Image source: The Motley Fool.
Steelcase Inc (SCS 0.09%)
Q4Â 2019 Earnings Conference Call
March 20, 2019, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
See all our earnings call transcripts.
Prepared Remarks:
Operator
Good day, everyone, and welcome to Steelcase's Fourth Quarter and Fiscal 2019 Conference Call. As a reminder, today's call is being recorded.
For opening remarks and introductions, I would like to turn the conference over to Mr. Mike O'Meara, Director, Investor Relations, Financial Planning & Analysis.
Mike O'Meara -- Director, Investor Relations, Financial Planning & Analysis
Thank you, Sharon. Good morning, everyone. Thank you for joining us for the recap of our fourth quarter and fiscal 2019 financial results. Here with me today are Jim Keane, our President and Chief Executive Officer; and Dave Sylvester, our Senior Vice President and Chief Financial Officer. Our fourth quarter earnings release, which crossed the wires yesterday, is accessible on our website. This conference call is being webcast and this webcast is a copyrighted production of Steelcase Inc. A replay of this webcast will be posted to ir.steelcase.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 are incorporating, by reference into this conference call, the text 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.
James P. Keane -- President and Chief Executive Officer, Director
Thanks, Mike, and good morning, everyone.
Our fourth quarter results exceeded our expectations and contributed to one of the best years we've reported in over a decade. In Q4, we grew sales 18% globally on a reported basis and 15% organically. We showed strong growth across all segments and we believe we gained market share in many major markets around the world. BIFMA is reporting a strong growth across our industry, but our Americas organic revenue growth at 17% was about double the BIFMA's growth rate. Our earnings per share also grew strongly on both reported and adjusted basis, and that's related to improved profitability as well as revenue growth. As we expected, the two price increases we took earlier in the year in response to material inflation helped us to regain some lost gross margins in Q4.
Our EMEA segment was profitable in Q4, as we continue to drive robust top line revenue growth through improved win rates. While that's a sign of good progress, we recognized EMEA was not profitable for the full year. We continue to work on gross margin expansion initiatives that include specific improvements in our product lines, in our selling strategies and in our operational efficiency.
our APAC business is included in the other for segment reporting purposes. I want to recognize our entire team in Asia for delivering a record level of quarterly revenue in Q4. Dave will provide more detail about the quarter and our full-year results.
I want to spend the remainder of my time talking about our outlook, which remains positive. This is supported by our project pipelines, win rates and most of the macro economic factors that we track, such as GDP, unemployment, architectural billings and non residential fixed investment. We were all a bit surprised by the weak February job growth figures in the US. But unemployment rates also fell and pay rates rose. We interpret this as evidence of a very tight job market with likely far more open positions than qualified applicants. This is the war for talent. We hear stories about this every day from our customers. As customers compete for talent, they recognize they need to invest in their workplace. We believe this is helping to drive growth across our industry as seen in the BIFMA growth numbers.
Steelcase is in a particularly strong position to help. Over the last several years, we've invested in new products, new acquisitions and new partnerships aimed at helping our commercial customers compete for talent, shift their culture toward innovation and prepare for digital transformation. We aim to do more than just help with attracting and retaining talent. Our solutions are designed to help customers engage their existing workforce more completely and to help improve productivity, innovation and creativity. That's how you really win the war for talent in the long run.
In the Americas, order growth was very strong in December, but growth was weak in January. The year-over-year volatility could relate to this year's factors like the government shutdown, but also it's last year's factors like the steel tariffs and tax reform. We implemented a price increase in February last year, which caused some pull forward of orders impacting year-over-year comparisons. When we adjust for that, February order growth was better than January. BIFMA is expecting industry growth in North America to be about 3% in calendar 2019, which will be slower growth than 2018. We're targeting to grow a little faster than the industry organically, but the full year effect of our acquisitions adding some inorganic growth on top of that, along with an extra week in the fourth quarter, due to the timing of our year-end.
In EMEA, we see improving overall economic and political conditions in France, slowing growth in Germany, and of course, the disruptive effects of Brexit uncertainty in the UK. We are targeting top line organic growth above the industry, plus the inorganic full year effect of the Orangebox acquisition and continued margin expansion, to bring in EMEA to full year profitability in fiscal 2020.
