Thank you, Jim. I will cover our fourth quarter financial results first noting where results differed from our expectations and highlighting year-over-year and sequential quarter comparisons and then I will talk about our balance sheet and cash flow before getting into our order patterns and outlook for fiscal 2019. We were pleased to report adjusted earnings of $0.24 per share in the quarter which included approximately $0.05 related to the non-operating games we highlighted in the release.
As Jim said we finished the quarter on a strong note and we feel our momentum is building as we enter fiscal 2019.
Before I get into the detailed results, I want to share a few highlights some of which Jim just referenced.
First, order patterns in the Americas improved in the fourth quarter growing by 2% over the prior year compared to a 6% decline in the third quarter. Orders in the quarter did benefit from the pull forward effect of our February price adjustment, but we also had significant orders in the prior year related to the very large project we have mentioned on previous calls. Orders from our largest customers also showed improvement in the quarter growing modestly compared to a significant decline in the third quarter. I will give some additional color around our order patterns in a few minutes, but wanted to highlight upfront that we saw significant improvement in the Americas fourth quarter order patterns.
Second, EMEA was profitable in the fourth quarter, which represented a $7.5 million improvement compared to the $6 million operating loss in the prior year. The results were driven by 3% organic revenue growth, a 250 basis point improvement in gross margin and lower operating expenses in constant currency.
In addition, order growth was very strong in the quarter and resulted in a year end backlog that was 22% higher compared to last year.
Third, Asia-Pacific capped off a record year with a solid fourth quarter, which drove the 7% organic revenue growth in the other category for the quarter. Operating income was lower compared to the prior year due to continued investments in the region to sustain our growth in China and India as well as other markets. Fourth, we completed the acquisition of AMQ Solutions and we continue to evaluate similar opportunities to expand our capabilities and accelerate our growth strategies through acquisitions and additional partnerships. And lastly, the Board of Directors increased the dividend by 6% to $0.135 this quarter.
As it relates to our fourth quarter results relative to our expectations, the breakeven earnings were significantly better than the projected loss of between $0.05 to $0.07 per share we communicated on February 5. The actual impact of U.S. and French tax perform was about a $0.01 per share less than we estimated in February.
We also recorded a few other favorable items at year end, which accounted for another $0.01 of the variance, a few other favorable tax items at year end, which accounted for another $0.01 of the variance. The remaining favorability was primarily driven by revenue, which benefited from a stronger than expected mix of day-to-day business in the Americas and EMEA and better-than-expected project completions near the end of the quarter globally. The timing of our project completions often depend on the status of building renovation or construction, which are outside of our control. At the end of the fourth quarter, we had a number of projects in the Americas, EMEA and Asia-Pacific that were completed a few weeks earlier than we had estimated. And the effect of these completions all happening in the fourth quarter had a modest unfavorable impact on our first quarter revenue estimate. Switching to year-over-year comparisons, operating income decreased by $17 million in the fourth quarter due to declines in the Americas, the other category and corporate offset in part by a $7.5 million dollar improvement in EMEA.
As I mentioned previously, the improvement in EMEA was driven by top line growth, solid improvement in gross margin and lower operating expenses in constant currency. And we like the momentum we are seeing in the business reflecting the investments made in EMEA over the past few years. The Americas decline in operating income was driven by a 5% revenue decline and the unfavorable shifts in product mix related to reductions in legacy furniture applications as well as higher operating expenses, which included a total of $5.3 million related to severance costs and an impairment charge plus increased investments in product development and marketing.
For the other category, the reduced profitability was driven by the continued investment in Asia-Pacific plus our gross margin was negatively impacted by foreign currency fluctuations. And the higher corporate costs in the quarter were driven by lower poly income compared to prior year. Sequentially, fourth quarter operating income was $5 million lower compared to the third quarter and the comparison included reductions in the Americas and corporate offset in part by an improvement in EMEA. In the Americas, the sequential decline was driven by seasonally lower revenue, the severance costs and the impairment charge offset in part by improved operational performance and lower rebates. And for corporate, the sequential reduction was driven by lower early income. In EMEA the sequential improvement was driven by the same factors that drove the year-over-year improvement plus the non-recurring nature of some of the unfavorable items in the third quarter.
