Knoll Reports Fourth Quarter and Full Year 2016 Results
- Net sales set an all-time record for the year
- Full year operating margins expand 140bps
Knoll, Inc. (NYSE: KNL), a leading designer and manufacturer of furnishings, textiles and fine leathers for the workplace and home, today announced results for the fourth quarter ended December 31, 2016. Net sales were $292.9 million for the fourth quarter, a decrease of 4.2%, from the fourth quarter of 2015. Operating profit for the quarter increased 63.8%, to $35.8 million, compared to operating profit of $21.8 million for the fourth quarter of 2015. Adjusted operating profit was $35.8 million, an increase of 5.6% when compared to adjusted operating profit of $33.9 million in the fourth quarter of 2015. Net earnings for the fourth quarter of 2016 were $21.4 million, an increase of 59.4% when compared to the fourth quarter of 2015. Diluted earnings per share was $0.44 and $0.28 for the fourth quarter of 2016 and 2015, respectively. Adjusted diluted earnings per share was $0.44 and $0.43 for the fourth quarter of 2016 and 2015, respectively.
Net sales were $1,164.3 million for the year ended December 31, 2016, an increase of 5.4% from 2015. Operating profit for the year increased 34.8% to $136.3 million, compared to operating profit of $101.1 million for the year ended December 31, 2015. Adjusted operating profit was $136.3 million, an increase of 20.0% when compared to adjusted operating profit of $113.5 million in 2015. Net earnings for 2016 were $82.1 million, an increase of 24.4% when compared to 2015. Diluted earnings per share was $1.68 and $1.36 for the year ended December 31, 2016 and 2015, respectively. Adjusted diluted earnings per share was $1.68 and $1.52 for the year ended December 31, 2016 and 2015, respectively.
“2016 was a good year for Knoll as our expanding constellation of high-design and high-margin brands and capabilities yielded strong results,” commented Andrew Cogan, President and CEO. “We set an all-time record for sales, grew sales faster than the market, expanded our industry leading operating margins as committed by over 100 basis points and laid the foundation for longer term growth with investments in new capabilities in ancillary categories with Rockwell Unscripted and the fourth quarter acquisition of the conference and meeting furniture company DatesWeiser. While we were impacted in the fourth quarter by the slowdown in demand that has been sweeping across the industry, we see reasons to be hopeful that with the uncertainty of the presidential election behind us, demand should improve later in the year.”
Fourth Quarter Results
Net sales were $292.9 million for the fourth quarter of 2016, a decrease of 4.2%, from the fourth quarter of 2015. Net sales for the Office segment were $180.9 million during the fourth quarter of 2016, a decrease of 8.4%. The decrease in the Office segment was due primarily to a decline in demand in certain geographies and vertical markets. Nationally, office space absorption declined precipitously in the fourth quarter and we believe that impacted the overall industry as well. Net sales for the Studio segment were $83.4 million during the fourth quarter of 2016, an increase of 3.3%. The increase in the Studio segment was led by KnollStudio in North America, offset partially by a decline in Europe due to the timing of a couple large projects in in the fourth quarter of 2015. Net sales for the Coverings segment were $28.5 million during the fourth quarter of 2016, an increase of 4.1%.
Gross profit for the fourth quarter of 2016 was $111.3 million, a decrease of $3.1 million, or 2.7%, when compared with the fourth quarter of 2015. Gross profit for the fourth quarter of 2015 includes a one-time charge of $0.9 million due to the discontinuation of one of our seating products. Adjusted gross profit for the fourth quarter of 2016 was $111.3 million, a decrease of $4.0 million, or 3.5%, when compared with the fourth quarter of 2015. During the fourth quarter of 2016, adjusted gross margin increased to 38.0% from 37.7% in the fourth quarter of 2015. The increase was related primarily to favorable net price realization and operational efficiencies partially offset by reduced fixed-cost leverage benefits resulting from lower sales volume in the Office segment.
Operating expenses were $75.6 million for the fourth quarter of 2016, or 25.8% of net sales, compared to $92.6 million, or 30.3% of net sales, for the fourth quarter of 2015. Operating expenses in the fourth quarter of 2015 included a non-cash Edelman tradename impairment of $10.7 million, as well as restructuring charges of $0.5 million. Adjusted operating expenses were $75.6 million for the fourth quarter of 2016, compared to $81.5 million for the fourth quarter of 2015. The decrease in adjusted operating expenses was related primarily to lower commissions and incentive accruals resulting from decreased sales volume.
