Q3 2020 Earnings Call
<unk> director of Investor Relations financial planning and analysis.
Thank you Shannon good morning, everyone. Thank you for joining us with a recap of our third quarter fiscal 2020 financial results here with me today or Jim Keane, Our President and Chief Executive Officer, and Dave Sylvester, Our senior Vice President and Chief Finance Officer.
Our third quarter earnings release, which crossed the wires yesterday is accessible on our website. This conference call is being webcast in this webcast as a cooperative production of Steelcase Inc. a replay of this webcast will be posted two IR steelcase dot com later today.
Our discussion today may include references to non-GAAP financial measures and forward looking statements reconciliations to the most comparable GAAP measures and details regarding the risks associated with the use of forward looking statements are included in our earnings release, and we're incorporating by reference into this conference call. It acts of our Safe Harbor statement included in the release.
Following our prepared remarks, we will respond to questions from investors and analysts I will now turn the call over to our President and Chief Executive Officer, Jim Keane, Thanks, Mike and good morning, everyone.
Our third quarter results exceeded our expectations for revenue gross margin and operating expense our earnings per share growth of 48% or 28% on an adjusted basis follows a very strong second quarter and brings our year to date adjusted earnings per share growth to 22%.
We drove revenue growth of 6% on top of a strong prior year, when we grew 13% organically.
This quarter's growth was better than we were expecting in part because a favorable shipment timing, Dave will discuss in more detail.
Our orders grew 4% on top of the 10% growth in Q3 last year.
We improved our operating margin by 290 basis points as we had great performance in the Americas and EMEA.
EMEA delivered over $6 million of operating income this quarter and we are profitable in EMEA on a year to date basis.
We expect EMEA to be profitable in the fourth quarter and for the full year, reaching profitability in EMEA has been a key priority for us and we're proud to have accomplished it in this business environment.
In the Americas, our 8% revenue growth this quarter stacks on top of the 12% organic growth in the same period last year, our win rates remained stable and our pipeline for the next couple of quarters shows continued opportunity for growth.
Our gross margin improvement was driven by our sales teams and dealers successfully passing along price increases for the inflationary costs, we experienced last year as well as great performance by our operations team.
I visited many of our Americas factories over the past few weeks in part to review the progress we are making across a number of dimensions, including cost reductions our manufacturing and distribution teams continue to discover new ways to simplify processes and capture efficiencies and we expect continued investing in their ideas.
Yeah.
Our acquisitions continue to contribute to our overall growth as they have collectively grown about 10% on a year to date basis.
And am Q, we're making a few changes to prepare for the next level of growth. For example, we have integrated aim Q operations into the Steelcase organization and are making investments to expand capacity and capture scale benefits. We're also expanding the leadership team to bring added focus to both product development and.
Get development.
At Smith system, Jim Stelter has joined as President Jim has many years of experience in the K through 12 furniture industry and was previously an executive here at Steelcase, So we know him well.
Tim brings a passion for winning in a talent for building long lasting relationships.
This leadership transition was expected to happen as it's been a little over a year since our acquisition of Smith.
During the third quarter, we held regional dealer meetings in the Americas in EMEA. These conferences allow us to go deep with our dealers regarding new products and capabilities to share process improvements and to strengthen our relationships.
At this time, we heard the combination of new steelcase products acquisitions, and marketing partners is giving them the range of products they need to compete and our marketplace technology is making it easier to specify and order across a wide range of options.
Dealers were optimistic about mixtures growth potential as they remain busy in responding to customer inquiries.
I want to comment for just a moment about two other recent announcements. We are pleased to be included this month and news lease list of the nation's most responsible companies, which is a reflection of the work we've been doing around SG environmental sustainability, social innovation and governance. The principle of behind this work have been part of.
How we've worked at steelcase for more than 100 years.
Secondly on behalf of our chairman Rob you in the board of Directors I'm pleased to welcome Trina Schmelter to our board Trina is an active executive in the food industries with expertise in brand marketing analytics and innovation, we look forward to the additional perspective, she will bring to our board.
Our results during the first three quarters have been better than we targeted at the beginning of the year with our outlook for the fourth quarter remains solid we expect our full year EPS to finish between a $1.41 and $1.45 per share, which is well above the $1.20 to $1.35 target we established at the beginning of the.
Year.
Now I'll turn it over to Dave.
Thank you Jim Good morning, everyone. My comments today will include highlights related to our third quarter results and cash flow plus a few remarks about our outlook for the fourth quarter and full fiscal year as Jim just mentioned, we had a very strong third quarter growing revenue by 6% on an organic basis, which builds on top of the 13%.
Organic growth, we posted in Q3 of the prior year.
And we delivered earnings growth of nearly 50%, we're close to 30% after adjusting for the impact of of pension charge in the prior year.
The strength of our recent performance provides solid evidence that our growth strategies are resonating with customers and influencers.
