Q1 2023 Steelcase Inc Earnings Call
Good morning, My name is Rob and I'll be your conference operator today at this time I would like to welcome everyone to the Steelcase first quarter fiscal 2023 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session if you'd like.
To ask a question during this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again, just press star one.
Mr. <unk> you may begin your conference.
Thank you Rob good morning, everyone. Thank you for joining us for the recap of our first quarter fiscal 2023 financial results here with me today are Sarah Armbruster, our President and Chief Executive Officer, and Dave Sylvester, Our senior Vice President and Chief Financial Officer, Our first quarter earnings release, which crossed the wires yesterday is accessible on our website.
This conference call is being webcast and this webcast is a copywriter production of Steelcase, Inc. A replay of this webcast will be posted to IR that bookings dot com later today.
<unk> 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, Sarah Armbruster.
Thanks, Mike and good morning, everyone.
Our results this quarter were better than we expected. Thanks in part to the great work being done by our people in the challenging environment.
Our operations teams have continued to manage supply chain challenges and improve our operational output.
Helped drive 33% revenue growth.
We've made adjustments to increase our inventory levels changed suppliers and in force production and are being absorbed by shifting resources as needed I'm delighted that we're seeing the impact of this work on our results.
We continue to engage with our customers to help them create inspiring workplaces and I'm pleased to say that our sales teams drove another quarter of strong year over year order growth.
We're also doing hard but necessary work in implementing price increases in.
In response to an extraordinary inflation level, including skyrocketing fuel and logistics costs.
Dave will discuss this in more detail when he covers the financials.
I want to acknowledge that although our second quarter outlook is impacted by recent increased inflation and the typical timing might are implementing our price increases we.
We remain committed to achieving our 2023 targets.
We plan to achieve those targets by implementing actions to offset higher costs and by slowing the pace of our incremental spending while remaining invested in key growth priorities.
Across our segments, the Americas drove 38% revenue growth in EMEA grew 36% organically.
Our order growth of 22% overall with stronger than we had anticipated.
And in the Americas, we have now outpaced our industry in each of the last eight months of available data.
Strong orders have helped sustain our high level of backlog, which finished Q1 at $927 million or up 52% versus last year.
Our EMEA segment reported a very good quarter with operating income of $1 3 million.
Was our most profitable first quarter in EMEA and over 10 years.
Route of the work our teams have done to drive the top line offset inflationary pressure and improve our operating expense leverage.
In the other category revenue was impacted this quarter by Covid related restrictions in China.
Many of those restrictions recently have been lifted and we expect our business to improve later in the year as China reopened.
I'm pleased to report, we recently completed our acquisition of <unk> and have welcomed this organization to see okay. How.
<unk> provide the level of master craftsmanship that is uniquely appreciated by the design community and by many leading organizations.
We're excited about <unk>, joining our family of brands for two main reasons.
First we believe this acquisition will position us to win new business.
Grid work is fostering a renewed emphasis on privacy in the workplace and this is especially important for legal and professional services firms a large part of <unk> customer base.
Additionally, according to some data these same segments have outpaced others in returning to the office and that provides a strong tailwind to sales.
Beyond that we expect to drive revenue synergies as we begin to connect <unk> with our customer and dealer network.
Secondly, their products are highly coveted by the design community and they fill a gap in our current portfolio.
Last week at Neocon Telecom was awarded the best of Neocon Awards for their newly launched Helm conference table.
This is the top award for any product showed at neocon.
It is a great recognition for <unk> innovative designs and beautiful aesthetic.
So we look forward to exploring additional product development opportunities with <unk> to complement their already award winning portfolio.
Hybrid work was a big focus at EMEA country show last week, where we estimated attendance in our showrooms was within 70% of pre pandemic levels.
Customers dealers and designers experienced our solutions designed to support hybrid work, such as fluff personal faces ever wall and new pods from Orange box.
Many conversations started with hybrid work and quickly evolved how the workplace needs to transform.
Company leaders Resoundingly agreed that theme together more often is the best way to build their cultures and to enable business strategies.
