Thank you, Jim, and good morning, everyone. I will cover our second quarter financial results first noting where results differed from our expectations and highlighting year-over-year and sequential quarter comparisons. And then I’ll talk about our balance sheet and cash flow before getting into our order patterns and outlook for the third quarter and the full fiscal year.
As Jim said, we’re excited to report double-digit growth in revenue, orders and backlog, along with 32% growth in earnings in the second quarter. Revenue of $876 million was in line with the estimates we provided in June, while earnings of $0.41 were significantly higher than the top end of our guidance for the quarter.
Before I get into the detailed results, I want to share a few additional highlights, some of which Jim just referenced.
First, the organic order growth of 12% included 9% growth in the Americas, 22% growth in EMEA and 15% growth in the other category. I will share more details about our order patterns in few moments, but wanted to start with referencing this double-digit strength, as it drove the strong revenue growth in the quarter and the high levels of order backlog at the end of the quarter, which contributes to the strength of our outlook for the third quarter.
Second, the $0.41 of earnings included a $7.5 million property gain in the current year, along with $5.3 million of lower-cost related to warranties, product liability and workers’ compensation. But we also had a $4 million property gain and a $3.9 million favorable tax adjustment in the prior year. And these items contributed approximately $0.05 to our earnings in both quarters.
So the earnings growth was big with or without these unusual items. The Americas reported a strong 11.8% operating margin in the quarter, compared to 9.8% in the prior year. The land gain and the lower cost, I just mentioned, had a significant impact, but the operating margin before taking these items into account was still very strong and would have exceeded 10%. Fourth, EMEA continued to report year-over-year improvement in operating results, excluding the property gain in the prior year. This improvement was better than we were expecting, but less than the year-over-year improvement in the last two quarters.
As I said in the release and Jim mentioned a minute ago, we are currently projecting a strong back-half of the year in EMEA, which could result in the segment approaching break-even operating results for the full-year. Achieving another year of significant improvement in fiscal 2019 is an important step towards our longer-term goal of reaching a mid single-digit operating margin, which would return our cost to capital in the region. And lastly, we completed the acquisition of Smith System during the second quarter and announced the acquisition of Orangebox yesterday, plus we entered into our partnership with West Elm and expanded our partnership with Bolia in the quarter, adding significantly to our potential to drive additional growth.
As it relates to our second quarter results relative to our expectations, revenue was largely in line with our estimates across the segments. The completion of the Smith System acquisition on July 12, compared to our original target for the end of June, had a negative effect. But they recorded higher than expected revenue in August, plus EMEA revenue was also slightly higher than projected, so our consolidated revenue remained within our estimated range. The earnings, however, were much higher than our estimated range of $0.28 to $0.33 per share, with all segments positively contributing to our performance.
Within the Americas, the lower warranty, product liability and workers’ compensation costs contributed approximately $0.02 to the favorability after consideration of variable compensation and income tax effects.
In addition, post-acquisition earnings from Smith System were better than expected, despite revenue being lower due to the delayed closing. In total, the acquisition contributed approximately $0.02 to our second quarter earnings, compared to a $0.01 we had included in our estimates.
Beyond these two items, operating expenses were also lower than we anticipated, in part due to timing as we expect a sequential increase in spending for the third quarter.
Lastly, the speed of implementation of our recent pricing actions has exceeded our expectations, which were based on historical experience.
As a result, the shortfall between estimated price yield and approximately $10 million of increasing commodity and freight cost was reduced to a few million dollars in the quarter. EMEA results were also better than expected. I mentioned the favorable revenue a moment ago, but gross margins and operating expenses were also better than we expected, in part due to some delayed spending.