For APAC, there are signs of slowing economic growth in China, but even a slower growing China is growing faster than other major economies. We expect to continue to make investments to grow our market share in APAC.
For this coming year, we're very focused on executing against the value creation plans we established for each of our recent acquisitions. For fiscal 2019, we've done well. We were at or above our revenue expectations for each of the three acquisitions.
In fiscal 2020, our value creation plans include significant top line growth, as we fully activate our distribution channels and globalize access to these product lines. The Orangebox acquisition, the West Elm partnership and the many other partnerships we've initiated have helped us broaden our response -- our offering in response to new trends in the workplace. That's a lot of new products for our sales organization and our distribution to learn, position, sell and specify. We continue to invest in training and showroom updates. We've also added selection and ordering tools to help specifiers including our own dealers find the right products for each customer. Now, with those capabilities increasingly in place, we expect to capture a larger share of our customers' spend for these areas in the workplace. That's another important growth driver for fiscal 2020.
We're also working to improve our profitability. That includes fitness initiatives across every area of the company that will help us be more efficient and more competitive in everything we do. Of course, it includes the work I mentioned earlier to improve our gross margins in EMEA. We have people dedicated to these efforts and we have regular updates that include all of us and the senior leadership team, because so many functions are involved in implementing the improvements.
Last year, we held an Investor Day in New York and quantified our mid-term growth and profitability targets in the context of our strategy. In yesterday's release, we provided our quarterly outlook as always and we shared our full year targets for revenue growth and earnings. That's new for us. We're feeling it could be as helpful as possible to our investors and to help bridge the connection from our quarterly guidance to our mid-term targets.
Finally, we had a town hall meeting yesterday that was simulcast to our locations around the world. We talked about the results and how everyone contributed. That includes the people who worked on all of those new products, people who put together those partnerships and acquisitions, people who are helping us reach new levels of efficiency, and people who are serving our customers and helping us win new customers. Dave and I thank them for all their work and I'd like to do that again here, because I know we have employees and dealers around the world who listen to this call. They are the reason we had such a good year.
Now, I'll turn it over Dave.
David C. Sylvester -- Senior vice president and Chief Financial Officer
Thank you, Jim, and good morning, everyone. My comments today will start with some highlights related to our fourth quarter results, balance sheet and cash flow. And then I will share a few summary remarks about the full fiscal year before talking about our outlook for the first quarter and targets for all of fiscal 2020.
As Jim said, we finished the year very strong with fourth quarter revenue of $912 million and $0.29 of adjusted earnings per share, both of which exceeded the top end of our guidance for the quarter. The organic revenue growth of 15% was better than the 9% to 12% we expected for the quarter. We exceeded the top end of our range, primarily due to strength throughout December in both the Americas and EMEA and a lower than expected impact from project delays at the end of the quarter globally. In addition, the mix of revenue growth included higher than expected revenue from one of our owned dealers and some of our direct customers, which was primarily driven by third-party products, not our partnerships.
From an earnings perspective, the $0.29 exceeded the top end of our estimated range by a penny, the operating leverage from the better than expected revenue was a positive contributor, but it was dampened by increased spending in support of our growth strategies, relatively high healthcare costs in advance of the change in plan design and some year-end adjustments to various accounting reserves which netted to an unfavorable impact in the quarter. In addition, the contribution margin associated with the third-party product revenue I just mentioned was relatively low. We also had net favorable discrete tax benefits in the quarter, which contributed about a penny to our earnings.
Switching to year-over-year comparisons, we grew revenue by $140 million in the quarter with $121 million representing broad-based organic growth of 15%, with the Americas growing 17%, EMEA growing 9%, and the other category growing 17%.
I won't repeat everything Jim just summarized, but simply reiterate, our strategy is working and customers are responding. And it's showing up in our recent market share gains in the US and many other markets around the world.
For earnings, the $0.29 of adjusted earnings in the quarter represented more than a 50% improvement compared to the prior year when you take into account both the impacts of US tax reform and the non-operating gain in the prior year.
Our operating margin improved by 110 basis points due to a significant improvement in our operating expense leverage. In the second half of fiscal 2017, we began ramping up our investments in product development and other growth strategies, including partnerships and acquisitions, and in fiscal 2019, we've seen accelerating quarterly revenue growth as we have been realizing the benefits of those investments which improved our leverage in operating expenses.
