David C. Sylvester
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% 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, third quarter revenue of $955 million was $10 million higher than the top end of our guidance, and the $0.46 of earnings per share exceeded our estimated range by $0.09.
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 experienced 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 $0.09 due to the revenue strength I just reviewed, plus we had favorable gross margins and lower operating expenses, and other income net and 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 didn't 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 an 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 the last week of Q3 in fiscal 2019.
For earnings the $0.46 in the quarter compares to adjusted EPS of $0.36 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 Orangebox, 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 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.
After 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 production 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 EMEA the $6.3 million of operating income in the quarter marked the $7 million 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 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 targets 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 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 targets 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 and 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 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 $0.145 per share and a modest level of share purchases. 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 $1.05 or $1.20 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, 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 $0.30 to $0.34 per share in the fourth quarter, which compares to $0.19 of earnings in the prior year, or $0.29 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 Bismarck [ph] 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 the S&P 500 or Fortune 800. This suggests that our industry share of capital spending may be gaining resiliency, as organizations continue to invest in their workspaces to help drive productivity and compete in the war for talent.
For calendar year 2020 the U.S. Federal Reserve recently held interest rates steady and signaled 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 Bismarck 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 share those points because many of the individual investor conversations centered 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.