Steelcase Inc. today reported fourth-quarter revenue of $677.1 million and net income of $6.6 million, or diluted earnings of $0.06 per share, which included $1.6 million of pre-tax restructuring costs. In the prior year, Steelcase reported $946.2 million of revenue and net income of $66.5 million, or diluted earnings of $0.55 per share and adjusted earnings of $0.39 per share.
Revenue decreased 28 percent in the fourth quarter compared to the prior year, or 25 percent on an organic basis, as all segments continued to be impacted by the prolonged economic uncertainty and delay in return-to-office plans across the world. The revenue decrease included a decline of 30 percent in the Americas, 23 percent in EMEA and 28 percent in the Other category. On an organic basis, the Americas revenue declined by 26 percent, EMEA revenue declined by 29 percent and the Other category revenue declined by 12 percent. The company estimates fourth-quarter revenue benefited from shipment delays of approximately $50 million in the Americas and approximately $10 million in EMEA due to the temporary operations shut down in the third quarter.
Orders (adjusted for the impact of acquisitions and divestitures, currency translation effects, and the impact of an extra week in the prior year) declined 31 percent in the fourth quarter compared to the prior year, driven by broad-based declines in the Americas and EMEA. The Americas declined 32 percent compared to the prior year, reflecting a 2 percent sequential decline from the third quarter, compared to larger seasonal declines historically. EMEA declined 38 percent compared to the prior year with broad-based declines across all markets. In the fourth quarter of fiscal 2020, EMEA grew 12 percent compared to the prior year. The Other category declined 14 percent compared to the prior year and included growth of 11 percent in China compared to the prior year.
"We delivered better than expected revenue and earnings per share in the fourth quarter while navigating multiple supply chain challenges in addition to the resurgence of COVID," said Jim Keane, president and CEO. "As we move through what we believe could be the bottom of this cycle over the next quarter, I'm confident our people will continue to maintain strong cost controls, help our customers design their return to office plans, and position us to lead our industry in the expected recovery."
Operating income of $6.7 million in the fourth quarter included $1.6 million of restructuring costs related to workforce reductions. Adjusted operating income of $8.3 million represented a decrease of $60.7 million compared to operating income of $69.0 million in the prior year which included a $7.6 million net benefit from the sale of PolyVision Corporation. The remaining decrease was driven by lower revenue across all segments, partially offset by approximately $52 million of savings from cost reduction actions, which included reduced discretionary spending and lower employee costs, and $22.7 million of lower variable compensation expense. The Americas reported operating income of $12.1 million, and adjusted operating income of $13.7 million, compared to operating income of $42.6 million in the prior year. EMEA reported an operating loss of $0.5 million compared to operating income of $8.3 million in the prior year. The Other category reported operating income of $2.9 million compared to operating income of $24.9 million in the prior year, which included $20.4 million from the gain on the sale of PolyVision, net of variable compensation expense.
Gross margin of 28.4 percent in the fourth quarter represented a 410 basis point decline compared to the prior year, driven by the impact of the lower revenue, higher costs related to container shortages, port congestions and other supply chain challenges, and higher freight and labor costs related to recovering from the temporary operations shut down in the third quarter, partially offset by lower variable compensation expense and lower overhead costs.
"We are managing several supply chain challenges, including the availability of steel and component parts and a recent supply chain disruption in the foam used in the manufacturing of certain of our seating products, which are expected to continue to impact our costs in the near term," said Dave Sylvester, senior vice president and CFO. "At the same time, we are beginning to experience significant inflation related to steel, component parts, ocean freight, and petroleum-based commodities, which we expect to impact our profitability over the next couple quarters until our recently announced price increase is implemented."
Operating expenses of $185.7 million in the fourth quarter represented a decrease of $52.5 million compared to the prior year, which included an $11.9 million benefit from the sale of PolyVision, net of variable compensation expense, and an estimated $10.4 million due to an extra week in the prior year. Adjusted for these items, operating expenses decreased by $54.0 million, driven by an approximately $24 million reduction in discretionary spending, approximately $18 million of lower-wage and benefit expenses as a result of workforce reductions, and $13.5 million of lower variable compensation expense.
The company recorded an income tax benefit of $4.5 million in the fourth quarter, which was driven by benefits available under the U.S. Coronavirus Aid, Relief, and Economic Security Act and other discrete tax benefits. In the prior year, income tax expense was $1.3 million and included an $8.7 million tax benefit related to the sale of PolyVision and $3.6 million of other net discrete tax benefits.
