KBAL Kimball International

Robert Schneider Chairman & CEO
Michelle Schroeder VP & CFO
Steven Ramsey Thompson Research Group
Jonathan Tanwanteng MD
Samantha Doxie Walthausen & Company
Call transcript
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Good morning, ladies and gentlemen. My name is Kim, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International Fourth Quarter 2018 Fiscal Results Conference Call. [Operator Instructions].

As with prior conference calls, today's call, August 2, 2018, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. materially forward-looking differ could results from statements. the Actual the forward-looking Kimball statements factors Form that be of influence may release. the Risk can outcome seen and today's XX-K International in Schneider, panel Chairman and The Schroeder, and International. of President Financial Vice call today's is Michelle and of Kimball for CEO International; Officer Kimball Chief Bob would to today's turn I call over now like to Bob Schneider. Mr. begin. may you Schneider,

Robert Schneider

fourth conference Kim, quarter call. June our year fourth you, quarter results ended to for fiscal and financial and everyone, the announced year XX, We XXXX welcome, yesterday our Thank fiscal XXXX.

have prior calls, Relations investor in to that As deck our has of posted we accompany Investor an the presentation call. conference to slide this website been section

on the pull fiscal financial trending fourth suggest turn the you with will on key past, the the I brief deck the of up over our in quarter provide financial to call as I start comments I XXXX quarter who highlights important few quarter. fourth the Michelle, with and highlights before a with for us year results. along slide As information will that it includes

coming We XX% pleased sales was strong highest will performance markets quarter, in vertical were was higher of the our call broad then X% or coming the analysts questions $XXX organic the quarter of than the encouraged of nature in years. X year. of all of X the basis. to organic business after normally our from on on the the orders increasing quarter. quarters choppy very one in increased growth. for organic during year increase compared at of the an from to of based This big growth quarter, from our fluctuations volume X% the last X growth hospitality well of next with with fourth fourth The quarter over to with which markets as the project basis. with quarter last or is hospitality of revenue vertical was Orders by the at slower million Orders see vertical tend quarter was XX% significant so an in our I strongest an higher I'm a open and to investors. XX% markets. couple growth of because quarter X received from basis, we the vertical in very to so, a on market Even The XX

perspective quarter the will fourth in to last a industry this margin finish XXXX fiscal some improvement. strong income fiscal us the both impact order year, in was year on than the a year, and to operating third quarter. We these going second well our feeling our of did the few the into a year, challenging continued the backlog see sequential transportation, margins steel to on of discuss X% nice and commodity mid-year. that other very and this compared fiscal experienced quarters minutes. higher see We to XX% year, XXXX. last D'style, excluding or pressure ended Higher detail more from growth in pause improvement the even declined positioning Despite the year Our a fourth our higher, we though ago. put costs I of Michelle started margins perspective. pleased results was in from the higher quarters couple a quarter of margin costs

was tax to in form. that longer surrounding we whether to approved activity really get While what and was design final it forward. get a part going believe around uncertainty the coding, of bill was reform lot reason were I and taking moving the seeing order of and passed the

We of tax their companies and Just heated the of the business, impact trade December up. additional in in of coming the The mentioned in global and among the is could enacted resulting and fourth creating quarter caution pent-up sales to fourth reality reform loose is next uncertainty backlog businesses. recently as year tariffs some saw demand let I strong on the our earlier. last what became understand in that discussions begin quarter,

XXXX, our the in encouraged recent the revenue move accelerated by Kimball furniture expanded acquisition within million sales -- and metal was the are we in fiscal activity hospitality year of nicely. hospitality strategy November coming D'style The in The family that is XXXX. of completed of year into This International D'style space areas fiscal in along We vertical as XXXX. into acquisition $XX our our capabilities of market into and public hotel. increasing integration added

steel increase each third each we increasing transportation fourth fiscal price increase that prices see in pressured or and steel by from services the things a million significantly in cause in in costs margins started requirements started in The us general XXXX. log tariffs last our electronic started quarter. of $X.X in quarter, We costs. approximately by of spike It in within in came the year most quarters, of third to reasons the XXXX the increase seems impacting because three approximately seeing to suppliers, drivers, our some of million quarter. increases to were for quarters. second for of year the all Steel we've original We of U.S. impact seen industry an increases inflation together the fiscal increase. and but $X.X the we quickly. lot impacted directly -- transportation shortage were our the Our not purchase steel are of In the demand and over-the-road

