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Kimball International, Inc. Reports Fourth Quarter and Fiscal Year 2017 Results — Fourth Quarter Sales Up 4%; Adjusted Net Income Up 48%

JASPER, Ind., Aug. 02, 2017 (GLOBE NEWSWIRE) -- Kimball International, Inc. (NASDAQ:KBAL) today announced the following results for the quarter and fiscal year ended June 30, 2017:

  • Fourth quarter revenue was $172.0 million, an increase of 4% over the prior year. Annually, net sales of $669.9 million increased 5% over the prior year, falling within our mid-term outlook of revenue growth in the mid-single digits.

  • Fourth quarter operating income was $15.4 million, or 9.0% of net sales. Annually, GAAP operating income as a percent of net sales was 8.5%, and excluding a restructuring gain was 8.2%, falling within our mid-term outlook of 8% to 9%.

  • Fourth quarter net income was $10.6 million, a 68% increase over the prior year fourth quarter GAAP net income, or a 48% increase over prior year adjusted net income excluding restructuring.

  • Quarterly diluted earnings per share was $0.28.

  • Quarterly return on capital equaled 23.0%, the best in the industry, where public data is available.

Bob Schneider, Chairman and CEO, stated, “Our performance during the fourth quarter and fiscal year was at the high end of our expectations, with strong sales growth and improving operating income that reflect our customers' continued confidence in Kimball International. This marks the 16th consecutive quarter of year-over-year sales growth, with a significant portion of that growth being in new products with better margins. A 48% increase in adjusted net income on a 4% sales increase is incredible, and a testament to the hard work and dedication of our employees to improve results. We are entering fiscal year 2018 with a solid foundation to execute our strategies and take advantage of the many opportunities before us.”

Overview

Financial Highlights
(Amounts in Thousands, Except Per Share Data)Three Months Ended
June 30,
2017
June 30,
2016
Percent
Change
Net Sales$171,983 $164,676 4%
Gross Profit$57,808 $53,635 8%
Gross Profit %33.6% 32.6%
Selling and Administrative Expenses$42,413 $42,809 (1%)
Selling and Administrative Expenses %24.6% 26.1%
Restructuring Expense$0 $1,367
Operating Income$15,395 $9,459 63%
Operating Income %9.0% 5.7%
Adjusted Operating Income *$15,395 $10,826 42%
Adjusted Operating Income % *9.0% 6.6%
Net Income$10,560 $6,275 68%
Adjusted Net Income *$10,560 $7,135 48%
Diluted Earnings Per Share$0.28 $0.17
Adjusted Diluted Earnings Per Share *$0.28 $0.19
Adjusted Return on Capital *23.0% 18.4%
Adjusted EBITDA *$19,481 $14,750

* Items indicated represent Non-GAAP measurements. See “Reconciliation of Non-GAAP Financial Measures” below.

  • The increase in net sales was driven by double digit increases in several vertical markets, including the finance vertical (up 37%) from an increased strategic focus on this market, the government vertical (up 29%) from new business activity in both federal and state governments, and the education vertical (up 18%) from a strong push during the peak educational buying season. Partially offsetting these increases were declines in the hospitality vertical (down 13%) due to a very strong prior year fourth quarter, and the healthcare vertical (down 9%) due to political uncertainty around replacement of the Affordable Care Act.

  • Sales from new office furniture products introduced in the last three years increased 14% over the prior year fourth quarter. New product sales approximated 29% of total office furniture sales in both the current and prior year fourth quarters.

  • Orders received during the fourth quarter of fiscal year 2017 were flat with the prior year fourth quarter, with increases in the education vertical (up 18%), the government vertical (up 11%), the finance vertical (up 9%), offsetting declines in the healthcare vertical (down 13%) and the commercial vertical (down 12%). Excluding the hospitality vertical, orders received by office furniture verticals declined 1% compared to the prior year fourth quarter. One of the Company’s brands implemented a price increase effective April 1st, which the Company believes had the effect of pulling orders into the third quarter that would have otherwise been received in the fourth quarter of the current year. Excluding the estimated effect of the price increase, orders increased approximately 4% over the prior year fourth quarter, both on a consolidated basis and for the office furniture vertical markets.