Total liquidity, comprised of cash, cash equivalents and the cash surrender value of company-owned life insurance, aggregated to $659.3 million at the end of the fourth quarter. Total debt was $483.9 million. There were no borrowings under the company's $250 million global credit facility during the quarter, and there are currently no restrictions on the company's ability to borrow under the facility.
The Board of Directors has declared a quarterly cash dividend of $0.10 per share, to be paid on or before April 15, 2021, to shareholders of record as of April 5, 2021.
Fiscal 2021 Results
For fiscal 2021, the company recorded $2.6 billion of revenue and net income of $26.1 million, or diluted earnings per share of $0.22. Adjusted earnings were $0.52 per share. In fiscal 2020, the company recorded $3.7 billion of revenue, net income of $199.7 million, diluted earnings per share of $1.66 and adjusted earnings per share of $1.50.
Revenue decreased by 30 percent in fiscal 2021, with a 31 percent decrease in the Americas, a 24 percent decrease in EMEA and a 38 percent decrease in the Other category. On an organic basis, fiscal 2021 revenue represented a decline of 29 percent compared to the prior year, with a 30 percent decline in the Americas, a 26 percent decline in EMEA and a 25 percent decline in the Other category.
Operating income for fiscal 2021 of $43.0 million represented a decrease of $214.0 million compared to operating income for fiscal 2020 of $257.0 million. Adjusted operating income of $89.2 million in fiscal 2021 decreased by $167.8 million compared to fiscal 2020. The decrease was driven by the revenue decline, partially offset by an approximately $112 million reduction in discretionary spending, a $104.3 million reduction in variable compensation expense ($13.4 million of which related to the gain on the sale of PolyVision in the prior year) and approximately $69 million of lower wage and benefit expenses.
"Fiscal 2021 was clearly an extraordinary year as the COVID-19 pandemic had a significant impact on our revenue," said Jim Keane, president and CEO. "We took bold and swift actions to protect our employees and our company, which kept our liquidity strong and offset a large portion of the impact from the revenue decline. We also stayed invested for the expected recovery by not reducing our employee base in direct proportion to our revenue decline."
Outlook
At the end of the fourth quarter, the company’s backlog of customer orders was approximately $445 million, which was 28 percent lower than the prior year and approximately $102 million, or 19 percent lower than at the end of the third quarter. Supply chain disruptions continue to impact the company, and companies across many industries, and are expected to result in a delay of some revenue from the first quarter of fiscal 2022 to the second quarter. As a result, the company expects first quarter fiscal 2022 revenue to be in the range of $540 to $570 million. The company reported revenue of $482.8 million in the first quarter of fiscal 2021 which was significantly impacted by government mandated restrictions related to the onset of the global pandemic. Adjusted for an acquisition and currency translation effects, the projected revenue translates to expected organic growth of 5 to 11 percent compared to the first quarter of fiscal 2021.
The company expects to report a loss per share of between $0.27 to $0.34 for the first quarter of fiscal 2022. The estimate includes: (1) projected inflation, net of pricing benefits, of approximately $6 million, (2) projected operating expenses of between $190 to $195 million, (3) projected interest expense, net of investment income and other income, net, of approximately $5 million, and (4) a projected income tax benefit equal to approximately 28 percent of the projected pre-tax loss. Steelcase reported a loss of $0.33 per share, and an adjusted loss of $0.18 per share, in the first quarter of fiscal 2021. Operating expenses in the first quarter of fiscal 2021 of $157.4 million benefited from significant temporary reductions in pay and hours across most of the company's global salaried workforce.
Beyond the first quarter, the company is targeting seasonally higher revenue in the second quarter, but a decline compared to the prior year which benefited from a strong beginning backlog as a result of the government mandated shutdowns in the first quarter of fiscal 2021. The company is targeting net income in the second quarter that would approximately offset the first quarter net loss and includes a $15 million gain from an expected land sale. For the second half of fiscal 2022, the company is targeting double-digit revenue growth compared to fiscal 2021, due to higher vaccination levels that are expected to support workers returning to the office more broadly, increased capital spending, and corporate C-suites prioritizing their workplaces as they focus on improving productivity, collaboration, and company culture.
"As the pace of COVID vaccinations increases, many company leaders are confirming their plans to begin bringing their employees back to the office," said Jim Keane. "We're working with many of our customers to re-start paused projects and to engage in new opportunities by sharing what we've learned about how to make their spaces safer, more flexible and more productive. We saw strong double-digit increases in new project opportunities and customer requests for proposals in the Americas, as well as customer visits to our Grand Rapids location (both physical and virtual), in February compared to January, which supports our expectations for a strong recovery in the second half of the year."