In addition, we continue to drive fitness across other areas of our business model, which is helping to reallocate existing resources to support growth in investments. The improvement in operating expense leverage was offset in part by a decline in our gross margin in the quarter, which was largely driven by shifts in our business mix. Our overhead is also higher than a year ago in support of our growth and business continuity strategies. But this was partially offset by cost reduction initiatives and absorption benefits associated with the higher volume. As it relates to price yield, the benefits from our recent pricing actions more than offset the higher commodity freight and labor costs in the quarter, modestly contributing to our gross margin after three consecutive quarters of the opposite effect.
And we recently announced another price adjustment to take effect in April. Over the past few quarters, we have mentioned shifts in our business mix as a contributor to year-over-year declines in our gross margin. While we have referenced the year-over-year implications, I want to share a few additional thoughts about the longer term benefits. For example, by -- first by winning a relatively high mix of project business now, as more and more companies modernize their workplaces, we are also winning the continuing agreements with these same customers, which can generate additional business of similar magnitude over subsequent periods.
Second, the success of our new products is helping to offset the declines in legacy applications. Some of our older products have higher than average gross margins due to fully depreciated tooling and equipment, years of cost reduction emphasis and in some cases pricing actions. While we target our new products at or above our average gross margins across their life cycles, initial margins can be lower before overhead investments are more fully absorbed with increased volume.
In addition, some of our newest products that are outperforming our initial expectations and therefore we have been accelerating some of our localization and business continuity strategies, which requires investment in the short term, but we expect we will improve our gross margin in the longer term.
And finally, because we own some of our distribution and sell direct in other markets and ancillary applications have been growing significantly, our revenue and share of wallet from customers in these markets has occasionally benefited from some pass-through business, which can be at lower gross margins. It's still good business for us, but it can impact our overall average gross margin percentage when volumes are more significant.
As it relates to orders and backlog for the quarter, orders in the Americas grew 4% and backlog at the end of the quarter was approximately 3% higher than the prior year, while orders in EMEA grew 9% and backlog at the end of the quarter was approximately 10% higher than the prior year. These comparisons were negatively impacted by a list price adjustment in the prior year, which we estimate accelerated approximately $20 million of orders into the fourth quarter of last year.
Moving to the balance sheet and cash flow, we generated $85 million of operating cash flow in the quarter, which more than funded capital expenditures, the full repayment of acquisition-related borrowings under our credit facility, and our $0.135 quarterly dividend. In addition, we issued $450 million of 10-year senior notes in January and used a portion of the proceeds to fund the early retirement of our $250 million notes in February. The effective interest rate on our new notes approximates 5.6% or 100 basis points lower than the notes we retired in the quarter. And the rating agencies rated our new notes two notches into the investment grade scale with stable outlooks. Replenishing our liquidity following the recent acquisitions allows us to run our operations from cash and investments on our balance sheet and continue to use the credit facility as a tool to move quickly on strategic opportunities or serve as a liquidity backstop during a downturn.
Well, actually, yesterday, the Board of Directors approved a $0.145 dividend for the first quarter of fiscal 2020, which represents more than a 7% increase over the quarterly dividend paid in fiscal 2019.
Before I get into fiscal 2020, I would like to first make a few comments about fiscal 2019, as there are some important points to take into consideration as you update your financial models for next year. Our adjusted earnings of a $1.20 per share take into consideration the pension charge in the third quarter and the charges related to the early retirement of debt in the fourth quarter. However, there are a few additional non-recurring items in the year that we have highlighted in our earnings releases, which have the effect of increasing our earnings by approximately $0.06 per share after taking into consideration the related variable compensation and income tax effects. They include a property gain recorded in the second quarter, which had a $0.03 positive effect on earnings per share and net discrete tax benefits during the third and fourth quarters, which totaled approximately $6 million and had the effects of lowering our effective tax rate below our ongoing estimate of 27% and increasing earnings by another $0.03 per share.
