EAST GREENVILLE, PA - Knoll, Inc. (NYSE: KNL) today announced results for the first quarter ended March 31, 2014.  Net sales were $229.3 million for the quarter, an increase of 14.3% from first quarter of 2013.  Organically, excluding the impact of HOLLY HUNT®, sales increased 5.7% when compared with first quarter of 2013.  Operating profit for the quarter was $11.8 million, an increase of 14.6% when compared with $10.3 million in the first quarter of 2013.  Adjusted operating profit for the first quarter of 2014 was $12.4 million.  Net income for the first quarter of 2014 was $8.2 million, an increase of 34.4% when compared with the first quarter of 2013.  Diluted earnings per share was $0.17 for the quarter compared to $0.13 per share in the prior year.  Adjusted earnings per share was $0.18 for the first quarter of 2014.

"We are pleased to kick off 2014 with growth in sales, margins and operating profits," commented Andrew Cogan, CEO. "In what is seasonally our weakest quarter, organic sales growth exceeded the industry, and operating profits and margins expanded.  I believe we have turned the corner and that the combination of improving market conditions, diminished government headwinds, the success of strategic investments in our businesses to grow our top and bottom lines and most recently the acquisition of HOLLY HUNT®, bode well for the balance of 2014 and beyond," he added.

First Quarter Results

First quarter 2014 financial results highlights are as follows:

Dollars in Millions, Except Per Share Data Three Months Ended Percent
3/31/2014 3/31/2013 Change
Net Sales $ 229.3 $ 200.6 14.3 %
Gross Profit 76.5 63.6 20.3 %
Gross Profit % 33.3 % 31.7 % 5.0 %
Operating Expenses 64.7 53.3 21.4 %
Operating Profit 11.8 10.3 14.6 %
Operating Profit % 5.1 % 5.1 % - %
Adjusted Operating Profit 12.4 10.3 20.4 %
Adjusted Operating Profit % 5.4 % 5.1 % 5.9 %
Net Income 8.2 6.1 34.4 %
Earnings Per Share - Diluted 0.17 0.13 30.8 %
Adjusted Earnings Per Share - Diluted 0.18 0.13 38.5 %

Adjusted earnings per share, adjusted operating profit, and organic net sales growth are non-GAAP financial measures.  Adjusted earnings per share and adjusted operating profit are calculated by excluding from earnings per share and operating profit items we believe to be infrequent or not indicative of our operating performance.  Organic sales growth represents the change in net sales excluding the impact of HOLLY HUNT®, which we acquired on February 3, 2014.  For a reconciliation of adjusted earnings per share, adjusted operating profit, and organic net sales growth to earnings per share, operating profit, and net sales respectively, see "Reconciliation of Non-GAAP Financial Measures" below.

Net sales for the quarter were $229.3 million, an increase of $28.7 million, or 14.3%, from the first quarter of 2013.  Net sales for the Office segment were $146.1 million during the first quarter of 2014, an increase of $8.6 million, or 6.3%, when compared with the first quarter of 2013.  Increased sales from commercial clients in North America drove the increase in Office segment sales during the first quarter of 2014 when compared with the same period in the prior year.   This increase in commercial sales was partially offset by modestly lower government sales.  Net sales for the Studio segment were $55.7 million, an increase of $17.3 million, or 45.0%, when compared with the first quarter of 2013.  The increase in sales in the Studio segment was the result of the acquisition of HOLLY HUNT® during the first quarter of 2014.  Excluding HOLLY HUNT®, sales were flat in the Studio segment during the first quarter of 2014.  Net sales for the Coverings segment were $27.5 million, an increase of $2.8 million, or 11.3%, when compared with the first quarter of 2013.  Both our leather and textiles businesses experienced growth during the quarter.

Gross profit for the first quarter of 2014 was $76.5 million, an increase of $12.9 million, or 20.3%, when compared with the same period in 2013.  During the first quarter 2014 gross margin (gross profit as a percentage of net sales) increased to 33.3% from 31.7% in the same quarter of 2013. The increase in gross margin from the first quarter of 2013 mainly resulted from favorable product mix, volume, and foreign exchange favorability.  These gains were partially offset by price deterioration in the Office Segment.

Operating expenses for the first quarter of 2014 were $64.7 million, or 28.2% of sales, compared to $53.3 million, or 26.6% of sales, for the first quarter of 2013.  The increase in operating expenses during the first quarter of 2014 was in large part due to the addition of the operating expenses from HOLLY HUNT® as well as costs associated with a multi day training event that occurred during first quarter of 2014 in conjunction with our 75th anniversary.

Our operating profit for the first quarter of 2014 was $11.8 million, an increase of $1.5 million, or 14.6%, when compared to the same period in 2013. Operating profit for the first quarter of 2014 includes acquisition related expenses of $0.6 million.  Excluding the acquisition expenses, adjusted operating profit would have been $12.4 million, or 5.4% of net sales, during the first quarter of 2014.  For a reconciliation of adjusted operating profit to GAAP operating profit, see "Reconciliation of Non-GAAP Financial Measures" below.  Operating profit for the Office segment was $1.1 million in the first quarter of 2014, a decrease of $0.9 million, or 45.0% when compared with the first quarter of 2013.  The decrease in operating profit in the Office Segment was mainly due to price deterioration and the costs associated with the Company's multi-day training event.  Operating profit for the Studio segment was $5.5 million, an increase of $1.4 million, or 34.1% when compared with the first quarter of 2013.  Excluding the acquisition expenses of $0.6 million, adjusted operating profit for the Studio segment was $6.1 million, an increase of $2.0 million, or 48.8%, when compared with the first quarter of 2013.  The increase in operating profit in the Studio segment during the first quarter of 2014 was the result of the acquisition of HOLLY HUNT®  and improved sales and profits in Europe. Operating profit for the Coverings segment was $5.3 million, an increase of $1.1 million, or 26.2% when compared to the first quarter of 2013.  During the first quarter of 2014, operating profit increased across all of our businesses in the Coverings segment as incremental investment spending began to moderate.

