Brian Walker - CEO Greg Bylsma - CFO Jeff Stutz - CAO.

Josh Borstein - Longbow Research Todd Schwartzman - Sidoti & Company Budd Bugatch - Raymond James & Associates, Inc..

Good morning, everyone, and welcome to this Herman Miller Incorporated Second Quarter Fiscal Year 2015 Earnings Results Conference Call. This call is being recorded.

This presentation will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.

These risks and uncertainties include those risk factors discussed in the Company's reports on Form 10-K and 10-Q and other reports filed with the Securities and Exchange Commission. Today's presentation will be hosted by Mr. Jeff Stutz, Chief Accounting Officer. Mr.

Walker will then open the call with brief remark followed by a more detailed presentation of the financials by Mr. Bylsma. We will then open the call to your questions. We will limit today's call to 60 minutes and ask that callers limit their questions to allow time for all to participate.

At this time, I would like to begin the presentation by turning the call over to Mr. Walker. Please go ahead, sir..

Good morning, everyone. We are glad to have you with us today. I’ll open the call with a brief summary of the quarter including some added details on the overall performance and trends we’re seeing in each of our segments.

I’ll also offer a bit more color on our decision to provide additional guidance for the full fiscal year then I’ll turn the call over to Greg and Jeff for more of specific financial details. On a consolidated basis, we posted solid results in the quarter delivering sales and earnings growth in line with our earlier guidance.

This is our 12th consecutive quarter of organic growth and orders and we posted one of the highest levels of EBITDA in quite some time. However, as we noted in the press release, order growth in the quarter was less than we anticipated.

The order growth rate was in part impacted by difficult comparison to a prior year that included in above trend amount of large project orders in our North American segment.

At the macro level, we continue to believe the overall economic environment is positive for the segments in which we compete and we believe our strategic investments and a growing global presence, our consumer offer and channel and expanded offer in specialty contract businesses are enabling us to compete and capture a broader part of this continued economic recovery.

We also continued to believe -- enables us to better serve our customers and differentiates us from our competitors. In recent years, we’ve invested in growing our global presence. In this quarter, our ELA segment posted impressive growth in orders, sales and EBITDA. Order growth was particularly strong in EMEA and Asia.

Latin America was a soft sport as many of these economies are impacted by the significant change in oil and political uncertainty. We were pleased with the results of our ELA segment in the phase of a complex and volatile geopolitical environment in many corners of the globe.

We also make good progress advancing a number of important strategic initiatives including facilities project and then approving our operational efficiency and expanding our global reach. This past quarter we broke ground on a new consolidated UK manufacturing and distribution site expected to be operational by Q3 of next fiscal year.

We are also nearing completion of construction of a new lease facility in India with a ramp of manufacturing to be completed and fully operational by next June. In brief, the ELA segment is making an important contribution to our current performance and we believe it will continue to be a source of new growth and profitability in the future.

Our consumer segment performed well and we’re marking solid progress with a combination of Herman Miller and Design Within Reach.

To be frank there is a lot of noise in the results with purchase accounting and it’s difficult to see through the revenue and order results given our past relationship, and on an organic basis, our consumer segment sales growth approximately 14%; our perhaps more importantly on a pro forma basis the combined Herman Miller consumer and DWR businesses had revenue growth of 12% compared to the same period of last year.

The growth was driven by the effectiveness of the new large format studio increasing square footage and growth in Herman Miller e-commerce channel. This past quarter we opened a new large format studio in the Boston area while closing two smaller studios in that same market.

In total, the average square footage for all DWR studios has increased from 215,000 square feet a year ago to just under 250,000 square feet today. Over that same time, the number of studios is actually is decreased from 41 to 37. The business remains in the early innings of the studio transformation strategy.

It’s important to keep in mind that as we pursue this strategy the business will incur incremental transition cost such as duplicate rent and moving expenses associated with opening of these new studios. The impact of this cost was only $200,000 this quarter, but in the future it would become significant as we ramp up new studio opening.

Of the 37 studio we have today 10 have been converted to the new format.

You must have also know this quarter’s results were damped in by $5 million of acquisition related charges, we believe these charges are now behind us meanwhile our integration plans are moving forward and showing good progress against an identified list of key priorities with some cost and operational synergies already realized and further opportunity still in front of us.

Always we outlined for you in August where the profitability segment is good today the long-term goal of mid-teen EBITDA margin will be realized as we get in increasing number of the new studios converted to the new model and we increased the mix of proprietary products. Our specialty segment had mid-single digit growth and improved profitability.

