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Knoll reports strong Q2 2014 results

American professional and design furniture maker Knoll announced their financial results for the second quarter ended June 30, 2014.

Knoll Q2 2014 results

Net sales were USD 265.8 million for the quarter, an increase of 24.0% from second quarter of 2013. Organically, excluding the impact of Holly Hunt, which was acquired on February 3, 2014, sales increased 11.4% when compared with the second quarter of 2013.

Gross profit for the second quarter of 2014 was USD 97.2 million, an increase of $27.3 million, or 39.1%, when compared with the same period in 2013.  During the second quarter 2014, gross margin (gross profit as a percentage of net sales) increased to 36.6% from 32.6% in the same quarter of 2013.
The increase in gross margin from the second quarter of 2013 mainly resulted from the mix of higher margin Holly Hunt sales as well as better absorption and improved costs in Knoll’s Office segment.

Operating expenses, excluding USD 0.2 million of restructuring charges, were USD 74.8 million, or 28.1% of net sales, compared to USD 57.5 million, or 26.8% of net sales, for the second quarter of 2013.
The increase in operating expenses during the second quarter of 2014 was in large part due to the addition of the operating expenses from Holly Hunt and greater commission and incentive compensation expenses incurred as a result of higher sales and profits.

Operating profit for the quarter was USD 22.2 million, which includes restructuring charges of USD 0.2 million. Operating profit increased 79.0% for the quarter when compared to operating profit of USD 12.4 million in the second quarter of 2013.
Adjusted operating profit for the second quarter of 2014 was USD 22.4 million, or an 80.6% increase over the second quarter of 2013.

During the second quarter of 2014 and 2013, other (income) expense included a foreign exchange loss and gain of USD 2.4 million and (USD 2.3) million, respectively. Other (income) expense for the second quarter of 2014 also included USD 0.3 million of expense for the write-off of deferred financing fees related to the refinance of the new credit facility, which runs through 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 38.2% for the quarter, as compared to 39.8% for the same period last year.

Net income for the second quarter of 2014 was USD 10.8 million, an increase of 36.7% when compared with the second quarter of 2013.
Diluted earnings per share was $0.23 for the quarter compared to $0.17 per share in the prior year. During the second quarter of 2014, non-cash charges relating to foreign exchange losses decreased earnings $0.03 per share.

During the second quarter of 2014 and 2013, cash provided by operations was USD 18.6 million and USD 20.1 million, respectively.

Capital expenditures for the period totalled USD 9.9 million compared to USD 10.5 million in the comparable period for 2013.

“Across the board, each of our segments delivered improved sales and operating profits,” commented Andrew Cogan, CEO.

“We believe that the results we reported this quarter demonstrate the impact our strategic efforts to broaden our exposure to high margin, high design Specialty and consumer facing businesses can have on our top and bottom line results, particularly when coupled with improving performance in our core Office segment,” he added.

Business segment results

Net sales for the Office segment were USD 159.1 million during the second quarter of 2014, an increase of USD 11.0 million, or 7.4%, when compared with the second quarter of 2013.
Increased sales in the Office segment were the result of improved government and commercial sales year-over-year; this quarter marked the first increase in governmental sales since 2011.

Operating profit for the Office segment was USD 6.4 million in the second quarter of 2014, an increase of USD 3.0 million, or 88.2% when compared with the second quarter of 2013.
The increase in operating profit in the Office Segment was attributable to increased sales, improved pricing, better absorption of our fixed costs, and benefits from our supply chain transformation efforts.

Net sales for the Studio segment were USD 76.3 million, an increase of USD 39.1 million, or 105.1%, when compared with the second quarter of 2013.  The increase in sales in the Studio segment was attributable to the acquisition of Holly Hunt during the first quarter of 2014 as well as organic growth in Europe and North America.
Excluding Holly Hunt, organic sales increased in the Studio segment during the second quarter of 2014 by USD 12.0 million, or 32.3%.

Operating profit for the Studio segment was USD 9.5 million, an increase of USD 6.2 million, or 187.9% when compared with the second quarter of 2013.
The increase in operating profit in the Studio segment during the second quarter of 2014 was the result of the acquisition of Holly Huntand improved performance year-over-year for KnollStudio in North America and Europe.

Net sales for the Coverings segment were USD 30.4 million, an increase of USD 1.4 million, or 4.8%, when compared with the second quarter of 2013.

Operating profit for the Coverings segment was USD 6.3 million, an increase of USD 0.6 million, or 10.5% when compared to the second quarter of 2013.

Knoll Q2 2014 segment results

“Maintaining a strong and flexible balance sheet remains a top priority for us. The new credit facility that we entered into this quarter provides flexibility and, at the same time, reduces our borrowing costs.

Just one full quarter post the Holly Hunt acquisition, with improving EBITDA and continued debt pay down, our bank leverage ratio is already back below 3:1,” commented Craig B. Spray, SVP & CFO.

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