And our fitness initiatives are enabling strong improvements in our profitability, while staying invested in growth initiatives at the same time.
Relative to the estimates we provided in September 3rd quarter revenue of $955 million was $10 million higher than the top end of our guidance and the 46 cents of earnings per share exceeded our estimated range by nine cents.
For revenue the 8% organic growth in the Americas was stronger than we estimated and the better than expected performance was driven by several factors, including improved shipment timing in Q3, which may have been influenced by the timing of Thanksgiving and compares favorably to the extended delivery dates we had expired.
Once during the first half of the year.
Favorable pricing benefits associated with our list price adjustments and the related migration of customer contract pricing.
And stronger than expected revenue from our own dealer and direct business channels.
Beyond the Americas, our revenue in EMEA Asia Pacific and elsewhere was largely consistent with our estimates.
For earnings we exceeded the top end of our range by nine cents due to the revenue strength I just reviewed.
Yes, we had favorable gross margins and lower operating expenses and other income net an income tax expense were also favorable compared to our estimates.
For gross margin our sales organizations around the world have done a terrific job migrating clients to more current price lists which contributed to the better than expected price realization in the quarter. In addition, our global operations team delivered stronger than expected performance in the Americas and EMEA across the areas of.
Labour management logistics and cost reductions.
And lastly, our business mix in the third quarter was a little better than we estimated.
Lower than expected operating expenses also played a role in our favorable performance in the quarter as our employees continue to drive fitness improvements across the business plus some project spending didnt materialize as quickly as we estimated.
Across the segments the Americas drove much of our better than expected earnings performance, but EMEA results were also better than we expected.
As you can see our teams delivered strong performance through a concerted effort across many areas of the business again this quarter.
Diving, a little deeper into the year over year comparisons, we grew revenue by $54 million or 6% in the quarter with $57 million coming from 8% organic growth in the Americas and 6% organic growth in the other category.
Partially offset by the inorganic items of an acquisition benefit and unfavorable currency translation.
Which netted to a $3 million unfavorable impact.
The organic growth of 6% stacks on top of a strong prior year, which again grew by 13% on an organic basis compared to the previous year and includes benefits from our growth initiatives and pricing actions.
The year over year comparison is also impacted by the favorable shipment timing I mentioned earlier, which included benefits from the timing of Thanksgiving as the holiday fell into the first week of Q4 this fiscal year compared to last week of Q3 in fiscal 2019.
For earnings the 46 cents in the quarter compares to adjusted EPS of 36 cents in the prior year, which excludes the impact of the pension charge the year over year comparison also reflects previously disclosed items in the prior year like the favorable adjustments to income taxes and customer incentives.
And the initial purchase accounting effects related to Orange box as well as current year items like the higher interest costs related to our higher level of debt.
Our operating income of $75 million in the quarter represented 7.9% of revenue and was significantly higher than the prior year the year over year improvement totaled $30 million or approximately $22 million adjusted for the effects of the pension charge.
Which represents very strong operating leverage or contribution margin related to the organic revenue growth.
Beyond the absorption benefits related to our fixed costs. The up strong operating leverage also included improved pricing lower commodity costs and the benefits from cost reduction and fitness initiatives, partially offset by unfavorable business mix and investments to support growth initiatives as.
We are facing significant inflation for much of fiscal 2019, which pushed us to take multiple pricing actions commodity cost pressures have abated, while at the same time the benefits of our pricing actions are kicking in more fully.
We expect these pricing benefits to continue into Q4 and into the first half of next year, but at lower levels. As we are now lapping initial pricing benefits in the prior year.
And on cost reduction and fitness, we supportive increased investments in sales marketing product development in a few other areas of our business, while delivering an improvement in our operating expense leverage in the quarter demonstrating the significance of our fitness efforts.
Across the segments, we were very pleased with the 10.8% operating margin in the Americas, which brings the year to date performance to 9.8%.
In EMEA, the $6.3 million of operating income in the quarter marked a 7 million dollar improvement compared to the prior year, which more than offset the operating loss. We recorded in the first half of the current year and was driven by a 350 basis point improvement in gross margin.
Our EMEA team has made tremendous progress driving the improvements to date and they continue to identify opportunities in strategies, which we believe support our longer term target of reaching a mid single digit operating margin in the region.
With a solid outlook for Q4 on top of the positive year to date results. We are optimistic about achieving our near term target of being profitable for the full year in the EMEA segment.
For the other category. The operating income performance was negatively impacted by 70 basis points related to a leap to lease expense for a larger manufacturing facility to support our growth in China.
We expect to begin occupying the new facility in fiscal year 2022.
As it relates to orders in the quarter, the 4% order growth compares to a strong prior year, which posted 10% order growth compared to fiscal 2018.
