Steelcase Inc (SCS) 2017 Q3 法說會逐字稿

Good day, everyone, and welcome to Steelcase's third quarter fiscal year 2017 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. Raj Mehan, Director of Investor Relations, Financial Planning and Analysis and Assistant Treasurer.

Thank you, Kaylee. Good morning, everyone. Thank you for joining us for the recap of our third-quarter financial results.

Here with me today are Jim Keane, our President and Chief Executive Officer; Dave Sylvester, our Senior Vice President and Chief Financial Officer; and Mark Mossing, Corporate Controller and Chief Accounting Officer.

Our third-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 call 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'd like to now turn the call over to our President and Chief Executive Officer, Jim Keane.

Thanks, Raj, and good morning, everyone. I'll start by affirming that the results we reported at the close of business yesterday are the same as the preliminary results we provided earlier in the month.

It wasn't a bad quarter, but we expected better, and the results were below the estimates we communicated in September. The miss was in our Americas business and after further analysis it seems that the overall industry was growing more slowly than we expected. BIFMA has only reported shipments for the first two months of the quarter but we did a little better than BIFMA for those two months.

When we analyze our Americas business, our orders and shipments to larger contract customers were okay both in terms of projects and the ongoing business that continues with those customers between projects.

We've talked before about our win rates and those remain relatively strong. We saw some weakness in both orders and sales from smaller customers with whom we typically don't have contracts. It's possible this customer segment pulled back a bit during the political uncertainty of the quarter and we have heard others in our industry point to softness in this segment of their business. On the other hand, it's also possible we are not capturing our historical share of our dealers' business in this segment.

We had our Americas dealers together in Grand Rapids earlier this fall and we talked about how we could capture more of this business and we are working on some new initiatives that should help.

We also hosted our Americas sales organization in Grand Rapids a few months ago for new product training and other investments in our capabilities. We've launched a lot of new products in the past year and we've been successful with those new products, but these investments in training will help us make sure every customer is aware of how those products can help them work more effectively.

In the past we've talked about CEO confidence and the most recent data is up slightly overall but still quite restrained when it comes to the outlook for capital expenditures. We are interested in some of the tax changes and regulatory changes that could come with the new administration and are hopeful it could stimulate investment by US customers.

I was in several of our plants in Grand Rapids and Athens, Alabama, this month and I feel very good about our capabilities and our progress. We are already very strong operationally but the team continues to execute against cost-reduction goals, quality goals and reliability goals.

Our global operations leaders have been together in our Alabama plant starting on Monday of this week to set new goals for the coming year. That group included operations leaders from our EMEA segment and they've done a terrific job getting our performance back on track.

In fact, our EMEA segment surpassed our expectations by posting a profit in Q3 largely because of improved gross margins. Our entire team in EMEA has been very focused on this first step of delivering a quarterly profit and I want to recognize their accomplishments.

That said, we're not done, and we continue to believe we have significant opportunity to drive additional benefits through lean continuous cost-reduction efforts, yield management, mix management and other gross margin improvement initiatives. Volume is definitely a part of the equation that helps EMEA return its cost of capital. We see just as much opportunity by leveraging the business model enhancements we've made.

Our outlook reflects our best insight in terms of order patterns and information related to projects won but not yet shipped. We also made some changes to our Americas forecasting models intended to more fully reflect the patterns I discussed previously.

But even with those changes, our estimates cannot fully anticipate the impact of the economic and political uncertainty we see in every major market around the world. Oil prices are rising, interest rates are rising, currencies are shifting and tax policy and trade policy changes are likely to become clearer early in the new year.

The enthusiasm in the stock market could translate to higher business confidence and a stronger furniture market than we've seen this year, but we've made no effort to incorporate that into our estimates. Our customers will face the same challenges and we're helping them think about the role space can play in creating more resilient organizations.

Finally, a couple items about our Board I'll share on behalf of our Chair, Rob Pew. One of our Board members, Bill Crawford, has elected not to stand for reelection and will retire from the Board next year. I want to recognize Bill for his 37 years of service on behalf of our investors.