The profitability of this segment continue to be muted by integration expenses associated with the Maharam acquisition that will largely be completed at the end of this fiscal year. And capacity investment in both sales and manufacturing we built and launched a Herman Miller collection in Geiger seeding businesses.

We believe this segment represents a creative component of our overall value proposition and is making good progress towards our long-term goals. Within the specialty segment there are number of points were highlighted.

Our Geiger subsidiary turned in another solid quarter, capitalizing in a wave of market momentum selling their strong brand and product showing this past unit in NeoCon trade show. The Geiger team is also seeing benefit from a continuing focus on operational improvements and efficiencies.

They are driving real improvements in both reliability and margins. Our collection business against posted double-digit sales and continues to prove to be an effective complement to our contract offer.

Looking ahead the collection team has a range of new products coming to market over the balance of the year, giving us an expanded portfolio, expanded product offer a new opportunity in some key categories going forward. Our North American segment showed mixed results for the quarter.

Overall sales growth was healthy and this team delivered a significant improvement in profitability. On an organic basis segment sales were up almost 8% compared to last year and adjusted operating earnings increased to 170 basis points to 10.2%.

With that said the pace of new orders throughout the quarter failed to meet our expectation ending the period down 3% organically versus last year. To be sure, order patterns in our industry are inherently lumpy given the impact large products can have quarter-to-quarter.

This is certainly true for us this quarter as orders last year included two very large accounts did not see the same level of activity this year. While the impacts of these large orders amplify the order softness we experienced in the quarter. We are also looking at actions we can take to improve our performance.

First, I believe the rollout of both our leading office solutions parameter and our new inside lead sales training has impacted the time our sales team and dealer network have spent in front of customers. We remained firm that the business will benefit longer-term but that work has taken a toll on our near-term performance.

In answer we are right sizing and prioritizing our sales transformation work to ensure our sales people have more effective selling capacity. Second and on a related point, we have also had a selling capacity issue from a number of open sale positions in the field.

We are addressing this quickly with the reorganization of our sales recruitment in an on boarding process to get our talented North American sales force back to full capacity. Third we have been slower to market with some of our newest products.

Now to be frank I bare some of the responsibility for that myself because I have demanded we maintain discipline in meeting our cost targets. It’s also true that we have had a very aggressive development queue in multiple product categories and the growing our North American contract business. This effort has stretched our people in resources.

Most of these new products will be fully available as we access the third quarter. Regardless not getting products to market in a timely and effective manner is unacceptable and we spot we established in new R&D trade enable faster cycle time in reaction to identify market needs.

In short, we are taking a variety of actions to ensure we can win today while continuing to implement our long-term strategic vision. Looking forward you will know we have diverted from our normal practice of only providing guidance one quarter out.

To be frank our visibility beyond one quarter is less than perfect, however with our expanded consumer business our quarterly revenue will be more heavily impacted by promotional events and the seasonality of the consumer business.

Specifically the third quarter will include fewer promotional events than this past quarter and will be impacted by the holiday season which is historically been a light period for design within reach.

Our fiscal fourth quarter will include three significant promotional events and the normal seasonality of this spring selling season; this will be complimented with a normal seasonal turn in the contract business. We felt this was appropriate and hope the additional guidance who is helpful as you modeled in evaluate our performance.

With that I will turn the call over to Greg and Jeff for more on the financials. .

Thanks Brian. Consolidated sales in the second quarter of $565 million were 20% higher than the same quarter last year. Orders in the period of $572 million were 14% above the prior year level. The acquisition of DWR in July added approximately $61 million of sales and $64 million of orders to our consolidated results in the second quarter.

On an organic basis excluding the impact of DWR, dealer divestitures and foreign currency translation, sales increased 9% and orders increased 2.5% from the second quarter of last year. Our North American segment demonstrated mixed performance between sales order growth.

Net sales of $313 million were up 6% from Q2 of last year on reported basis, an increase 8% organically. In contrast, segment orders up $319 million decreased 3% on organic basis. Our results from the second quarter of last year included two specific projects that together accounted for $31 million of orders in the period.

By comparison order activity on these two accounts was substantially lower in the quarter. Adjusting for these items organic growth would have been 2.6% higher than the prior year quarter. Our ELA segment reported sales of $114 million for the quarter.