Some of you have also asked about other puts and takes, like the initial effects of purchase accounting related to acquired inventory and backlog or the lower warranty product liability and workers compensation costs we recorded during the year. We aren't suggesting an adjustment for those as they largely offset. And we will have ongoing amortization expense related to our acquisitions. And our estimated reserves for these types of costs could change as our claims experience continues to evolve. So for purposes of building your year-over-year models, we think a $1.14 is a good estimated baseline for recurring earnings per share in fiscal 2019.
For next year, the earnings release included our estimates for the first quarter and our targets for the full fiscal year. We are projecting a strong start to fiscal 2020, with first quarter revenue estimated to fall within a range of $830 million to $855 million, which translates to expected organic revenue growth of between 7% to 10%. And from an earnings perspective, we expect to report $0.16 to $0.20 per share, which compares to $0.14 in the prior year. For the full year, we are targeting another year of strong revenue growth and continued earnings expansion. As it relates to revenue, we are targeting organic revenue growth between 2% and 6% for fiscal 2020. This target assumes that average industry growth percentages across our markets will be in the low single digits and we are targeting to grow faster than the industry again in fiscal 2020 by continuing to implement our growth strategies.
Based on how our organic growth, revenue growth accelerated during fiscal 2019, flat in Q1, 8% in Q2, 13% in Q3, and 15% in Q4, the organic revenue target for fiscal 2020 anticipates higher growth rates in the first half of the year, compared to the second half. In addition, our revenue will benefit from the inorganic impact of consolidating Smith System and Orangebox for a full year, which will mostly benefit the first half of the year. Plus, we will report an extra week of revenue in the fourth quarter of fiscal 2020, due to the timing of our year-end. Together, these impacts are expected to contribute approximately 4% growth in our reported revenue next year.
Lastly, our revenue could be negatively impacted by approximately 0.5% related to foreign currency translation, assuming the exchange rates at the end of fiscal 2019.
For earnings, we are targeting to report fully diluted earnings for fiscal 2020 between a $1.20 and a $1.35 per share. This target is consistent with our mid-term objective to grow earnings at 2 times the rate of organic revenue growth, by continuing to leverage our scale to drive improvements in our operating margin. We are targeting improvement in our gross margins during fiscal 2020, as we continue to benefit from recent pricing actions, which are now exceeding the significant inflationary pressures we experienced for much of fiscal 2019.
We are targeting additional improvements through cost reduction initiatives across our global operations and by continuing to drive our gross margin improvement strategies in EMEA. But some of these benefits could be offset by continued investments to support growth and additional shifts in business mix.
As it relates to operating expenses, we improved our operating expense leverage in fiscal 2019 by 150 basis points. For fiscal 2020, we are targeting additional benefits from our fitness initiatives, but we are also planning additional investments to drive innovation across work, worker and workplace and broaden our addressable market through new products, partnerships and acquisitions.
In addition, we expect a few pennies of earnings associated with the inorganic growth I just mentioned.
Lastly, a couple of other data points for your fiscal 2020 modeling. We expect interest expense to approximate $27 million for next year assuming current levels of debt. As I said earlier, we continue to estimate our effective tax rate will approximate 27% for the year. And as it relates to uses of cash, we expect capital expenditures to fall within a range of $85 million to $95 million, compared to the $81 million we recorded in fiscal 2019.
In summary, our revenue target for fiscal 2020 assumes a relatively stable geopolitical environment and continued growth in the major economies around the world. In a relatively stable growing environment, we believe our industry will continue to grow as organizations continue to modernize their workplaces, to drive growth and productivity, compete for talent and strengthen their cultures. And we believe our innovation and knowledge uniquely positions us to strengthen our global leadership position.
Our gross margin target assumes benefits from our recent pricing actions and the targeted revenue growth. We expect continued commodity costs and labor inflation but at a low single digit percentage versus the significant levels of inflation we experienced through much of fiscal 2019. Similarly, we are assuming continued shifts in our business mix, which we expect could have an unfavorable impact on our gross margins next year, but to a lesser extent than the impacts in fiscal 2019.
From there, we will turn it over for questions.
Questions and Answers:
Operator
(Operator Instructions) We will request that you limit yourself to two questions, so that we may answer as many questions as possible in the time permitted. Please phrase your question directly and as briefly as possible.
Our first question comes from Budd Bugatch with Raymond James. Your line is open.