Moving to the balance sheet and cash flow, cash generated from operating activities totaled $132 million in the fourth quarter, which was approximately 2x higher than the prior year. Income taxes were a large contributor as we received a $19 million refund of U.S. taxes in connection with tax planning strategy related to foreign tax credit carry-forwards plus our estimated tax payments were much lower this quarter given the effective date of U.S. tax reform. Lower working capital also played a big role driven by both lower revenue and notable improvements in DSO in many markets around the world. Capital expenditures totaled $30 million in the fourth quarter and $88 million for the full year. We returned $15 million to shareholders in the fourth quarter through payment of the quarterly dividend of $0.1275 per share and yesterday the Board of Directors approved a 6% increase to $0.135 per share. We did not repurchase any shares during the quarter under a 10b51 program that expires tomorrow.
Turning to order patterns, I will start with the Americas segment where our orders in the fourth quarter increased 2% compared to the prior year. The prior year included approximately $16 million of initial orders from a very large project we have mentioned on previous calls. And in the current quarter we had an acceleration of orders in advance of our February price adjustment which we believe contributed up to $20 million of orders in the quarter.
In addition, prior year orders related to a recent divestiture were offset by current quarter orders related to the acquisition of AMQ. Customer order backlog at the end of the quarter was flat compared to the prior year. Across quote types, orders from continuing business and our marketing programs grew compared to the prior year, in part due to the estimated pull forward effects of the price adjustment. Orders related to project business declined by a low double-digit percentage compared to the prior year largely due to the very large project in the prior year.
Turning to vertical markets in the Americas, we saw order growth in seven out of the ten vertical markets we track and for each of the sectors that declined in the quarter, it’s worth noting that they face strong prior year comparisons each having grown by a double digit percentage in the fourth quarter of fiscal 2017. Overall, we feel pretty good about the fourth quarter order patterns in the Americas as well as our improved win rates especially since some of the largest opportunities have been won with some of our newest products.
In addition, based on a growing list of additional large project opportunities as well as improved sentiment from our dealers and sales organization, overall demand seems poised for improvement.
For EMEA, we experienced strong broad based order growth of 15% in the fourth quarter with the only notable decline coming from one market which faced a relatively strong prior year comparison linked to a few large projects. Orders in Western Europe have now grown for eighth consecutive months and in the rest of EMEA as a group we posted order growth in the quarter despite the relatively strong prior year comparison.
As I said earlier, customer order backlog in EMEA ended the quarter up 22% compared to the prior year. EMEA also had a price increase in February which we believe contributed to the growth in orders and backlog for the quarter.
For the other category, orders in total declined by 9% compared to the prior year and included growth from PolyVision which was more than offset by a decline in Asia-Pacific.
While Asia-Pacific posted a decline compared to the record level of quarterly orders in the prior year, it’s worth noting that the level of orders booked in Asia-Pacific during the current quarter were still more than 20% higher than the fourth quarter of fiscal 2016.
As we enter fiscal 2019, our current level of customer order backlog is solid and the pipeline of project opportunities remain strong thus we remain confident about our prospects to continue growth in this region.
Turning to the first quarter of fiscal 2019, we expect to report revenue in the range of $740 million to $765 million which includes approximately $20 million of estimated favorable currency translation effects and the impacts of divestitures and the acquisition of AMQ. The projected revenue range translates to an expected range on an organic basis of down 3% to up 1% compared to the prior year, which included $20 million of revenue from the very large project in the Americas mentioned previously.
For AMQ, we expect minimal contribution to operating income in the first quarter as the remaining purchase accounting effects related to acquired inventory and backlog will flow through our first quarter results.
Thereafter, we expect to begin realizing a small quarterly contribution to our operating income from this acquisition growing over time as we more fully implement our value creation plan.
We will continue to record intangible asset amortization, but the amount will be less than $1 million per quarter.
As we said in the release, we expect to report diluted earnings per share of between $0.12 to $0.16 for the first quarter of fiscal 2019. This estimate includes an expectation that our consolidated gross margins will be lower in the first quarter compared to both the first and fourth quarters of fiscal 2018 due to increasing commodity costs and continuation of some of the same drivers which negatively impacted gross margin in the fourth quarter.
In addition, we expect operating expenses in the first quarter to be similar to the fourth quarter with the sequential comparison including a full quarter of AMQ’s operating expenses and unfavorable currency translation effects reduced by the nonrecurring nature of the severance costs and impairment charge recorded in the fourth quarter.
Before I turn it over for questions, I will make a few comments about the full fiscal year of 2019. From a revenue perspective, we expect low to mid single-digit growth rates in the North American and European office furniture industries. And we are targeting revenue growth rates above these estimates.
As I said earlier, our current outlook for project activity has been improving and overall sentiment regarding next year is largely positive across our dealers and sales teams.