in our margins All put on year pressure fiscal XXXX. of this

continued key we have acquisitions growth on focus has that a will a strong role on in also been Looking forward focus year growth. new will to That with to design-savvy and products. success, fiscal XXXX, our key play the

pursuing actively expand our would acquisitions portfolio. current are tuck-in We that and complement product

innovative way will to on execute products help strategies, as are and to we partnerships fuel growth. design-driven a In investing addition, always strategic we in searching our for continue

the year-over-year costs these that appears see side. in second in costs in somewhat still will remain quarter, initial XXXX, recently. until the transportation year stable first In It didn't in year have costs stabilized these the the increase But quarter. the fiscal On since see fiscal we near increase we we will anticipate cost 'XX a term.

proposed XX% asked We XX% tariff. discussions. are trade to the President pricing. and to officials tariff as components, where parts originally the close July and early early increasing on that are in a would buying Section watch hedge add a makes keeping Yesterday, Trump to on XXX U.S. monitoring furniture tariff it furniture cost future of a spot steel sense the July. and proposed rates consider tariffs in The We're

our of We cost supply analyzing are are impact ways impact. chain the proposed partners on mitigate proactively China in the working tariffs with to and these

reduce Our to suppliers very our have overall been open help the for pricing impact. to concessions request

regarding that the in our with tariffs. certain to customers excluded comments also categories contact be plan are We file list. International close from to the these with We Commission request Trade

XXXX. As call, save we working on on we our year approximately will that in discussed several are fiscal last initiatives million cost we're $X reduction estimating

benefit normally brand several a initiatives. We in are with and April, It take price will of with first takes the brand these increase. price the increase fully will to in months July benefit quarter price the had X. so effective on be that National so Also, Kimball see QX. we had our increases for price National more But a some effective our increase effect especially will -- beyond we track

are supply additional activity much and costs billings tariffs increase work mentioned enacted other I we XX% XXXX, I including of the expect instead employment, this that on commodity of fiscal caution going We're fully construction continuous the higher price realized macroeconomic architectural the that mitigate the fiscal initiatives put all cost reductions impact margins I would price continued just are with the will hold. transportation though chain will impacts optimistic improvement growth. the XX%, if We work second our service-sector our support index the mitigate. and along beginning and more indicators when proposed lean and taking that year with RevPAR are pressure quarter the to at into and of increases drive will will in mentioned initiatives XXXX

turn on external candidates identify announcement is in my and working the board is I The process Committee my both now retirement. Board evaluating has the firm the expects to on Search board announced, CEO Michelle, XX. retire in over Before Since to candidate. the October May, been new an to to pending I external in recruiting of update provide plan, wanted candidates to with previously executive internal call as an the September. My announce an and

open your financial the to Michelle for a questions. turn overview Michelle? will before over I results of to call we Now, it the brief

Michelle Schroeder

Bob. Thanks,

results pleased on strong in over My comments highlights. fourth the So quarter last focus the X% for year just and $XXX.X fourth fourth a year. I'm was a We going Bob the XXXX of our the XXXX year quarter quarter. increase on covered sales million, fiscal which are reported to of with note. fiscal

completed this D'style we acquisition Now, that in November. the include does

strong experienced The that basis, from vertical of growth organic sales quarter. various increase. The X%. of with this that's growth so the for the among spread vertical D'style our our largest an out It organic and So based increased hotel markets markets. came an our a came was is growth. in part vertical XX% in program was among XX%. our six brands. The sales vertical to from increase increase increased our the business basis, in still included this the contributor reason encouraging was broad vertical acquisition the hospitality Five on But and

our has little are investments in than solid other product work it the healthcare into some the of we couple our brand. the cycle see in including a Kimball saw longer made healthcare talking this 'XX. selling move leadership as space, vertical the a all so verticals space. taken in of also has quarter. We the a there XX% within to We lot fiscal the believe vertical team a about quarters longer This sales the the this and done been has opportunities introductions increase benefits new last of office new in within we've team We've

increased and verticals quarter. federal education while local orders vertical were government things increased finance, year. couple sales quarter, as and flat, Our fourth We in declined shifted the was only due of the all during a that commercial government XX% had XX%. last to that but declined price quarter excluding that were and the primarily State Consolidated increased project those government. well estimated a large and the adjusted orders effective pulled of last impact strong from comparison D'style and adjusted level, a very still remove the items, the acquisition order the orders the orders the impacted for increases forward. even in to for At was a high year early also was that XX%

price increase of the the which at to in a pulled had $X reminder, thus XXXX, last QX of brand a effective the last by into QX As last lowering year of the our QX National orders year fourth $X million. million had of orders quarter in beginning out and approximately effect year and

was year. year it did so easier to So price for from later an comparison shift this in National orders quarter April made quarter. increase this not it

