Kimball International, Inc. Reports First Quarter Fiscal Year 2019 Results
Kimball International, Inc. (NASDAQ: KBAL) today announced results for the quarter ended September 30, 2018.
Highlights:
- Revenue growth of 11%, or 8% on an organic basis; highest quarterly sales in over 15 years at $194.1 million.
- Strong order growth of 18% or 15% on an organic basis.
- Significant 27% sales growth and 33% order growth in the hospitality vertical on an organic basis.
- Transportation, steel and other commodity cost increases continued to put pressure on margins. Teams working to mitigate.
- Lower effective tax rate of 24.4% compared to prior year rate of 33.4%, as lower income tax rates are now fully in effect.
- The David Edward acquisition was successfully completed on October 26, 2018.
Kristie Juster, CEO, stated, “We continued on a positive note with our highest revenues in over 15 years and strong double-digit organic order growth in the first quarter. Our order backlog is strong and operating cash flow remains robust, enabling us to continue to invest in further growth and value creation. Net income was down slightly, but excluding one-time CEO transition costs our adjusted net income was up 6% from last year. We continue to be challenged by higher transportation, steel, and other commodity costs, as well as tariffs that have been implemented along with additional tariff increases in the future. We are working to mitigate these cost increases by negotiating pricing with suppliers, continuous improvement initiatives, price increases and our previously announced $7 million cost reduction initiatives and anticipate these actions will offset the higher costs beginning in the second quarter of fiscal year 2019 and beyond. Our return on capital was higher than any of the public companies in the office furniture industry.”
Kristie continued, “We also just announced the acquisition of David Edward, a provider of impeccable quality upholstered products in the furniture industry. David Edward and our Kimball brand are strategically aligned, and we intend to further invest in the company and utilize their skilled workforce with a goal of making David Edward the premier source of upholstered products for architects and designers. We welcome David Edward employees to the Kimball International family.”
Kristie concluded, “Finally, I would like to express my sincere gratitude to Bob Schneider, who retired on October 31 as CEO and Chairman. It has been an honor working with Bob on the Board over the past several years. Under Bob’s leadership since the spin-off, Kimball International sales grew 26% and profitability grew over 500%. Bob has been instrumental in not only getting the company healthy again, but also in implementing strategies that will help keep us on a solid footing for many years to come. We are grateful to Bob for putting a fantastic leadership team in place and we are confident we have the right team to continue building our success.”
- Consolidated net sales increased 11%, or 8% on an organic basis, driven by increases in all vertical markets except the government vertical. The hospitality vertical grew 43% including sales of D’style, a company acquired November 2017, or 27% excluding D’style, on continuing strength in the hospitality industry. Finance vertical shipments grew 38% as large financial institutions continue to update their office environments. The healthcare vertical increased 20% as we have aligned our resources to focus on key targeted projects in this market. Sales in the government vertical declined 38% partially due to large projects last year.
- The Company continues to launch new and innovative products to fuel growth. Sales of new office furniture products increased 30% over the prior year first quarter. New product sales approximated 25% of total office furniture sales compared to 20% in the prior year first quarter. New products are defined as those introduced within the last three years.
- Orders received during the first quarter of fiscal year 2019 increased 18% from the prior year, or 15% on an organic basis. The increase was driven by growth in all vertical markets except the government vertical. Orders in the hospitality vertical grew 48%, or 33% organically, as demand in the industry remains solid. Orders in the healthcare and commercial verticals are up 29% and 24%, respectively, as the healthy economic outlook is allowing companies to continue their business investment plans. Orders received for the government vertical declined 29% partially due to large projects last year.
- Gross profit as a percent of net sales declined 260 basis points from the prior year as incremental margins from price increases, leverage from higher sales volumes, and savings realized from cost reduction initiatives were more than offset by higher transportation and commodity costs, a less profitable sales mix, higher healthcare costs, and an increase in the LIFO inventory reserve.
- Selling and administrative expenses in the first quarter decreased 60 basis points as a percent of net sales and increased 9% in absolute dollars compared to the prior year. The increase in selling and administrative expense was driven by $1.1 million of CEO transition costs, the additional selling and administrative expenses of D’style operations, and increased salaries and healthcare costs, partially offset by an additional $0.7 million gain on the sale of assets. The additional gain resulted from a $1.1 million gain on the sale of Internet protocol addresses in the current year compared to a $0.4 million gain on the sale of land in the prior year. The Company also incurred $0.4 million related to acquisition costs and strategic growth investments during the current year first quarter, which approximated prior year acquisition costs.
- The Company benefited from a lower effective tax rate of 24.4% for the first quarter of fiscal year 2019 compared to the prior year effective tax rate of 33.4%. The decline was primarily driven by the Tax Cuts and Jobs Act enacted last year, under which the Company’s statutory federal tax rate for fiscal year 2019 declined to 21% from the prior year first quarter tax rate of 35%.
- Operating cash flow for the first quarter of fiscal year 2019 was $7.1 million which was approximately equal to operating cash flow of $7.0 millionin the prior year.
- The Company’s balance in cash, cash equivalents, and short-term investments was $84.0 million at September 30, 2018, compared to $87.3 million at June 30, 2018. The fiscal year 2019 decrease was primarily due to capital expenditures of $4.7 million and the return of capital to shareowners in the form of $3.3 million in stock repurchases and $2.6 million in dividends, which more than offset $7.1 million of cash flows from operations.
The full text of Kimball International’s 1Q19 earnings release, including all tables, and an archived replay of the company’s Oct. 6 conference call webcast may be accessed at www.ir.kimballinternational.com.
About Kimball International, Inc.
Kimball International, Inc. creates design driven, innovative furnishings sold through our family of brands: Kimball, National, and Kimball Hospitality. Our diverse portfolio offers solutions for the workplace, learning, healing, and hospitality environments. Our values and integrity are demonstrated daily by living our Guiding Principles and creating a culture of caring that establishes us as an employer of choice. “We Build Success” by establishing long-term relationships with customers, employees, suppliers, shareowners and the communities in which we operate. To learn more about Kimball International, Inc. (NASDAQ: KBAL), visit www.kimballinternational.com.