This represents an 11% increase from Q2 of last year with the larger contributor of this growth coming from the EMEA region. New orders in the quarter of $112 million were up 8% from last year, adjusted for the impact of changes in foreign currency translation segment sales increased 14% while orders were up nearly 11% from the prior year.

New sales in the second quarter within our specialty segment totaled $55 million. This represents a 4% increase over sales in the same quarter last year. Orders in the quarter of $53 million increased 3% from a year ago period.

Our Consumer segment reported net sales of $80 million in the second quarter, an increase of $63 million from the same quarter last year. The majority of this year-over-year increase relate to the addition of DWR. The reaming growth this quarter was driven by organic demand increases from our wholesale and e-commerce customers.

New orders in this segment totaled $87 million in the second quarter an increase of 74 million from the prior year level. On organic basis, segment sales increased 14% while orders increased 79% from the prior year.

This significant percentage increase in orders resulted in part from a year-on-year shift in the timing of the retail stocking orders and advance of holiday season. We estimate the translation impact from changes in currency exchange rates.

We do start consolidated net sales and orders in the quarter by approximately $5 million relative to the second quarter of last year. This resulted from the general strengthening of the U.S. dollar against other major currencies compared to a year ago. I’ll now review expenses and earnings for the quarter.

Our consolidated gross margin in the second quarter totaled 36.4% compared to 25.3% in the same quarter of last. Acquisition related inventory adjustments associated with DWR reduced gross margin by $5 million in the quarter.

Excluding these items, our adjusted gross margin percentage was 37.2%, a 120 basis point improvement over the last year’s adjusted gross margin of 36%.

This year-over-year improvement is primarily attributed to continue favorable product and channel mix including the addition of DWR which more than offset and estimated 30 basis points of unfavorable currency impact from the strengthening of the U.S. dollar this quarter.

Operating expenses in the second quarter were $159 million compared to $240 million last year. Excluding legacy pension charges of $111 million, adjusted operating expenses totaled $129 million in the prior year period.

Adjusting for these items, operating expenses increased $30 million, the majority of which relates to the addition of DWR and variability driven by net sales growth.

On a GAAP basis, we reported operating earnings of $47 million in the second quarter, excluding acquisition related expenses recognizing the current period adjusted operating earnings this quarter were $52 million or 9.1% of sales. In the second quarter of last year, adjusted operating earnings were $40 million or 8.5% of sales.

Our effective income tax rate in the second quarter was 33.8% compared to 37.6% in Q2 of last year. Finally net earnings in the second quarter were $28 million or $0.46 per share on diluted basis. By comparison we reported a net loss of $81 million or a $1.37 per on a diluted basis in the second quarter of 2014.

Excluded acquisition related expenses recognizing the current period adjusted diluted earnings per share in the second quarter were $0.51. This compares to adjusted earnings of $0.42 per share in the second quarter of fiscal 2014. And with that, I’ll turn the call over to Jeff to give us an update on our cash flow and our balance sheet..

Thanks Greg. Good morning everyone. We ended the quarter with total cash and cash equivalents of 65 million and amount down approximately $2 million from where ended last quarter.

Cash flow from operations in the quarter totaled $39 million and changes in working capital resulted in a net cash use of 3 million driven by increases in account receivable offset by changes in trade payables and accrued liabilities.

Capital expenditures in the quarter were $18 million and we continue to anticipate full year capital spending between 65 million and 70 million. Cash dividends paid in the second quarter were $8 million compared to $7 million in Q2 of last fiscal year.

We remain in compliance with all of our debt covenants and as of quarter end, our gross debt-to-EBITDA ratio was approximately 1.5 to 1. As a reminder, we borrowed on our bank credit facility in Q1 in connection with the DWR acquisition.

During the second quarter, we repaid $23 billion which reduced the amount owed to $77 million at the end of quarter. The available capacity on our facility stands at a $162 million net of outstanding letters of credit.

We are confident we can meet the financing needs of the business as move forward given our current cash position expected cash flow from ongoing operations and the available borrowing capacity. And with that brief update I will turn the call back over to Greg to give us guidance on the third quarter and full year. .

Thanks Jeff. We expect sales to range between $510 million and $530 million in the third quarter. This guidance implies total revenue growth between 12% and 16% over Q3 of last fiscal year.

On an organic basis excluding the expected contribution from DWR and the impact of dealer divestitures the midpoint of this range suggests growth of 4% over the last year. Gross margin is expected to range between 36% and 37% for the third quarter.