We believe that in many cases companies will update their office environments to earn the commute from their employees.
At Neocon, we also demonstrated the solutions for hybrid collaboration that we're developing in partnership with leading technology firms such as Microsoft Zoom, Logitech crusher on and verge sense.
And we're engaging with these partners earlier in the product development process to better integrate innovative technology capabilities into spaces.
A great example of this is the table, we created to support the Microsoft teams front row experience.
This solution offers many benefits, including a wider screen angle that creates a more affordable experience for both in person and remote participants.
We are working to create truly compelling experiences to prompt companies to completely rethink their conference room designs in light of a hybrid feature.
We've also made notable progress in our other growth strategies.
<unk> had a strong first quarter and has a robust outlook for the year.
This is fueled partly by aimed Q as quick ship model that appeals to many small and mid sized businesses.
We believe have returned to more strongly to the office.
A&P showcase the Adobe agile workspaces at Neocon, which include fully integrated mobile workstations that allow for more flexibility as teams move between individuals and collaborative work.
The entire debt shifts in one box roughly the size of a large television and installed in about five minutes.
Our education business also continues to flourish with the help of U S stimulus money directed at both K 12, and higher education institutions.
Amidst this and expect to grow revenue by more than 50% over the first half of this year versus the prior year.
Our efforts to build our APAC education business also are working as its revenue and orders nearly doubled in Q1 versus a year ago.
Our investments have included adding learning focus dealers and localizing the supply chain for certain Smith system products.
All of this good news gives me confidence that our strategies are working and that we're well positioned to lead the hybrid work transformation.
Our teams are working tirelessly to overcome the inflationary headwinds, we're facing and they are finding new ways to help us grow and to deliver results.
I'm proud of their efforts and their commitment to our customers.
On the topic of our people I'm happy to share that Steelcase was recently included on the Forbes 2022 lists.
Best employers for new graduates.
Waiting 43 out of 300 organizations.
We believe this reflects our efforts to invest in people continuously improve our culture and attract top talent.
Best part of that these rankings came from serving 20000 young professionals in the United States.
It's great to see this demographic made steelcase as a leader and as a destination for their career aspirations.
Awards like this come from our commitment to ESG and just last week Steelcase with again included in the Civic 50, a glue.
With just 50 of the most community minded companies in the United States.
50 is sponsored by points of light, which also named Steelcase, our consumer discretionary sector leader for the second year in a row.
We believe our high levels of employee volunteerism and community engagement are a direct reflection of our core values and our commitment to helping people everywhere reach their full potential.
In closing despite the cost headwinds impacting our near term financial results. Our order levels have remained strong.
Tasks from our pricing actions in response to inflation continues to build and we're continuing to push on our fitness efforts.
We also feel momentum from the success of our neocon engagements with customers and the positive response, we've received from our dealers and the design community to the help on acquisition.
I would now like to turn it over to Dave to review the financial results and our second quarter outlook.
Thank you Sarah and good morning, everyone. My comments today will include highlights related to our first quarter results, including comparisons to the outlook we provided in March.
<unk> comparisons to the fourth quarter.
I will cover the balance sheet and cash flow our outlook for the second quarter.
About the second half of fiscal 2023.
Beginning with the comparison to our outlook first quarter revenue and earnings were both better than the top end of the ranges we provided in March.
For revenue, we recorded organic growth of 35% compared to the prior year, which included both volume growth and benefits from increased pricing in response to the rapidly increasing inflation over the last several quarters.
We estimate the pricing benefits represented approximately one quarter of the growth.
Order intake was strong and above expectations, which I will cover in more detail later and the better than expected revenue was also driven by higher conversion of our backlog to shipments.
Great.
We are still managing a significant level of supply chain challenges, but our operations teams have continued to make adjustments, which improved our order fulfillment patterns more significantly than we estimated.
For earnings we exceeded our projected range due to the higher revenue, which more than offset the negative impacts with increasing inflation across several commodities fuel logistics.
Inflation net of pricing benefits was $12 million higher than the prior year and approximately $2 million higher than our expectations.