He has served the Company both as an employee and a Board member. He was President of the Steelcase Design Partnership for many years and has close relationships with many current employees of the Company.

I had the privilege of working with Bill early in my career at Steelcase and I learned a lot from watching how he challenged everyone to find a way to be better every day. Bill has done the same while serving as a Board member and on behalf of the Board I thank him for his service.

Secondly, I'm delighted that Tim Brown, the President of IDEO, will fill an open seat on our Board of Directors. Steelcase and IDEO have had a close relationship for more than 20 years and I know Tim very well from the work we've done together over that time. I've been honored to serve on the IDEO Board for many years and look forward to having Tim bring his deep insight around innovation and design to our conversations at the Steelcase Board.

With that, I'll turn it over to Dave Sylvester for his detailed remarks on our results and our outlook.

Thank you, Jim. I will cover our financial results first, noting where results differed from our expectations and highlighting year over year and sequential-quarter comparisons and then I will talk about our balance sheet and cash flow before getting into our order patterns and outlook.

Overall, we continue to feel pretty good about the business and the progress we have made on several fronts over the past 12 to 18 months.

Third quarter revenue did fall just below the low end of the estimated range we provided in September and I will cover that in a moment, but first I want to share a few broader highlights, some of which Jim just referenced.

First, EMEA was profitable in the quarter and the $15 million improvement in adjusted operating income compared to the prior year was driven by a significant improvement in our gross margin.

Second, our pipeline in the Americas for project business expected to be ordered and shipped during the next four quarters continues to reflect strength compared to the prior year. And while growth in day-to-day business was lower than we anticipated, we do take note of recent improvements in sentiment, whether it be from CEOs of the Business Roundtable or small companies as reported by the National Federation of Independent Business.

Third, Asia Pacific posted a record level of quarterly orders and we are achieving it by securing more and more business with leading organizations headquartered in China and India. We had anticipated we might also post a record level of revenue in the region during the third quarter; however, timing of completion related to a few projects pushed some revenue into the fourth quarter.

And, fourth, Designtex posted strong order growth and sales growth in the quarter, evidence that our product marketing strategies are paying off. And PolyVision made additional progress in the last 90 days to resolve the majority of the antidumping duty exposure we have been discussing for the last several quarters.

As it relates to revenue in the third quarter, the organic growth was lower than our estimated range of 1% to 4% growth. The shortfall was primarily due to lower-than-expected growth in day-to-day business in the Americas and a significant amount of customer deliveries shifting from the third quarter to the fourth quarter in both the Americas and Asia Pacific.

To give you some additional insight into the Americas revenue shortfall, and to provide some context for the lower-than-expected gross margins, which I will discuss in a few minutes, I will share a few additional comments about our order patterns in the Americas during the quarter.

Across the months, order patterns in total were largely consistent with our expectations, growing significantly in September in advance of our October 3 price adjustment, followed by declining significantly in October, likely due to the pull-forward effect of the price increase on orders, and then growing nicely by a mid-single digit percentage in November compared to a relatively weak prior year.

However, the mix of business reflected stronger-than-expected growth in project orders and lower-than-expected growth in day-to-day business, which represents the aggregation of business from continuing agreements and marketing programs.

In addition, business generated by our own dealers and services business was greater than we expected. These mix shifts are important as day-to-day business tends to shift faster than project business and average gross margins tend to be higher and gross margins on dealer and services business are much lower than our overall average.

Related to the requested customer deliveries which shifted to the fourth quarter, the amount was higher than normal and the orders spanned across project and day-to-day business, which is also somewhat unusual. And a significant amount of orders in the quarter were received with requests for delivery beyond the end of the fourth quarter. We see some of this every quarter but the magnitude in the third quarter was unusual and we have no reason to believe it was linked to our October price adjustment.

Finally, third quarter included a higher-than-expected mix of business from some of our largest customers who earned deeper-than-average discounts through volume-related rebates and additional contributors to our lower-than-expected gross margins.