This gross margin assumes a relative slowdown in factory production that we normally experienced on the holiday period in the month of January. Operating expenses in the third quarter are expected to range between $152 million and $156 million. And earnings per share in the quarter are expected to be between $0.33 and $0.37.

This guidance assumes an effective tax rate between 33% and 35%. This tax rate guidance does not include any potential benefits related to R&D tax credit legislation currently pending in Washington nor does it reflects certain tax planning ideas we are contemplating for later this year.

As Brian mentioned this quarter we are providing additional guidance on our outlook for the full year given the added complexity of DWR seasonality and the relatively choppy demand pattern we experienced in North America over the past quarter. For the full fiscal year of 2015, we expect sales to range between $2.145 billion and $2.185 billion.

This guidance implies total revenue growth between 14% and 16% over fiscal 2014. On an organic basis excluding the expected contribution from DWR and the impact of dealer divestitures the midpoint of this range suggests growth of 5% over last year.

Adjusted earnings per share are expected to be between $80 and $88 per share on the full year, which would reflect growth of approximately 10% over fiscal 2014 at the midpoint of this range. With I will now turn call back over to the operator so we can take your questions. .

[Operator Instructions] And our first question comes from Josh Borstein from Longbow Research. Your line is now open. Please go ahead. .

Just the decline in orders in North America -- how much would you say is Herman Miller specific and how much is due to a falloff in industry fundamentals, if any?.

Josh its Brian. I think it’s sort of -- I don’t know if I can answer the question from a total industry perspective. We don’t obviously have numbers for the industry for November. If you takeout or exclude the drop that we saw in the large account activity. We have got a base level of around 2.5% to 3%.

We have also seen some variation as the particular segments like our higher education business that primarily shows up for our sustained local business that was a little bit choppy as well.

If you look at sort of the base order flow besides those things and I am always finds that dangerous because it sounds an excuse when you start taking stuff how to explain why it probably better than it looks. Our pattern was closer to what we saw in the industry for those first couple of months that we have data on.

So I would actually say the industry data still looks pretty solid from what we can see. It has been as I think some people have noted in their own information. I mean through the industry has been bouncy and there hasn’t been as many large projects out there. So in our case you got to try to replace those large projects with lot more smaller ones.

And to be frank, we don’t see -- when I want to give you excuses. We want to tell you we are doing things about it and just trying to say what we see. .

Okay, thanks. And the guidance that you've given for the full year suggests that relative to consensus expectations, most of the shortfall is going to be confined here to 3Q.

What gives you the confidence the issues you experienced can be resolved within a quarter?.

Well first of all I think if will look the forecast that we have given to you guys. As you look out in the fourth quarter the level of activity we didn’t change that dramatically from what we actually saw this quarter other than normal seasonality.

And the big driver of the change it looks like it’s greater as actually happening in the consumer side where we have a pretty big step up based on the fact that we have the semi-annual sale the Herman Miller sale and some other brand sales that we do in that period as well. So that’s a big chunk of it.

And then really in the core North American business where we obviously saw the softness, we haven’t assumed that massive turnaround, because that will take some time to work its way through. I think the product side as I said most of those not even follow the products that we are talking about will be out of the end of the third quarter.

And it takes time for customers to ramp into those. The sales side I think will have all the people in place they need some time to get up to their full capacity as well. But it’s not really based on the fact that we see a major snapback if you will in the core business.

We look at order rates and say what we think is a reasonable number given normal seasonality. .

Okay.

And can you talk about the order trends you saw interquarter? And while I realize it's early, is there any indication that order patterns here in 3Q have picked up at all?.

So we just don’t have any real data yet. We have only got a couple of weeks a data to be honest with you.

And I wouldn’t say we’ve seen anything different in that data than we saw coming into it, so there is nothing in there but it’s -- you really got because of the way project fall in, you got to watch longer trend line to see what’s happening so I wouldn’t tell you we’ve got any data that tell us one direction of the other..

Okay, and just last from me -- BIFMA took down their 2014 shipment forecast to 4%.

Do you find that a reasonable number based on what you are seeing right now entering 2015?.

Yes, in fact I think if you remember I think last quarter they were at when we talked -- I think they were up around 6 and I think we were saying at that time that we thought that was a little toppish even though we thought the direction was right and for getting that thing closer to what make sense and I actually think if you look at the more recent data from the industry looking through the lumpiness, I think people are -- that seems like it’s pretty consistent with what you’re seeing in the actual data..