And then the prior year inflation net of pricing benefits with $7 million higher than the first quarter of fiscal 2021.
Do you want a two year stacked basis, the total negative impact of approximately $19 million.
I will cover inflation and more depth when I address our outlook.
Moving to the sequential comparison.
Of the first quarter results versus the fourth quarter. The earnings comparison is impacted by the timing of our annual stock awards and the expense recognition related to retirement eligible participants.
Which we see expense more heavily to the first quarter each year when the majority of awards are granted.
Excluding stock compensation expense and restructuring costs.
Adjusted EBITDA of $27 million in the first quarter represents a sequential decrease of $2 million.
As the impact of lower revenue due to seasonal demand patterns.
And moderately higher spending was mostly offset by a small land gain recorded in the first quarter and higher net pricing benefits.
The sequential increase in pricing benefits from previous adjustments.
The sequential increase in inflation.
Regarding orders, we posted year over year organic order growth of 22%, which included both volume growth and increased pricing.
Estimates of pricing benefits represented approximately one third of the order growth.
We had growth across all of our reporting segments with 25% growth in the Americas, 19% growth in EMEA and 4% growth in the other category.
The growth in the Americas, and EMEA was broad based across most regional markets, including some that have been slower to return to the office.
And we had strong growth of <unk> Smith system and Orange box.
The growth in new category was tempered by the pandemic related Lockdowns in China, which resulted in a year over year decline in orders in that market.
But that was offset by a strong rebound in India, which face pandemic related challenges in the prior year.
On a sequential basis first quarter orders grew 19% compared to the fourth quarter of fiscal 'twenty.
2022, driven by additional benefits from our pricing actions and seasonal demand patterns, including at Smith system.
With our corporate customers, we're seeing positive trends as they invest in their workspaces and contemplate solutions that support work for.
For example, we're seeing an increase in interest for applications that support enhanced privacy focused work in video connection with Nielsen plan and that can include screens barriers architectural walls and other approaches to space Division.
All of which can increase the amount of investment per office worker.
Plus we're seeing efforts by customers to improve their collaborative spaces.
To better connect distributor teams in a hybrid model.
Others are contemplating activation of there in between spaces.
Using inspiration from the home that has been a primary workplace for many over the last two years. We believe these shifts are positive for our industry and we believe we are well positioned to lead our customers through this transformation of the workplace.
Turning to cash flow and the balance sheet, we ended the quarter with $117 million in cash and $280 million in total liquidity, which was a sequential decrease of $89 million compared to the fourth quarter of fiscal 2022.
For the quarter, we recorded adjusted EBITDA of $27 million or three 6% of revenue and over the last four quarters, our adjusted EBITDA totaled $152 million or five 1% of revenue.
Operating cash flow in Q1 included 51 included a $51 million increase in inventory as we prepared for the strong summer seasonality of Smith system and continue to adjust our purchasing patterns to protect against supply chain disruptions.
Operating cash flows also included $32 million of seasonal disbursements of accrued variable compensation and retirement plan contributions.
$30 million of U S income tax recoveries.
Investing activities included $14 million of capital expenditures, which we now expect to total between 60 and $70 million for the full year.
We returned $17 million to shareholders during the quarter through our quarterly dividend by $14.05 per share.
And on June 10.
Following the close of the first quarter, we completed our purchase of Telkom and funded the purchase price from cash on hand, and $68 million of borrowings under our credit facility, which we expect to repay by the end of Q3.
Moving to the outlook consolidated backlog at the start of the second quarter totaled $927 million.
Which was 52% higher than the prior year and continued to include a higher than normal amount of orders expected to ship beyond the next quarter.
As a result, we expect to report revenue within a range of $875 million to $900 million for the second quarter.
Which represents year over year organic growth of 20% to 24% and a sequential increase of 18% to 22% compared to the first quarter.
We expect a sequential increase in revenue can be driven by the strong backlog at the start of the quarter and continued order growth.
Normal business seasonality, which includes Smith system and other education projects that shipped in the second quarter.