Across the segments. The Americas grew 2% on top of 14% growth in the prior year EMEA grew 11% compared to a 6% decline in the prior year and the other category posted 10% growth on top of 12% growth in the prior year.
As a reminder, at the beginning of the year, we indicated that our organic revenue target for fiscal 2020 anticipated higher growth rates in the first half of the year compared to the second half based on how our order patterns and organic revenue growth accelerated during fiscal 2019.
And thus far in the current year, our order and revenue patterns are largely consistent with those expectations.
Moving to cash flow in the balance sheet cash flow from operations was very strong in the third quarter, reaching $176 million.
And exceeding the prior year by more than $90 million the year over year improvement was driven by the strong earnings growth in the quarter.
Plus the strength of our summer seasonality in the current year, which resulted in higher accounts receivable balances that were collected in the third quarter. We also benefited benefited from timing related to estimated income tax payments customer deposits and other assets and liabilities as well as targeted improvements in working capital.
Capital expenditures were $17 million in the quarter, bringing year to date spending to $49 million. We now expect the full year to total approximately $70 million to $80 million.
We returned approximately $20 million to shareholders in the third quarter through the payment of a cash dividend of 14.5 cents per share and a modest level of share repurchases and yesterday, we announced the same level of dividend for the fourth quarter, which will be paid in January .
Turning to the outlook for fiscal 2020, and the fourth quarter for revenue, we expect our top line to approximate $3.7 billion for the full fiscal year, which compares to $3.4 billion in fiscal 2019.
And reflects a growth rate that is in the middle of the targeted range of revenue growth we communicated in March.
For earnings we expect to report fiscal 2020 earnings between $1.41 to $1.45 per share.
Which compares to one dollar and five cents or $1.20 cents of adjusted earnings per share in fiscal 2019.
And is substantially higher than the targeted range of $1.20 to $1.35, we communicated in March.
As it relates to the fourth quarter, our revenue estimate projects revenue to fall within a range of $905 million to $930 million, which compares to $912 million in the prior year, which grew 15% on an organic basis compared to the previous year.
This projection includes the positive impact of an extra week of shipments due to the timing of our year end in fiscal 2020. It also includes estimated unfavorable currency translation effects and the unfavorable timing effects of Thanksgiving falling in Q4 of the current year.
Which we estimate will negatively impact the year over year comparison by $20 million or more.
At the beginning of the fourth quarter total backlog was up approximately 2% compared to the prior year, while global orders were down modestly during the first three weeks of the quarter.
From an earnings perspective.
We expect to report 30 to 34 cents per share in the fourth quarter, which compares to 19 cents of earnings in the prior year or 29 cents of adjusted earnings after excluding the impact of charges related to the early retirement of debt.
As you update your models for the fourth quarter don't forget the extra week of shipments comes with an extra week of our cost structure and therefore, we expect to generate only a few pennies of additional earnings from this anomaly.
In addition recall the prior year included favorable tax adjustments, which lowered our effective tax rate in the quarter versus the 26% effective tax rate. We're now modeling for the current year.
While we will provide more color in March regarding our targets for next fiscal year I will share a few high level thoughts that we're taking into consideration as we finalize our plans for growth in fiscal 2021.
Furniture industry growth through October of calendar 2019 in the Americas as reported by BIFMA appears to be stronger than the slowing growth of capital spending over the same period, whether derived from macroeconomic data or from looking at capital expenditures across S&P 500, or fortune 800.
This suggests that our industry share of capital spending maybe gaining resiliency as organizations continue to invest in their work spaces to help drive productivity and compete in the war for talent.
For calendar year 2020.
Yes, Federal reserve recently held interest rates steady and signaled borrowing costs are likely to remain unchanged indefinitely with moderate economic growth and low unemployment is expected to continue through next year's presidential election.
Similarly, BIFMA is projecting moderate industry growth of 2% in the Americas for calendar 2020.
Overall sentiment from our sales leaders and dealers remains positive and our opportunity pipelines for the first six months of fiscal 2021.
Continue to reflect project growth for the Americas, EMEA and Asia Pacific.
Lastly, we're pleased with our win rates in most regions around the world and believe our research and innovation is resonating with business leaders contemplating investments and their work environments.
I share the those points because many of the individual investor conversation center around the economic uncertainties and it's important to note that recent industry growth and our performance has been quite good at the same time.
From there, we'll turn it back to the operator for questions.
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Your first question comes from Stephen Ramsey with Thompson Research Group. Your line is open.
Hi, Good morning is actually Brian bias on for Stephen and you're taking my questions are Saturday the revenue guide for.
Down 2% to 5% organically on a consolidated basis could you guys provide any color on higher expecting that to play out by segment in Q4.
Brian we typically have not provided.
Color across the segments and keep our our guidance at a high level.
You might look at last year's organic growth rates to get a sense of which which categories were doing grew stronger in the fourth quarter versus the others.