From an earnings perspective, the $0.34 in the quarter compares to our adjusted earnings estimate of $0.33 to $0.37 and includes $0.03 related to the tax benefit mentioned in the earnings release, which was not in our guidance.

Operating income was significantly lower than our expectations in the Americas and operating profit in EMEA compares to an anticipated loss in the quarter.

For the Americas, lower revenue and the unfavorable shifts in business mix I previously mentioned were the largest drivers of lower-than-expected gross margin and operating income.

We also had a few operational issues in the quarter that negatively affected gross margin but their financial impact was offset by lower-than-expected operating expenses and some of the issues are already resolved.

For EMEA, the better-than-expected results were driven by our local teams continuing to improve operational performance as well as beginning to realize benefits from various gross margin improvement initiatives. We also recorded true-up adjustments to accrued liabilities which improved our results by approximately $2 million.

Switching to year-over-year comparisons, I will add a few additional comments for each segment. For EMEA, the $15 million improvement in adjusted operating income was driven by a 1,050 basis point improvement in cost of sales, the result of hard work by our colleagues in Europe to rebuild the EMEA business model.

We eliminated the costs associated with our footprint changes and other issues experienced in the prior year and we have begun to realize benefits from cost-reduction efforts and other gross margin improvement initiatives.

For the Americas, the year-over-year decline in operating results was driven by the unfavorable shifts in business mix I mentioned earlier and higher operating expenses including variable compensation expense associated with the tax benefit recorded in the quarter and our improved results in EMEA.

In the Other category, we posted lower operating income in Asia Pacific compared to a very strong prior year as well as lower operating income in PolyVision in part due to costs associated with the steel tariff issue.

Lastly, corporate costs were higher compared to last year primarily due to lower COLI income. Sequentially, third quarter adjusted operating income was lower compared to the second quarter as benefits from seasonally higher revenue and improved operational performance in EMEA were more than offset by the impact from the unfavorable shifts in business mix including some of the items mentioned previously, plus a seasonal shift in revenue across vertical markets in the Americas.

Moving to the balance sheet and cash flow, cash provided by operating activities approximated $83 million in the current quarter and was similar to the prior year.

Capital expenditures totaled $14 million in the third quarter and $40 million on a year-to-date basis. We estimate capital expenditures for the full year will approximate $60 million to $70 million, which is somewhat lower than our previous estimates as various capital projects are pushing into next fiscal year.

We returned approximately $29 million to shareholders in the third quarter through the payment of a cash dividend of $0.12 per share and through repurchasing approximately 1.1 million shares under our share repurchase authorizations. Over the last 12 months we have repurchased approximately 6 million shares under these authorizations and have $126.5 million remaining under the authorization approved by our Board of Directors in the fourth quarter of fiscal 2016.

Turning to order patterns, I will start with the Americas segment where our orders in the third quarter grew by approximately 3.5% compared to the prior year and included initial orders from a very large project that was won in the first quarter.

In addition, orders in the Americas continue to reflect a significant decline in the energy vertical market which negatively impacted overall order growth in the segment by approximately 300 basis points year over year.

Customer order backlog at the end of the quarter was 4% higher compared to the prior year and the growth was almost entirely driven by orders with requested delivery dates which fall beyond the fourth quarter.

Turning to vertical markets in the Americas, we experienced growth in seven of the 10 vertical markets we track including four with double-digit percentage growth rates, as well as growth across our untracked sector, which includes retail customers and other vertical markets not large enough to track separately. This growth was dampened by declines in the energy, federal government and technical professional sectors.

We believe the significant impacts from the energy sector on a year-over-year order comparisons are now behind us; however, we expect the year-over-year revenue comparison to be significantly impacted for one more quarter as we finish fiscal 2017.

Across quote types, project orders grew by 6% while day-to-day business grew modestly, reflecting growth from continuing agreements and a decline in our marketing programs aimed at smaller day-to-day business.