During the first quarter of 2014 and 2013, other (income) expense included $2.5 million and $1.3 million of foreign exchange gains, respectively.

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 35.3% for the quarter, as compared to 39.8% for the same period last year.

Net income for the first quarter 2014 was $8.2 million, or $0.17 diluted earnings per share, as compared to $6.1 million, or $0.13 per share, for the same quarter in 2013.  Excluding the acquisition related expenses, adjusted diluted earnings per share would have been $0.18 per share during the first quarter of 2014.

Cash provided by operations during the first quarter of 2014 was $14.0 million compared to cash used in operations of $4.1 million during the first quarter of 2013.  Capital expenditures for the period totaled $7.8 million compared to $6.6 million in the comparable period for 2013.  During the first quarter of 2014, the Company paid a quarterly dividend of $5.7 million, or $0.12 per share, compared to a quarterly dividend of $5.6 million, or $0.12 per share, in the first quarter of 2013.

"This quarter we successfully completed the acquisition of HOLLY HUNT®.  Despite increasing our outstanding debt by $95.0 million we remain comfortably in compliance with our bank covenants and still have over $175.0 million available under our revolving credit facility", commented Craig B. Spray, SVP & CFO.

Business Segment Results

The following information categorizes the Company's results into its defined reporting segments.

The Office segment serves corporate, government, healthcare, retail and other customers in the United States and Canada providing a portfolio of office furnishing solutions including office systems, seating, storage, tables, desks and KnollExtra® ergonomic accessories. The Office segment also includes international sales of our North American office products. The Studio segment includes KnollStudio®, Knoll Europe which sells primarily KnollStudio products, Richard Schultz®Design, and HOLLY HUNT®. The Coverings segment includes, KnollTextiles®, Spinneybeck®, Edelman®Leather, and Filzfelt(TM). These businesses serve a wide range of customers offering high quality textiles and leather.

Three Months Ended
March 31,
Net Sales (in millions) 2014 2013
Office $ 146.1 $ 137.5
Studio 55.7 38.4
Coverings 27.5 24.7
Total Net Sales $ 229.3 $ 200.6


Three Months Ended March 31, 2014
 Operating Profit Acquisition Expenses Adjusted Operating Profit Three months Ended March 31, 2013
Office $ 1.1 $ - $ 1.1 $ 2.0
Studio 5.5 0.6 6.1 4.1
Coverings 5.3 - 5.3 4.2
Total $ 11.8 (1 ) $ 0.6 $ 12.4 (1 ) $ 10.3
                                     

            (1) - Results do not add due to rounding.

 Reconciliation of Non-GAAP Financial Measures

This release contains adjusted earnings per share, adjusted operating profit, and organic sales growth (decline) measures, which are non-GAAP financial measures.  Adjusted earnings per share and adjusted operating profit are calculated by excluding from earnings per share and operating profit items that we believe to be infrequent or not indicative of our operating performance.  For the periods covered by this release such items consist of acquisition related costs.  Organic sales growth (decline) represents the change in sales excluding the impact of HOLLY HUNT®.  We present adjusted earnings per share, adjusted operating profit, and organic sales growth (decline) because we consider them to be important supplemental measures of our performance and believe them to be useful to show ongoing results from operations distinct from items that are infrequent or not indicative of our operating performance.

Adjusted earnings per share, adjusted operating profit, and organic sales growth (decline) are not measurements of our financial performance under GAAP and should not be considered as an alternative to earnings per share or operating profit under GAAP. Adjusted earnings per share, adjusted operating profit, and organic sales growth (decline) have limitations as analytical tools, and you should not consider them in isolation or as a substitute for analysis of our results as reported under GAAP. In addition, in evaluating these non-GAAP measures, you should be aware that in the future we may incur expenses similar to the adjustments in this presentation. Our presentation of these non-GAAP measures should not be construed as an inference that our future results will be unaffected by unusual or infrequent items. We compensate for these limitations by providing equal prominence of our GAAP results and using adjusted earnings per share and adjusted operating profit only supplementally.

The following tables reconcile adjusted earnings per share to GAAP earnings per share for the periods indicated.

Three Months Ended
March 31,
2014 2013
Earnings per Share - Diluted $ 0.17 $ 0.13
Add back:
Acquisition expenses 0.01 -
Adjusted Earnings per Share - Diluted $ 0.18 $ 0.13

The following tables reconcile adjusted operating profit to GAAP operating profit for the periods indicated.

Three Months Ended
March 31,
2014 2013
Operating Profit ($mm) $ 11.8 $ 10.3
Add back:
Acquisition expenses 0.6 -
Adjusted Operating Profit $ 12.4 $ 10.3
Net Sales $ 229.3 $ 200.6
Operating Profit % 5.1 % 5.1 %
Adjusted Operating Profit % 5.4 % 5.1 %

The following tables reconcile net sales to organic net sales for the periods indicated.

Three Months Ended
March 31, 2014
Net Sales Holly Hunt Organic Net Sales Three months Ended March 31, 2013
Office $ 146.1 $ - $ 146.1 $ 137.5
Studio 55.7 17.4 38.4 (1) 38.4
Coverings 27.5 - 27.5 24.7
Total $ 229.3 $ 17.4 $ 212.0 $ 200.6
Percent change over prior year 14.3 % 5.7 %

(1) - Results do not add due to rounding.

Source: Knoll Inc.

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