No odd coupling: Furniture and electronic manufacturing services bring out the best in Kimball International. The company's Electronic Manufacturing Services (EMS) business produces electronics and electro-mechanical products (electronic assemblies) on a contract basis for customers in the auto, industrial control, medical, and public safety markets. Kimball's services include prototype, product development and launch, supply chain management, testing, assembly, and repair and return. The Furniture business makes desks, cubicles, credenzas, and cabinets under the Kimball Office and National brand names for the office and hospitality industries. Kimball is 52% owned by the founding Habig and Thyen families.
For a second consecutive year, the company's earnings declined nearly 75% on a slight increase in sales in 2011 over the prior year. Furniture sales, which account for about 40% of Kimball's sales, rose more than a 15%, fueled by a revamped lineup coupled with demand for commercial office furniture and, less so, hospitality pieces.
The gain in furniture sales, however, failed to offset the end of a major program between Bayer AG and Kimball's EMS business. Bayer accounted for 19% and 24% of EMS sales in 2011 and 2012, respectively. Kimball cited the segment's progress in winning new and additional existing customers in certain markets, but other challenges eroded business. Specifically, the spring 2011 earthquake and tsunami in Japan disrupted portions of its automotive market, which represents about 25% of segment sales. On the positive side, cash generated from company wide operations, although low, grew modestly. Kimball also remains virtually free of long-term debt.
Going forward, the company focuses on improving its margin between operating costs and income in both segments. To that end, EMS is expanding its European automotive electronics capabilities by creating a European Medical Center of Expertise located in Poland. The project is expected to be completed by mid-fiscal year 2012. Concurrently, Kimball plans to streamline EMS operations by exiting a small assembly facility in California and consolidating activities at its Indian facility.
Other hard choices include dropping its Wales (UK) location in 2011 and transferring work to a newer facility in Poland. In fall 2008, Kimball reached further into the medical and industrial controls market; though Kimball Electronics Group, it acquired Tampa, Florida-based Genesis Electronics Manufacturing. The $5.4 million deal diversified Kimball's capabilities in after-market refurbishing, repair, and reverse logistics services in anticipation of attracting new customers.
Within its furniture unit, in 2010 Kimball completed a restructuring plan to combine several office furniture manufacturing departments. The effort targeted operating costs and excess capacity by slashing redundant property and equipment, and jobs. As part of the plan, the company shuttered its Juarez, Mexico, facility. – less