Budd Bugatch -- Raymond James -- Analyst
Good morning. Thank you for taking my question. I guess the first question is to go, you talked a lot about the mix of business. Maybe you could quantify for us the project business versus continuing versus marketing programs, and how you see that playing out in 2020?
David C. Sylvester -- Senior vice president and Chief Financial Officer
Well, as we've been saying through much of this year, the mix of project business has moved up in percentage of mix. It had been historically similar to the level of continuing business we have been experiencing, which was about 40%, and it had moved up progressively into the high 40% range. It's hard to predict how that will play out for next year. But when we look at what we see in the pipeline, which Jim referenced, which has some nice project business in front of us that we can compete to win, I suspect that we're going to continue to feel a relatively high mix of project business in our overall results.
James P. Keane -- President and Chief Executive Officer, Director
I'll add that -- that's particularly true in the Americas. EMEA, there's a lot of project business, but they're smaller sized projects than maybe we will see typically.
Budd Bugatch -- Raymond James -- Analyst
Okay. And so when you when you look at difference in margin impact, and I know the project business is more competitive because you are bidding on a competitive situation versus continuing business. What's the natural margin differential between project and continuing business as you look at that?
David C. Sylvester -- Senior vice president and Chief Financial Officer
Yeah, there's really no simple rule of thumb. I think what we said in the past is on average you know the project margins tend to be lower than the continuing and then the marketing programs, which are customers who are buying products through different programs that we don't have a contract with, those tend to be a little bit higher than average. But I wouldn't want you to think that every project is the same, because every competitive situation is different.
Budd Bugatch -- Raymond James -- Analyst
And as you look at this year, you are instituting a price increase, refresh me, could you give us a quantification of what you think that does and when that goes into effect?
David C. Sylvester -- Senior vice president and Chief Financial Officer
We announced it in I think earlier in the quarter in January, February, it goes into effect in April and it's a -- on average around the world, a low single digit. It's not being pushed through as an average adjustment across all product categories. So some will go up a little more and some will go -- so some will go up a little less.
Budd Bugatch -- Raymond James -- Analyst
Okay. And for me, I guess, Brexit is one continuing uncertainty out there, particularly in EMEA. Refresh us how important Brexit is or how important UK is to your EMEA platform.
David C. Sylvester -- Senior vice president and Chief Financial Officer
Well, it's a important market. It was actually a market that Jim celebrated from the stage at the town hall Yesterday as a market that had a very strong year last year. We've said on previous calls, some of that was also improving our own approach in the market. But it has been a pretty decent market for us over the last 12 months or 18 months. Prospectively, it's hard to say what's going to happen. We're reading the same things you're reading. But it is not the biggest market, you know, Germany and France are our biggest markets. And then depending on who's in the lead and who's having a grave year, Iberia and the UK follow. But if Brexit would to have a significant impact just in the UK, we would feel it; if it expands more into the rest of Western Europe, then we will feel it more significantly.
James P. Keane -- President and Chief Executive Officer, Director
I'll add to that, the Orangebox acquisition increased our exposure to the UK, most of their sales are in the UK. So for fiscal 2020, we will end up with more exposure in the UK than before. Now that said, we also celebrate Orangebox, we got off to a great start. The top line revenue is actually above what our expectations were for the year we just finished. So despite the uncertainty in Brexit, we actually had a pretty good year in the UK. But we also want to make sure everybody's aware of the risk as we go forward.
Budd Bugatch -- Raymond James -- Analyst
Okay, I'll let some others join and ask questions and probably jump back into the queue.
David C. Sylvester -- Senior vice president and Chief Financial Officer
Okay.
Operator
Thank you. Our next question comes from Steven Ramsey with Thompson Research Group. Your line is open.
Steven Ramsey -- Thompson Research Group -- Analyst
Good morning. Learning about your pipeline -- thinking about your pipeline, with project mix being higher, are you seeing the growth, maybe frame it in the context of 2019. Are you seeing the growth of ancillary offerings that you guys have in these large projects that you desired? And are the margins in these ancillary projects or the ancillary part of projects -- are those margins better than larger or more traditional products?