Kimball into quarter orders of pulled the Again, orders Our of consolidated quarter inflated increased and approximately this items, even July brands year year fourth had this XX%. million. year X $X on so these in when by a it price orders increase. beat And of had the the increase thus, price excluding fourth to this again our we

June ramp metric when Sales This XX and fully. fourth the of $XXX.X growth new in activity as X% at up our was during So fall Bob of the increase the depending an order products when does all we're organic products last an backlog product higher orders except were higher very The XX% in our on the the mark resulted total the on broad year end than for significant but government. based million, markets in of fourth fluctuate of three-year of out category the new with timing orders sales of in pleased quarter or vertical new quarter, during which, of XX% and basis. hit increases is said, products June the quarter. with of

the fell are year, selling still this extremely first in new and of products, So they quarter we the had product well, of hit category. some that out that mark three-year

XX% quarters this So first we to the year. in fiscal below saw sales new a two dip of product in

XX% products to So introduced is and an our this in we metric recently XX% starting volume, to in now are saw and in ramp very XX% we seeing good uptick line quarter and up with quarter. this last target.

are reminder, we the a hospitality exclude As this specific. in products as do from metric, primarily hospitality sales hotel-brand vertical

approximately to the an on approximately costs had on mitigate These And us in costs during still profit Bob but gross of basis basis The analyzing elevated gross by impact other higher the impacted the partially And, stabilize margin realization And gross increases this XXX impact points. unfavorable XX.X% quarter. year the have this favorably also gross commodity price on favorably volumes margin steel supply our offsetting reduced quarter by the these by increases with points. tariffs fourth basis impacted levels, land and the points. the Our of ended would transportation, current basis approximately quarter $X.X our XX proposed profit year. to leverage as approximately consolidated mentioned, year. XXX some we XX in margins prior we fourth quarter are last on year last the due a in an had believe prior administrative compared and cost. at impact primarily significant that margins additional by to and XX.X% to the compared expenses our the cost from being transportation expense gain million and Selling didn't to impact in on year, begun idle that and mix have have chain then we're increased D'style working so a Sales at higher X% our points. that sale

and to quarter. Partially fuel We also sales expenses lower increases costs our incentive during offsetting marketing compensation these increased was the growth.

land basis. basis million Our sale ended of compared and year. a in to in the increased at on that's The $X.X last year on operating XX gain last the the points operating by income X.X% of our year margin GAAP X% margins prior

last our approximately gain would Excluding operating than year, year. have $XXX,XXX dollars last from the in income this been higher year

a million to The the the we're was XX.X% and cost efficiency, which and to reduce working company, company. we these And XX.X% quarter to with brands working initiatives transportation throughout costs. to production initiatives, several prior were and reporting the continually challenges, initiatives $X of our estimate and mentioned, facilities -- 'XX. the improve lower implemented will reform. National we year lean production investments initiatives increase rate XXXX on just in fiscal save XX.X%. automation the inflow of price that's there recently including rate to in for the second rate where and other cost blended lean around on, processes in opportunities the along our approximately will we the warehousing these at commodity fiscal benefit Bob fourth The in increases reminder, productivity from compared as we year occurring statutory that our As fiscal lean tax we're We year. anticipate that initiatives Because And both is offset many Kimball in transportation primarily increases for had effect federal also and due have address making other and equipment have small is we're a tax quarter.

