(News release from Leggett & Platt)
Diversified manufacturer Leggett & Platt reported second quarter earnings per diluted share of $.37, which includes a $.02 per share benefit from an unusual tax item. In the second quarter of 2010, earnings from Continuing Operations were $.34 per share. Excluding the tax item, per share earnings improved $.01 versus the prior year on essentially flat unit volume.
Second quarter 2011 sales were $945 million, an 8% (or $71 million) increase versus the prior year. This sales growth is attributable to items that brought little incremental profit: inflation (from price increases implemented to recover higher costs) and currency exchange rates accounted for 6% growth, and trade sales at the company’s steel mill provided 2% growth. Across the remainder of the company as a whole, unit volume was flat. Volumes declined in several key residential markets as a result of weak consumer demand, but continued to grow in automotive and office components.
President and CEO David S. Haffner commented, “Operationally, it was a reasonably good quarter. Gross profit improved by $2 million versus second quarter last year, despite lack of demand growth. EBIT, however, was lower than in 2010 due to unusually high SG&A costs, which included items that will not recur. We continue to strive for annual SG&A costs at or below 10% of sales.
“When demand improves, given our spare production capacity, our sales can rebound to nearly $4.5 billion without the need for significant investment in plant expansion. As a result, we have meaningful operating leverage that should benefit future earnings.
“During the second quarter, as planned, we continued to repurchase our stock and allow net debt to increase slightly. Year-to-date, we have bought back 5% of our outstanding shares of stock while maintaining our strong financial base. We ended the quarter with net debt to net capital below our long-term target range, and over $400 million available under our existing commercial paper program and revolver facility.
“We continue to assess our overall performance by comparing our Total Shareholder Return (TSR1) to that of peer companies on a rolling three-year basis. For the three-year period that began January 1, 2009, we have so far (over the last 31 months) generated TSR of 23% per year on average, while the S&P 500 index generated average TSR of 18% per year. Accordingly, our 2009-2011 TSR ranks among the top half of the companies in the S&P 500 index.”
1 TSR = (Change in Stock Price + Dividends Received) / Beginning Stock Price; assumes dividends are reinvested
Dividends and Stock Repurchases
Leggett & Platt’s Board of Directors declared a $.27 second quarter dividend, one cent higher than last year’s second quarter dividend. Thus, 2011 marks the 40th consecutive annual dividend increase for the company, with a compound annual growth rate of 14%. At yesterday’s closing share price of $22.60, the indicated annual dividend of $1.08 per share generates a dividend yield of 4.8%.
During the second quarter, the company repurchased 2.0 million shares of its stock at an average price of $25.86 per share, and issued 0.9 million shares through employee benefit and stock purchase plans. So far this year, the company has purchased 7.4 million shares of its stock and issued 2.7 million shares; as a result, the number of shares outstanding has decreased to 141.5 million.
For the full year, the company anticipates repurchasing up to a total of 10 million shares of its stock while issuing approximately 4 million shares (primarily in employee benefit plans). 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.
Leggett & Platt anticipates 2011 sales of approximately $3.5-3.7 billion, an increase of 4% to 10% versus 2010, including expected inflation of approximately 4%. Based upon that sales expectation, the company projects 2011 EPS of $1.25 - 1.40, a reduction from last quarter’s guidance of $1.25 - 1.50 due to lower market growth expectations. The company continues to anticipate an EBIT contribution margin of 25-35% on unit volume growth, all else (e.g. product mix, sales prices) being equal; however, inflation- and currency-related growth will likely generate little or no additional profit.
For each of the last 20 years the company has generated operating cash in excess of the amount needed to fund dividends and capital expenditures. That should again be true this year, as cash from operations is expected to exceed $300 million for 2011. Capital expenditures should be approximately $85 million this year, and dividend payments should approximate $155 million.
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. Steel cost increases contributed to a LIFO expense of $15 million for the full year 2010 (for Continuing Operations). For 2011, the company expects LIFO expense of $18 million.
SEGMENT RESULTS – Second Quarter 2011 (versus 2Q 2010)
Residential Furnishings – Total sales increased $10 million, or 2%; unit volume declined 4%, but was more than offset by inflation. EBIT (earnings before interest and income taxes) decreased $4 million due to lower unit volume.
Commercial Fixturing & Components – Total sales decreased $3 million, or 2%; unit volume declined 4%. EBIT decreased $1 million as a result of lower sales.
Industrial Materials – Total sales increased $34 million, or 18%; unit volume grew 6% and inflation added 12% to sales. EBIT declined $3 million, with the impact of higher trade sales at the steel mill more than offset by lower unit volumes of wire and tubing, and increased raw material and transportation costs.
Specialized Products – Total sales increased $31 million, or 20%, from unit volume growth in all three sectors of the segment. EBIT increased $3 million due to higher volumes, and was partially offset by higher raw material costs and currency impacts.