U.S. Markets closed

Why Steelcase Stock Dropped 13%

Rich Smith, The Motley Fool

What happened

Shares of office furniture maker Steelcase (NYSE: SCS) are down 13% as of 1:25 p.m. EDT, despite beating earnings in last night's Q4 report.

Expected to report $0.26 per share in pro forma profit for the fiscal fourth quarter 2019, Steelcase instead reported $0.29 per share (but only $0.19 GAAP).

Finger touching "2020" on touchscreen.

Fiscal 2019 earnings were great. It's fiscal 2020 that's the problem. Image source: Getty Images.

So what

Revenue growth was also pretty great -- up 18% year over year in Q4 to $912.4 million.

This was even better growth than for the year as a whole, in which Steelcase grew sales only 13% (to $3.4 billion). Full-year GAAP profits powered 54% higher, to $1.05 per share. CEO Jim Keane observed that "fiscal 2019 represented one of the best years Steelcase has reported in over a decade."

So why are the shares down then?

Now what

The answer, I fear, can be found in management's guidance for the current fiscal first quarter of 2020 and for 2020 as a whole. In Q1, Steelcase told investors to expect better sales than the $829 million that Wall Street is forecasting -- anywhere from $830 million to $855 million -- but worse profits. Whereas analysts are forecasting Steelcase will earn about $0.20 per share this quarter, all management is promising is from $0.16 to $0.20 (which is $0.18 at the midpoint).

Similar story for the year. The Street wants Steelcase to earn about $1.32 per share on $3.66 billion in sales in fiscal 2020. Steelcase thinks it can make the sales number (5.5% to 9.5% sales growth works out to full-year sales of about $3.655 billion). Management forecasts only $1.20 to $1.35 per share in profit, however -- about a nickel short of analysts' projections.

Judging from today's stock price action, though, that miss is going to cost Steelcase investors a whole lot more than a nickel.

More From The Motley Fool

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.