rate full quarter at fourth in in effect year to is be fiscal ended million year. reduction for income will the million share which last prior the equal the So per for earnings fourth to $XX.X equaled in quarter compared to 'XX. Net $XX.X and the $X.XX, the XX%

moving to of investments million our sheet, balance end at June. $XX.X and cash Now was the cash, short-term equivalents balance the

fourth the million million in the cash flow operating quarter $XX.X in quarter to $XX.X compared year. last fourth was Our of

current increase XX,XXX million under nice approximately shares in We remaining about a during the dividends fourth million from $X.X program. shares and $XXX,XXX So totaling X.X have year. we repurchased share last quarter, repurchase paid our and

repurchase we'll and monitor opportunistically. shares to continue So the market

quarter, our and million corporate the headquarters reflect equipment brand and better to expenditures automation, primarily in today for to renovations. for related investments capital Kimball office showroom $X.X renovation our manufacturing Our and of the totaled

and to Our $XX.X capital renovation. the of capital expenditures fiscal headquarters' next 'XX Kimball around spending million estimating corporate and year. million fiscal and automation year million, these elevated totaled and for for we the of continue entire as continue do brand XXXX year to capital $XX levels investments We're expect $XX for expenditures currently to have we

little statement accounting remains that fiscal revenue Kimball Kimball rule But in related mention in do beginning of the International the will on we June I open with We to recognition we XXXX. be debt Our new strong questions, before want of million facility call most the for and have for as do accounting a compliance of are XX. for significant covenants. items XX change rules for balance International this very effective credit The be our will with sheet certain to income. reclassification all

and any are paid these sale in revenue for services of For be certain an recognized the new direct as customers, sales Under with of fees to will netted revenue. dealer selling performing standard, either cost currently, agents expense. facilitating bill against the offset

be we than commissions revenue. any selling or addition, third-party to purchasing being paid recognized organizations against a rather fees that In as will expense netted

in results sales of an will of so of margins in there income changes the will reduction a because increase So be but or be expenses, these operating net on no will selling and in be cost an higher in operating there the offset sales increase numbers. sales impact dollars,

that data be a we quarter so numbers So reporting that prior have will fiscal year 'XX. we'll for comparable our restating year-over-year with and first start you'll

with Kim, I'd questions? to the open So with in any like today. are one call the that, there queue


[Operator Instructions].

first The from from comes question Thompson Thompson Kathryn Research.

Steven Ramsey

have Can to you then Steven again? pricing how Kathryn. is -- and space? call. missed I on This this maybe pricing you your the for Can relates And may your competitors in the think you Ramsey on review -- change

Robert Schneider

one another didn't mention, another of we've with in in the and is one have in will happening amount What The with very is to increase April price come with our price with very We increase much tell out when similar market came watched We to competitors respect July. terms out with mentioned pricing. you increase. brand came we we Our brand. earlier it's I what of out what to the the -- done. but

a much to our what could, perhaps, a when dates. did price Given but very throughout clearly market. in watching size, we for structure, -- our we follower out on with terms cost are we increase, planning cost have come which the two respect And of and been then market those have been our that increases with

very do due very Michelle of a would be if is when would mentioned, and a often easy go next But was prices very simple, up. delay when see As there impact price increases. the to various contracts, the the it we day a increase, the on those price world

So the increase one be of National, the the will us price fiscal first brand benefiting 'XX. quarter in

with of other in The just as fiscal process. quarter to we probably Kimball effect July, of lagging due you see that effect the won't into until the price second did we increase get much 'XX,

Steven Ramsey

pace And filter price in coming you. of putting price-cost you $X guess, gap together then, two cost would right that combined the Got the savings would I those questions or if Kind there. 'XX? maybe of the close the and And in, I $X I kind guess the the with -- what second heard of how million in million of of year? the wrong be you fiscal increases. is through quarter

Michelle Schroeder

in savings, little ramps then increase but QX. then we that the we've transportation Steven. correct, between And ramp-up would and been that a up be expect is got to bit little $X bigger bit there commodity quarter a seeing. impact price Each do more, increases The able we've and offset in little it's the that the we second quarter bit and first cost cost QX quarter. and it the That's more million a between

Robert Schneider

projects through margin as And, up, improvement because continuous will have working be year. Steven, processes we expansion would -- after on out we're the the go that finishing quarter, we

thereafter. it's that So increases QX, able we mentioned to we we additional benefit would have the are earlier. have But offset where cost various

Steven Ramsey

products? kind years? the Can going. launching okay. new are I And years trends Or -- launch maybe the current Great, on the more what a would product trends new in way even pressures initial if would years increased them of hear even you've your set when inflation last learned to products interested on are of, and, than the launch the better margin about be not because them now a introductions given right past it's in to you margin of new in compare now few ago? you talk couple versus of focus going maybe few product fair