And revenue from Alcon, which will be included in our consolidated results for most of the second quarter.
We expect to report adjusted earnings per share of between 11 to 15.
For the second quarter.
The earnings estimate reflects the impact from the expected increase in revenue as well as our projections of pricing benefits net of inflation of approximately $10 million when compared to the prior year.
Which would be would begin to reduce the cumulative negative impact of inflation, which has been ahead of our pricing actions.
Proximately $20 million in Q2 of the prior year.
We also expect operating expenses of $225 million to $230 million, which includes outcomes operating expenses prioritized investments in marketing and product development increased sales commissions at Smith system and investments in our employees.
Lastly, we expect interest expense and other non operating items to net to approximately $4 million of expense and we are projecting an effective tax rate of approximately 27%.
Adjusted earnings are projected to benefit modestly from the consolidation of <unk>.
Looking to the second half of fiscal 2023.
We continue to target the full year ranges of organic revenue growth and earnings per share that we communicated in March taking into account the impacts of restructuring costs in Q1, and the recent acquisition of outcome.
While there are significant headwinds, including a sluggish return to office and some of our largest markets significantly higher levels of inflation and reduced CEO and CFO sentiment. We are encouraged by the strength of our backlog and positive sentiment from our sales organization and dealer community.
Pre sales activities remained solid in most markets and we hear from many clients that they want their people back in the office and are working on plans to motivate their employees.
Regarding inflation.
We're currently projecting an increase of at least $85 million compared to our initial estimates for fiscal 2023.
Driven by significant changes in the external projections of steel prices higher energy costs and rapidly increasing cost of petroleum based products freight and delivery.
However, we announced an additional global price increase in May to take effect in July and we recently announced the surcharge in the Americas, which will take effect on new orders beginning in mid July .
In addition, we have slowed incremental spending and continue to focus on fitness initiatives, which will help combat the near term impact of these higher cost while preserving our ability to invest in our strategy and longer term growth initiatives.
For your modeling purposes. The July adjustment total was 9% in the Americas, and 8% across EMEA and Asia Pacific and.
And these adjustments are in addition to the adjustments we announced in February which took effect in April and approximated 10% in the Americas and a mid single digit percentage elsewhere.
The surcharge, which equals 2% of published list pricing is only applicable in the Americas, but excludes a few brands that have taken separate pricing actions like Smith system and <unk> Q.
In closing first we are pleased with the strong growth in revenue and orders that we achieved in the first quarter and.
And we believe our strong backlog pre sales activity and projected order growth are supportive of our targeted organic revenue growth for the full year.
And second inflation and supply chain challenges negatively impacted our operating results in the first quarter and are expected to remain significant challenges for the remainder of the fiscal year.
However, we are implementing actions to combat these higher costs and mitigate the disruption and were slowing incremental spending while prioritizing critical growth investments to help protect our chances of delivering our targeted earnings in fiscal 2023, and a very dynamic environment.
From there I will turn it over for questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.
And your first question comes from the line of Greg Burns from Sidoti Your line is open.
Good morning in terms of the $85 million of higher.
Cost inflation costs versus your prior expectations.
Based on the how much of that are you able to offset with the April price increase and the.
The July price increase that you're projecting youre going to offset all of that or only a portion.
While we expect to offset all of it and get our margin on that inflation over time, but I think your question is probably about the fiscal year impact.
And it will be substantially less.
I would put it in the range of.
$50, maybe $60 million.
Of pricing to offset the 85 in the current fiscal year, plus or minus somewhere in that range.
Okay.
Okay. So I guess the outlook.
There'll be four in the second half to see a little bit of a margin improvement or better.
Price realization and margin improvement in the second half from where you were in the.
First half of the year.
That's correct okay.
Okay.
Okay and then.
In terms of.
Order trends it doesn't sound like the recent kind of change in the macro outlook.
Impacted orders can you just talked about what you've seen some since the end of the quarter, if you're starting to see any.
Any change in conversations with your customers are.
Demand trends.
More recently.
I would say nothing meaningful meaningfully different than what we had been seeing.