Year-over-year order growth was strongest from customers whose orders aggregated more than $3 million in the quarter and grew at a strong single-digit rate outside of the initial orders from a very large project I mentioned earlier. Orders from customers whose orders aggregated less than $1 million declined compared to strength from this group of customers in the prior year.

Since June, we have talked about the year-over-year strength we are seeing in our pipeline of project activity in the Americas and we also talked about the possibility that ongoing uncertainty could negatively impact day-to-day business from continuing agreements and marketing programs.

Our project pipeline of estimated project revenue over the next four quarters continues to reflect meaningful growth compared to this time last year. This pipeline calculation includes project business that we have already been awarded or that we believe we have a significant probability of winning from customers we expect will generate more than $3 million of revenue over the next four quarters.

It's only one piece of data and these aren't binding commitments and it's possible that day-to-day business could remain subdued, but we continue to feel good about this data point as well as the improvement in [CDO] and small-business sentiment I mentioned earlier.

For EMEA, the order decline of approximately 3% in the current quarter compares to significant growth in the third quarter of fiscal 2016. The order decline reflected declines in many markets that posted strong growth during the third quarter of the prior year offset in part by growth in a couple of other markets which benefited from large project activity in the current quarter. Customer order backlog for EMEA ended the quarter down 11% compared to the prior year.

Within the Other category, orders in total grew 14% compared to the prior year driven by the record amount of quarterly orders in Asia Pacific and solid order growth from Designtex.

To summarize, order growth in the Americas was driven by the strength of our project pipeline and was achieved despite continued weakness in the energy sector and lower-than-expected growth in day-to-day business. We are hopeful that improved CEO and small-business sentiment will help bolster demand in our day-to-day business.

For EMEA, the environment remains mixed but it's worth noting again that the modest decline in orders during the current quarter compared to a very strong prior year. Asia Pacific posted a record level of quarterly orders during the third quarter and Designtex also posted notable order growth.

Before I turn to our outlook, I want to provide an update on PolyVision and the antidumping proceedings we have discussed on previous calls.

During the third quarter, we secured the support of the domestic steel producers to file a request with the Department of Commerce to revoke the duties related to the primary gauge of steel we have to import from Japan and to allow for the recovery of the related duties paid to date. We expect the Department to publish notice of this exclusion by the end of the month, solicit any comments and resolve the matter by the end of our fourth quarter.

Accordingly, our current quarter earnings and our estimate for the fourth quarter do not include any duties associated with these purchases. The balance of porcelain-enameling steel we import remains subject to anti-dumping duties for now and we estimate that our earnings could be reduced by a few hundred thousand dollars per quarter for these remaining duties and our ongoing efforts to mitigate. We will provide periodic updates as any new material information becomes available.

Turning to the fourth quarter of fiscal 2017, we expect to report revenue in the range of $735 million to $760 million which reflects an expected range of an organic revenue decline of 1% to organic revenue growth of 2%.

Related to EMEA, we expect to report an operating loss in the fourth quarter primarily due to our expectation of lower revenue and higher operating expenses both on a sequential basis compared to the third quarter and on a year-over-year basis compared to the fourth quarter of the prior year.

We anticipate year-over-year improvement in our EMEA gross margin again in the fourth quarter but we expect the resulting gross margin in the fourth quarter to be lower than the third quarter of this year due to our expectation of lower revenue as well as the nonrecurring nature of the accounting benefits we recorded in the third quarter.

As a result of these factors, we expect to report fourth-quarter earnings within a range of $0.22 to $0.26 per share. As I said in the earnings release, there are two potential items which are not reflected in our earnings estimate for the fourth quarter that we estimate could reduce our fourth quarter results by up to $0.08 per share.

One item is related to a potential reduction in the French statutory tax rate which the French government is currently considering and, if enacted in the fourth quarter, could require us to record a non-cash charge to reduce the value of our deferred tax assets.

In addition, we are working toward annuitizing some of our smaller defined-benefit plans which, if completed in the fourth quarter, could result in a modest use of cash and an accounting charge related to accumulated other comprehensive losses recorded in connection with these plans. We have not included these items in our earnings estimate as there are a number of factors in each case which are outside of our control.