David C. Sylvester -- Senior vice president and Chief Financial Officer
So, first of all, I'd say that the mix of ancillary within projects continues to rise and it's rising as this trend begins to spread across the country. So it really started in a couple of regions and now we're seeing signs of this across the country. So that's one factor, just the spend by our customers is shifting from the traditional pipelines and more of it's in ancillary. And as we've broadened our portfolio, we're participating in that to a greater degree. Now, our dealers have been participating in it the whole time and they've been meeting those needs by including other smaller manufacturers that offer products that were beyond our offering. So as we extend our offering, we're able to compete more completely, more aggressively for that business.
In terms of gross margins, we don't see a significant difference between the price we offer through brands like Coalesse and Turnstone and Steelcase. I'd say, as we use these partnership approaches to further broadening our offering, the margins can vary a little bit, but I wouldn't say that they're significantly different than the margins we see on the products that have been part of our core offering. So I wouldn't say it's better than the typical products, but it's also not materially lower than the typical products.
Steven Ramsey -- Thompson Research Group -- Analyst
Okay, great and then thinking about the higher overhead investments to support growth. Just trying to think that if growth came in in Q4 or let's say at half of the high levels that it did, would the higher overhead costs have still come into play? And I guess what I'm getting at, are the overhead -- increased overhead costs, are those permanent and a part of full year '20 going forward? Or would you be able to pull those back in a meaningful way should the top line not come in as expected?
David C. Sylvester -- Senior vice president and Chief Financial Officer
That's a good question. I would say that I would have expected a fair amount of those overhead costs anyway because they're related to supporting our growth strategies. If we wouldn't have made some of the overhead investments that we made two or three quarters ago, we may not have been able to support the 15% organic growth in the quarter. So we're continuing to make some of those investments. And I've also mentioned business continuity on a couple of our calls previously. We've been investing to secure our business a bit more strongly with some redundancy on key products and component parts. And that's required some investment. So I think that, those investments are there to stay and those are going to continue. But I mean, Jim and I meet with our operations team every month and talk about their continued cost reduction emphasis and what they're targeting. So we've paid for a lot of those investments through over -- through cost reduction, but not entirely when we looked at the year-over-year comparison. So that's why we called them out.
Steven Ramsey -- Thompson Research Group -- Analyst
Excellent. And then lastly, maybe real quick, can you talk about how West Elm is coming along? And are we seeing that in the revenue or order numbers yet in a direct or maybe in a more indirect way?
James P. Keane -- President and Chief Executive Officer, Director
Yeah. So we're happy, very happy with our progress in West Elm. We really showed our dealers and customers for the first time in a broad way our intentions to enter that partnership back at anytime in June, over the course of the summer and fall, we continue to introduce the pipelines to our dealers. Between September and December of last year, we opened to order entry for 25 products and these products were very well received by our dealers. So today, we're beginning to ship those products. And that's why the revenues haven't been significant. It's just because of the timing. But in terms of the degree of acceptance, we've been very happy. And as we look forward next month, actually, we'll be opening up a order entry for 30 more products as part of the West Elm partnership.
So the 25 products from September to December, and they've been added 30 more. And as a bit of evidence, again, overall, one of the things we watch for is the degree to which dealers sign up for the various showroom packages we offer and the degree of subscription for those showroom packages is higher than what we expected internally. So the acceptance rate is even better than we thought, we're very excited about the potential for that West Elm partnership. But in terms of revenues, that'll continue to build here quarter-by-quarter as those products begin to ship.
Steven Ramsey -- Thompson Research Group -- Analyst
Excellent. Thank you.
Operator
Thank you. Our next question comes from Bill Dezellem with Tieton Capital Management. Your line is open.
Bill Dezellem -- Tieton Capital Management -- Analyst
Thank you. I had two follow-up questions from earlier answers. The first one is, relative to West Elm, 25 products September to December, another 30 products coming soon. So how many total are you ultimately looking to identify -- dealer is being able to order placed?
James P. Keane -- President and Chief Executive Officer, Director
Yes, I think you're asking what's the total we're expecting. We haven't actually put any kind of ceiling on it. So we think there's an enormous opportunities to continuing to apply West Elm's design sensibilities to various product categories that we sell. That could include products we might think of as ancillary, but could also include products that are -- products that support work in individual work settings. So we haven't put any cap or constraint. What we're doing is watching how our dealers and our customers react to those products, see which ones we can sell. We will continue to invest in the areas that are working and continue to test where else that design aesthetic might make sense. So right now, we're just focusing on implementation and we'll continue to assess that every quarter.