The growth rates compared to the prior year are going to be impacted by the fact that price in the prior year quarters were strengthening so as we move through the year the year over year comparisons become more difficult.
But the absolute level of orders.
Matt.
I would say it surprised us in a negative way and any kind of significant pattern.
Okay.
And then lastly in terms of.
How come.
Could you just talk about what their prior distribution was like with a with Nash.
A national brand regional like what kind of leverage you're going to be able to get putting it through your distribution network.
Were they.
Previously sold by any competitors dealers and will there be any dis synergies.
In that regard.
Yeah. So so they are a national brand in fact, they do the oil select small amount of business outside the United States. So they are pretty well distributed across markets. Thanks.
Thank you have a very broad distribution network thats not exclusively tied to any particular manufacturer or any particular network.
Even so we still think theres significant opportunity to expand their.
<unk> revenue and support their growth by more closely in better connecting them to the scale. Okay Vista.
Distribution networks that we certainly expect to see revenue upside there.
As far as the synergies, we did assume a bit of synergy, but I think we certainly know that their brand reputation and the quality of their product.
Is quite strong and that customers, who ultimately desire telecom product desire Hoffmann product.
So we haven't seen some of the synergy that we don't think that that impact over time will be.
It will be significant.
Okay, great. Thank you.
Your next question comes from the line of Kathryn Thompson from Thompson Research Group. Your line is open.
Hi, Thank you for taking my questions today.
First is just focusing on production in backlog balance.
Q1 results.
With much greater production.
Okay.
<unk> do you think production will be as good or better NTT to NTP backlogs are unlikely to decline sequentially simply because the bulk of our production rates.
Well.
I'll start by saying you did have better production.
Than we expected.
In Q1, so it was more consistent with Q4.
Over the whole quarter in Q4, though what we were seeing and feeling was a little bit of a deterioration towards the end of the quarter.
And we kind of quickly made that up and got back to the average of Q4 across Q1.
In Q2, we will have to have.
Further improved production from where we are to meet the revenue targets.
But a big component of.
Sure.
Our revenue guidance for Q2 is also linked to the system.
Who is more of a make to stock model and has been ordering and receiving component parts and finished goods for the last several months to support the strong summer seasonality that they have.
So I think there might be.
A little risk.
Although overall production, but in our ops team is doing a terrific job.
Wrestling with multiple challenges in making incremental progress at the same time.
So I am pretty confident that they're going to be able to continue to do that through the summer.
And I think your last questions about what does backlog look like at the end of the second quarter.
We expect order growth to continue.
In the second quarter and I would expect that we will have a particularly strong surge in orders in advance of the price adjustment and surcharge effective dates of mid July .
Which will sit in backlog before.
At the end of the quarter, most likely given our average lead times are.
Are not what they normally have been.
So I would expect we will have a pretty meaningful backlog going into Q3.
I think the biggest question is what does Q4 look like and Thats, where we need a little bit of return to office to continue to gain traction and we need the economy to stabilize a little bit.
And if that happens we'll.
We'll have a good year and feel like our targets that we communicated in March are achievable.
Okay helpful.
In EMEA.
EMEA.
Hudson.
Growth there despite.
A challenging environment.
Two questions related to that market.
What do you see driving demand is sustainable and then.
Do you expect to see continued sequential margin improvement as we progressed through the year.
Well I'll take the second one maybe <unk> wants to comment on the first one on the sequential margin improvement I think our margins will likely be pressured in Q2 because of the August shutdowns that.
The whole continent basically experiences in the month of August .
So we typically see a little bit of margin pressure, but thereafter in the back half of the year, we would expect their pricing benefits to continue to help margins along with continued emphasis on improving the profitability in Europe .
Q1 was one of the best first quarters, we've had in a long time.
Q2 will also be a good quarter, but we suspect based on the backlog that we have in the pre sales activity in the back half of the year is really going to be dependent on how the economy stabilizes and whether or not our broader order patterns continue to hold what I feel good about is the pre sales.
<unk> continues to be pretty strong.
