Herman Miller, Inc. today announced results for its third quarter ended February 27, 2016. Net sales in the quarter totaled $536.5 million, an increase of 3.9% from the same quarter last fiscal year. New orders in the third quarter of $508.8 million were 1.7% above the prior year level. On an organic basis, which adjusts for foreign currency translation, net sales and orders in the third quarter increased 5.5% and 3.3%, respectively, from the same quarter last fiscal year.
Herman Miller reported net earnings of $0.46 per share on a diluted basis in the third quarter. This compares to diluted earnings per share of $0.35 in the same quarter last fiscal year. Adjusted diluted earnings were $0.37 per share in the third quarter of last year. The translation impact from year-over-year changes in currency exchange rates had an unfavorable impact on earnings per share of approximately $0.02 in the third quarter of fiscal 2016.
Brian Walker, Chief Executive Officer, stated, "We delivered strong performance this quarter, executing on our strategy of providing inspiring designs across an unrivaled multi-channel distribution network. Consolidated revenue growth was within the range we anticipated and overall profitability exceeded expectations, driven by continued gross margin expansion and well controlled operating expenses. Despite continued challenges specific to our Consumer business segment, our results this quarter demonstrate progress and we remain confident that the fundamental value drivers of that business will deliver improved performance and value going forward. We are particularly pleased with the continued strength of our North America business, demonstrating the clear impact of our investments in new products, refreshed showrooms, and solutions-based selling approach."
Jeff Stutz, Chief Financial Officer, noted, "Strong overall earnings performance this quarter was highlighted by continued gross margin expansion driven by a range of factors, including supportive commodity costs, favorable product mix, and an ongoing focus on operational efficiency. We're also pleased with the focus of our Herman Miller team members to continually balance the investments required for future growth with prudent control over operating expenses. These factors combined to drive a 24% year-over-year increase in adjusted earnings per share and robust operating cash flow generation."
Herman Miller's consolidated gross margin in the third quarter of fiscal 2016 totaled 38.7%, representing a 180 basis point improvement over the level reported in the same quarter of last fiscal year.
Operating expenses in the third quarter were $163.5 million compared to $151.2 million in the same quarter a year ago. This represents a year-over-year increase of $12.3 million, the majority of which relates to spending on new product launch and marketing initiatives, higher incentive accruals and variability from higher net sales.
Herman Miller's effective income tax rate in the third quarter was 29.8% compared to 33.6% in the same quarter last fiscal year. This tax rate is lower than the prior year due to higher U.S. tax incentives for manufacturing and research and development activities.
The company ended the third quarter with total cash and cash equivalents of $55.3 million. Cash flow generated from operations in the third quarter was $52.7 million compared to $29.1 million in the same quarter last fiscal year. Through the first nine months of fiscal 2016, operating cash flows were $125.9 million compared to $109.8 million during the same period of the prior year.
Segment Sales and Orders Results
North American Furniture Solutions Net sales for the third quarter of fiscal 2016 within Herman Miller's North American reportable segment were $312.7 million, an increase of 5.6% from the same quarter last fiscal year. On an organic basis, excluding the negative impact of changes in foreign currency translation, segment sales increased 6.6% on a year-over-year basis. New orders in the third quarter totaled $296.3 million, an increase of 5.0% from the year ago period. On an organic basis segment orders in the third quarter were 6.1% higher than last year.
ELA Furniture Solutions Net sales within the ELA segment totaled $98.9 million in the third quarter of fiscal 2016. This represents a 1.6% increase from the same quarter of last fiscal year. New orders in this segment totaled $94.5 million in the third quarter, representing a year-over-year decrease of 5.5%. On a constant-currency basis, segment sales increased 7.0%, while orders were 0.8% lower than the third quarter of last year.
Specialty Net sales in the third quarter within Herman Miller's Specialty segment totaled $54.7 million. This represents an 8.3% increase in sales from the same quarter last year, reflecting broad-based growth across the three Specialty brands - Geiger, Maharam and the Herman Miller Collection. New orders in the quarter of $53.5 million increased 0.6% from the year ago period.
Consumer The Consumer segment reported net sales in the quarter of $70.2 million, which were 3.3% lower than last year. Orders in the third quarter of $64.5 million were 0.8% below the prior year. This year-over-year decrease in orders continues to reflect some ongoing pressures from previously outlined factors. However, the trend this quarter represents significant improvement from the relative order comparison in the second quarter.
Fourth Quarter Fiscal 2016 Guidance
Looking forward, Herman Miller expects net sales in the fourth quarter of fiscal 2016 to be in the range of $560 million to $580 million. On an organic basis, adjusted for the impact of foreign currency translation, this forecast implies sales growth of approximately 5% at the mid-point of the range. The year-over-year negative impact of foreign currency translation on net sales is expected to be approximately $6 million. Diluted earnings per share in the quarter are expected to range between $0.57 and $0.61 per share. This guidance reflects a net earnings benefit of approximately $0.06 per share associated primarily with an anticipated gain on the sale of a former manufacturing facility in the United Kingdom.