Kimball International, Inc. (KBAL) today announced second quarter fiscal year 2017 net sales of $169.9 million, an increase of 4% over the prior year second quarter, and net income of $8.7 million, an increase of 34% over the prior year second quarter. Excluding prior year restructuring charges, adjusted net income increased 13%. Earnings per diluted share for the second quarter was $0.23 compared to $0.17 per share earned in the prior year quarter, or $0.21 per share excluding prior year restructuring charges.

Bob Schneider, Chairman and CEO, stated, “The employees of Kimball International once again delivered strong results this quarter with 34% growth in net income, or 13% growth excluding restructuring, a significant $10.2 million increase in operating cash flows, and return on capital of 21.1% that is among the best in the industry. A significant part of the improvement is associated with the work the last couple years in consolidating our metal fabrication production from Idaho into facilities in Indiana and the sale last August of the Idaho facility. With all of that completed, this quarter is our first quarter with no restructuring charges since the date of the spin-off. We look forward to now having all our resources directed to faster growth and continuous improvement initiatives.”

Net sales in the second quarter of fiscal year 2017 increased 4% from the prior year second quarter. The increase was primarily driven by the healthcare vertical (up 15%) and the hospitality vertical (up 9%). The increase in healthcare sales was driven by our increased focus on this vertical, while the hospitality vertical benefited from increased non-custom business with major hotel chains.
Sales of newer products continue to show revenue growth, with new office furniture products increasing 21% over the prior year second quarter. New product sales approximated 27% of total office furniture sales in the current year second quarter compared to 22% in the prior year second quarter. New products are defined as those introduced within the last three years.
Orders received during the second quarter of fiscal year 2017 decreased 1% from the prior year second quarter. Excluding the hospitality vertical, orders for the office furniture verticals were flat compared to last year, with increases in project business offset by lower day-to-day orders. A decline in orders of custom products drove a 5% decline in the hospitality vertical market.
Second quarter gross profit as a percent of net sales improved 30 basis points over the prior year second quarter, driven by pricing, leverage on higher sales volume, and benefits from the Company's restructuring plan involving the transfer of metal fabrication production from Idaho into facilities in Indiana, and was partially offset by higher employee benefit costs.
Selling and administrative expenses in the second quarter of fiscal year 2017 decreased slightly as a percent of sales and increased 4% in absolute dollars compared to the prior year second quarter. The increase in selling and administrative expense was driven by higher expenditures related to marketing and growth initiatives and higher sales commissions resulting from increased sales.
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 second quarter of fiscal year 2017. Pre-tax restructuring expenses in the prior year second quarter were $2.0 million.
The Company's 33.2% effective tax rate for the second quarter of fiscal year 2017 benefited from a higher domestic manufacturing tax deduction than the prior year same period. The prior year second quarter effective tax rate of 36.6% did not include any unusual items.
Operating cash flow for the second quarter of fiscal year 2017 was $19.1 million compared to operating cash flow of $8.9 million in the second quarter of the prior year, an increase of $10.2 million. The increase was primarily driven by the improved conversion of working capital balances to cash during the current quarter compared to the prior year quarter.
The Company's balance in cash, cash equivalents, and short-term investments was $72.3 million at December 31, 2016, compared to June 30, 2016 cash and cash equivalents of $47.6 million. The increase was primarily driven by increased profitability, proceeds from the sale of the Post Falls building and land in August 2016, and improved conversion of working capital balances to cash, and was partially offset by the return of capital to share owners in the form of stock repurchases and dividends totaling $10.8 million during the first six months of fiscal year 2017.