Got it try at least.
I guess thinking around the the lower commodity prices.
I would add in most of that was steel, but if there's any other commodity just call out that'd be appreciated.
Yes, some color on how that will be played out any.
The next year.
I think continued in Q4 then.
As we lag price increases into the next year, but how many again further details of the appreciated.
While you now lets deal is the biggest driver of the lower commodity costs.
And what if you're familiar with the history of how we've layered in.
Pricing actions to deal with the significant rise in steel price prices and other commodity costs.
We have taken I think three price increases in the last 18 months or so.
To react to some of the that heavy increase in commodity costs and what we've seen is our pricing actions are rolling in as we move customer contracts to more recent price list and at the same time some of those commodity costs have started to increases have started to abate.
So about two quarters ago, we started the finally field a year over year benefit of the pricing actions and the commodity costs leveling off and starting to decline.
And those were more significant last quarter and they were more significant this quarter, but and we expect that to continue for another quarter or two but at lower rates because we're starting to lap some of those changes in both commodity costs and our pricing actions in them in the prior year.
Got it thank you.
Thank you. Our next question comes from Greg.
Good day and company your line is open.
Morning.
So I just want to focus first on on Europe .
Feel for what's been working there.
Driving improved profitability and.
Your view on the sustainability of.
The profit improvements there you've got the gross margin over over 30% this quarter. So I just wanted to see.
Yes.
What has been working for you there and what your view on.
In that segment going forward.
Maintaining via digital performance, we saw this quarter. Thanks.
Thanks, Greg so.
Jim I think it's across a variety of factors. So first of all pricing just as it's been a benefit here has also been a benefit in EMEA.
Secondly, next both mix of products, which we've been actively managing too.
Thanks for the portfolio price resigned to customers gives us a good mix of profitability across this process. So as we've been doing that with an improving the mix across categories also seen improvements cost customers, so really mix from both directions.
We have new products that we are featuring now in Europe that have helped us.
With that next set of new product development and Passover launch in the last couple of years are starting to.
Grow and be a larger percentage of our total and that's helping.
We're also taking a number of other actions that.
I have been some of them implemented over the last couple of quarters. Some of them, we will be implemented over the next couple of quarters that should help us continue to see benefits in gross margin.
Across sales efforts marketing efforts as well as operational performance and that's the last piece of this operational performance is quite good.
Finally in the last.
Quarter into and continue to see improvements.
In efficiency in quality on time delivery.
And the factories and we've been relatively disease has helped US also absorb overhead so I really I mean, there isn't any one thing, but I'm I'm happy to actually happier that it's across a broad spectrum of initiatives and found that we're not done so I expect to see us continue to improve profitability over the next.
Year end out into the future.
Okay. Thanks to the night.
I wanted to ask about the.
The pricing that you put in over the last year. So now that obviously steels come down significantly is starting to become a tailwind for you. So just wondering again feel for.
How sticky that pricing is.
If there might be.
If you might have to give back maybe some pricing now that the commodities are coming in your favor you're seeing any pushback from your customers now.
From these price increases and.
Or maybe.
Be willing to roll back pricing too.
Two.
In return for you know stronger top line growth. Thanks.
Thanks Jose It I'll go back from the commodity pricing first of all because I think at a simplicity, we often take the largest factors and so we end up talking about things like steel, but there are lots of other commodities that we also purchased plus there's other factors in our cost structure related to wage increases which is now has seen upward.
Pressure.
In the Americas than really globally.
Healthcare costs in the United States are also rising so if you look at all of our costs taken together, while still has been a benefit most recently and really most recently versus where weather here Adele.
We have other other cost that continue to rise and when we have customer conversations with our customers.
We lay that out in more detail and we have that brought conversation about what what's causing our costs arise.
We also continue to look for efficiency. So we're always trying to find ways to offset those costs increases through efficiencies of that we don't expect our customers to observe 100% of what has asked for in terms of.
Price increase in our cost increases by our suppliers.
When you get from the end of that I would expect will continue to see what we've always seen which is a.
A gradual annual price increase nothing significant that's something that reflects the ongoing moderate inflationary environment where end.
In terms of givebacks and Salon I haven't seen any any evidence that we need to do that we feel like we're being.
Tom measured fair and how we think about price increases we expect to continue to do that.
Yes. Thanks.
Thank you once again, ladies gentlemen, if you wish that your question at this time. Please press Star then one are you touched on telecom.
Hi, I'm currently showing no further questions at this time turn the call back over to Jim Keane for closing remarks.
Thanks, So again, we're very pleased to deliver another strong quarter and feel good that our growth strategies are working we look forward to tune to deliver value for our shareholders on behalf of everyone. Here. So thanks I want to thank you for your interest in the company on wish you happy holiday and extend best wishes for the new year. Thank you for joining the call today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Good day, everyone and welcome to still cases third quarter fiscal 2020 conference call. As a reminder, today's call scale recorded for opening remarks introduction. So let's turn the conference call Order Mr., Michael Merit director of Investor Relations financial planning and analysis.