So maybe with that I'll leave it to service fee. If she wants to comment more about kind of the overall demand environment, Yes, I'll, just I'll add a little bit more today's comments.
Just building on his last point about order patterns I think the return to office across that region.
It Hasnt been strong so we don't see at least among our customers and those EMEA Margaret as much.
After a tension between employers and employees about about work from home versus work from office as we tend to see in North America, So I think that.
Certainly helps.
Give us confidence in the likelihood of future demand I think the other thing I would add is that a number of our growth strategy as we seek to diversify the topline involve continuing to invest in some of our initiatives outside of the Americas continuing to grow in places like Europe . So for example, we are putting extra focus on.
Our education business in Europe has seen nice growth there.
We have plans to leverage the <unk> acquisition that we completed last November to broaden their presence in Europe . So I think there are a number of things that we continue to stay invested in with respect to our strategy that will also provide a nice tailwind to our growth across EMEA.
Okay. That's helpful. And then final question. This is just a bigger picture question.
From our perspective continue to use perspective kind of that big.
Big Covid driven.
This is largely past however, this secular trend the population shifts to the southeast and southwest.
Has continued.
More favorable tax labor and then just candidly building momentum.
Ms Scott.
Yes.
Christine one and perhaps shockey and last week's announcement of Caterpillar moving its headquarters from Illinois to Texas.
As you plan out your business and when you look at these types of big shifts.
How is that impacting how you plan your business and what are your big global.
Customers, telling you about overall trends and how they think about the office as they make these take region on the southeast and southwest. Thank you.
So maybe al.
Start and answer and David can chime in if he'd like to add color I think with respect to your shifts across the U S. I mean, it is along that our strategy is to support our customers wherever they need us to support them, whether that's across the U S or globally and I think that's a big reason that we've always invested heavily in our dealer network and in <unk>.
And being a partner who we believe are the best in the industry and I think as our teams work closely with our dealer partners and local markets, whether its in Illinois, or Texas or Atlanta or take your pick your market.
A significant part of what they are putting their energy into a certain joint.
And thinking about those shifts about how different markets are going to grow what the potential opportunity in a given region is and making sure that we in combination with the dealer how that share plan and have a shared perspective on how we bring the right resources to that market to capture business and to serve customers. So I think that.
So within those types of conversations have long been built into how we think about our dealer network and how we work with our dealer partners and I think that'll hold us in good stead as we do see some of these shifts in population legal corporate means over time. So I don't know David do you want to add anything to that.
Yes.
Okay, great. Thank you very much.
Thanks, Kevin.
And again, if you'd like to ask a question at Star one on your telephone keypad.
Next question comes from the lineup, but bluegrass from water Tower Research. Your line is open.
Good morning, and congratulations Juan.
Revenue growth in the order growth continue.
Continuing to manage in this dynamic environment I guess.
I'll Echo a little bit with cash with Kathryn said.
We are here in the south and the shelf in the West coast of Florida, the traffic as well.
As Ed is confirming the a lot of the growth out here.
I guess.
Just start with a little bit of a big picture you just come back from Neocon, which.
Really it was the first one in.
At this time of the year during.
During this during after probing.
Are you seeing from the customers what are you hearing from the customers in terms change behavior can you maybe talk about that I know you talked about more increased privacy, but maybe give us a little bit more color to that.
Sure Matt This is Sarah.
Thanks for the question.
Couple of things that we're hearing in addition to changing.
The needs for privacy.
Also related to that the need for individual focus so thinking about the idea that when people are in the office, they're not just there for meetings and for collaboration but they also have moments or periods of time in between the meetings, where they need really.
Really terrific individuals' basis that support their individual focus work.
Two other things I would touch on.
The growing demand of course for hybrid collaboration.
Thank our perspective and point of view is that going forward every single space no matter what type of state that it needs to be ready to support our hybrid interaction whether its at a group meeting where you need to dial in somewhat on view, whether it's an individual.
An individual working space for someone might choose to dial someone up on their on their laptop.
So I think.
Needs and desires from customers to understand how they can think about furniture display video acoustics. All of the same lighting all of the things that you need to create a terrific hybrid experience are top of mind for customers.