  • Fourth quarter gross profit as a percent of net sales improved 100 basis points over the prior year fourth quarter, due to leverage on higher sales volumes and cost savings initiatives, including operational productivity improvements and benefits from the Company's restructuring plan involving the transfer of metal fabrication production from Idaho into facilities in Indiana.

  • Selling and administrative expenses in the fourth quarter of fiscal year 2017 decreased 150 basis points as a percent of net sales and decreased 1% in absolute dollars compared to the prior year fourth quarter. The decrease in selling and administrative expense was primarily driven by gains on the sale of land, reversal of bad debt reserves upon successful collection of notes, partially offset by increases in incentive compensation as a result of higher earnings levels.

  • As a result of completing restructuring activities during the first quarter, including the sale of the Post Falls, Idaho facility and land, no restructuring costs were incurred during the fourth quarter of fiscal year 2017. Pre-tax restructuring expenses in the prior year fourth quarter were $1.4 million.

  • Operating cash flow for the fourth quarter of fiscal year 2017 was $15.1 million compared to operating cash flow of $9.3 million in the fourth quarter of the prior year, an increase of $5.8 million. The increase was primarily driven by improved earnings during the current year quarter.

  • The Company's balance in cash, cash equivalents, and short-term investments was $98.6 million at June 30, 2017, compared to June 30, 2016 cash and cash equivalents of $47.6 million. The increase was primarily driven by current year profitability, proceeds from the sale of the Post Falls building and land in August 2016 and other properties during the fiscal year, and improved conversion of working capital to cash, and was partially offset by the return of capital to share owners in the form of share repurchases and dividends totaling $15.4 million during fiscal year 2017.

Fiscal year 2017 net sales of $669.9 million increased 5% from fiscal year 2016 net sales of $635.1 million. Fiscal year 2017 operating income of $56.7 million increased 69% compared to fiscal year 2016 operating income of $33.5 million. Excluding restructuring, adjusted operating income for fiscal year 2017 was $54.8 million, an increase of 34% over fiscal year 2016 adjusted operating income of $40.8 million. Net Income for fiscal year 2017 was $37.5 million, or $0.99 per diluted share, compared to net income for fiscal year 2016 of $21.2 million, or $0.56 per diluted share. Excluding restructuring, adjusted net income for fiscal year 2017 was $36.4 million, or $0.96 per share, and adjusted net income for fiscal year 2016 was $25.7 million, or $0.68 per share.

Financial Targets
Mr. Schneider stated, “Since the spin-off of Electronics several years ago, we have set intermediate targets for improvement and have hit each of them. We are now updating our financial targets to reflect our latest strategies. Our sales growth target over the next two fiscal years is organic growth in the mid-single digits annually, which we estimate will enable us to reach operating income as a percent of sales between 9.5% and 10.5% in fiscal year 2019. This target compares to fiscal year 2014, 2015, 2016, and 2017 adjusted pro forma operating income as a percent of sales, respectively, of 1.6%, 4.8%, 6.4%, and 8.2%. We expect our projected return on capital to continue to exceed 20%, which is among the best in the office furniture industry.”

The Company's financial targets assume that economic conditions do not significantly worsen, negatively affecting the industries which it serves. It also does not include any potential impact to sales and earnings related to acquisitions or the government's review of our subcontract reporting process.

Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. A non-GAAP financial measure is a numerical measure of a company's financial performance that excludes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States in the statement of income, statement of comprehensive income, balance sheet, or statement of cash flows of the Company. The non-GAAP financial measures used within this release include (1) operating income excluding restructuring; (2) net income excluding restructuring; (3) diluted earnings per share excluding restructuring; (4) return on capital excluding restructuring; (5) EBITDA excluding restructuring; and (6) adjusted pro forma operating income as of percent of sales. Reconciliations of the reported GAAP numbers to these non-GAAP financial measures are included in the Reconciliation of Non-GAAP Financial Measures table below. Management believes it is useful for investors to understand how its core operations performed without gains and expenses related to executing its restructuring plans. Excluding these amounts allows investors to meaningfully trend, analyze, and benchmark the performance of the Company's core operations. Many of the Company's internal performance measures that management uses to make certain operating decisions exclude these items to enable meaningful trending of core operating metrics.

The orders received metric is a key performance indicator used to evaluate general sales trends and develop future operating plans. Orders received represent firm orders placed by our customers during the current quarter which are expected to be recognized as revenue during current or future quarters. The orders received metric is not intended to be presented as an alternative measure of revenue recognized in accordance with GAAP.

Forward-Looking Statements
Certain statements contained within this release are considered forward-looking under the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties including, but not limited to, the risk that any projections or guidance, including revenues, margins, earnings, or any other financial results are not realized, the outcome of a governmental review of our subcontractor reporting practices, adverse changes in the global economic conditions, significant volume reductions from key contract customers, significant reduction in customer order patterns, financial stability of key customers and suppliers, and availability or cost of raw materials. Additional cautionary statements regarding other risk factors that could have an effect on the future performance of the Company are contained in the Company's Form 10-K filing for the fiscal year ended June 30, 2016 and other filings with the Securities and Exchange Commission.

Conference Call / Webcast
Date: August 3, 2017
Time: 11:00 AM Eastern Time
Dial-In #: 844-602-5643 (International Calls - 574-990-3014)
Pass Code: Kimball

A webcast of the live conference call may be accessed by visiting Kimball's Investor Relations website at www.ir.kimball.com.

For those unable to participate in the live webcast, the call will be archived at www.ir.kimball.com within two hours of the conclusion of the live call.

About Kimball International, Inc.
Kimball International, Inc. creates design driven, innovative furnishings sold through our family of brands: Kimball Office, National Office Furniture, and Kimball Hospitality. Our diverse portfolio offers solutions for the workplace, learning, healing, and hospitality environments. Dedicated to our Guiding Principles, our values and integrity are evidenced by public recognition as a highly trusted company and an employer of choice. “We Build Success” by establishing long-term relationships with customers, employees, suppliers, share owners and the communities in which we operate. To learn more about Kimball International, Inc. (NASDAQ:KBAL), visit www.kimball.com.

Financial highlights for the fourth quarter and fiscal year ended June 30, 2017 are as follows:

Condensed Consolidated Statements of Income
(Unaudited)Three Months Ended
(Amounts in Thousands, except per share data)June 30, 2017 June 30, 2016
Net Sales$171,983 100.0% $164,676 100.0%
Cost of Sales114,175 66.4% 111,041 67.4%
Gross Profit57,808 33.6% 53,635 32.6%
Selling and Administrative Expenses42,413 24.6% 42,809 26.1%
Restructuring Expense0 0.0% 1,367 0.8%
Operating Income15,395 9.0% 9,459 5.7%
Other Income, net456 0.2% 127 0.1%
Income Before Taxes on Income15,851 9.2% 9,586 5.8%
Provision for Income Taxes5,291 3.1% 3,311 2.0%
Net Income$10,560 6.1% $6,275 3.8%
Earnings Per Share of Common Stock:
Basic$0.28 $0.17
Diluted$0.28 $0.17
Average Number of Total Shares Outstanding:
Basic37,261 37,473
Diluted37,729 37,792


