Kimball Posts Higher Profit
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowJasper-based Kimball International Inc. (Nasdaq: KBALB) is reporting a fiscal first quarter profit of $9.2 million, compared to $5 million during the same period a year earlier. Chief Executive Officer James Thyen says increased demand for furniture and “relative strength” in the U.S. and China auto markets boosted performance. November 5, 2013
News Release
JASPER, Ind. – Kimball International, Inc. (NASDAQ: KBALB) today reported net sales of $317.4 million and net income of $9.2 million, or $0.24 per Class B diluted share, for the first quarter of fiscal year 2014 which ended September 30, 2013.
Consolidated Overview
Consolidated net sales in the first quarter of fiscal year 2014 increased 10 percent from the prior year first quarter on increased net sales in both the Electronic Manufacturing Services (EMS) segment and the Furniture segment.
First quarter gross profit as a percent of net sales increased 0.1 of a percentage point from the prior year first quarter. A slight decline in the gross profit percentage in both segments was more than offset by the favorable impact of a sales mix shift towards the Furniture segment which carries a higher margin.
Consolidated selling and administrative expenses in the first quarter of fiscal year 2014 increased 12 percent in absolute dollars compared to the prior year. The increased costs were primarily due to higher incentive compensation costs, increased salary costs, higher sales and marketing costs, and higher commissions related to increased sales in the Furniture segment. In addition, the Company classified one of its three aircraft as held for sale during the first quarter of fiscal year 2014 and recorded a $1.2 million pre-tax impairment charge ($0.7 million after-tax impact).
Other General Income in the first quarter of fiscal year 2014 included $5.0 million of pre-tax income resulting from settlement proceeds related to two antitrust class action lawsuits of which the Company was a member. The class actions alleged the defendant sellers illegally conspired to fix prices of electronic components purchased several years ago by some of our manufacturing facilities in the EMS segment.
Other Income/Expense for the first quarter of fiscal year 2014 was income of $1.0 million compared to income of $0.3 million in the first quarter of the prior year. The variance in Other Income/Expense was driven in part by foreign exchange movement that impacted the EMS segment.
The Company's effective tax rate for the first quarter of fiscal year 2014 was 28.0 percent compared to 31.0 percent in the prior year first quarter. The current year first quarter effective tax rate was favorably impacted by a $0.5 million adjustment to the Company's deferred tax asset valuation allowance in the EMS segment.
Operating cash flow for the first quarter of fiscal year 2014 was $16.0 million compared to $9.5 million in the first quarter of the prior year.
The Company's cash and cash equivalents increased to $109.6 million at September 30, 2013, compared to $103.6 million at June 30, 2013. The Company had no short-term borrowings outstanding at September 30, 2013 or June 30, 2013. Long-term debt including current maturities was $0.3 million at September 30, 2013.
James C. Thyen, President and Chief Executive Officer, stated, “Our operating performance in the Furniture segment in the first quarter reflects increased demand, the effective execution of our strategy, and the commitment of our entire Furniture team to improve results. Our Furniture segment returned to profitability in the first quarter, after recording losses for the second half of last fiscal year. Our focus on accelerating top-line growth in the Furniture segment was evident in the first quarter as the orders received during the quarter increased 18 percent over the prior year first quarter. Overall, we are pleased with the progress being made in the Furniture segment.”
Mr. Thyen continued, “In the EMS segment, the automotive end market is benefiting from relative strength in the U.S. market and improvement in the Chinese market which contributed to a double digit increase in our first quarter sales to the automotive market compared to last year. Industrial market demand is also improving. While first quarter sales increased over the prior year first quarter in this segment, sales were down compared to the third and fourth quarters of fiscal year 2013 when we surpassed our 4 percent operating goal. The lower absorption of our fixed costs as a result of the lower revenue was the primary driver for missing our 4 percent operating income goal in the first quarter.”
Electronic Manufacturing Services Segment
Fiscal year 2014 first quarter net sales in the EMS segment increased 7% compared to the first quarter of the prior year on double-digit sales growth to customers in the automotive and industrial industries. Net sales to the public safety industry declined compared to the prior year while sales to the medical industry remained flat.
Gross profit as a percent of net sales in the EMS segment for the first quarter of fiscal year 2014 declined 0.1 of a percentage point when compared to the first quarter of the prior year. The current year first quarter gross profit was negatively impacted by a $0.6 million inventory write-down related to products specific to a former customer.
Selling and administrative expenses in this segment increased 8% in the fiscal year 2014 first quarter when compared to the prior year. Higher incentive compensation costs and increased salary costs were partially offset by a favorable warranty reserve adjustment and lower costs for workers compensation claims. As a percent of sales, selling and administrative costs in the EMS segment increased 0.1 of a percentage point for the first quarter of fiscal year 2014 compared to the prior year.
Operating income in the first quarter of fiscal year 2014 includes the $5.0 million of Other General Income related to the proceeds from the antitrust lawsuits mentioned above. The Adjusted Operating Income and Adjusted Net Income amounts in the EMS segment table above exclude this income for a more comparable comparison to last year.
The first quarter of fiscal year 2014 was favorably impacted by a $0.5 million adjustment to the deferred tax asset valuation allowance.
Furniture Segment
Fiscal year 2014 first quarter net sales in the Furniture segment increased 14% compared to the prior year on increased net sales of both office and hospitality furniture. All vertical markets within the office furniture industry increased over the prior year except for a slight decline in the federal and state governments. Sequentially, sales to the federal and state governments increased compared to the fourth quarter of fiscal year 2013. Furniture segment orders increased 18% in the first quarter of fiscal year 2014 when compared to the prior year.
Gross profit as a percent of net sales declined 0.1 of a percentage point in the Furniture segment in the first quarter of fiscal year 2014 when compared to the prior year. The operational improvements achieved in this segment and benefits realized from pricing adjustments were offset by an unfavorable shift in sales mix, higher freight costs and an increase in the LIFO inventory reserve.
Higher incentive compensation costs, increased salary costs, higher sales and marketing costs, and higher commissions resulting from the increased sales contributed to a 9% increase in selling and administrative expenses in the Furniture segment for the first quarter of fiscal year 2014 compared to the prior year. As a percent of sales, selling and administrative costs in the Furniture segment decreased 1.3 percentage points for the first quarter of fiscal year 2014 compared to the prior year.
About Kimball International, Inc.
Recognized with a reputation for excellence, Kimball International, Inc. is committed to a high perf