Operating profit for the fourth quarter of 2016 increased 63.8%, to $35.8 million, compared to operating profit of $21.8 million for the fourth quarter of 2015. Adjusted operating profit for the fourth quarter of 2016 increased 5.6%, to $35.8 million, compared to adjusted operating profit of $33.9 million for the fourth quarter of 2015. Operating profit for the Office segment for the fourth quarter of 2016 was $17.9 million, or 9.9% of net sales, a decrease of $1.9 million, or 9.8% from the fourth quarter of 2015. Adjusted operating profit for the Office segment for the fourth quarter of 2016 was $17.9 million, or 9.9% of net sales, a decrease of $3.3 million, or 16.0% from the fourth quarter of 2015. Operating profit for the Studio segment for the fourth quarter of 2016 was $13.9 million, or 16.7% of net sales, an increase of $1.6 million, or 13.3% from the fourth quarter of 2015. Adjusted operating profit for the Studio segment for the fourth quarter of 2016 was $13.9 million, or 16.7% of net sales, an increase of $1.6 million, or 13.3% from the fourth quarter of 2015. Operating profit for the Coverings segment for the fourth quarter of 2016 was $6.5 million, or 22.7% of net sales, an increase of $10.6 million, or 258.9% from the fourth quarter of 2015. Adjusted operating profit for the Coverings segment for the fourth quarter of 2016 was $6.5 million, or 22.7% of net sales, a decrease of $0.1 million, or 1.5% from the fourth quarter of 2015.
During the fourth quarter of 2016, other income was $0.1 million compared to $0.5 million for the fourth quarter of 2015. Other income was related to the impact of exchange rate fluctuations on our foreign subsidiaries for both the fourth quarter of 2016 and 2015.
Net income for the fourth quarter of 2016 was $21.4 million, or $0.44 diluted earnings per share, compared to $13.4 million, or $0.28 diluted earnings per share, for the fourth quarter of 2015. Adjusted diluted earnings per share was $0.44 and $0.43 for the fourth quarter of 2016 and 2015, respectively.
The tax rate for the fourth quarter of 2016 was 38.1% compared to 35.5% for the fourth quarter of 2015. The increase in the effective tax rate is due partly to the effect of a catch up of certain tax credits in the prior year as well as the mix of pretax income and the varying effective tax rates in the countries and states in which we operate.
During the fourth quarter of 2016, cash provided by operations was $8.6 million compared to $50.7 million for the fourth quarter of 2015. The main driver of cash provided by operations was a $43.0 million discretionary payment to fund the Company’s pension plans. This funding is expected to reduce pension expenses and minimize the Company’s exposure to the increasing Pension Benefit Guaranty Corporation variable rate insurance premiums in 2017. Capital expenditures for the fourth quarter of 2016 totaled $14.7 million compared to $10.1 million in the fourth quarter of 2015. The Company paid a quarterly dividend of $7.3 million and $7.2 million, or $0.15 per share, during the fourth quarter of 2016 and 2015, respectively.
Full Year Results
Net sales were $1,164.3 million for the year ended 2016, an increase of 5.4% from 2015. Net sales for the Office segment were $731.3 million in 2016, an increase of 6.5% from 2015. The increase in the Office segment was led by continued growth in our core systems portfolio, as well as increases in our complementary products. Net sales for the Studio segment were $323.4 million in 2016, an increase of 6.5%. The increase in the Studio segment was led by KnollStudio in North America and Europe. Net sales for the Coverings segment were $109.5 million in 2016, a decrease of 3.6%. Continued year-over-year growth in Spinneybeck | FilzFelt sales was offset by lower volume at KnollTextiles and Edelman.
Gross profit for 2016 was $446.0 million, an increase of $33.9 million, or 8.2%, when compared with 2015. Gross profit for 2015 includes a one-time charge of $0.9 million due to the discontinuation of one of our seating products. Adjusted gross profit for 2016 was $446.0 million, an increase of $33.0 million, or 8.0%, when compared with 2015. During 2016, adjusted gross margin improved to 38.3% from 37.4% in 2015. This improvement was driven mainly by the Office and Studio segments, where operating efficiencies and improved fixed-cost leverage from higher volumes were favorable.
Operating expenses were $309.7 million in 2016, or 26.6% of net sales, compared to $311.1 million, or 28.2% of net sales in 2015. Operating expenses for 2015 include a non-cash Edelman tradename impairment of $10.7 million, as well as restructuring charges of $0.9 million. Excluding these items, adjusted operating expenses were $309.7 million for 2016, compared to $299.5 million for 2015. The increase in adjusted operating expenses was primarily related to expanded sales, marketing and product development investments as well as additional headcount.