From there, we will turn it over for questions.

(Operator Instructions) Budd Bugatch, Raymond James.

Good morning and happy holidays to everybody there. I guess the first question would have to go to talk about the Americas volume, if we are limited to a couple of questions. And you talked about the day-to-day business, David, and you talked about the impact of, I think, the price increase and it looks to me like that was probably a wash over in the overall quarter although it had some volatility in the month.

What can you tell us about day-to-day business? Is there any chance that we're losing share in that? Your project wins are notable and your pipeline looks good, but day-to-day is an outlier and if that -- I think that represents somewhere 20% or more of your business in the (technical difficulty). What can you tell us about market share? Is your product portfolio good to meet the demands of the smaller customers in the day-to-day business?

Thanks, Budd. So I would say first of all, day-to-day is an important segment for us and it's business that flows through our dealers and the nature of it is such that we don't have as much visibility to it.

So these are typically things that are not priced centrally; they are priced by dealers and so, as a result, we just have less information about it. But we are doing what we can to understand what is happening there.

It's possible that if you go back a few months and you go back early in the year, some of the product gaps that we talked about on this call (inaudible) and we knew that was affecting some of our win rates; we've resolved those and they've helped us improve our win rates but they could've had an impact on day-to-day business as well. Now why that didn't change is still rather uncertain.

It's also possible that we're just facing increased competition in this segment of our dealers' business. We know of some specific cases where some competitors have been more aggressive and we've taken steps to counter that, so we are -- if it is a matter of just competitiveness, we are making sure that we are as competitive as we need to be.

It is also possible, though, that it could be something that is broader and more driven by the economy. As I mentioned in my remarks, we know of some others in our industry who've commented on softness among the small customer segment, which this would be, or on small orders. So we are speculating there, I would admit, but there was uncertainty in the economy during the period we are talking about and this has not been a soft spot for us historically.

If you go back three, four years ago, this has been a spot where we hold a reasonable amount of market share and we've retained that share. So it's an area that's getting a lot of attention from us right now because, as I said, we've addressed a lot of the other issues. This seems to be the one that's remaining on our plate and it's a topic of conversation.

And, Budd, just one more comment about your question about the order growth and potentially it being affected by the price increase. We don't know exactly how much, if any, of the order growth in the third quarter was related to pull-forward business that would've otherwise been ordered in December.

We can clearly see a pull-forward effect between October and September and maybe a little bit from November, but November still grew over last year. And so far in December, through the first three weeks anyway, in total, orders are up low single-digit percent in the Americas, which tells me that if there is some pull-forward effect from December into the third quarter order patterns, that it likely was relatively small.

But until December finishes, we really won't have a concrete view on whether or not anything of significance was pulled out of December or the fourth quarter into the third quarter because of the price increase.

Okay. And just as a follow-up, just to make sure I understand; was there any significant change in behavior after the election? Have you seen any change in behavior on that? And then I do have another question after that.

I think it's really too early to say. We watch our orders every week, of course, and we'll have a strong week and then we'll have softer weeks, but I can't point to any specific change as a result of a shift after the election.

I think it will be more interesting to see how that plays out after the inauguration and after the first few actions are taken by the new administration. I think that's when we may see some changes, but right now it's too early to say.

Okay. My second question, I guess, one of the things that we've noted was a significant year-over-year gain or a increase in operating expenses in the Americas, and if you could go over and give us what some of the pieces of that -- the economics going forward?

The biggest driver is related to our continued investment and product development marketing in the sales organization and the other is variable compensation linked in part to the tax gain that we recorded in the quarter.

And there's also a continuing impact on another variable comp that's getting amortized over twelve quarters? Is that correct?

Yes, that's right; that's the tax benefit that was recorded in the prior year. The Compensation Committee took a position to roll that into the variable compensation calculation over three years and, therefore, the expense associated with that affects last year, this year and next year.

