Knoll Reports Double-Digit Operating Profit Margins
Knoll, Inc. (NYSE: KNL) today announced results for the second quarter ended June 30, 2015. Net sales were $268.6 million for the quarter, an increase of 1.0% from second quarter of 2014. Operating profit for the quarter was $28.3 million, compared to operating profit of $22.2 million in the second quarter of 2014. Net earnings for the second quarter of 2015 was $17.2 million, an increase of 59.3% when compared with the second quarter of 2014. Diluted earnings per share was $0.36 for the quarter compared to $0.23 per share in the prior year.
“Our strategy of diversifying our sources of revenue and profitability across workplace and high design residential settings is delivering the kind of improved profitability and double-digit margins we expect,” commented Andrew Cogan, Knoll CEO. “While constant currency growth of 3.0% was slower than in Q1, we did benefit from a more profitable mix of business amongst and within our operating segments,” he added.
Net sales for the Office segment were $160.9 million during the second quarter of 2015, an increase of 1.1%, or 1.9% on a constant currency basis, when compared with the second quarter of 2014. Increased sales in the Office segment were the result of improved systems sales year-over-year; this increase in systems sales was partially offset by lower storage sales. Net sales for the Studio segment were $77.8 million, an increase of $1.4 million, or 1.8%, when compared with the second quarter of 2014. On a constant currency basis, Studio sales increased by 6.8% from a year ago. The increase in sales in the Studio segment was attributable to strong growth in North America and Holly Hunt. Net sales for the Coverings segment were $29.9 million, a decrease of (1.6%), or (0.7%) on a constant currency basis, when compared with the second quarter a year ago. Improved sales performance in our textiles business was offset by decreased sales in our leather businesses.
Gross profit for the second quarter of 2015 was $101.2 million, an increase of $3.9 million, or 4.0%, when compared with the same period in 2014. During the second quarter of 2015, gross margin (gross profit as a percentage of net sales) increased to 37.7% from 36.6% a year ago. The increase in gross margin from the second quarter of 2014 mainly resulted from benefits achieved from net price realization and foreign exchange savings across our segments.
Operating expenses were $72.9 million, or 27.1% of net sales, compared to $75.0 million, or 28.2% of net sales, for the second quarter of 2014. Increased showroom expenses associated with our Holly Hunt business and higher pension expense were offset with foreign exchange savings, lower incentive accruals, and other cost containment savings. Operating expenses in the second quarter of 2014 included $0.2 million of restructuring charges.
Operating profit for the second quarter of 2015 was $28.3 million, or 10.5% of net sales. Operating profit for the second quarter of 2014 was $22.2 million, or 8.3% of net sales. Operating profit for the Office segment was $9.1 million in the second quarter of 2015 compared to $6.4 million a year ago. Office segment operating margins increased year over year from 4.0% to 5.7%. Operating profit for the Studio segment was $12.1 million, an increase of $2.6 million, when compared with the second quarter of 2014. Studio operating margins for the second quarter of 2015 and 2014 were 15.6% and 12.4%, respectively. Operating profit for the Coverings segment was $7.1 million for the second quarter of 2015 compared to operating profit of $6.3 million for the second quarter of 2014. Operating margins for the Coverings segment increased from 20.7% a year ago to 23.7% for the second quarter of 2015.
During the second quarter of 2015 and 2014, other (income) expense was $0.2 million and $2.7 million, respectively. Foreign exchange losses during the second quarter of 2015 and 2014 were $0.4 million and $2.4 million, respectively. Other (income) expense for the second quarter of 2014 included $0.3 million of expense for the write-off of deferred financing fees related to the refinancing of our credit facility, which now matures in May 2019.
The mix of pretax income and the varying effective tax rates in the countries in which we operate directly affects our consolidated effective tax rate. The effective tax rate was 34.3% for the second quarter of 2015, as compared to 38.4% for the same period last year.
Net earnings for the second quarter 2015 was $17.2 million, or $0.36 diluted earnings per share, as compared to $10.8 million, or $0.23 per share, for the second quarter of 2014.
During the second quarter of 2015 and 2014, cash provided by operations was $33.8 million and $18.4 million, respectively. Capital expenditures for the period totaled $7.5 million compared to $9.9 million in the comparable period for 2014. During the second quarter of 2015, the Company paid a quarterly dividend of $5.8 million, or $0.12 per share, compared to a quarterly dividend of $5.7 million, or $0.12 per share, in the second quarter of 2014.
“Maintaining a strong and flexible balance sheet remains a top priority. Continued net earnings growth coupled with working capital improvement have enabled $26.0 million of debt paydown in the quarter. Our leverage ratio has improved from 2.94 a year ago to 2.22 as of Q2 2015,” commented Craig B. Spray, SVP & CFO.
The complete text of Knoll’s 2Q15 earnings release, including all tables, and an archived replay of its July 17 conference call webcast, including presentation slides, may be accessed at http://phx.corporate-ir.net/phoenix.zhtml?c=66169&p=irol-irhome. In addition, an audio replay of the conference call will be available through July 24 by dialing 888 286-8010. International replay: 617 801-6888 (Passcode: 22412538).
About Knoll
Knoll is recognized internationally for workplace and residential design that inspires, evolves and endures. Our portfolio of furniture, textile, leather and accessories brands, including Knoll, KnollStudio, KnollTextiles, KnollExtra, Spinneybeck, FilzFelt, Edelman Leather, and HOLLY HUNT, reflects our commitment to modern design that meets the diverse requirements of high performance offices and luxury interiors. A recipient of the National Design Award for Corporate and Institutional Achievement from the Smithsonian`s Cooper-Hewitt, National Design Museum, Knoll is aligned with the U.S. Green Building Council and the Canadian Green Building Council and can help organizations achieve Leadership in Energy and Environmental Design LEED workplace certification. Knoll is the founding sponsor of the World Monuments Fund Modernism at Risk program.