The recent BIFMA data, if you average out the last few months, suggests something greater than 4%, doesn't it?.

Yes, I think at least now you can sort of tie the two together. Right? Again I think you got the same problem with everybody is that BIFMA data is bounced all over from negative to big positive and so where do you draw the line in that statically is probably the question..

Thank you and our next question comes from Todd Schwartzman from Sidoti & Company. Your line is now open. Please go ahead..

Could you talk a little bit about the GSA business and also maybe state and local and what improvements or not you saw during the quarter?.

GSA in total like which I think we signaled as much as two quarters ago has been relatively consistent as way I would describe it. It’s actually growing a little bit year-over-year.

It’s a little different depending on whether you look at the office side or healthcare, healthcare is still been under bit of pressure in our side where the office side has been a little bit more robust that’s GSA.

State and local which is then pretty consistent over the last few years that was a little softer this period for us and when we look underneath it was primarily higher education.

So I don’t know but that’s related to state and local governments, but when the lot of colleges and universities buy off of state and local contractors now that business tends to be for us because it’s a relatively small segment the higher end pieces.

It tends to bounce around a little bit depending on whether do you want to projects with a particular university of not..

On the healthcare side, are there any signs that folks are looking, maybe sitting on their hands looking towards the 2016 presidential election? Or is it really too early to make that assessment?.

I don’t know that we see that I would tell you the healthcare business all of the forward looking data around construction and activity by the architects seem to point it should get better. I would tell you frankly we haven’t seen as much of that and there continues to be I think a rotation towards the clinics and the ambulatory care facilities.

There are some fairly large projects out there on the horizon, but I wouldn’t tell you that we got anything that would at least lead me to believe from my own work on around the Presidential Election..

Got it.

And on the sales recruiting effort, where are you with that? When do you expect to have at least hired the right number of people?.

This is always one that if we have an area of business and I think everybody does. Your sales force has generally more churn so it’s an ongoing thing. I would tell you to get us back up that where we feel comfortable. We are probably about half of way through getting the folks back that we need.

My guess is by the end of time we get out of the end of the quarter we should -- we should be pretty close then they take a little bit of ramp up time to get through their training and education, get their book of business.

I mean this is not usual for a person to take six months to a year before you’re getting full productivity out of them but we’re all over it we’re looking at it every week market by market and that’s really where we -- what got us there as we started not looking it the total but we started digging into MSA by MSA where we see in pattern than didn’t feel like they were where we would have expected and started to look for gaps in market potential versus the number of folks we had and let us to say, hey we got them spot in some additional resources to be able to handle what’s out there..

And in terms of the sales process, is there anything inherently different about the Living Office products, where those are -- maybe the sales force should best successfully position those products or the approach, the pitch to the customer vis-a-vis the other non-Living Office products?.

Yes, I wouldn’t say initially the living office product-wise if you know we’ve talked in many ways if the living office is really about talking to a customer about the total environment not specific product so really the successful that you need to be earlier in the buying process before the customers made up their mind and they’re just looking for a product.

Now to be frank and honestly say that our folks we’re doing both, right, so those products that we developed you can -- they are obviously fine products to sell just as a product a Mirra 2 chair I can just sale as a chair that’s why you want to buy the chair. So to me leaving office is two things for us.

It’s A, a way to talk the customers to help them through the choice making process. We believe we are more successful as that, it will enable us to sale them a broader range of products that goes across the whole foreplay. But it’s also the way that we are using to target what our future product development agenda is.

So by understanding the need across the whole foreplay enables us to identify unmet needs that we can solve through R&D. So I see that’s kind of duality if you will.

When we are most successful with a customer in a living office discussion is when we get them either before they decide that they will need to do something or early on to the buying process when they are trying to figure out what it is we are going to create rather than trying to decide what it is we are going to buy.

Does that make sense?.

Yeah, that’s a more holistic approach if you will. .

Correct. And that’s where some of the training and education is been, that it took some time to get folks out if they how do you identify those customers, how do you identify who is right for it, how do you get earlier in the buying process.

It just takes some education for folks to do and coupled with that we had a lot of new products that they also needed to be educated on as those were coming out in the marketplace. .

And if you are successful in accomplishing your goals, that it will be borne out, I would think, in order size on average?.

I think it’s one of those things, I don’t think any of the work we have done is wrong headed to be frank in the long run. On the other hand just like when you make any change you add capacity or something you have a period of time where your signal strength isn’t as good as it could have been.