And if I could sneak in one other question; talk a bit about EMEA. It was a great quarter in terms of gross margin improvement. Maybe you could help us figure out how much of that was due to the fact of the increased volume or the shipping of the backlog and how much of it is actually operational improvement and what is the likely look forward to that?

Sure. It's a $15 million year-over-year improvement and, in constant currency, revenue was up a couple of percent and therefore I would say that contributed maybe $1 million to $2 million of incremental operating income of the $15 million.

Operating expenses were relatively flat. You might remember last year we had some nonrecurring items related to severance and other matters which we did not have this year, which you would expect then a benefit, but we had higher operating expenses associated with the Munich Learning + Innovation Center and some other normal increases. So that was a net push.

So that leaves $14 million for the balance, which was largely driven by gross margins. $2 million of that is from the accounting benefit that I called out in the release, which leaves $12 million, and we disclosed last year that we had $5 million of disruption and $4 million of costs from other issues that we were incurring last year.

So, of the $12 million, $9 million is not having the costs reoccur from the prior year, which leaves $3 million, which is continued cost reduction, gross margin improvement initiatives and modestly favorable mix compared to last year.

I will add to that that beyond the economic benefits from the improvements, you can also look at other metrics in our business that tend to be leading indicators of how we will do in the future; these include rework rates, for example, and we are seeing our rework and scrap fall quarter after quarter, month after month and that's really a promising sign that shows the impact of the new processes we are putting in place, the investments we are making in equipment and so on.

We're continuing to make investments. We see additional opportunities to be better across the board. So there's plenty of opportunity left, but I can see not just in the financial results, but also in some of these operational metrics, that there is more good news ahead.

Yes, and what I love about that is that our sales organization is now spending 100% of their time selling and positioning our innovation with customers versus explaining to our dealers and customers what we are in the middle of from a restructuring standpoint and trying to smooth that over as much as possible. Our operations are stable. We feel like we have additional upside, as Jim articulated, and our sales organization is at work doing what they do best.

Okay, I will re-enter the queue and let others ask some questions. Thank you.

Kathryn Thompson, Thompson Research Group.

Hi, thanks for taking my two questions today.

First, focusing on EMEA. I appreciate you providing the bridge for the margin upside, but from a realistic standpoint as we look forward, what can we reasonably expect that is ongoing in terms of upside, in terms of margins, maybe thinking about it more in terms of basis points? And in addition to that, if you could give a little bit more color on intra-quarter trends for EMEA as you did in the Americas operations. Thank you.

I'm not sure I followed the second question, so let's come back to that. But on EMEA, I don't have a specific estimate that we are prepared to provide publicly as to how we think gross margins are going to behave in EMEA on a go-forward basis, in part because we don't know exactly how volume is going to play out and that will obviously be a contributing factor.

If you assume volume is flat, just to try to tease apart the gross margin improvement, it's really going to be dependent on the pace of success we have in driving continuous improvement in our manufacturing environment as well as impacting our customer mix, our product mix across the business, pricing strategies and the like.

We have, I don't know, close to a dozen different initiatives that we are working on to strengthen our business model in EMEA and some of those will go well, some of those we may have to restart, some of them will go faster, some of them will go slower.

What I can tell you is we feel good about continuing to improve gross margin without volume. Volume will help -- will be additive to that from an absorption perspective, but I don't have any specifics that we're prepared to share today.

Maybe a clarification on that margin side. So you've reported the first EMEA adjusted operating earnings -- operating profit that is -- since fiscal 2014, Q3 fiscal 2014 -- Q4 rather, fiscal 2014 -- and as we look at the Q4, is it reasonable to expect that that segment could be profitable?

And also, as you look into the full year for next year, granted you haven't provided specific guidance for next fiscal year, but is it reasonable to assume that you could see a continued profit trend as we head into the next fiscal year?

Well, as I said in my earlier remarks, we expect an operating loss in the fourth quarter, and it will be driven off of --

In EMEA.

Sorry, in EMEA; good point, Jim. And it will be driven off of lower revenue and higher operating expenses sequentially as well as year over year in that segment.