Thank you Shannon good morning, everyone. Thank you for joining us with a recap of our third quarter fiscal 2020 financial result.
With me today, or Jim King, our President and Chief Executive Officer, Dave Sylvester, Our senior Vice President and Chief Finance Officer.
Third quarter earnings release, which crossed the wires yesterday is accessible on our website.
This conference call is being webcast in this webcast as a cap rate production of Steelcase Inc. a replay of this webcast will be posted two IR. That's the okay dot com later today.
Our discussion today may include references to non-GAAP financial measures in forward looking statements reconciliation to the most comparable GAAP measures and details regarding the risks associated with the use of forward looking statements are included in our earnings release, and we are incorporating my reference into this conference call that acts of our Safe Harbor statement included in the release.
Following our prepared remarks, we will respond to questions from investors and analysts.
I'll now turn the call over to our President and Chief Executive Officer, Jim Keane.
Thanks, Mike Good morning, everyone.
Our third quarter results exceeded our expectations for revenue gross margin and operating expense our earnings per share growth of 48% or 28% on an adjusted basis follows a very strong second quarter and brings our year to date adjusted earnings per share growth 22%.
We drove revenue growth of 6% on top of a strong prior year, when we grew 13% organically.
This quarter's growth was better than we were expecting in part because a favorable shipment timing, Dave will discuss in more detail.
Our orders grew 4% on top of the 10% growth in Q3 last year.
We improved our operating margin by 290 basis points.
Great performance in the Americas EMEA.
EMEA delivered over $6 million of operating income this quarter and we are profitable in EMEA on a year to date basis.
We expect to near to be profitable in the fourth quarter and for the full year, reaching profitability in EMEA has been a key priority for us and we're proud to have accomplished at this business environment.
In the Americas, our 8% revenue growth this quarter stats on top of the 12% organic growth in the same period last year, our win rates remain stable and our pipeline to the next couple of quarters shows continued opportunity for growth.
Our gross margin improvement was driven by our sales teams at dealers successfully passing along price increases for the inflationary costs, we experienced last year as well as great performance by our operations team.
I visited many of our Americas factories over the past few weeks in part to review the progress we are making across a number of dimensions, including cost reductions our manufacturing and distribution teams continue to discover new ways to simplify processes capture efficiencies and we expect to continue investing in their ideas.
Our acquisitions continue to contribute to our overall growth as they have collectively grown about 10% on a year to date basis.
And am too, but making a few changes to prepare for the next level of growth. For example, we've integrated aim Q operations into the Steelcase organization.
Making investments to expand capacity and capture scale benefits. We're also expanding the leadership team to bring added focus to both product development and market development.
Thats Smith system jump Stelter has joined at the President Jim has many years of experience in the cancer 12 furniture industry and was previously an executive here. It's still case, so we know him well.
Tim brings a passion for winning talent for building long lasting relationships.
This leadership transition was expected to happen as it's been a little over a year since our acquisition of Smith.
During the third quarter, we held regional dealer meetings in the Americas EMEA. These conferences allow us to go deep with our dealers regarding new products and capabilities to share process improvements and to strengthen our relationships.
This time, we heard the combination of new steelcase products acquisitions, and marketing partners is giving them the range of products they need to compete and our marketplace technology is making it easier to specify and order across a wide range of options.
Dealers were optimistic about next year's growth potential as they remain busy in responding to customer inquiries.
I want accounted for just a moment about two other recent announcement.
We're pleased to be included this month and news release list of the nation's most responsible company, which is a reflection of the work we've been doing around SG environmental sustainability, social innovation and governance. The principle is behind this work has been part of how we've worked at steelcase for more than 100 years.
Secondly on behalf of our chairman Rob to you and the board of Directors I'm pleased to welcome Trina smelter to our board Trina is an active executive in the food industry with expertise in brand marketing analytics and innovation, we look forward to the additional perspective, she will bring to our board.
Our results during the first three quarters have been better than we targeted at the beginning of the year with our outlook for the fourth quarter remains solid we expect our full year EPS to finish between a $1.41 and $1.45 per share, which is well above the dollar 20 to $1.35 target we established at the beginning of the year.
Now I'll turn it over to Dave.
Thank you Jim and good morning, everyone. My comments today will include highlights related to our third quarter results and cash flow plus a few remarks about our outlook for the fourth quarter and full fiscal year as Jim just mentioned, we had a very strong third quarter growing revenue by 6% on an organic basis, which builds on top of the 13 per.
Organic growth, we posted in Q3 of the prior year.
And we delivered earnings growth of nearly 50% or close to 30% after adjusting for the impact of a pension charge in the prior year.