I would say I think our learning in this one is we have to make sure we pace how we do that with both our dealers and ourselves and we could be better timing when the new products are actually available with some of the that training and education so that we are getting full value for what we are doing.

So we didn’t get it all right, that’s my problem. I didn’t get it right, we are working on it. .

Switching to ELA for just a moment, is there anything going on there demand-wise in Q2, large project-wise, concentrated among a small number of customers such that a year from now, we will hear about how the bar was set pretty high in ELA?.

To be frank, I don’t know if any specific large project in ELA. Now it’s little different, it gets hard, because large projects to the ELA business versus a large project to Herman Miller versus a large project to DWR are like, the scales are all over the map, right? So I am sure that the team in ELA would say we had some large projects.

The stuff we were talking that we have been talking about in North America though is generally we lot more talking about projects that are greater than $5 million in each individual order, that’s a pretty big number. I don’t know of any that large specifically in the ELA business during this period.

If you look at the ELA number particularly on the order side, it was fairly broad based across Europe and Asia where the orders were coming from. There are some markets that had more I will call it concentrated where the growth was a little bigger. But nothing in particular that I will point you from a project perspective. .

And in terms of multinationals, how are they factoring in the strength?.

Obviously Southern multinationals is a big part of it but it’s just as much trying to do both U.S. multinationals as well as multinationals or regional players from those local markets. I mean in this quarter we had particularly strong activity in places like the Middle East and parts of Europe as well as Australia.

So it’s pretty vary, it’s varied not only by country but by city. .

And lastly, what’s your outlook for commodities?.

As of right now we see -- we will see some benefit from commodities overtime, specifically if we continue to see oil down where it is, we are seeing some recent drops, I believe, Greg on steel. We have seen much of the benefit of that yet. We should start to see some of it.

The oil one is probably the one that’s the biggest wildcard, if it’s going to affect us it will affect probably in two areas, plastics and in transportation little bit in freight. So those are the two areas will probably -- if we get a benefit it will in those two. .

Thank you. [Operator Instructions]. And our next question comes from Budd Bugatch from Raymond James. Your line is now open. Please go ahead. .

What is different now, between now and August? What has changed between now and August, when we had, I think, the $2.2 billion of estimate for this year? Is it just the American order weakness? Or is there other things that have changed that have caused you to take the revenue guidance down a touch?.

No, it’s almost entirely in the North American side. And I think that a combo of both the office and healthcare side that bulk a little bit below where we thought a little bit. The majority of it would be on the office side. And a lot of it, obviously in the next quarter when you look underneath it. .

Okay and what has surprised you and what have you found different than your expectation in the DWR acquisition?.

Positively I would tell you I am even more impressed today and more confident in the leaders. The connectivity of John Edelman and John McPhee to the broader Herman Miller organization has been outstanding.

The inner workings of the two groups have been great and I think those guys have had some greater observations not only on the DWR side but looking at how we serve our other wholesale customers as well as on our direct business. Those guys have been very thoughtful at that.

I think but maybe longer term some of the side benefits that I don’t know that I would have predicted coming in that we still really don’t our arms completely around our their data use knowledge of data of their customers and what’s really happening day by day and you probably know because you live in that consumer world, it’s actually to see the level of detail and sophistication, I don’t think we generally been at.

I think longer term while it’s not exact the same. I think we can learn from that. I think that will be good for us.

I think the other thing that certainly has been interesting is that business you got to be talking you almost have to look at it and talk about it by the day and by the hour versus typically because again we’re looking at these big projects, you got a lot of -- you're looking at weekly and monthly maybe annual trends.

That business is much more close in and it has a bigger impact based on what you might call man creation things you do whether that promotional events whether that how you’re dealing with Google AdWords and capturing space on the internet. Those tend to be new things that we’re learning about.

I think the things that have been very consistent where we’re getting growth and where we’re seeing success is largely where we expected. The new large format studios are growing nicely and that’s been at our expectations.

If we’ve had negative surprise we’ve had a little bigger fall off in some of the older studios that ones that are not new format then we might have been -- that we and they might have anticipated. The good news is some of those are starting to peel off and we’ll see more of them next year.

So you’re in this kind of interesting sport of how much do I invest and before the leases end, so you got a little bit of crossover period here to pay attention to. But the total looks like it’s playing pretty close to where we thought..

Did they make their budget or their expectations for this quarter?.

