Knoll, Inc. (KNL), a leading designer and manufacturer of furnishings, textiles and fine leathers for the workplace and home, Thursday announced results for the third quarter ended September 30, 2016. Net sales were $292.1 million for the third quarter, an increase of 10.8%, from the third quarter of 2015. Operating profit for the quarter increased 22.6%, to $35.2 million, compared to operating profit of $28.7 million for the third quarter of 2015. Net earnings for the third quarter of 2016 were $21.6 million, an increase of 21.2% when compared to the third quarter of 2015. Diluted earnings per share were $0.44 and $0.37 for the third quarter of 2016 and 2015, respectively.
"In the face of a more mixed demand environment across our various end markets we are pleased to be reporting better than industry growth and continued margin and operating profit expansion," commented Andrew Cogan, CEO. "In the quarter our HOLLY HUNT division completed the first of what we hope will be many tuck in acquisitions with the purchase of Vladimir Kagan Design Group. Known for its sensual, elegant, mid-century and contemporary designs, we believe this is a business we can leverage our HOLLY HUNT distribution to profitably grow in the years ahead."
Third Quarter Results
Third quarter 2016 financial results highlights are as follows:
Net sales were $292.1 million for the third quarter of 2016, an increase of 10.8%, from the third quarter of 2015. Net sales for the Office segment were $185.8 million during the third quarter of 2016, an increase of 15.5%. The increase in the Office segment was led by continued growth in our core systems portfolio, as well as increases in complementary products. Net sales for the Studio segment were $79.8 million during the third quarter of 2016, an increase of 6.5%. The increase in the Studio segment was led by Europe and KnollStudio in North America. Net sales for the Coverings segment were $26.5 million during the third quarter of 2016, a decrease of 4.8%. Continued year-over-year growth in Spinneybeck | FilzFelt sales was offset by weakness at KnollTextiles and Edelman.
Gross profit for the third quarter of 2016 was $112.8 million, an increase of $11.6 million, or 11.5%, when compared with the third quarter of 2015. During the third quarter 2016, gross margin improved to 38.6% from 38.4% in the third quarter of 2015. This improvement was driven mainly by the Office segment, where operating efficiencies and improved fixed-cost leverage from higher volumes were favorable.
Total operating expenses were $77.6 million for the third quarter of 2016, or 26.6% of net sales, compared to $72.5 million, or 27.5% of net sales, for the third quarter of 2015. The increase in operating expenses was primarily related to expanded sales and product development investments as well as higher incentive accruals related to increased profitability.
Operating profit for the third quarter of 2016 increased 22.6%, to $35.2 million, compared to operating profit of $28.7 million for the third quarter of 2015. Operating profit for the Office segment was $18.0 million, or 9.7% of net sales, in the third quarter of 2016, an increase of $6.9 million, or 62.1%. Operating profit for the Studio segment was $11.7 million, or 14.7% of net sales, an increase of $0.4 million, or 3.2%. Operating profit for the Coverings segment was $5.5 million, or 20.7% of net sales, a decrease of $0.8 million, or 12.3%.
During the third quarter of 2016, other expense was $0.7 million compared to other income of $1.8 million for the third quarter of 2015. Other expense in the third quarter of 2016 was related to the impact of exchange rate fluctuations on our foreign subsidiaries. Other income in the third quarter of 2015 was primarily related to foreign exchange gains due to the devaluation of the Canadian dollar.
Net income for the third quarter of 2016 was $21.6 million, or $0.44 diluted earnings per share, compared to $17.9 million, or $0.37 diluted earnings per share, for the third quarter of 2015.
The tax rate for the third quarter of 2016 was 34.9% compared to 38.0% for the third quarter of 2015. The mix of pretax income and the varying effective tax rates in the countries and states in which we operate directly affects our consolidated effective tax rate.
During the third quarter of 2016 and 2015, cash provided by operations was $49.3 million and $30.7 million, respectively. Capital expenditures for the third quarter of 2016 totaled $10.4 million compared to $7.2 million in the third quarter of 2015. During the third quarter of 2016, the Company paid a quarterly dividend of $7.2 million, or $0.15 per share, compared to a quarterly dividend of $5.7 million, or $0.12 per share, in the third quarter of 2015.
Business Segment Results
The following information categorizes the Company`s results into its 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.
