Kimball International, Inc. today announced results for the fourth quarter and fiscal year ended June 30, 2020.
Selected Financial Highlights:
Fourth Quarter FY 2020
Net sales decreased by 20% to $156.1 million
Gross margin expanded by 70 basis points despite lower volume
Operating income margin of 7.0%, or 9.4% on an adjusted basis
Net income of $9.2 million, decreased 17%
Adjusted EBITDA of $19.1 million, increased 1%, and adjusted EBITDA margin of 12.2% increased 260 basis points
Diluted EPS of $0.25, or $0.29 on an adjusted basis, a decrease of 9% compared to adjusted EPS of $0.32 a year ago
Return on Invested Capital (ROIC) of 30.0%
A backlog of $151.1 million
CEO Kristie Juster commented, “Fourth quarter results demonstrated the resilience of Kimball International in navigating a very difficult business and operating environment. Excellent execution across our organization enabled us to report stable adjusted operating income, along with modest growth in adjusted EBITDA, despite a significant COVID-19 impact on our revenues. This performance reflected the success of our ongoing transformation plan and Phase 1 of our restructuring program, which together have yielded significant cost savings while streamlining our operations and leveraging expertise across our brands.
“Business conditions remained challenging throughout the fourth quarter as the health crisis and resultant economic decline caused postponements of projects and uncertainty around adapting to a post-COVID working environment. In early May, with our production facilities fully operational under strict safety and health protocols, we acted quickly to develop products and solutions that would assist clients in adhering to social distancing and workplace safety requirements, while providing comfortable and collaborative settings. These included retrofits and redesigns for existing products and spaces, as well as roadmaps to reimagine the new work environment.
“We are pleased with the initial market response to our initiatives, but we recognize that the business environment is likely to remain difficult in the periods ahead. As a result, we have decided to accelerate the implementation of the next phase of our Kimball International Connect strategy, which we believe will drive continued market share gains for Kimball International during this period as well as yield additional cost savings that will enable us to effectively manage through the downturn and emerge as a leaner, more nimble company.
“Specifically, the Connect 2.0 Strategy is comprised of four new market-centric business units of Workplace, Health, Hospitality and eBusiness that will accelerate our ability to redesign and reimagine the new workplace, build a new work from home portfolio, continue assembling experts in health, and expand our hospitality business into other commercial direct sales environments. The dedicated eBusiness unit will take a leadership role in establishing all e-commerce across our brands and end markets. Each of these four business units will be supported by the agility and efficiency of Global Operations and the streamlined center-led structure that we implemented in year one of our strategy.
“At the same time, we are initiating Phase 2 of our restructuring program, which will result in a restructuring charge of between $17.0 million and $18.0 million in total of which approximately $6.0 million will be recorded in the first quarter of fiscal 2021. Approximately 75% of the total charge will be cash charges. The workforce reductions and facility optimization that comprise this program, together with our ongoing operational excellence initiatives are expected to yield cost savings of approximately $20.0 million in fiscal 2021.”
Overview
Fourth Quarter Fiscal 2020 Results
Consolidated net sales were $156.1 million, down 20% from $195.6 million in the year-ago quarter. Gross margin expanded by 70 basis points to 35.0% due to cost savings, selected product price increases and efficient management of our manufacturing facilities through the revenue decline. Selling and administrative expenses of $41.6 million declined $11.3 million compared to the prior year, decreasing to 26.8% of net sales. Adjusted selling and administrative expenses were $39.9 million or 25.5% of net sales, compared to $52.4 million or 26.8% of net sales in last year’s fourth quarter. Net income decreased 17% to $9.2 million, and GAAP earnings per diluted share were $0.25, compared to $0.30 reported in the fiscal 2019 fourth quarter. Adjusted earnings per share, which excludes restructuring charges, decreased 9% to $0.29, compared to $0.32 last year. Adjusted EBITDA increased 1% to $19.1 million, and adjusted EBITDA margin expanded 260 basis points to 12.2%.
The current year fourth quarter benefited from approximately $3.1 million in one-time favorable adjustments to year-to-date annual incentive compensation accruals, which increased adjusted earnings per share by $0.06. In addition, this year’s fourth quarter was favorably impacted by lower incentive compensation costs, delayed spending across the Company and reduced employee healthcare costs, much of which was related to the COVID-19 pandemic.
The Company ended the fourth quarter in a strong financial position, with $97.1 million in cash and short-term investments, minimal debt and $73.4 million in available credit lines, providing the resources to weather the COVID-19 crisis and continue to invest to support future growth.
Fiscal Year 2020 Results
Fiscal year 2020 net sales of $727.9 million decreased 5% from fiscal year 2019 net sales of $768.1 million. Fiscal year 2020 operating income was $54.4 million, or 7.5% of net sales, compared to fiscal year 2019 operating income of $49.5 million, or 6.4% of net sales. Adjusted operating income was $64.2 million, 21% above the $53.1 million in fiscal 2019. Net income for fiscal year 2020 was $41.1 million, or $1.11 per diluted share, inclusive of $6.3 million restructuring expense ($0.17 per share) and $0.5 million CEO transition costs ($0.01 per share). Fiscal year 2019 net income was $39.3 million, or $1.06 per diluted share, inclusive of $0.7 million restructuring expense ($0.02 per share) and $1.5 million CEO transition costs ($0.04 per share). Fiscal year 2020 adjusted EBITDA was $81.3 million, or 11.2% of net sales, compared to fiscal year 2019 adjusted EBITDA of $69.5 million, or 9.0% of net sales.
Capital expenditures for fiscal 2020 were $21.1 million. The Company returned $15.9 million to shareholders in the form of dividends and share buybacks.
Summary and Outlook
“Fiscal 2020 results represented very respectable performance in light of the COVID-19 impact on our fiscal third and fourth-quarter revenues. We succeeded in posting double-digit growth in operating income and adjusted operating income on a 5% decline in revenues, and we reported an industry-leading 37.5% return on invested capital, all indications of the significant efficiency gains that have been achieved by the Kimball International team.
“Recent order rate trends within this period of economic uncertainty lead us to anticipate lower year-on-year comparisons over the next several quarters. Our fiscal year-end backlog was $151 million, of which $90 million is scheduled to ship in the first quarter of fiscal 2021. Recent order trends and the resurgence of COVID-19 in certain parts of the country lead us to expect that first-quarter fiscal year 2021 revenue will be slightly below fourth-quarter fiscal year 2020 levels.
“Longer term, we are confident in our ability to grow our business organically and through opportunistic acquisitions that enable us to gain share in our selected vertical markets as well as build our e-commerce capabilities,” Ms. Juster concluded.
