: SCS -) serves customers through a network of over 600 independent and company-owned dealers and approximately 13,500 employees worldwide. Fiscal 2008 revenue was $3.4 billion. Learn more at http://www.steelcase.com/ir