Steelcase Inc. (NYSE:SCS) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visitwww.capitalcube.com.
Steelcase Inc.’s analysis versus peers uses the following peer-set: HNI Corp (NYSE:HNI), Herman Miller, Inc. (NASDAQ:MLHR), OKAMURA CORPORATION (TYO:7994), Knoll Inc (NYSE:KNL), ITOKI CORPORATION (TYO:7972) and Fursys Inc (KRX:016800). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
Valuation Drivers
Steelcase Inc. trades at a lower Price/Book multiple (1.7) than its peer median (2.9). The market expects SCS-US to grow at about the same rate as its chosen peers (PE of 14.9 compared to peer median of 15.0) and to maintain the peer median return (ROE of 11.3%) it currently generates.
The company’s median net profit margins of 2.8% and relative asset efficiency (asset turns of 1.6x compared to peer median of 1.3x) give it some operating leverage. SCS-US’s net margin continues to trend upward and is above (but within one standard deviation of) its five-year average net margin of 1.2%.
Economic Moat
The company enjoys both better than peer median annual revenue growth of 12.8% and better than peer median earnings growth performance 173.0%. SCS-US currently converts every 1% of change in annual revenue into 13.5% of change in annual reported earnings. We view this company as a leader among its peers.
SCS-US’s current return on assets is around the same as its peer median (4.4% vs. peer median 4.8%). This recent performance contrasts with its less than peer median return on assets over the past five years (1.7% vs. peer median 4.1%) suggesting that the company’s relative operating performance is improving.
The company’s gross margin of 32.5% is around peer median suggesting that SCS-US’s operations do not benefit from any differentiating pricing advantage. In addition, SCS-US’s pre-tax margin of 4.1% is also around the peer median suggesting no operating cost advantage relative to peers.
Growth & Investment Strategy
SCS-US’s revenues have grown at about the same rate as its peers (-4.8% vs. -4.7% respectively for the past three years). Similarly, the stock price implies median long-term growth as its PE ratio is around the peer median of 14.9. The historical performance and long-term growth expectations for the company are largely in sync.
SCS-US’s annualized rate of change in capital of 0.4% over the past three years is greater than the peer median of -0.4%. This relatively high investment has generated a less than peer median return on capital of 1.8% averaged over the same three years. The relatively high investment and low current returns lead us to believe that the company is betting heavily on the future.
Earnings Quality
SCS-US’s net income margin for the last twelve months is around the peer median (2.8% vs. peer median of 2.8%). This average margin and relatively conservative accrual policy (1.9% vs. peer median of 0.5%) suggests possible understatement of its reported net income.
SCS-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also greater than the peer median which suggests some amount of building of reserves.
Trend Charts
Company Profile
Steelcase, Inc. is engaged in furnishing the work experience in office environments. It offers a comprehensive portfolio of products and services for the workplace. Steelcase designs for a wide variety of customer needs through its three core brands: Steelcase, Turnstone and Coalesse. These brands are focused on the office furniture segment and also extend their capabilities to serve needs in areas, such as healthcare, education and distributed work. The company operates its business through three segments: Americas, Europe, the Middle East & Africa and Other. The Americas segment serves customers in the U.S., Canada and Latin America with a portfolio of integrated architecture, furniture and technology products marketed to corporate, government, healthcare, education and retail customers through the brands Steelcase, Turnstone, Details and Nurture by Steelcase. The Europe, Middle East & Africa segment serves customers in Europe, the Middle East and Africa primarily under the Steelcase brand, with an emphasis on freestanding furniture systems, storage and seating solutions. The Other segment includes Asia Pacific, PolyVision and Designt. Asia Pacific serves customers in the People’s Republic of China (including Hong Kong), Australia, India, Japan and other countries in Southeast Asia, primarily under the Steelcase brand with an emphasis on furniture systems and seating solutions. PolyVision designs and manufactures visual communications products, such as static and interactive electronic whiteboards for learning environments and office settings. Designtex provides surface materials including textiles, wall coverings, shades, screens and surface imaging’s marketed primarily to architects and designers for use in business, residential, healthcare and hospitality applications. Steelcase was founded by Peter Martin Wege, Walter D. Idema and David Hunting Sr. on March 14, 1912 and is headquartered in Grand Rapids, MI.
Disclaimer
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This article was originally written by abha.dawesar, and posted on Capital Cube.
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Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
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