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Kimball International, Inc. (KBALB)

F1Q 2014 Results Earnings Call

November 5, 2013 11:00 AM ET

Executives

Jim Thyen - President and CEO

Bob Schneider - Executive Vice President and CFO

Analysts

Josh Borstein - Longbow Research

Todd Schwartzman - Sidoti & Company

Presentation

Operator

Good morning, ladies and gentlemen. My name is [Bree], and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Kimball International First Quarter Fiscal 2014 Financial Results Conference Call. All lines have been placed on listen-only mode to prevent any background noise. After the Kimball speakers' opening remarks, there will be a question-and-answer period where Kimball will respond to questions from analysts. (Operator Instructions)

As with prior conference calls, today's call, November 5, 2013, will be recorded and may contain forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Risk factors that may influence the outcome of forward-looking statements can be seen in the Kimball Form 10-K and today's release.

The panel for today's call is Jim Thyen, President and Chief Executive Officer of Kimball International; and Bob Schneider, Executive Vice President and Chief Financial Officer.

I would like to turn today’s call over to Mr. Jim Thyen. Mr. Thyen, you may begin.

Jim Thyen

Thank you, [Bree]. Welcome everyone to our first quarter conference call. Our earnings release was issued this morning on the results of the first quarter which ended September 30, 2013.

We have posted a financial summary presentation to our website to accompany this conference call. The presentation can be found on our Investor Relations website along side the Webcast link. I will start with my overview comments followed by Bob's financial review. We will then open the call to your questions.

We had an excellent start to the fiscal year 2014 with increased sales and net income in the first quarter in both of our segments when compared to last year. We were especially pleased with the improved operating performance in our furniture segment.

During the last couple of conference calls, we acknowledge the disappointment with our furniture segment operating results and reaffirmed our commitment to returning this segment to profitability.

We have very talented and innovative teams within our furniture group that are customer focused, process disciplined and perform exceptionally well. I would like to remind all that the issues we encountered were not widespread throughout the segment. The issues were isolated within certain parts of the segment where the effects of the slow economic recovery have been more pronounced.

I will take a few minutes to give you some perspective on where the focus of our efforts has been. First, one area of our business is very heavily weighted toward sales of the furniture to the federal government.

As we've seen throughout the industry, sales of the federal government have declined more than most of the other sectors. Since the void left by lower government sales was so deep in certain areas of our business, it is taking a little longer to fill that void.

We have made increased investments in marketing and product development, which is resulting in stronger sales in the non-government market verticals and helping to fill the void.

And secondly, we made some management reorganization changes in our hospitality operations in the third quarter of last fiscal year. The new team is very focused on growth and process reliability to ensure outstanding customer experience. This operation is beginning to show nice improvement.

The results of all these efforts are beginning to materialize in our financial performance, after ending fiscal year 2013 with two consecutive quarters of losses in the furniture segment, we returned to profitability in this segment in the first quarter.

We are also encouraged by the 18% increase in orders received in the furniture segment for the first quarter compared to last year. Our order backlog was also strong. At the end of September at $111.1 million, an increase of 39% over September of last year.

[Referenced] most recent forecast for the last quarter of calendar year 2013 for the office furniture industry is growth of 7% for the quarter. The forecast for one of the key leading indicators in the hospitality industry, RevPAR or revenue per available room remains at approximately 6% growth for calendar year 2013. Both measures point to continued recovery in these markets.

Our EMS segment started its fiscal year 2014 with a 7% increase in sales over the first quarter of last year and a 35% improvement in net income, when you exclude the benefit from the lawsuit proceeds that Bob will discuss later.

The overall EMS industry projections for growth in calendar year 2013 over 2012 were in the 5% to 6% range for the EMS market. Through the first six months of calendar year 2013, the growth for the overall EMS industry has been disappointing relative to these forecasts.

Combined sales of the 10 largest EMS providers worldwide were down 8.6% year-over-year. Our EMS segment performed much better than the industry with an increase in sales of 15% during the same six-month time period, which was the last six months of our fiscal year 2013. It was encouraging to see that trend continue in the first quarter of fiscal year 2014 with a 7% increase in sales I just mentioned.

Looking at the four electronic vertical markets that we compete in, the automotive end market is benefiting from relative strength in the U.S. market and the uptick in the Chinese automotive market. While demand in other geographic areas such as Europe continues to be less certain due to the lingering impact of the European debt crisis.

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