Kimball International: Riding The Economic Recovery

Price:$6.75;Forward P/E:29;Earnings Growth:87%;Projected Sales Growth:-1.4%;Market Cap:$255 million

Why It's Featured: Jump in earnings this year; decent dividend; solid balance sheet.
Danger Zones: Economy stalls; margins get even thinner.

Kimball International, Inc. (KBALB-NASDAQ) manufactures and sells electronic assemblies and furniture in the United States, Poland, the United Kingdom, and internationally.  The company operates in two segments, Electronic Manufacturing Services (EMS) and Furniture.

EMS produces electronic assemblies, circuit boards, and wiring harnesses for electronic organs and keyboards.  Its engineering and manufacturing services include the production and testing of printed circuit board assemblies; industrialization and automation of the manufacturing processes; product and process validation and qualification; testing of products under a series of harsh conditions; assembly and packaging of electronic and other related products; and product life cycle management.

Furniture offers office furniture under the Kimball Office and National names, and hospitality furniture under the Kimball Hospitality name. Products include desks, credenzas, seatings, tables, collaborative workstations, contemporary cubicle systems, filing and storage units, and accessories, such as audio visual boards and task lighting for private offices, open floor plan areas, conference rooms, training rooms, lobby, and lounge areas with wood, metal, laminate, paint, and fabric options; and Kimball Hospitality branded products comprise headboards, desks, tables, dressers, entertainment centers, chests, wall panels, upholstered seating, task seating, and vanities for hotel properties, condominiums, and mixed use developments.  It markets office furniture through its salespersons to end users, office furniture dealers, wholesalers, rental companies, and catalog houses, as well as hospitality furniture through independent manufacturers' representatives.  The company was incorporated in 1939 and is headquartered in Jasper, Indiana.

If you think the economy is recovering, then you'll find Kimball of interest.  That's because KBALB benefits from travelers, more specifically from hotels and motels adding new furniture or replacing old chairs, beds and sofas as more travelers hit the road.  That's what people do when times are better.  They travel more.  That means good news for Kimball.  At least for their furniture business.

Second quarter results showed a 15% improvement in sales over last year's second period.  Demand is up for hospitality furniture and office furniture.  Hotel renovations are higher and more have been announced.  Hotel chains are starting to invest in their properties, keeping them fresh and to keep up with the competition.

On the negative side, the EMS division lost a major customer last year, Bayer AG, which reduced revenues by $36 million compared to the prior year.  However, when that one customer is excluded, revenues for the division were up 2%, suggesting that demand continues to rise for this division as well.  Last year, this group contributed 60% of the company's sales.

EMS is realigning its operations to gain better efficiency.  It's also targeting markets with considerable growth potential, ones like medical and automotive.  Car sales have been considerably higher this year with analysts predicting even better numbers ahead.  That bodes well for Kimball. (For more stock ideas, see: www.theonlineinvestor.com)

Earnings have improved after a down turn in 2010 that showed the bottom line at 6 cents a share, down from 22 cents in 2009.  Last year finished with 16 cents. (fiscal year ends in June).  Analysts see 30 cents this year, then 50 cents next year. 

There's a dividend attached to KBALB.  It's 20 cents a year.  At this price level, that puts the yield at 3%.  It takes about 66% of earnings to pay.  The company gave out 64 cents a share in 2008.  The dividend, like earnings, can be volatile.

- Essential Numbers:
- Price to sales ratio: .22
- Price to book: .67
- Operating margin: .84%
- Profit margin: .57%
- Return on equity: 1.74%
- Return on assets: .99%
- Cash: $31.60 million
- Cash per share: 83 cents
- Total debt: $287,000
- Debt to equity: .08%
- Current ratio: 1.93
- Book value per share: $10.03
- Beta: 1.53
- 52 week change: - 8.07%
- Shares Outstanding: 37.9 million
- Float: 25.64 million
- Insiders own: 6.13%
- Institutions own: 55.1%

Aggressive investors like turnaround stories.  This is one of them.  There's even some numbers that suggest this could be a value play (price to book is one).  But keep in mind that the economy needs to keep improving for this stock to grow earnings.

- Company Web site: www.kimball.com

- Ted Allrich
April 5, 2012