Bill Dezellem -- Tieton Capital Management -- Analyst
And continuing with West Elm, you referenced that your dealers orders for say showroom sets is above expectations and would you talk just a little bit more about that?
James P. Keane -- President and Chief Executive Officer, Director
Yeah, so whenever we launch a new product, we will offer our dealers special packages to help them update their showrooms to include those products. So those packages include kind of sets of products we think tells a story in a complete way. More often we do a special pricing so that they can get those parts in the showrooms. There's usually a period of time where those offerings are in place. So it's a good test for us to see how the dealers are reacting. What kind of assessments they imagine they will see among their customers. And why this is important is because, as I said, the ancillary trend is taking shape differently in a different pace across the country. So some markets, the dealers are like, well, what took you so long. We could have used this two years ago. In other markets, it's been an important trend over this last year. And in other markets, it's just developing. So we were really encouraged that West Elm offering has resonated with the dealers in terms of the aesthetics, in terms of their customers acceptance, in terms of pricing and being able to hit the right price points in our market, all these are critical. So we, from our experience, know what a normal take-up rate would look like. And our team set goals based on that and all I can share at this point is that the acceptance rate we've seen is higher than what we were expecting internally.
Bill Dezellem -- Tieton Capital Management -- Analyst
Thank you, and then I would like to come back to pricing. You had mentioned it was rough -- low single digits globally, what are you expecting that number to average out to in the Americas specifically?
David C. Sylvester -- Senior vice president and Chief Financial Officer
Similar. They weren't significantly different by region.
Bill Dezellem -- Tieton Capital Management -- Analyst
OK. Thank you both.
Operator
Thank you. Our next question comes from Greg Burns with Sidoti. Your line is open.
Greg Burns -- Sidoti -- Analyst
Good morning. I wanted to maybe get some help quantifying the wallet share opportunity with your dealers. Can you just let us know what percent of projects in the market is ancillary and currently what percent of your dealers spend do you have in that segment of the market? And maybe, where do you think that could go over the next two years to three years? Thanks.
James P. Keane -- President and Chief Executive Officer, Director
So maybe overall, I'll repeat something we've shared before, speaking about the Americas share. It just -- it gets more complicated as I try to do this globally, but I'll just talk about the Americas. In the Americas, because Steelcase is a line dealer, we would normally expect to see 65% to 70% of the furniture they sell be offered by Steelcase. So Steelcase, Coalesse, Turnstone et cetera. And the other 30% is made up of a variety of manufactures that they will include to offer the -- to be able to fulfill the customers' needs on a project. And those can be a wide variety of smaller manufacturers. So 65% to 70% is what we would say is typical and I -- again I made the denominator the furniture because we have dealers that are in lots of other businesses, services and architectural products and so on that we skew those numbers. But if you use 65% to 70% is sort of normal. I'll start there.
Ancillary, as we've known it historically in the industry, you probably get a debate from different companies, but I would say, if you go back several years, it might have been 10% or 15% of the industry. And today, I would say it would be fair to guess that it's 20% and growing. But if you look out in certain markets, we've got on West Coast, for example, and then you look at more progressive customers on the West Coast, we've seen examples of 50% of the project being ancillary. We've seen in fact examples of nearly 70% of projects being ancillary. I would say that's fairly rare, I was just mentioning that to give you a sense of the range. But what we are seeing is customers shifting up, so what used to be 10% is definitely higher on average for new projects by progressive customers definitely higher and definitely high on the West Coast.
So as that trend goes across the country, we would expect to see that 20% national number continue to rise. And now in terms of our share of that, we used to have, I'd say, a fairly significant share. I'd say probably not the full 70% -- if it was 10% of the dealer sales, we might not have gotten 70% of that. But we got a lot of it because we had Coalesse and Turnstone and Steelcase all had offerings and we competed in that segment. But as it grew, it grew into furniture typologies and price points that we really didn't cover. And so it's likely that as it grew from 10% to 20%, that we saw our share of our dealers wallet fall, not because the dealers wanted it to by the way. So the dealers are coming to us saying,"hey, you got to help us. How are you going to help us meet the full needs of our customers?" Which is a fair question. And that's why we've invested in these partnerships and our own product development. So hopefully that answered your question.