And then the other thing I would mention is certainly the need for social spaces.
One of the best reasons, Alright, most important reasons for people to come to the offense is to be with their colleagues.
And lots of.
Lots of customers lots of business leaders and decision makers are talking about the desire to rebuild trust to rebuild special connection to help their employees feel reconnected to the broader organization in the company's purpose and those in between spaces those informal spaces social kinds of spaces, whether it's a lounge area a cafe.
Et cetera.
There's a lot of interest in <unk>.
Talking about those kinds of spaces, even from the kinds of customers that I would say anecdotally in my experience prior to the pandemic.
Felt that that was fluffy.
Okay. The spaces, we're not not suitable for doing real work on even some of the more.
Previously reluctant customers to think about the idea of social interactions in the Opex are now really.
To explore those types of solutions.
Okay. Thank you.
And other things that are changing so dynamically in the environment. We're also not just affecting.
Steelcase, but affecting all of us, we're seeing higher interest rates in relation to.
The fed's worth trying to.
Slow down.
The economy and the inflation that we have seen does that how is that impacting steelcase, what's the impact on <unk>.
Interest rates to you and.
David but if you can maybe give us a feel or back.
Probably going to come back to inflation ex part of that as well.
It's relatively small but.
But because of a substantial majority of our debt is.
Public debt with a fixed rate.
We have I.
I think less than $50 million of.
Aircraft financing that has a variable interest rate so it's relatively small.
Got you. Thanks, that's good news.
Can we talk a little bit of that.
Okay.
In the presentation that you expect pricing to become a tailwind in fiscal 'twenty three and just maybe go back and we're just in the beginning of the pandemic.
Would be 19 for most people I think would be your fiscal 'twenty how much whats. Your total can we get an idea of total dollars of inflation in total dollars of pricing between then and now and maybe how that varies by segment too because I think there is a difference in the timing.
While pricing and inflation by segment, So maybe review that because I'm confused.
And I think I'd pay attention. So you had five five ish increases at the surcharge.
Kind of confused as to where the totals lie.
Also just on that particular asset you have a follow up with Mike.
Go through the disclosures that we've had maybe over the last.
Several quarters and then.
I think we can piece together for you how its impacted the segments because we've provided a lot of that color either on the calls or in the Qs.
But in the aggregate I mean, we're now at about $100 million.
Net inflation.
In excess of pricing benefits.
So if you just think about the hole that we're in that we're beginning to climb out of in Q2 with our projection the pricing should be ahead of year over year inflation by about $10 million.
And it's the back half of the year, where we start to climb out more significantly.
Of the incremental adjustments and surcharge initially we had anticipated Q Q2 would start to show more meaningful.
Year over year improvement $10 million, so meaningful but it would have been a lot better had we not had the latest surge in petroleum based.
Products fuel and logistics costs.
As well as steel not playing out anywhere near what external indices as projected.
It's come down, but not nearly to the extent that it was projected to come down.
And then just wanted to know.
But most of that's been in the Americas as you would expect obviously, but we can definitely get more granular.
And Thats, what I was trying to get to.
I do think I understand that and through the year that that delta of $10 million. What do you think it is for the full year.
Yes.
I don't know that I have.
Off the top of my head, we did disclose a $120 million to $140 million and our initial targets and in the dialogue with Gregg just a minute ago, we kind of size.
That could be impacted in the third.
Bringing plus or minus.
Because of the latest round of $85 million of inflation net of the incremental.
Pricing benefits.
The 120 to 140 something closer.
Something maybe lower than one hundreds or something higher than 100.
Okay that is very helpful. Okay, well congratulations on managing through this.
As I shared a very challenging environment, you certainly said that as well thank.
Thank you.
Best of luck.
Yes.
And there are no further questions at this time, Mr. Armbruster, I turn the call back over to you.
Great well I just want to thank all of you for joining US. We appreciate your interest in steelcase and have a great day.
This concludes today's conference call you may now disconnect.
Okay.
Okay.
Okay.
Yes.