We also expect gross margin to go down, in part because of the lower revenue, but also in part because of the nonrecurring nature of the accounting benefits we recorded in the third quarter. But I expect them to still be higher than they were last year in fourth quarter.

So that's the mechanics on the fourth quarter. Next year -- we will give more color in March on what we are thinking over the course of the next year, but I will remind you that our business in Europe is seasonal and that the first half of our year tends to have lower revenue than the second half.

So it would be likely that if volume were to be relatively flat -- and that's not a forecast, it's just an assumption for the sake of dialogue -- but if volume were to be relatively flat year over year, it's likely that we would lose money in the first half of the year and hopefully make money in the back half of next year.

In fact, I mean, we made $2.4 million I think it was in the third quarter of this year. It's possible that we could make money in the back half of this year, but it's also possible that we could lose money in the back half of this year.

Okay, thanks. And for Americas, what percentage of Americas' orders are projects as a percentage of the total orders in that segment?

And just a quick follow-up on Americas margins. How much can you estimate that mix impacted that margin weakness in the quarter? Thank you.

The project mix has been pushing 50% more recently. Historically, it has ran closer to 40%, but it's been in the high 40%s for the last several quarters. And all of those mix issues that I was talking about had several million dollars of an impact on the quarter, Kathryn.

I'd be hesitant to try to size the exact amount, but it's -- it would -- in the neighborhood of closer to zero, 5 or 10, it's probably closer to 5, and maybe a tad more, but I would stop short of trying to quantify it beyond that.

Great. Thank you very much.

(Operator Instructions) Matt McCall, Seaport Global.

Thanks. Good morning, everybody. So I guess the two questions I have left -- and I might sneak in a third one but -- Dave, you said that the energy impact was going to be significant, I think was the word you used on Q4 results. Can you give us a little more detail there about how much pressure is going to hit Q4? Then if you could just maybe review what the total impact is expected to be from that energy weakness in this fiscal year.

Well, Matt, as I said from an orders comparison perspective, we think we've lapped the most significant declines. But from a revenue perspective, I think it will impact us a little bit more in the fourth quarter. And I am trying to look quickly at where that is.

It will be noticeable. I don't think it will be a 300 basis point impact in the fourth quarter, but maybe something around half of that, something like that, because we were already feeling revenue declines in the energy sector in the fourth quarter of last year.

We just haven't been feeling it as -- we've been feeling it more significantly over the last several quarters and I think if it stays at that existing run rate and follows the way our orders behaved in the third quarter, then we will feel it on the revenue side in the fourth quarter and then hopefully we have that stuff beyond us.

And is there -- I'm just trying to gauge the magnitude of the pressure this year. I know it's going on more than a year, but if you look at this fiscal year, do you have an estimate of what the energy sector specifically went down in dollar terms?

I don't. Maybe we can quantify that on the next quarter's call so you guys have a sense. We've talked about being down in the 40% to 50% range in orders over the last several quarters, so it's not the biggest segment, but when you -- it's not a tiny segment either.

I think before this mess it was number seven, or six or seven on our list, and when you have that kind of a decline, on top of declines that were in the 10% to 20% range the year before, it's pretty dramatic.

All right; okay. So you talked a little bit about share in North America specifically at the dealer base and I think you answered that pretty well what's going on.

I recall that -- going back a few quarters -- you had some share issues in EMEA from some service issues which you faced in the summer; I believe that was summer of 2015.

Do you think the share has been recaptured there? I know you were fighting back to get what you had lost, but can you just give us an update on where that stands and where the customer relationships stand over there?

Yes, so we don't have a BIFMA number that we can use that's reliable for EMEA so we use local country data when we can get it. We look at our win rates and so we use other kinds of proxies.

I kind of want to just start with sharing that we don't have the same kind of specificity, and when we look at individual countries, we can see places where, in France for example, we think we're doing much better than we were doing before. We can see improvements in our win rates, we can see the effectiveness of our sales force is improved and just any proxy I look at I see strength in that market and that's a very important market for us.