The strength of our recent performance provides solid evidence that our growth strategies are resonating with customers and influencers.
And our fitness initiatives are enabling strong improvements in our profitability, while staying invested in growth initiatives at the same time.
Relative to the estimates we provided in September 3rd quarter revenue of $955 million was $10 million higher than the top end of our guidance and the 46 cents of earnings per share exceeded our estimated range by nine cents.
Our revenue the 8% organic growth in the Americas was stronger than we estimated and the better than expected performance was driven by several factors, including improved shipment timing in Q3, which may have been influenced by the timing of Thanksgiving and compares favorably to the extended delivery dates we had experience.
During the first half of the year.
Favorable pricing benefits associated with our list price adjustments and the related migration of customer contract pricing.
And stronger than expected revenue from our own dealer indirect business channels.
Beyond the Americas, our revenue in EMEA Asia Pacific and elsewhere was largely consistent with our estimates.
For earnings we exceeded the top end of our range by nine cents due to the revenue strength I just reviewed.
Yes, we had favorable gross margins and lower operating expenses and other income that an income tax expense were also favorable compared to our estimates.
For gross margin our sales organizations around the world have done a terrific job migrating clients to more current price lists which contributed to the better than expected price realization in the quarter.
In addition, our global operations team delivered stronger than expected performance in the Americas and EMEA across the areas of labor management logistics and cost reductions.
And lastly, our business mix in the third quarter was a little better than we estimated.
Lower than expected operating expenses also played a role in our favorable performance in the quarter as our employees continued to drive fitness improvements across the business plus some project spending didnt materialize as quickly as we estimated.
Across the segments the Americas drove much of our better than expected earnings performance, but EMEA results were also better than we expected.
As you can see our teams delivered strong performance through a concerted effort across many areas of the business again this quarter.
Diving, a little deeper into the year over year comparisons, we grew revenue by $54 million or 6% in the quarter with $57 million coming from 8% organic growth in the Americas and 6% organic growth in the other category.
Partially offset by the inorganic items of an acquisition benefit and unfavorable currency translation.
Which netted to a $3 million unfavorable impact.
The organic growth of 6% specs on top of a strong prior year, which again grew by 13% on an organic basis compared to the previous year and includes benefits from our growth initiatives and pricing actions.
The year over year comparison is also impacted by the favorable shipment timing I mentioned earlier, which included benefits from the timing of Thanksgiving as the holiday fell into the first week of Q4 this fiscal year compared to last week of Q3 in fiscal 2019.
For earnings the 46 cents in the quarter compares to adjusted EPS of 36 cents in the prior year, which excludes the impact of the pension charge the year over year comparison also reflects previously disclosed items in the prior year like the favorable adjustments to income taxes and customer incentives.
And the initial purchase accounting effects related to Orange box as well as current year items like the higher interest costs related to our higher level of debt.
Our operating income of $75 million in the quarter represented 7.9% of revenue and was significantly higher than the prior year the year over year improvement totaled $30 million or approximately $22 million adjusted for the effects of the pension charge.
Which represents very strong operating leverage or contribution margin related to the organic revenue growth.
Beyond the absorption benefits related to our fixed costs. The up strong operating leverage also included improved pricing lower commodity costs and the benefits from cost reduction and fitness initiatives, partially offset by unfavorable business mix and investments to support growth initiatives.
You are facing significant inflation for much of fiscal 2019, which pushed us to take multiple pricing actions commodity cost pressures have abated, while at the same time the benefits of our pricing actions are kicking in more fully.
We expect these pricing benefits to continue into Q4 and into the first half of next year, but at lower levels. As we are now lapping initial pricing benefits in the prior year.
And on cost reduction and fitness, we supported increased investments in sales marketing product development and a few other areas of our business, while delivering an improvement in our operating expense leverage in the quarter demonstrating the significance of our fitness efforts.
Across the segments, we were very pleased with the 10.8% operating margin in the Americas, which brings the year to date performance to 9.8% in.
In EMEA, the $6.3 million of operating income in the quarter marked a 7 million dollar improvement compared to the prior year, which more than offset the operating loss. We recorded in the first half of the current year and was driven by a 350 basis point improvement in gross margin.
Our EMEA team has made tremendous progress driving the improvements today and they continue to identify opportunities and strategies, which we believe support our longer term target of reaching a mid single digit operating margin in the region.
With a solid outlook for Q4 on top of the positive year to date results. We are optimistic about achieving our near term target of being profitable for the full year in the EMEA segment.
For the other category. The operating income performance was negatively impacted by 70 basis points related to a leap to lease expense for a larger manufacturing facility to support our growth in China.
We expect to begin occupying the new facility in fiscal year 2022.
As it relates to orders in the quarter, the 4% order growth compares to a strong prior year, which posted 10% order growth compared to fiscal 2018.
