Leggett & Platt Inc.
), the manufacturer of diversified engineered products, reported
second-quarter 2014 results, wherein adjusted earnings came in at
48 cents a share surging 9% year over year. Further, it surpassed
the Zacks Consensus Estimate by a penny. Improvement in earnings
was backed by enhanced sales coupled with a lower tax rate and
Leggett & Platt, Incorporated - Earnings
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However, including the recently announced non-cash goodwill
impairment charge of 65 cents (or $108 million pre-tax), the
company reported a loss of 17 cents per share contrary to an
earnings of 48 cents in second-quarter 2013.
Net sales grew 4% to $1,001.6 million from $958.8 million in the
prior-year quarter, above the Zacks Consensus Estimate of $997
million. Rise in sales during the quarter resulted from robust
growth in all businesses, except Store Fixtures and Commercial
Vehicle Products (CVP), both of which reported large decline in
sales. Excluding the loss from these two businesses, Leggett
reported a sales growth of nearly 10%, to which acquisitions
Same location sales rose 3% benefiting from robust volume increase
in most of the company's residential, office furniture and
automotive markets, offset by dismal results at the Commercial
Vehicle Products and Store Fixtures businesses.
Benefiting from the top line growth, gross profit rose 3.1% year
over year to $205.2 million with the gross margin contracting 30
basis points (bps) in the quarter to 20.5%.
sales increased 9.7% to $536.0 million. Same location sales for the
segment were up 9% on the back of a rise in unit volumes in most
product categories. Operating income increased 27% year over year
to $53.7 million owing to increased sales and an encouraging
product mix, partly offset by the absence of a $3 million benefit
from building sale that was recorded in the prior-year quarter.
Commercial Fixturing & Components
plunged 24.3% to $96.4 million mainly because of the absence of
specific key Store Fixture retailer programs that took place in
2013 as well as a sudden decline in overall market demand. Also,
the segment recorded an operating loss of $106.9 million, compared
with an income of $7.9 million in the prior-year quarter, primarily
due to lower sales and the accounting of a $108 million impairment
segment's sales witnessed a 2.5% increase to $222.2 million, due to
unit volume declines in wire and steel tubing, offset by 6%
contribution from acquisitions in the Aerospace business unit. Same
location sales declined 4%. Operating income slumped 35% year over
year to $14.3 million, due to lower metal margins in rod and wire
as well as a decline in same location sales.
segment's sales rose 10.7% year over year to $230.8 million, driven
by robust demand for Leggett's Automotive parts, offset by the
downside in Commercial Vehicle Products (CVP) sales. Operating
income for the segment soared 25% to $35.4 million, backed by
Leggett, which competes with Genuine Parts Company (
), ended the second quarter with cash and equivalents of $304.2
million, long-term debt of $926.0 million and shareholders' equity
of $1,262.4 million. The company's net debt to net capital ratio as
of Jun 30, 2014 was 35.6% despite the normal seasonality of its
business, the impairment charge and the purchase of Tempur Sealy's
innerspring plants. This stood near the mid-point of the company's
long-term targeted range of 30%-40%. Moreover, it has roughly $340
million left under its current commercial paper program.
During the quarter, Leggett bought back 2.3 million shares for
about $33.33 per share and announced a quarterly dividend of 30
cents a share. The company's regular dividend payouts and its
common practice of share buybacks reflect its healthy financial
position and focus on enhancing shareholder value.
Leggett now projects its sales in 2014 to grow in the 4%-6% range
and come in the within $3.88-$3.98 billion. Increase in sales is
expected to be driven by robust growth in majority of the company's
businesses, offset by decreased demand for store fixtures.
The company reiterated its adjusted earnings guidance for 2014 in
the band of $1.70-$1.85 per share. However, the company's
GAAP earnings forecast has been trimmed to $1.05-1.20 per share due
to the inclusion of the 65 cents non-cash impairment charge.
Additionally, continuing its trend of generating more cash than
required to fund dividends and capital expenditures, the company
expects operating cash flows for 2014 to be over $350 million.
Capital expenditure for the year will be approximately $100
million, while the company hopes to spend $170 million toward
dividend payout, as predicted before.
Further, Leggett expects to continue with its share repurchase
program, having a standing authorization to buy-back up to 10
million shares every year. Further, the company intends to buy back
5-7 million shares and issue nearly 2 million shares under the
employee benefit plans in 2014.
Management seems impressed with its sound financials and
anticipates record earnings in 2014. Thereafter, Leggett remains
optimistic about its performance, given the strength of its various
businesses like Automotive, Aerospace, Bedding, Home Furniture, and
Office Furniture. Also, the company strives to remain in the top 3
of the S&P 500 companies, on the basis of 3-year rolling period
Total Shareholder Return (TSR).
Other Stocks to Consider
Currently, Leggett carries a Zacks Rank #3 (Hold). Better-ranked
stocks in the furniture industry include Norcraft Companies Inc. (
) and Virco Mfg. Corporation (
), both carrying a Zacks Rank #2 (Buy).
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