They were very-very close when you looked at the total. That’s one of the things we got to keep talking about as the total because one level what’s happening as we’re selling more Herman Miller through DWR, you saw what I mean.

So we’ve got the two pieces but if you look at the total of the consumer business they were pretty darn and close to revenue number. Margins were just almost exactly what we expected.

So the one thing that does happen in that business as you can imagine is because it’s running 47% gross margin, a million dollars of revenue mix pretty big move near the side. So little light on the top line but I would say as forecasting goes within bidding distance..

And that get me to the gross profit question, how was the gross profit in the U.S.

segment other than that kind of -- how does that have compared year-over-year?.

Pretty non-consistent, we’ve gathered a little bit of improvement..

Yes, sir, talking about North American office solutions or -- yes, kind of the --..

Yes sir. We’re talking about North American office solutions, yes..

Yes I want to say it was top off my head but that was up like a 100 basis points..

Okay..

But just a tag on that, this is Jeff. That despite some pressure from the Canadian dollar, U.S. dollar, we have some margin pressure from translation that we certainly and that’s just within the quarter that we didn’t have effected in our forecast. So we were kind of facing that headwind..

And as most of the translation impact in for Canadian dollar that’s one..

No in total it’s actually fairly close split between the ELA segment in North America..

Okay. All right. Size of average projects -- others have noted that that size has come down. I think you referred to as well. Are you seeing that as well, that the average project size has come down? I know you've had a huge project going on in the Houston area.

What are you seeing for overall incoming orders in terms of average project?.

I think certainly by the way you look at it and that’s obviously one of the things that probably bidding maybe not didn’t pay enough attention to come into the quarter that I would call the supper large category. Now to be frank last year we were higher than normal of those big projects as the truth when you look back on it and it wasn’t just one.

We had a few that popped into that category. So as we look out right now certainly the projects are trending to be more midsize is the way I would describe it than they’re the very-very large.

There are few big whales out there that everybody I am sure is chasing, but certainly and that’s I think one of the things that exacerbated the problem in the quarter. One level is you got mostly, you got more midsize projects and you’re trying to replace to very large ones and those just -- that’s the math that seems to be difficult..

So does that mean that the average project size has come down for you as well?.

I think yes. If you look across the whole thing, that’s true. .

Okay. You have a big project, that Houston project. And obviously energy costs have been one of the biggest issues that -- or biggest things that's caught on in our country over the last six months or so.

Any -- still revenue impact of that for you going on? And what's the outlook for that? Is that just about finished?.

That project still has another -- what six months to run and we have another large project we have been working on in that same industry sector. So we haven’t seen yet but that I can tell you that any negative impact on that sector yet.

Of course you can’t help but watch this location we are seeing right now on oil prices and wonder is that going to happen. So far we have not seen that, that sector is remained out. Partly we are still as you know the things tend to play out -- this one is played out over multiple years. We are still planning all for that.

Will we a drop in that sector next year, year-over-year answer to that is very likely yes, because we won’t be able to replace, I would doubt we would be able to replace that level of volume in that area next year. So we will have to find another area, no doubt about it. .

So the one project that you are delivering, there is not deferral in any of that, that continues to pay.

So is that what I am reading?.

Correct. .

And the project that you are working on, is that project, I do the things have yet been granted, is that my correct or has that been won?.

We have one large project that we have won that we not, I don’t believe it’s already been entered in orders yet. And the timing of that in terms of order entry and shipment, I don’t think we will exactly. We think some of that will be this year maybe a little in the next, but that’s a question mark. .

And that’s we won that might be at risk if we have delays because of the price of energy and et cetera?.

I don’t think so, but because I think they have already got the building is already done and coming out of ground. So I can’t imagine they would back up in outfitting because I think they have some move. But that’s I hate the ever that’s the certainly CEOs wake up and change their mind but we have no indication if anybody changing their mind in that. .

Okay. I apologize for so more questions, but the sales capacity and product introduction issue, new product issues that you referred to both in your release and in the commentary. Can you put a little more flesh on that, what kind of -- how many markets where there sales capacity gaps in? And what kind of new products. .

You know but we launched two major new systems platforms in the last bid year. To be frank both of those were originally scheduled to be ready for orders shortly after NeoCon, it took us longer to get them out. So we are really just in the ramp up phase. In fact one of them will be finishing some of it in the third quarter.

There also was a third systems product that we haven’t really talked about as much which was really offer some of the work we did in one of those large customer projects that we are now commercializing.