Robert Schneider

pedal that Steve. really, really question, the hit rethink completely we come out We really just in years products new gas market. new and on X, X.X the speed how products new not And blow we budgets, to and with our ago. product do Good introduction starting to had order

out And process, were put so a speed to lot to product really introduction. of the to take process cost up place changes try new in of

the products, and the ago, try tend we product we the time we get on time out with had spend to as product. And work course, prior lot in supply past content to And with a introduction more to product and came goods the pricing through much we done generally, issues remove respect would you open lot it chain. it's about say, course, had just occur, more much so and expect, so our margins, the new a lot a margins And all years to the want the of contemporary. we you're -- where target typically X introduce as cost I to of we introductions, because we're faster when working better. We to that we than But target would a some margin have those equal of type that difficult to try get today. than different. or looked then. are were now case X, they more When often plan. of to that compared material Much, to With better. as then margins introductions we thinking product comparing

Steven Ramsey

trends market? And to large compare last your in maybe versus lastly, in small then order quarter would you the how trends order Great. end past last year not the versus

Robert Schneider

both were very, nine that, The obviously, on last stresses And about see you I know go were very am, there both of were back quarter pleased stresses six just were up months projects. substantially, I maybe were on strong. large ago, both as orders, for quarter. months this But us, ago, strong but to those there we ended, day-to-day

Jonathan Tanwanteng

my does that space that what your recently. the Excellent. portfolio? question. looking change does market How or trends outlook and And or final the -- then or your on flurry the are partnership of at of as guys to expand -- well avenue Kind in acquisitions getting pricing sales does partnerships you the

Robert Schneider

We are investigating acquisitions, we're looking at partnerships where it makes sense.

In not terms with of has we're pricing, a of looking lot to that's with it products. on of marketplace, organic to products of those, addition the substantial certainly in what a impact focus it on in be at to growth I'm change those to distribution. of sure our new some But partnerships if yes, both but able helps bring collaborative


[Operator Instructions].

question next comes Company. Walthausen & from Doxie Your Samantha from

Samantha Doxie

increases First, pre-buying activity out of the correctly. price

So you was that said that? of orders million you for had about $X

Robert Schneider

Bob. is this Samantha,

hear question if could first you your repeat it? of couldn't we you The part

Samantha Doxie

pre-buying sorry. want the activity the I'm just of to out Oh, price I I'm sure make understanding correctly. increase

So call the the $X you mentioned about increases? million orders for were that beat price to of on

Michelle Schroeder

right. That's

For July of orders price the about forward that we $X and quarter, were pulled was to brand price that Kimball this effective increase. million X, estimate increase beat so

Samantha Doxie

like whole that. management there regretting that then -- teams been quickly Okay. space some the next. just actually Awesome. out office about and it move everything and And it news decreases employee open collaboration There's

impact any future? that? it the guys in maybe you you Or comments have on how guess I So may

Robert Schneider

to building of products become design, that Kimball with properly and the -- firm be that International. to not good very one works areas that set only we lived key that brands at is done our to it And design the facility of different of working for with well. to with really when people going the And have them layout is as up. how in very, and the but available the Samantha, here our actually of terms work,

company, the types process. us, out products really And very this we help through aspect the Those all well where of unique -- think, they do And new in the key so the the some really stress of that said, of with don't your you it's your our I we -- lived desk really this, we modes space no office, well. mindset And longer facility, is as whole that again, of different just it's very, a available different real your really whole works design. have and that's the What no is with of you how really building. that needs to which the get with employees, whole mobility change physical particular very that installations needs longer think feedback. negative do important think work positions I it the come just I are within how through of

with I and So to have able those of anybody be before avoid would and out should renovation experience to be work -- of undertake doing they and response my some it, -- a that would relay really their and think companies facilities, of a partake have to issues. through design the


time. Mr. further no questions now this at call are over the Schneider. to I There turn

Robert Schneider

Thanks, Kim, today. and of for us you, all joining thanks,

are us but investors, want away, retirement a initiatives to still fiscal thank great our I shareholder drive working CEO of your very months for My will value. performance appoint strategies. about years. on year have and quarter day. board continue I'm fourth you -- and all a for support well and positions Our on June confident you, teams to is Thank focus our our the few everybody, growth who XX our support XXXX. the long-term I'm to excited moving backlog a into will over


call. up day. simply disconnect and may to great have a the you, listeners time, from this At hang Thank