Earnings estimates have risen sharply for Knoll (KNL - Snapshot Report) after the company delivered strong first quarter results on April 20. Not only did the furniture maker deliver strong revenue growth in Q1, margins expanded significantly, leading to enormous growth in profits.

The agreement and magnitude of analysts' estimate revisions has been strong enough to send shares of Knoll to a Zacks Rank #1 (Strong Buy). That puts it in the top 5% of all stocks that Zacks ranks based on earnings momentum.

Knoll designs and manufactures furnishings and accessories, textiles, fine leathers, and felt, for the workplace and home. Its products are targeted at the middle to upper end of the market and are sold primarily in North America and Europe.

The company reports its results in three segments: Office (office furniture; 63% of net sales in Q1), Studio (lounge seating, side, cafe and dining chairs, barstools, and conference, dining and occasional tables, as well as indoor and outdoor furniture and lighting; 26%) and Coverings (high-quality textiles, felt, and leather; 11%).

First Quarter Results

Knoll reported strong first quarter results on April 20. Earnings per share came in at $0.36, crushing the Zacks Consensus Estimate of $0.24. It was double adjusted EPS of $0.18 in the same quarter last year.

Net sales jumped 16% year-over-year to $266.5 million, well above the consensus of $253.0 million. Excluding an acquisition, organic sales soared 12.7%.

Each segment experienced top-line growth and profit margin expansion. Net sales in the Office segment grew 15% year-over-year.

Meanwhile, the gross margin expanded from 33.4% to 35.8% of net sales, driven in part by price increases in its Office segment and a greater mix of high-margin Specialties sales.

Knoll also benefited from a weakening of the Canadian dollar relative to the U.S. dollar. Knoll generally benefits from a stronger dollar because a higher percentage of its costs are denominated in foreign currencies than its revenues. In 2014, for instance, about 12% of revenues were denominated in currencies other than the U.S. dollar. However, more than 30% of its cost of goods sold were in currencies other than the greenback.

Knoll also leveraged its fixed expenses in Q1, which helped increase the operating margin from 5.4% to 8.4% of net sales.

Estimates Rising

Following the strong Q1 beat, analysts unanimously revised their estimates significantly higher for Knoll.

The 2015 Zacks Consensus Estimate is now $1.46, up from $1.35 before the report. The 2016 consensus is currently $1.62, up from $1.56 over the same period.

This sent the stock to a Zacks Rank #1 (Strong Buy).

Reasonable Valuation

The valuation picture looks reasonable for Knoll. Shares trade around 16x 12-month forward earnings, which is in-line with the industry median. And its price to cash flow ratio of 16x is slightly below the industry multiple of 17.

The Bottom Line

With strong top-line growth, expanding margins, rising earnings estimates and reasonable valuation, Knoll offers investors a lot to like.

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