Operating profit for 2016 increased 34.8%, to $136.3 million, compared to operating profit of $101.1 million for 2015. Adjusted operating profit for 2016 increased 20.0%, to $136.3 million, compared to adjusted operating profit of $113.5 million for 2015. Operating profit for the Office segment was $73.9 million in 2016, or 10.1% of net sales, an increase of $18.1 million, or 32.3% from 2015. Adjusted operating profit for the Office segment was $73.9 million in 2016, or 10.1% of net sales, an increase of $16.7 million, or 29.2% from 2015. Operating profit for the Studio segment was $53.4 million in 2016, or 16.5% of net sales, an increase of $5.5 million, or 11.4% from 2015. Adjusted operating profit for the Studio segment was $53.4 million in 2016, or 16.5% of net sales, an increase of $5.1 million, or 10.5% from 2015. Operating profit for the Coverings segment was $26.0 million in 2016, or 23.7% of net sales, an increase of $8.7 million, or 50.3% from 2015. Adjusted operating profit for the Coverings segment was $26.0 million in 2016, or 23.7% of net sales, a decrease of $2.0 million, or 7.1% from 2015.
During 2016, other expense was $3.4 million compared to other income of $9.2 million in 2015. Other expense in 2016 was related primarily to foreign exchange losses that resulted from the revaluation of intercompany balances between our Canadian and US entities. Other income in 2015 was due primarily to the settlement of an outstanding receivable at our Canadian subsidiary.
Net income for 2016 was $82.1 million, or $1.68 diluted earnings per share, compared to $66.0 million, or $1.36 diluted earnings per share for 2015. Adjusted diluted earnings per share was $1.68 and $1.52 for 2016 and 2015, respectively.
The tax rate for 2016 was 35.6% compared to 36.2% for 2015. The mix of pretax income and the varying effective tax rates in the countries and states in which we operate directly affects our consolidated effective tax rate.
During 2016, cash provided by operations was $104.3 million compared to $88.9 million in 2015. In 2016, cash provided by operations included $53.0 million of discretionary payments to fund the Company’s pension plans. Again, this funding is expected to reduce pension expenses and minimize the Company’s exposure to the increasing Pension Benefit Guaranty Corporation variable rate insurance premiums in 2017. Capital expenditures for 2016 totaled $40.1 million compared to $29.6 million in 2015. During 2016, the Company paid dividends of $29.2 million, or $0.60 per share, compared to dividends of $24.4 million, or $0.51 per share in 2015.
“Ongoing cash management initiatives have allowed us to support recent acquisitions, fund our pension plans and continue to investment in the business, all while reducing our debt leverage from 1.67 times EBITDA at year end 2015 to 1.37 at year end 2016,” noted Craig B. Spray, SVP & CFO.
Conference Call Information
Knoll will host a conference call on Monday, February 13, 2017 at 10:00 A.M. EST to discuss its financial results.
The call will include slides; participants are encouraged to listen to and view the presentation via webcast at http://www.knoll.com; go to “Discover Knoll” and click on “Investor Relations.”
The conference call may also be accessed by dialing:
North America (844) 778-4138
International (661) 378-9550
Passcode 611 469 15
A replay of the webcast can be viewed by visiting the Investor Relations section of the Knoll Inc. corporate website. In addition, an audio replay of the conference call will be available through February 20, 2017 by dialing (855) 859-2056. International replay: (404) 537-3406 (Passcode: 611 469 15).
The full text of Knoll’s 4Q16 earnings release, including all tables, may be accessed via the Investor Relations section of the company’s website at http://phx.corporate-ir.net/phoenix.zhtml?c=66169&p=irol-irhome
About Knoll
Knoll Inc., is a constellation of design-driven brands and people, working together with our clients to create inspired modern interiors. Our internationally recognized portfolio includes furniture, textiles, leathers, accessories, and architectural and acoustical elements brands. These brands – Knoll Office, KnollStudio, KnollTextiles, KnollExtra, Spinneybeck | FilzFelt, Edelman Leather, HOLLY HUNT, and DatesWeiser – reflect our commitment to modern design that meets the diverse requirements of high performance workplaces 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 Inc., 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 Inc. is the founding sponsor of the World Monuments Fund Modernism at Risk program.