Greg Burns -- Sidoti -- Analyst
Yes, thanks. And then it sounds like the West Elm partnership is obviously ramping up, but you have some others. Could you anyway quantify success you're having with those partnerships, maybe whether it be maybe year-over-year growth or actual percent of revenue that's coming from those partnerships or anything, any kind of color you can give on the success you're having there? Thanks.
James P. Keane -- President and Chief Executive Officer, Director
Yes. In fiscal 19, the objective really was to make sure our customers understood the full scope of our offering. These partnerships were being introduced one after the other. So for our sales force and our dealers, it was quite a challenge. They had to kind of keep up with all the new products we're offering. At NeoCon last year, we had an entire showroom dedicated to showing what we could do, as we built a world cafe on our products that we offer as part of the showcase side and to the partnerships. That was really the first time we were able to tell that story. As you might remember, it won an award at NeoCon for that showroom, but it was brand new, that was a brand new effort.
Over the course of the year, we've continued now to do the IT work necessary to add those products to our order tools. We developed selection and ordering tools that are actually separate from our traditional tools to help dealers just make sense of all that. How do you find just the right products for your customer? We are also connecting the supply chain, so that the partner supply chains and our supply chains are increasingly one, so that when a dealer places an order, they have confidence that these products will show up on a consolidated shipment. So I think fiscal year '19 was largely about building those foundations. We did have revenue. We were not unhappy with the revenue we had. But really, it was a foundational year. Fiscal year 2020 is when we expect for all that work to begin to turn into revenue at more material levels. We haven't quantified that, but we think it will be more significant in fiscal year 2020.
Greg Burns -- Sidoti -- Analyst
Okay. Great. Thank you.
Operator
Thank you. Our next question is a follow-up from Budd Bugatch with Raymond James. Your line is open.
Budd Bugatch -- Raymond James -- Analyst
Yeah, I guess I just wanted to go back and want to look -- just checked your -- when we did the Analyst Day, I think you gave kind of a walk to the 2020's, is my impression correct that the major difference is kind of the interest expense from where we were at that point in time? Or maybe you can look at the walk to 2020 kind of imply with the Analyst Day?
David C. Sylvester -- Senior vice president and Chief Financial Officer
Yeah, we obviously didn't -- hadn't gone to the market and had made a decision to go to the market at the time of our Analyst Day. So one of the biggest variances was the lack of of interest expense, which I think if you do the math on our effective rate on the 250 versus the effective rate on the 450, you'll find about $10 million or more of higher interest expense, which turns out to be about a little more than $0.05 or $0.055 for earnings. That's the biggest driver. I would also say too that we finished the year stronger than we were expecting, and that's also a little bit of a variance to what we were imagining back then, $1.20 of adjusted earnings for the full year is pretty strong.
Budd Bugatch -- Raymond James -- Analyst
Ok. All right. Thanks, David. Thank you, that's helpful.
Operator
Thank you. (Operator Instructions) I'm currently showing no further questions at this time. I'd like to turn the call back over to Jim Keane for closing remarks.
James P. Keane -- President and Chief Executive Officer, Director
Thank you. I'd just like to also thank the investors, those of you who are on the call and those of you who work with investors for believing our strategy, it's a -- you know, I think this last quarter and this last year is evidence, as Dave said, that the strategy is working. And we appreciate your confidence in us and we look forward to a very strong fiscal 2020. Thank you for your interest in Steelcase and for joining us today.
Operator
Ladies and gentlemen, this concludes today's conference. Thanks for your participation. Have a wonderful day.
Duration: 43 minutes
Call participants:
Mike O'Meara -- Director, Investor Relations, Financial Planning & Analysis
James P. Keane -- President and Chief Executive Officer, Director
David C. Sylvester -- Senior vice president and Chief Financial Officer
Budd Bugatch -- Raymond James -- Analyst
Steven Ramsey -- Thompson Research Group -- Analyst
Bill Dezellem -- Tieton Capital Management -- Analyst
Greg Burns -- Sidoti -- Analyst
Transcript powered by AlphaStreet
This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.