(Unaudited) Fiscal Year Ended
(Amounts in Thousands, except per share data) June 30, 2017 June 30, 2016
Net Sales $669,934 100.0% $635,102 100.0%
Cost of Sales 446,629 66.7% 431,298 67.9%
Gross Profit 223,305 33.3% 203,804 32.1%
Selling and Administrative Expenses 168,474 25.1% 162,979 25.6%
Restructuring (Gain) Expense (1,832) (0.3%) 7,328 1.2%
Operating Income 56,663 8.5% 33,497 5.3%
Other Income (Expense), net 1,355 0.2% (107) 0.0%
Income Before Taxes on Income 58,018 8.7% 33,390 5.3%
Provision for Income Taxes 20,512 3.1% 12,234 2.0%
Net Income $37,506 5.6% $21,156 3.3%
Earnings Per Share of Common Stock:
Basic $1.00 $0.56
Diluted $0.99 $0.56
Average Number of Total Shares Outstanding:
Basic 37,334 37,462
Diluted 37,833 37,852


(Unaudited)
Condensed Consolidated Balance SheetsJune 30,
2017
June 30,
2016
(Amounts in Thousands)
ASSETS
Cash and cash equivalents$62,882 $47,576
Short-term investments35,683 0
Receivables, net53,909 51,710
Inventories38,062 40,938
Prepaid expenses and other current assets8,050 10,254
Assets held for sale4,223 9,164
Property and Equipment, net80,069 87,086
Intangible Assets, net2,932 3,021
Deferred Tax Assets14,487 12,790
Other Assets13,450 11,031
Total Assets$313,747 $273,570
LIABILITIES AND SHARE OWNERS' EQUITY
Current maturities of long-term debt$27 $29
Accounts payable44,730 41,826
Customer deposits20,516 18,625
Sale-leaseback financing obligation3,752 0
Dividends payable2,296 2,103
Accrued expenses49,018 44,292
Long-term debt, less current maturities184 212
Other17,020 16,615
Share Owners' Equity176,204 149,868
Total Liabilities and Share Owners' Equity$313,747 $273,570


Condensed Consolidated Statements of Cash Flows Fiscal Year Ended
(Unaudited) June 30,
(Amounts in Thousands) 2017 2016
Net Cash Flow provided by Operating Activities $64,844 $49,352
Net Cash Flow used for Investing Activities (36,176) (16,883)
Net Cash Flow used for Financing Activities (13,362) (19,554)
Net Increase in Cash and Cash Equivalents 15,306 12,915
Cash and Cash Equivalents at Beginning of Period 47,576 34,661
Cash and Cash Equivalents at End of Period $62,882 $47,576


Net Sales by End Market Vertical
Three Months Ended Fiscal Year Ended
(Unaudited) June 30, June 30,
(Amounts in Millions) 2017 2016 % Change 2017 2016 % Change
Commercial $52.0 $50.5 3% $203.6 $201.0 1%
Education 23.2 19.7 18% 77.9 68.7 13%
Finance 17.2 12.6 37% 68.0 59.6 14%
Government 23.1 17.9 29% 80.5 74.4 8%
Healthcare 19.2 21.2 (9%) 86.1 83.5 3%
Hospitality 37.2 42.8 (13%) 153.8 147.9 4%
Total Net Sales $171.9 $164.7 4% $669.9 $635.1 5%


Orders Received by End Market Vertical
Three Months Ended Fiscal Year Ended
(Unaudited) June 30, June 30,
(Amounts in Millions) 2017 2016 % Change 2017 2016 % Change
Commercial $49.5 $56.4 (12%) $212.1 $214.7 (1%)
Education 31.6 26.7 18% 84.6 75.2 13%
Finance 16.1 14.8 9% 68.8 61.6 12%
Government 24.3 21.8 11% 87.0 78.0 12%
Healthcare 20.2 23.2 (13%) 89.1 90.3 (1%)
Hospitality 33.9 33.5 1% 143.6 139.1 3%
Total Orders Received $175.6 $176.4 0% $685.2 $658.9 4%

At the beginning of fiscal year 2017 we redefined our vertical market reporting to better reflect the end markets that we serve. The largest shifts among vertical markets were sales to certain government-affiliated customers such as state universities, which were previously classified in the government vertical market and are now classified in the education vertical market. Prior period information was estimated to reflect the new vertical market definitions on a comparable basis.

