Friday, July 23, 2010

Leggett & Platt encouraged by sales growth

Carthage-based Leggett & Platt filed the following release with the SEC detailing its second quarter earnings:
Diversified manufacturer Leggett & Platt reported second quarter earnings per diluted share of $.34. In the second quarter of 2009, earnings were $.12 per share (including a $.04 per share non-cash write-down of a note received in the 2008 aluminum segment divestiture). Earnings increased primarily as a result of higher sales.
Sales from Continuing Operations were $874 million, 15% (or $117 million) higher than in the second quarter of 2009. Unit volumes improved approximately 14%.
Progress Continuing
President and CEO David S. Haffner commented, “We are encouraged to see continued sales growth. This quarter’s 15% growth, and the associated higher capacity utilization, led to meaningful earnings improvement. Gross margin was again over 20%, and EBIT margin approached 10%. As a result, we are raising our full year sales and EPS guidance; the new ranges are basically equivalent to the upper half of our prior ranges. Additionally, our cash flow remains strong and debt levels remain low. We acknowledge the recent weakness in both investor and consumer sentiment, but remain guardedly optimistic.
“Near term, growth should significantly exceed our 4-5% long-term goal as the economy recovers. With our excess production capacity, sales can rebound approximately 25%-33% (to $4 billion or more) before we anticipate the need for significant capital investment. We expect an incremental margin of 25-35% as unit volumes increase, at least until sales exceed $4 billion; as a result, EBIT margin should improve notably as sales grow.
“Long term, we believe that modest sales growth, continued margin improvement, our dividend yield, and stock buybacks will enable us to achieve our goal of generating Total Shareholder Return (TSR) that ranks within the top 1/3 of the S&P 500. Since implementing our new strategy two and one-half years ago, we have achieved TSR1 of 36%, which ranks within the top 5% of all S&P 500 companies. TSR for the S&P 500 index was negative 23% over that identical time period.”
Dividend and Stock Repurchases
In May, Leggett & Platt’s Board of Directors declared a $.26 second quarter dividend, one cent higher than last year’s second quarter dividend. Thus, 2010 is on track to mark the 39thconsecutive annual dividend increase for the company, with a compound annual growth rate of approximately 14% during that period. At yesterday’s closing share price of $20.54, the indicated annual dividend of $1.04 per share generates a dividend yield of 5.1%.
1
TSR = (Change in Stock Price + Dividends Received) / Beginning Stock Price; assumes dividends are reinvested; measured from 12-31-07 through 7-21-10.

During the second quarter, the company repurchased 2.3 million shares of its stock at an average price of $23.17 per share, and issued 1.0 million shares. During the first half of 2010, the company repurchased 4.2 million shares and issued 2.0 million shares; as a result, shares outstanding decreased to 146.6 million (which is 16%, or 28 million shares, lower than it was three years ago).
For the full year, the company anticipates repurchasing a total of 5 to 7 million shares of its stock (subject to the amount of cash flow generated from operations, stock price fluctuations, and other potential uses of cash) and issuing approximately 3 million shares (primarily for employee purchases of stock, either directly or through option exercise). As a result, the number of outstanding shares is anticipated to decline by up to 4 million shares (or 3%) during 2010. The company has standing authorization from the Board of Directors to repurchase up to 10 million shares each year, but has established no specific repurchase commitment or timetable.
2010 Outlook Improved
Leggett anticipates full year 2010 sales of approximately $3.2 - 3.4 billion, and EPS of $1.10 - 1.30. At the midpoint of its sales and EPS guidance the company would generate an EBIT margin of about 9.4%. The lower end of the ranges allow for some weakening in the economy.
Cash from operations should exceed $300 million for the full year. Uses of cash include approximately $75 million for capital expenditures and $155 million for dividends.
LIFO
All of Leggett’s segments use the FIFO (first-in, first-out) method for valuing inventories. An adjustment is made at the corporate level to convert about 60% of the inventories to the LIFO (last-in, first-out) method. Since the LIFO benefit is not recorded at the segment level, 2009 segment EBIT margins were unusually low. Earnings for the second quarter 2010 reflect a LIFO expense of $2.2 million, compared to a LIFO benefit of $19.0 million in 2Q 2009.
Furthermore, LIFO created significant variability in 2009 quarterly earnings. Steel deflation negatively impacted segment earnings for the first half of 2009. This impact was offset by a LIFO benefit at the corporate level, but that benefit was spread across all four quarters. As a result, the LIFO benefit in 3Q 2009 was $16.0 million, and in 4Q 2009 was $14.8 million. LIFO-related impacts are not anticipated to be as significant during 2010.
SEGMENT RESULTS – Second Quarter 2010 (versus 2Q 2009)
Residential Furnishings – Total sales increased $37 million, or 9%, as a result of improved market demand; unit volume increased 8%. EBIT (earnings before interest and income taxes) increased $21 million due to improved sales, price discipline, and cost structure improvements.
Commercial Fixturing & Components – Total sales increased $10 million, or 8%, due to new programs with office furniture manufacturers and our strong position with value-oriented retailers. EBIT increased $7 million due to sales growth and cost reductions.
Industrial Materials – Total sales increased $42 million, or 28%; unit volume was 20% higher, and was augmented by higher unit prices (from steel inflation). EBIT increased $3 million, with the impact of higher volume largely offset by lower metal margins (reflecting higher costs for scrap steel).
Specialized Products – Total sales increased $36 million, or 30%, largely due to significantly improved automotive demand. EBIT increased $17 million due to higher volume and cost reductions.
 





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