Thursday, March 21, 2019

Steelcase Inc (SCS) Q4 2019 Earnings Conference Call Transcript

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Steelcase Inc  (NYSE:SCS)Q4 2019 Earnings Conference CallMarch 20, 2019, 8:30 a.m. ET

Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:

Operator

Good day, everyone, and welcome to Steelcase's Fourth Quarter and Fiscal 2019 Conference Call. As a reminder, today's call is being recorded.

For opening remarks and introductions, I would like to turn the conference over to Mr. Mike O'Meara, Director, Investor Relations, Financial Planning & Analysis.

Mike O'Meara -- Director, Investor Relations, Financial Planning & Analysis

Thank you, Sharon. Good morning, everyone. Thank you for joining us for the recap of our fourth quarter and fiscal 2019 financial results. Here with me today are Jim Keane, our President and Chief Executive Officer; and Dave Sylvester, our Senior Vice President and Chief Financial Officer. Our fourth quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast and this webcast is a copyrighted production of Steelcase Inc. A replay of this webcast will be posted to ir.steelcase.com later today.

Our discussion today may include references to non-GAAP financial measures and forward-looking statements. Reconciliations to the most comparable GAAP measures and details regarding the risks associated with the use of forward-looking statements are included in our earnings release and we are incorporating, by reference into this conference call, the text of our Safe Harbor statement included in the release. Following our prepared remarks, we will respond to questions from investors and analysts.

I will now turn the call over to our President and Chief Executive Officer, Jim Keane.

James P. Keane -- President and Chief Executive Officer, Director

Thanks, Mike, and good morning, everyone.

Our fourth quarter results exceeded our expectations and contributed to one of the best years we've reported in over a decade. In Q4, we grew sales 18% globally on a reported basis and 15% organically. We showed strong growth across all segments and we believe we gained market share in many major markets around the world. BIFMA is reporting a strong growth across our industry, but our Americas organic revenue growth at 17% was about double the BIFMA's growth rate. Our earnings per share also grew strongly on both reported and adjusted basis, and that's related to improved profitability as well as revenue growth. As we expected, the two price increases we took earlier in the year in response to material inflation helped us to regain some lost gross margins in Q4.

Our EMEA segment was profitable in Q4, as we continue to drive robust top line revenue growth through improved win rates. While that's a sign of good progress, we recognized EMEA was not profitable for the full year. We continue to work on gross margin expansion initiatives that include specific improvements in our product lines, in our selling strategies and in our operational efficiency.

our APAC business is included in the other for segment reporting purposes. I want to recognize our entire team in Asia for delivering a record level of quarterly revenue in Q4. Dave will provide more detail about the quarter and our full-year results.

I want to spend the remainder of my time talking about our outlook, which remains positive. This is supported by our project pipelines, win rates and most of the macro economic factors that we track, such as GDP, unemployment, architectural billings and non residential fixed investment. We were all a bit surprised by the weak February job growth figures in the US. But unemployment rates also fell and pay rates rose. We interpret this as evidence of a very tight job market with likely far more open positions than qualified applicants. This is the war for talent. We hear stories about this every day from our customers. As customers compete for talent, they recognize they need to invest in their workplace. We believe this is helping to drive growth across our industry as seen in the BIFMA growth numbers.

Steelcase is in a particularly strong position to help. Over the last several years, we've invested in new products, new acquisitions and new partnerships aimed at helping our commercial customers compete for talent, shift their culture toward innovation and prepare for digital transformation. We aim to do more than just help with attracting and retaining talent. Our solutions are designed to help customers engage their existing workforce more completely and to help improve productivity, innovation and creativity. That's how you really win the war for talent in the long run.

In the Americas, order growth was very strong in December, but growth was weak in January. The year-over-year volatility could relate to this year's factors like the government shutdown, but also it's last year's factors like the steel tariffs and tax reform. We implemented a price increase in February last year, which caused some pull forward of orders impacting year-over-year comparisons. When we adjust for that, February order growth was better than January. BIFMA is expecting industry growth in North America to be about 3% in calendar 2019, which will be slower growth than 2018. We're targeting to grow a little faster than the industry organically, but the full year effect of our acquisitions adding some inorganic growth on top of that, along with an extra week in the fourth quarter, due to the timing of our year-end.

In EMEA, we see improving overall economic and political conditions in France, slowing growth in Germany, and of course, the disruptive effects of Brexit uncertainty in the UK. We are targeting top line organic growth above the industry, plus the inorganic full year effect of the Orangebox acquisition and continued margin expansion, to bring in EMEA to full year profitability in fiscal 2020.

For APAC, there are signs of slowing economic growth in China, but even a slower growing China is growing faster than other major economies. We expect to continue to make investments to

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