I wouldn’t say we are necessarily late on that one, although it’s certainly is been one of the areas that has been as we talked about leaving office we always sales that is part of it. And as we talk to customers about it, we talk about it but hasn’t been available.

In retrospect we need that one sooner to be frank, and I think that’s hurt us a little bit when we are in the proposal stage if you follow what I mean.

On the headcount side, we winning it looked at it market-by-market because that’s where it came up, but as we had this question about why are the order patents different market-by-market and looked at more potential to number of places.

I would tell you was probably five markets or six markets, I don’t remember on the top of my head, I don’t have the data in front of me. But it was a good number of folks and a good number of markets that I think could have some real impact. Now again you can’t really take as you know it is in a science I can’t give you a sales plus products exact.

At one level this is I think only way what you should expect about to saying that can give you the reason that we didn’t have these large projects last year that’s not really interesting, but our job is to figure out how to get the order growth no matter what’s out there and we got to ask ourselves how to attack and as we dough into it I looked at two or three things with the team and currently I have spent a lot of time traveling around to get our minds around where we thought we do better and really came to the conclusion it was two or three things we had to dial in, sales capacity being one of them which we kicked up about six weeks seven weeks, we kicked off a really concentrated efforts on going out and getting those folks back in place.

We have been working on hard and getting the new product to the market. Some of that starting to come to fruition The reason if we just woke up and did this as we read the release of course but there is also the thing you can’t turn on the. .

How many sales people are there and how many switch or total selling force now reports the Kurt?.

Kurt’s total team, I don’t know the number on top of my head but I am going to say it’s in the excess of 200.

But we have way more than that across the company of course because you got sales people up my hair I mean Geiger and the collection and healthcare but Kurt I think is somewhere around 200, probably excluding the small business folks, there is probably 225 with small business I would guess, somewhere in that neighborhood.

And we’re probably talking 10 to 15 folks in total across the business maybe as many as 20 that we ran out. You’re always and in the sale side you’re always a churn factor going on.

I think our churn factor not that we had lost as many as people I don’t think we had been as up on the replacement cycle as we needed to be and we ended up with a lower kind of effective capacity than what I think we need and some of that is as the market picked up and as project sizes are smaller actually hardly you need more people to go after the smaller size because they got more places to be to get those orders..

No, I understand that. And that makes sense. And lastly for me, the strength in ELA -- can you give us some color on whether it's E, L, or A, or how that --. .

This is interesting if you look at on a sales perspective the big growth this quarter was actually primarily in EMEA. It was both in E and in ME. Both were quite good actually.

If you look at on an order basis it was both E and A I guess with the Asian piece being fairly broad based, China probably the softest of the group although not bad fairly stable, but good strength in Australia, descent in Japan, pretty good in Southeast Asia. The area that was soft was actually the L.

Latin American was a little soft in particular and that business perhaps is very bouncy because sometimes it depends on whether we can actually get a project dealt with places like Venezuela. As you know it was not easy to get money in and out of the country, so it takes a little while to get those negotiate and they tend to be sort of episodic.

But Latin America overall has been softer we think partly because of what’s going on in oil partly because of some of the political instability in places like Brazil maybe a little bit in Mexico. So that markets probably of any our international markets have been a little tough it’s been Latin America..

Okay and finally for me in the east side of that is it the continent or UK or how would you characterize that?.

Actually both of them pretty good to be honest. This quarter if you looked at from orders perspective it was actually stronger growth wise on the continent, but we’ve actually had a pretty good run in the UK and so it was fairly consistent, but we’ve had like four quarters in a row that have been pretty consistent in the UK..

Thank you and we have a follow-up question from Josh Borstein from Longbow Research. Your line is now open. Please go ahead.

Just a quick question to follow on the raw material costs that were asked about are there any price increases in the offering for the coming year?.

Yes, Josh, this is Greg. Yes, there is a price increase February 1. I think the overall increases about 2% I believe is the average in across entire footprint..

Thank you. I am not showing any further questions in queue at this time. I would now like to turn the call back to Mr. Brian Walker for any further remarks..

Thank you again for you time this morning. I hope you’ve heard our deep commitment to improving our performance in the near term for balancing our continued commitments to long-term strategic growth. On behalf of all the people at Herman Miller, I want to wish you and your family the wonderful holiday season and healthy prosperous 2015.

Thank you again for joining us and we look forward to talking to you in March..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day..