Across the segments. The Americas grew 2% on top of 14% growth in the prior year EMEA grew 11% compared to a 6% decline in the prior year and the other category posted 10% growth on top of 12% growth in the prior year.
As a reminder, at the beginning of the year, we indicated that our organic revenue target for fiscal 2020 anticipated higher growth rates in the first half of the year compared to the second half based on how our order patterns and organic revenue growth accelerated during fiscal 2019.
And thus far in the current year, our order and revenue patterns are largely consistent with those expectations.
Moving to cash flow in the balance sheet cash flow from operations was very strong in the third quarter, reaching $176 million.
And exceeding the prior year by more than $90 million the year over year improvement was driven by the strong earnings growth in the quarter.
Plus the strength of our summer seasonality in the current year, which resulted in higher accounts receivable balances that were collected in the third quarter. We also benefited benefited from timing related to estimated income tax payments customer deposits and other assets and liabilities as well as targeted improvements in working capital.
Capital expenditures were $17 million in the quarter, bringing year to date spending to $49 million. We now expect the full year to total approximately $70 million to $80 million.
We returned approximately $20 million to shareholders in the third quarter through the payment of a cash dividend of 14.5 cents per share at a modest level of share repurchases and yesterday, we announced the same level of dividend for the fourth quarter, which will be paid in January .
Turning to the outlook for fiscal 2020, and the fourth quarter for revenue, we expect our topline to approximate $3.7 billion for the full fiscal year, which compares to $3.4 billion in fiscal 2019.
And reflects a growth rate that is in the middle of the targeted range of revenue growth we communicated in March.
For earnings we expect to report fiscal 2020 earnings between $1.41 to $1.45 per share.
Which compares to a dollar and five cents or a dollar and 20 cents of adjusted earnings per share in fiscal 2019.
And is substantially higher than the targeted range of $1.20 to $1.35, we communicated in March.
As it relates to the fourth quarter, our revenue estimate projects revenue to fall within a range of $905 million to $930 million, which compares to $912 million in the prior year, which grew 15% on an organic basis compared to the previous year.
This projection includes the positive impact of an extra week of shipments due to the timing of our year end in fiscal 2020. It also includes estimated unfavorable currency translation effects and the unfavorable timing effects of Thanksgiving falling in Q4 of the current year.
Which we estimate will negatively impact the year over year comparison by $20 million or more.
At the beginning of the fourth quarter total backlog was up approximately 2% compared to the prior year, while global orders were down modestly during the first three weeks of the quarter.
From an earnings perspective.
We expect to report 30 to 34 cents per share in the fourth quarter, which compares to 19 cents of earnings in the prior year or 29 cents of adjusted earnings after excluding the impact of charges related to the early retirement of debt.
As you update your models for the fourth quarter don't forget the extra week of shipments comes with an extra week of our cost structure and therefore, we expect to generate only a few pennies of additional earnings from this anomaly.
In addition recall the prior year included favorable tax adjustments, which lowered our effective tax rate in the quarter versus the 26% effective tax rate. We're now modeling for the current year.
While we will provide more color in March regarding our targets for next fiscal year I will share a few high level thoughts that we're taking into consideration as we finalize our plans for growth in fiscal 2021.
Furniture industry growth through October of calendar 2019 in the Americas as reported by BIFMA appears to be stronger than the slowing growth of capital spending over the same period, whether derived from macroeconomic data or from looking at capital expenditures across S&P 500, or fortune 800.
This suggests that our industry share of capital spending maybe gaining resiliency as organizations continue to invest in their work spaces to help drive productivity and compete in the war for talent.
For calendar year 2020, the us Federal reserve recently held interest rates steady and signal borrowing costs are likely to remain unchanged indefinitely with moderate economic growth and low unemployment expected to continue through next year's presidential election.
Similarly, BIFMA is projecting moderate industry growth of 2% in the Americas for calendar 2020.
Overall sentiment from our sales leaders and dealers remains positive and our opportunity pipelines for the first six months of fiscal 2021.
Continue to reflect project growth for the Americas, EMEA and Asia Pacific.
Lastly, we're pleased with our win rates in most regions around the world and believe our research and innovation is resonating with business leaders contemplating investments in their work environments I.
I shared the those points because many of the individual investor conversation center around the economic uncertainties and it's important to note that recent industry growth and our performance has been quite good at the same time.
From there, we'll turn it back to the operator for questions.
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Your first question comes from Stephen Ramsey with Thompson Research Group. Your line is open.
Hi, Good morning is actually Brian bias on for Stephen Thanks for taking my questions I want to start the the revenue guide for.
Down 2% to 5% organically on a consolidated basis can you guys provide any color on higher expecting that to play out by segment in Q4.
Brian we typically have not provided.
Color across the segments and keep our guidance at a high level.
You might look at last year's organic growth rates to get a sense of which.