In addition, we are optimistic that tax reform and improved CEO sentiment will help bolster project activity and demand in our day-to-day business.
However, it’s possible we could continue to experience volatility in our annuity business until legacy standards become increasingly replaced with current office design constructs and the installed base of our newer designs gets large enough to generate meaningful follow-on day-to-day business.
Lastly, we are expecting to leverage our momentum in Asia-Pacific as well as new products at Designtex and PolyVision to help drive mid to single-digit growth rates across the other category during fiscal 2019.
Turning to our consolidated gross margin, we are targeting an improvement in fiscal 2019 due to the benefits of fixed cost absorption related to the expected revenue growth as well as continued improvement in our EMEA gross margins. How much we are able to improve our gross margins will be a function of many variables, including volume, the pace and extent of inflation and our ability to offset it with pricing actions, the mix of business and the success of our gross margin improvement initiatives in EMEA.
As it relates to operating expenses, we have talked over the last two quarters about the run-rate of our spending beginning to level off. The sequential increase in the fourth quarter was due to the addition of AMQ’s operating expenses, unfavorable currency translation effects and isolated things like the severance cost and impairment charge. And our estimates for the first quarter contemplate relatively flat operating expenses on a sequential basis with similar explanations of the net pluses and minuses.
Some of our cost structure is variable, so operating expenses will vary quarter-to-quarter based on the top line and bottom line and we expect to continue investments in a few areas of our business like Asia-Pacific and AMQ for example, but we expect the run-rate of the remaining spending in constant currency to level off at recent run-rates. This could help us achieve a relatively strong contribution margin on incremental revenue growth. And therefore, we are targeting to grow adjusted earnings per share at a rate that is more than 2x the rate of revenue growth for fiscal 2019.
For EMEA, we are targeting significant improvement in our operating results in fiscal 2019 compared to the $14 million operating loss in 2018, which you will recall was comprised of the $2 million loss in the second half of the year and a $12 million loss in the first half of the year which included a $4 million property gain. Taking into consideration, our objective is to grow the top line and further improve our gross margins as well as the seasonality of our business and the recently strengthened euro, we expect to report an operating loss for the first half of the year and operating income in the second half of the year. Those results will depend on our ability to sustain organic revenue growth and drive additional improvements in our gross margin as we are continuing to target relatively flat operating expenses in constant currency and adjusted for the property gain in the prior year.
However, I will share that we are currently projecting an operating loss in the first half of fiscal 2019 between $10 million and $15 million using a euro to U.S. dollar exchange rate of 1.23 which would represent an improvement compared to the $17 million to $18 million operating loss we posted in the same period in fiscal 2018 adjusted for the property gain and stated in constant currency. In summary, we expect to report organic revenue growth and improved gross margins in fiscal 2019 by leveraging the investments we have made in our business over the past 2 years, while leveling off the run rate of our operating expenses which we expect will improve our operating income margins in both the Americas and EMEA.
Moving each region towards their respective longer term targets of a low double-digit percentage in the Americas and a mid single-digit percentage in EMEA. And for the other category we continue to target a mid single-digit operating income margin, largely due to our intention to continue our investments in Asia Pacific.
Lastly, a couple of other data points for your fiscal 2019 modeling.
We are at sometimes asked about non-operating costs, so I will share that we do not currently anticipate any significant changes in interest expense or investment income and we estimate other income net will approximate $2 million of income per quarter assuming no significant foreign currency gains or losses.
Regarding the effective tax rate, we are currently modeling 27% based on our understanding of U.S. tax reform and our estimated mix of foreign source income. And related to uses of cash; first, we expect capital expenditures to fall within a range of $85 million to $95 million or similar to the level we incurred in fiscal 2018. And these investments will be driven by our intention to sustain a high level of product development, strengthen our industrial capabilities, enhance our information technology systems and continue to invest in our customer facing facilities.
Second, as we continue to expand our portfolio of offerings beyond product development and marketing partnerships, it’s possible we could choose to expand internal capabilities or otherwise accelerate some of our growth strategies through additional acquisitions or joint ventures.
Lastly, the quarterly dividend remains our priority for returning cash to shareholders as evidenced by the 6% increase in the cash dividend approved by the Board of Directors yesterday. And to the extent we project having excess liquidity, we expect to remain opportunistic as it relates to share repurchases, taking advantage of any potential stock price volatility to at a minimum offset dilution from equity awards. From there, we will turn it over for questions.