Leggett & Platt releases second quarter earnings

Carthage-based Fortune 500 company Leggett & Platt released its second quarter earnings statement today. The following news release was filed with the Securities and Exchange Commission:

Diversified manufacturer Leggett & Platt reported second quarter earnings per diluted share of $.27, including $.02 per share from discontinued operations. Per share earnings from continuing operations were $.25, and include $.01 of restructuring-related costs, and a $.02 charge for a non-recurring tax item. In the second quarter of 2007, earnings per share were $.33, including $.03 per share from discontinued operations and other items. The year-over-year reduction in continuing operations’ earnings is primarily due to soft demand in several markets.

Second quarter sales from continuing operations were $1.06 billion, slightly lower than last year’s sales (from continuing operations) of $1.07 billion. Same location sales declined 0.5%, as soft market demand and the company’s decision to exit specific sales volume (with unacceptable profit margins) were largely offset by market share gains and price inflation. Increased sales from acquisitions were offset by sales reductions from divestitures.

Earnings from discontinued operations in the second quarter of 2008 were $.02 per share, and included approximately $.03 per share of non-operating charges. In the second quarter of 2007, earnings per share from discontinued operations were $.02.

CEO Comments

President and CEO David S. Haffner remarked, “Some of our investors have expressed concern about three different issues: weakness in many of the markets we serve, raw material cost inflation, and the likelihood of receiving the divestiture proceeds we anticipate. We have good news to report on all three fronts.

“Our U.S. bedding components business is enjoying market share gains due to several factors. First, bedding manufacturers are importing fewer innersprings, and instead increasing their use of domestically produced innersprings. Second, earlier this year we began producing innersprings for a strong regional bedding manufacturer that previously produced its own components. Finally, foam and air mattresses have lost market share recently as consumers back away from alternative bedding, because of its high cost, and move instead to better value innerspring bedding.

“Global steel costs have escalated dramatically since the start of the year; however, our vertically integrated position (i.e. melt furnace and rod mill) yields a significant competitive advantage in this market. To a very significant degree, we have successfully implemented price increases to recover the higher raw material costs; however, we typically experience a lag with the timing of the recovery. As costs potentially plateau later this

year, and our price increases catch up with the cost increases, we should see enhanced profitability during the second half of the year.

“The divestitures we announced last fall are progressing, and we are committed to selling or liquidating all seven of the operations we have previously identified. As disclosed yesterday, the sale of the Aluminum Products segment closed (for $300 million in cash, a $25 million subordinated note, and shares of preferred stock), and yielded 75% of the total after-tax cash proceeds we originally anticipated (back in November) for all seven targeted business units collectively. We are in discussions with potential buyers for the six remaining (smaller) business units, and anticipate the successful disposition of all six during 2008.

“In contrast to these positive developments, second quarter results for the Commercial segment are disappointing. The Store Fixtures business unit is working diligently to meet our required expectations for improved performance, in spite of extremely difficult market conditions and retailers’ hesitancy to make capital investments in this environment. We are aiming for returns in this business unit of at least cost of capital levels by the fourth quarter of 2008. Third quarter is the seasonally strongest quarter for this unit, and will be critical in our evaluation of progress toward the return target.

“Despite external economic challenges, we feel very comfortable with our strategic direction and the initiatives we unveiled last November. We are absolutely committed to the continued execution of our plan, and believe our actions will reestablish Leggett as a more profitable company. Our goal is to consistently generate total shareholder return of 12-15% per year, on average.”

Dividends and Stock Repurchases

Leggett declared a second quarter dividend of $.25 per share (paid on July 15), representing a 39% increase over last year’s second quarter dividend of $.18 per share. The current dividend yield is approximately 6.3% (based on a $16 stock price). This year marks the company’s 37th consecutive annual dividend increase at an average compound growth rate of over 14%.

During the quarter the company bought 2.7 million shares of its stock at an average price of just under $18 per share. So far, the company has purchased 6.9 million shares under its annual 10 million share repurchase authorization. As a reminder, Leggett’s Board has authorized the purchase of an additional 20 million shares with proceeds from the divestitures.

2008 Outlook: $1.00 to $1.30 EPS

Expected earnings per share (from continuing operations) for the full year 2008 remain unchanged at $1.00-$1.30, even though guidance now incorporates higher restructuring-related costs (of approximately $.10, versus the prior estimate of $.05). Guidance does not include earnings from discontinued operations, possible gains or losses from future divestitures, nor additional stock repurchases the company expects to make with divestiture proceeds.

Per share earnings (from continuing operations) for the first half of 2008 were $.48, and included $.02 of restructuring costs; thus, guidance for the second half of the year is $.52-$.82, and anticipates approximately $.08 of restructuring costs. The company’s forecast for the latter half of the year anticipates: i) continued weak market demand overall, ii) ongoing market share gains in bedding components, iii) earnings improvement as the company’s price increases catch up with escalating steel costs, and iv) production and sale of steel billets as the company utilizes part of the Sterling mill’s excess melt capacity.

Sales (from continuing operations) are projected to be approximately $4.3 billion, or about 2% higher than in 2007. This increase reflects steel-related price inflation, the deliberate elimination of approximately $100 million of unprofitable revenue from the company’s Store Fixtures business, and minimal acquisition revenue.


SEGMENT RESULTS – Second Quarter 2008 (versus 2Q 2007)

Residential Furnishings – Total sales from continuing operations decreased $8 million, or 1%. No acquisitions were completed during the past 12 months. Improved market share and inflation-related price increases largely offset the weak market demand experienced

in many parts of the segment. EBIT (earnings before interest and income taxes) from continuing operations increased $6 million, primarily due to market share gains and operating improvements.

Commercial Fixturing & Components – Total sales from continuing operations decreased $34 million, or 16%, due to reduced spending by retailers and the company’s decision to eliminate revenue with unacceptable profit margins. EBIT from continuing operations declined $6 million, largely due to the sales decrease.

Industrial Materials – Total sales increased $51 million, or 26%, as a result of the pass through of higher steel costs, increased sales of steel billets, and greater demand for wire (by our U.S. bedding operations). EBIT increased $10 million due to higher sales and operating improvements.

Specialized Products – Total sales from continuing operations increased $1 million. Continued sales growth in the European and Asian automotive markets was offset in the quarter by lower volume from North American automotive markets and the fleet portion of Commercial Vehicle Products. EBIT from continuing operations declined $3 million due to higher steel costs and lower sales in certain markets.

Conference Call

Management will discuss these results in a conference call at 8:00 a.m. Central (9:00 a.m. Eastern) on July 18. The webcast can be accessed (live or replay) from the Investor Relations section of Leggett’s website at www.leggett.com. The dial-in number is (303) 262-2053; there is no passcode. Third quarter results will be released after the market closes on Thursday, October 16, 2008, with a conference call the next morning.