The other category also reported better than expected profitability in the second quarter, nearly tripling the operating income reported in the first quarter. Seasonal strength from PolyVision, mostly as expected, contributed to the sequential improvement, but we also saw improvement in our Asia Pacific business, which was better than expected following the slow start in the first quarter. Orders grew by more than 30% in the region, including replacement orders from a large customer, which canceled certain orders in April. Corporate costs were also lower than expected, driven by gains related to COLI maturities, which occurred during the quarter. And lastly, other income net continued to benefit from stronger than expected income from our joint ventures and other unconsolidated affiliates. Switching to year-over-year comparisons, operating income increased by $15.5 million in the second quarter, which included $22 million increase in the Americas, offset in part by reductions in EMEA and the other category, as well as higher corporate costs. The $22 million increase in the Americas was driven by an $86 million increase in revenue. The property gain and lower cost, previously mentioned, contributed approximately $9 million to our operating income after taking into consideration related variable compensation expense. And the acquisitions of Smith System and AMQ, net of a small divestiture in the prior year, accounted for another $4 million of the improvement in operating income and contributed approximately $46 million net to the revenue growth in the Americas during the quarter. Smith System was a big contributor as two-thirds of their annual revenue is typically realized in the summer months of June, July and August, but AMQ also reported strong results. The operating income from these acquisitions was reduced by approximately $7 million of purchase accounting effects, $6 million of which was related to the step ups of acquired inventory and backlog from Smith System, which were almost fully amortized in the quarter. The balance of the improvement in the Americas operating income of approximately $9 million was attributable to the remaining revenue growth of approximately $40 million, which was driven by project business. Increased pricing from our recent list price adjustments drove part of the revenue growth, but was not enough to offset the increase in commodity and freight costs. There is still a relatively significant effect on our gross margin, but we feel good about the pace at which our sales teams are driving customer agreements to more recent list prices.
We also experienced some unfavorable shifts in business mix, which negatively impacted our gross margin in the second quarter, but we held our operating expenses, excluding variable comp relatively flat at the same time, so the contribution margin associated with the volume growth was still quite strong. In EMEA, the $6 million operating loss in the current quarter, compared to a loss of $3.6 million in the prior year, which included a property gain of $4 million. Benefits from the revenue growth in the quarter were partially offset by unfavorable shifts in business mix and a small loss related to a divestiture. In the other category, we reported $4.9 million of operating income, or 5.6% of revenue, which represented $2 million reduction compared to a strong prior year.
We continue to target a mid single-digit operating margin in the other category, given our plans to continue investing for longer-term growth in the Asia Pacific region. And lastly, higher corporate costs were driven by higher deferred compensation costs, which were unusually low in the prior year, offset in part by gains related to COLI maturities in the current year. Sequentially, second quarter operating income nearly tripled compared to the first quarter. This improvement was driven by seasonality and momentum in our business, the property gain, the acquisition of Smith System and lower warranty, product liability and workers’ compensation costs. Operating expenses before variable compensation reflected a sequential decrease of a few million dollars, as operating expenses from Smith System were more than offset by the land gain and some delayed spending across all of our segments.
As mentioned a moment ago, we expect a sequential increase in third quarter spending.
Moving to the balance sheet and cash flow. We used domestic cash in the $75 million borrowing under our global credit facility to fund the acquisition of Smith System in July. But we were able to pay down our borrowings on lines of credit to $10 million by the end of the quarter due to the strong cash generation in the quarter, which totaled $79 million.
In addition, we received $12 million in connection with policy maturities under COLI. Working capital growth in the quarter approximated $51 million, driven by $58 million increase in accounts receivable, excluding acquisition impacts. The increase was driven by the strong growth in our business, which was more heavily weighted in the back-half of the quarter. At the end of the second quarter, DSO was only modestly higher compared to the first quarter and most of the increase was driven by a higher mix of business from direct sale customers, which have longer payment terms. Inventory levels, excluding acquisition effects, also increased in the quarter to support the growth in our business, but accounts payable balances increased by a higher amount, so the impact on cash was favorable. Capital expenditures totaled $26 million in the second quarter, and we continue to expect fiscal 2019 to fall within a range of $80 million to $90 million, driven by our intention to sustain a high-level of product development, strengthen our industrial capabilities, enhance our information technology systems and invest in our customer-facing facilities. We returned approximately $16 million to shareholders in the second quarter through the payment of a cash dividend of $0.135 per share, and yesterday, the Board of Directors approved the same level of dividend to be paid in October. Share repurchases during the quarter were minimal. Earlier this week, we funded the acquisition of Orangebox with short-term borrowings under our global credit facility, and we expect cash generation in the third quarter to substantially reduce the borrowing by the end of the quarter.
Turning to order patterns, I will start with the Americas segment, where our orders in the second quarter increased 9% compared to the prior year.