Which categories were doing grew stronger in the fourth quarter versus the others.
Got it try at least.
I guess I go any lower commodity prices.
I would add and most of that was steel, but if there's any other commodity just call out that'd be appreciated.
Yes, some color on how that would be played out any.
The next year.
I think continued in Q4 then.
As we lag price increases into the next year, but how many again further details of the appreciate it.
Well you now lets deal is the biggest driver of the lower commodity costs.
And what if you're familiar with the history of how we've layered in.
Pricing actions to deal with the significant rise in steel price prices and other commodity costs.
We have taken I think three price increases in the last 18 months or so.
To react to some of the heavy increase in commodity costs than what we've seen is our pricing actions are rolling in as we move customer contracts to more recent price list and at the same time some of those commodity costs have started to increases have started to abate.
So about two quarters ago, we started the finally field a year over year benefit of the pricing actions and the commodity costs leveling off and starting to decline.
And those were more significant last quarter and they were more significant this quarter, but and we expect that to continue for another quarter or two but at lower rates because we're starting to lap some of those changes in both commodity costs and our pricing actions in the in the prior year.
Got it thank you.
Thank you. Our next question comes from Greg Burns from Sidoti and company. Your line is open.
Morning.
So just wanted to focus first on on Europe .
For what's not working there driving the improve profitability and.
Your view on the sustainability of.
The profit improvements there you've got the gross margin over over 30% this quarter. So I just wanted to see.
Yes.
What has been working for you there and what your view on.
In that segment going forward.
Terms and maintaining via digital performance, we saw this quarter. Thanks.
Thanks, Greg so.
Jim I think it's across a variety of factors. So first of all pricing just as it's been a benefit here has also been a benefit in EMEA.
Secondly mix, both mix of products, which we've been actively managing to.
Thanks for the portfolio price resigned to customers gives us a good mix of profitability across as possible. So as we've been doing that with an improving the mix across categories.
Improve next class customers, so really mixed in both directions.
We have new products that we are petri now in Europe that have helped us.
With that mix, so the new product development and Passover launch over the last couple of years are starting to grow and be a larger percentage of our total that's helping.
Were also taking a number of other actions that.
Have than some of them implemented over the last couple of quarters. Some of them will be implemented over the next couple of quarters that should help us continue to see benefits in gross margin.
Across sales efforts marketing efforts as well as operational performance and that's the last piece of this operational performance is quite good.
Actually in the last.
Quarter until we continue to see improvements.
In efficiency in quality on time delivery.
And the factories and we've been relatively disease has helped US also absorb overhead so I really I there isn't any one thing, but I'm I'm happy to actually happier that it's across a broad spectrum of initiatives and and that we're not done so I expect to see us continue to improve profitability over the next.
Year end out into the future.
Okay. Thanks to the night.
One of the asking about the.
The pricing that you put in over the last year, So now that.
I was just deals come down fairly significantly is starting to become a tailwind for you. So I just want to begin to feel for.
How sticky that pricing is.
If you might be.
If you might have to give back maybe some pricing now that the commodities are coming in your favor you're seeing any pushback from your customers now.
From these price increases and.
Or maybe.
Two.
In return for stronger top line growth. Thanks.
Thanks, Jose It I'll go back to the commodity pricing first of all because I think you out of simplicity, we often take the largest factors and so we end up talking about things like steel, but there are lots of other commodities that we also purchased plus there's other factors in our cost structure related to wage increases, which as you know has seen upward.
Pressure.
In the Americas and really globally.
Hi, health care costs in the United States are also rising so if you look at all of our costs taken together, while steel has been a benefit most recently and really most recently versus where it was the here Adele.
We have other other cost that continue to rise and when we have customer conversations that customers.
We lay that out in more detail and we have that conversation about what what's causing our cost to rise.
We also continue to look for efficiency. So we're always trying to find ways to offset those costs increases through efficiencies of that we don't expect that customers to observe 100% of what has asked for in terms of.
Pricing for their cost increases by our suppliers.
When you get to the end of that I would expect will continue to see what we've always seen which is a a gradual annual price increase nothing significant that's something that reflects the ongoing moderate inflationary environment. We're in.
In terms of give backs and sell on I haven't seen any any evidence that we need to do that we feel like we're being.
Measured at fair and how we think about price increases we expect to continue to do that.
Yes. Thanks.
Thank you once again, ladies gentlemen, if you wish that your question at this time. Please press Star then one are you touched on telephone.
And I'm currently showing no further questions at this time turn the call back over to Jim Keane for closing remarks.
Thanks, So again, we're very pleased to deliver another strong quarter and feel good that our growth strategies are working we look forward to tune to deliver value to our shareholders on behalf of everyone. Here. So thanks I want to thank you for your interest in the company on wish you happy holiday and extend best wishes for the new year. Thank you for joining the call today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.