Knoll reports mixed results in fourth quarter

EAST GREENVILLE, Pa. – The turnaround path continues for Knoll, Inc. and fourth quarter 2017 showed an increase in sales and net earnings when compared to fourth quarter 2016. However, net sales for the full year declined by 2.6 percent from 2016, and net earnings and diluted earnings per share fell as well.
During the first quarter of 2018, the company completed the acquisition of Muuto A.P.S., the Copenhagen-based designer and provider of affordable luxury furniture, lighting and accessories for the workplace and home, for approximately $300 million in cash, less certain customary adjustments.
Concurrent with the Muuto acquisition, the Company amended its credit facility, which provides for a $750 million borrowing that matures in five years. The proceeds of the credit facility were used to fund the Muuto acquisition, refinance certain indebtedness and for ongoing working capital requirements.
Andrew Cogan, President and CEO, stated, “2017 was an important rebuilding year for Knoll as we made fundamental investments across our residential and commercial businesses. In particular, adjustments to our go-to-market strategy and product portfolio in our Office segment responded to rapidly changing market conditions. The return to growth that we delivered in the fourth quarter demonstrates the traction we believe we are gaining in our core markets and bodes well for the year ahead. With the Muuto acquisition now closed, and integration with our North American sales teams well underway, our momentum in the market should build."
Net sales for fourth quarter 2017 were $316.1 million compared to $292.9 in fourth quarter 2016. The increase was primarily driven by a 9.9 percent increase in sales for the Office segment thanks to strong growth in the commercial business from new workplace platforms.
For the full year net sales declined from $1.164 billion in 2016 to $1.132 billion in 2017. The decrease was due to a decline in the Office segment for the full year caused by decreases in both government and commercial sales.
The new Tax Law had an impact on both fourth quarter 2017 and full year 2017 net earnings. Fourth quarter earnings were $32.7 million, or $0.67 diluted earnings per share, and $80.2 million, or $1.63 diluted earnings per share for full year 2017. The company paid dividends of $0.60 per share.
Net earnings for the fourth quarter and full year 2017 included a $26.6 million one-time benefit, primarily related to the re-measurement of the Company's net deferred tax liabilities at the new corporate income tax rate of 21 percent in response to the passage of the U.S. Tax Cuts and Jobs Act. This amount is an estimate based on the facts and circumstances at year end and may be subject to further refinement. Net earnings for the fourth quarter of 2017 also included non-recurring asset impairment, pension settlement, and acquisition charges.
The effective tax rate for 2017 was a negative 2 percent compared to 35.6 percent for 2016. Excluding the impact of Tax Reform, the effective tax rate for 2017 would have been 31.8 percent. The Company expects its effective tax rate will be between 24 percent and 26 percent in fiscal year 2018.
Discussing the new $750 million credit facility, Charles Rayfield, Senior Vice President and chief Financial Officer stated, “We are very pleased with the strong support we received from our lenders as we amended and extended our credit facility in conjunction with the Muuto acquisition. In addition, Tax Reform legislation will have a positive impact on Knoll's cash flow as we anticipate a significant reduction in our effective tax rate. The additional cash flow will allow us to further invest in our business and strategic initiatives as well as reduce our outstanding debt.”
Cogan summed up the year and looked forward to 2018 by stating, “While in the short term these investments dampened our profitability, we believe in the year ahead the combination of continued growth, a plateauing of the ramp up in investment spending, our lean initiatives, and a significantly lower tax rate, should lead to meaningful earnings per share growth.”
Knoll, Inc. (NYSE: KNL), makes an internationally recognized portfolio of design-driven brands which includes furniture, textiles, leathers, accessories, and architectural and acoustical elements.
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