Supplementary Information
Components of Other Income (Expense), netThree Months Ended Fiscal Year Ended
(Unaudited)June 30, June 30,
(Amounts in Thousands)2017 2016 2017 2016
Interest Income$191 $55 $536 $275
Interest Expense(22) (5) (37) (22)
Foreign Currency Gain (Loss)46 (5) 18 (17)
Gain (Loss) on Supplemental Employee Retirement Plan Investment346 157 1,215 (13)
Other Non-Operating Expense(105) (75) (377) (330)
Other Income (Expense), net$456 $127 $1,355 $(107)


Reconciliation of Non-GAAP Financial Measures
(Unaudited)
(Amounts in Thousands, except per share data)
Operating Income excluding Restructuring
Three Months Ended Fiscal Year Ended
June 30, June 30,
2017 2016 2017 2016
Operating Income, as reported$15,395 $9,459 $56,663 $33,497
Pre-tax Restructuring Expense (Gain)0 1,367 (1,832) 7,328
Adjusted Operating Income$15,395 $10,826 $54,831 $40,825
See Exhibit 99.2 Fourth Quarter and Fiscal Year 2017 Investor Presentation for a fiscal year 2014, 2015, 2016, and 2017
non-GAAP reconciliation of Adjusted Pro Forma Operating Income from Continuing Operations as a Percent of Net Sales.
Net Income excluding Restructuring
Three Months Ended Fiscal Year Ended
June 30, June 30,
2017 2016 2017 2016
Net Income, as reported$10,560 $6,275 $37,506 $21,156
Pre-tax Restructuring Expense (Gain)0 1,367 (1,832) 7,328
Tax on Restructuring Expense (Gain)0 (507) 713 (2,825)
After-tax Restructuring Expense (Income)0 860 (1,119) 4,503
Adjusted Net Income$10,560 $7,135 $36,387 $25,659
Diluted Earnings Per Share excluding Restructuring
Three Months Ended Fiscal Year Ended
June 30, June 30,
2017 2016 2017 2016
Diluted Earnings Per Share, as reported$0.28 $0.17 $0.99 $0.56
After-tax Restructuring Expense (Gain)0.00 0.02 (0.03) 0.12
Adjusted Diluted Earnings Per Share$0.28 $0.19 $0.96 $0.68
Return on Capital excluding Restructuring
Three Months Ended Fiscal Year Ended
June 30, June 30,
2017 2016 2017 2016
Adjusted Operating Income — see non-GAAP reconciliation above$15,395 $10,826 $54,831 $40,825
Median Effective Income Tax Rate for trailing four quarters35.1% 37.3% 35.1% 37.3%
Median Income Tax Expense5,404 4,038 19,246 15,228
Net Operating Profit After-Tax (NOPAT)9,991 6,788 35,585 25,597
Average Capital *173,776 147,421 165,138 145,941
Adjusted Return on Capital (annualized)23.0% 18.4% 21.5% 17.5%
* Capital is defined as Total Equity plus Total Interest-Bearing Debt


Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) excluding Restructuring
Three Months Ended Fiscal Year Ended
June 30, June 30,
2017 2016 2017 2016
Net Income$10,560 $6,275 $37,506 $21,156
Provision for Income Taxes5,291 3,311 20,512 12,234
Income Before Taxes on Income15,851 9,586 58,018 33,390
Interest Expense22 5 37 22
Interest Income(191) (55) (536) (275)
Depreciation and Amortization3,799 3,847 15,553 14,996
Pre-tax Restructuring Expense (Gain)0 1,367 (1,832) 7,328
Adjusted EBITDA$19,481 $14,750 $71,240 $55,461

Contact: Dennis Gerber Investor Relations 812-482-8619 Dennis.Gerber@kimball.com

Source:Kimball International Inc.