Our presentation of order growth is adjusted for constant currency, acquisitions and divestitures, which is consistent with how we calculate organic revenue growth. Across the months, we posted double-digit order growth in June and July, followed by a modest decline in August. Customer order backlog at the end of the quarter was approximately 11% higher compared to the prior year, and through the first three weeks of September, order growth has been tracking at a low double-digit percentage. Orders from our largest customer showed improvement again in the second quarter, growing by a mid to high single-digit percentage compared to the prior year. Across quote types, orders for project business and orders through our marketing programs drove the growth in the quarter, while orders associated with continuing agreements declined by approximately 7%.
Turning to vertical markets, we saw order growth in five of the 10 vertical markets we track, including insurance services and manufacturing, which had posted year-over-year declines in each of the previous four quarters. And for the sectors that declined in the quarter, it’s worth noting that a couple faced strong prior year comparisons, while others have been up and down over the past five quarters. Overall, we feel very good about the second quarter order patterns in the Americas, as well as our win rates, which have remained strong and have included some larger opportunities, which we won with some of our newest products. And we’re continuing to see solid year-over-year growth in our pipeline of project opportunities projected to ship over the balance of the fiscal year, which is consistent with the general level of optimism we are feeling from our dealers about their outlook for the balance of the year.
For EMEA, the 22% order growth in the quarter included broad-based strength across Western Europe, reduced in part by a modest decline in the rest of EMEA as a group. Customer order backlog in EMEA ended the quarter up approximately 34% compared to the prior year, setting up a strong outlook for the third quarter.
We expect the order growth rate in the third and fourth quarters to moderate from these very high levels, in part due to a strengthening prior year comparison. But our order patterns through the first three weeks of September reflected the slow start to the quarter, declining at a high single-digit percentage. Overall, we remain optimistic in EMEA, as our pipeline of project opportunities continues to reflect solid growth and the level of customer traffic in the Munich learning and innovation center remains very high.
For the other category, orders in total grew by 15%, driven by strength in Asia Pacific, which posted order growth of more than 30% compared to the prior year. I talked earlier about some customer orders, which were canceled in the first quarter and replaced in the second quarter, but apart from those orders, the growth rate still approximated 20%.
Turning to the third quarter of fiscal 2019, we expect to report revenue in the range of $885 million to $915 million, which includes the acquisitions of AMQ, Smith System and Orangebox, net of divestitures and approximately $6 million of estimated unfavorable currency translation effects. The projected revenue range translates to expected organic growth of 11% to 15% compared to the prior year, with acquisitions contributing modestly to the projected range of organic growth. Taking into consideration the projected revenue growth and typical seasonal patterns, including reductions in business from customers in the education sector and increases in business from the government sector, we expect to report diluted earnings per share between $0.28 to $0.33 for the third quarter of fiscal 2019. This estimate projects that estimated yield from our recent pricing actions will begin to offset increase in commodity and freight costs in the third quarter.
In addition, the estimate includes a continued negative impact from unfavorable shifts in business mix and $15 million to $20 million sequential increase in operating expenses, reflecting the non-recurring nature of the property gain and other benefits recorded in the second quarter, we expected higher spending, I mentioned earlier, and the effects of acquisitions offset in part by lower variable compensation.
As it relates to the acquisitions, we do not anticipate any additional earnings accretion in the third and fourth quarters, in part due to the seasonality of Smith System.
In addition, the operating results from the acquisitions will be substantially reduced by an estimated $4 million of amortization expense in the third quarter and $3 million in the fourth quarter.
For fiscal 2020, we expect accretion of earnings to become more meaningful as we more fully implement our value creation plans and the step-ups of acquired inventory and backlog have been fully amortized. Taking into consideration recent industry trends, our improved win rates, our recent pricing actions and the positive outlook for EMEA and Asia Pacific, we are currently projecting strong revenue growth to continue in the fourth quarter. And to provide clarity around the expected impact of our recent acquisitions, our outlook for inflation relative to our pricing actions and other factors, including business mix and the level of operating expenses, we have taken the unusual step to issue full-year guidance, which you saw in the release, as a range of $1.10 to $1.15 per share. From there, we will turn it over for questions.