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Knoll reports strong Q3 2014 results

American professional furniture maker, Knoll, announced its results for the third quarter ended September 30, 2014.

Net sales were $268.3 million for the quarter, an increase of 23.7% from third quarter of 2013. Organically, excluding the impact of HOLLY HUNT, which was acquired on February 3, 2014, sales increased 10.1% when compared with the third quarter of 2013.

Operating profit for the quarter was $23.3 million. Operating profit increased 36.3% for the quarter when compared to operating profit of $17.1 million in the third quarter of 2013.

Net income for the third quarter of 2014 was $15.7 million, an increase of 82.6% when compared with the third quarter of 2013.
Diluted earnings per share was $0.33 for the quarter compared to $0.18 per share in the prior year.

“It was a strong quarter as our strategy delivered better than industry growth and operating margins,” commented Andrew Cogan, CEO. “The combination of the continued turn of our North America Office business, double-digit organic growth, and the addition of our HOLLY HUNT acquisition are coming together to start to deliver the kind of performance we would expect,” he added.

Knoll Q3 2014 results
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Gross profit for the third quarter of 2014 was $95.0 million, an increase of $22.6 million, or 31.2%, when compared with the same period in 2013. During the third quarter 2014, gross margin (gross profit as a percentage of net sales) increased to 35.4% from 33.4% in the same quarter of 2013. The increase in gross margin from the third quarter of 2013 mainly resulted from the mix of higher margin sales, primarily attributable to our Studio segment, which includes the results of HOLLY HUNT.

Operating expenses were $71.7 million, or 26.7% of net sales, compared to $55.3 million, or 25.5% of net sales, for the third quarter of 2013. The increase in operating expenses during the third quarter of 2014 was in large part due to additional operating expenses from HOLLY HUNT and greater commission and incentive compensation accruals incurred as a result of higher sales and profits.

Operating profit for the third quarter of 2014 was $23.3 million, an increase of $6.2 million, or 36.3%, when compared to the same period in 2013.

During the third quarter of 2014, other (income) expense was ($3.3) million. Other income for the third quarter of 2014 primarily related to foreign exchange gains, which increased diluted earnings $0.04 per share. During the third quarter of 2013, other (income) expense was $2.2 million. Other expense for the third quarter of 2013 primarily related to foreign exchange losses, which decreased diluted earnings $0.03 per share.

The mix of pre-tax 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 36.8% for the quarter, as compared to 35.9% for the same period last year.

Net income for the third quarter 2014 was $15.7 million, or $0.33 diluted earnings per share, as compared to $8.6 million, or $0.18 per share, for the same quarter in 2013.

During the third quarter of 2014 and 2013, cash provided by operations was $33.4 million and $15.3 million, respectively. Capital expenditures for the third quarter of 2014 totalled $14.3 million compared to $3.3 million in the comparable period for 2013. During the third quarter of 2014, Knoll 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 third quarter of 2013.

“Just 2 full quarters after the acquisition of HOLLY HUNT our leverage ratio is down to 2.73:1.¬† The strong performance of this acquisition coupled with growing profits in our core businesses and debt reduction have contributed to this improvement,” commented Craig B. Spray, SVP & CFO.

Segment Results

Knoll Q3 2014 segment results
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Net sales for the Office segment were $166.8 million during the third quarter of 2014, an increase of $16.3 million, or 10.8%, when compared with the third quarter of 2013.
The increase in sales in the Office segment was the result of growth attributable to new workplace models and office systems. Offsetting this growth in the Office segment was a marginal decline in government sales year-over-year.

Operating profit for the Office segment was $8.3 million in the third quarter of 2014, an increase of $2.6 million, or 45.6% when compared with the third quarter of 2013.

Net sales for the Studio segment was $72.2 million, an increase of $34.5 million, or 91.5%, when compared with the third quarter of 2013. The increase in sales in the Studio segment was due to the acquisition of HOLLY HUNT, which occurred 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 third quarter of 2014 by $5.0 million, or 13.3%.

Operating profit for the Studio segment was $9.1 million, an increase of $3.8 million, or 71.7% when compared with the third quarter of 2013.

Net sales for the Coverings segment were $29.3 million, an increase of $0.6 million, or 2.1%, when compared with the third quarter of 2013. Net sales growth in the Coverings segment is attributable to improved year-over-year sales performance in our leather and felt businesses.

Operating profit for the Coverings segment was $5.9 million, a decrease of $0.2 million, or 3.3% when compared to the third quarter of 2013.

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