And then if you go to the UK, the UK is challenged by both the things going on in the local economy, but also changes that we had in our own model as we made changes with our dealership model; we made changes with some of our sales leadership, and those changes are paying off and we can see a lot of the early signs of that.

We've had a nice win, in fact a very significant win just in the last month that was an account we served before, but we've confirmed that account, so that's a good sign. But it's too early for me to point to revenue and say that I can measure revenues in terms of market share there.

And I'm not going to try to go country by country, but that's really where that analysis ends up taking us is places like Spain, for example, where we feel like we are doing quite well now. And then there's other markets where -- the Middle East again is challenged by oil prices, so it's hard to tell what's happening with market share. We can just feel the pressure in our business as low oil prices creates a downdraft across the whole economy.

So I'm not trying to dodge the question, I just want to point out -- hard for us to really answer it and we try to give color about things like I just did to give you guys a sense of what's going on.

Okay, that's fine. I will sneak one more in. So you talked a lot about EMEA profitability. Can you -- are there any items, any puts, takes that we need to think about as we move into next year from the Americas perspective on the margin side?

Is there anything that recurred -- that happened this year that won't recur next year, or is there just a straight contribution margin that we should assume when we are looking out to how to model profit margins for next year?

Well, I don't have any update on next year -- any early update on next year that we would otherwise provide in March. But I would look at the relatively unusual mix of business that we had in the current quarter as something that is unusual and may or may not occur again next year. I'm trying to think back, Matt, to the first and second quarter and I don't --

Q1 we had a warranty charge. That was a little unusual.

Yes, we may have disclosed -- that's right -- we disclosed a warranty charge in the first quarter that was relatively unusual but we'll get into more of the details next quarter.

Okay, that's fair. Thank you, guys.

Budd Bugatch, Raymond James.

David, thank you for the clarification or the additional information on the tariff issue, the antidumping issue, but explain to me what's in the fourth quarter estimate and what's not; maybe go over that again and then what the impact is. Is that couple hundred thousand dollars in the fourth quarter estimate that you're (inaudible) --?

That's right.

So (multiple speakers) --?

-- just a few hundred thousand (multiple speakers) --

Please go over that again? And what happens if that's relieved? Do you get -- how much comes back onto the Company's --?

Actually nothing. What will come back is what's recorded on the balance sheet. We have not expensed the antidumping deposits that we've paid because we believe they will be refunded through our efforts to have the primary gauge of steel excluded.

So while we pay deposits of duties as the steel was being imported, as it has begun to have been consumed in our production, we've expensed it because we believe we will get it back through the exclusion and the retroactive application of the exclusion.

So on the operating numbers then nothing is in there for the antidumping, is that right?

Nothing is in there for the primary gauge of steel that we import; that is covered under the exclusion that's in process of -- with the Commerce Department. The other gauges of steel that we import, which is a much smaller percentage of our production, those are still subject to duties and so those are being paid and expensed as we go.

I see. So if we look on the balance sheet, where would we find the accrued issue on the dumping duties that come back off? What's the geography of that on the balance sheet?

It's in current assets. I think it's either in Other current assets or in inventory.

Okay. Also on the energy front, are we seeing anything sequentially we can talk about now that energy costs are rising? Are we seeing any more activity in the energy sector, in the energy vertical, that maybe you can give us an early clue on?

We are not, but we are thinking the same way you are, that as oil prices rise, we -- this energy sector has been an important sector for us and we are hopeful that as energy prices rise and they can reestablish their normal budgets of capital expenditures, they will see some improvement in that sector. But honestly, so far we haven't seen that reverse, so it may take a little while for that to play out.

Okay, all right. Thank you very much.

Thank you. I am showing no further questions at this time. I would like to turn the call back to Mr. Keane for closing remarks.

Thank you. So again we are pleased with our progress and the progress we were able to demonstrate this quarter in our EMEA segment. I want to thank you all for your interest in Steelcase and we wish you and your families a wonderful holiday season.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.