Leggett & Platt Inc.
), the manufacturer of diversified engineered products - reported
first-quarter 2014 results, wherein earnings surged 12% year over
year, coming in at 37 cents a share.
Improvement in earnings was backed by a better sales mix in all
segments coupled with a decent gain on sale of a building, partly
offset by lower comparable store sales (comps). However, earnings
fell short of the Zacks Consensus Estimate of 38 cents a
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Net sales of the company slipped 1% to $919.1 million from $932.7
million in the prior-year quarter, coming below the Zacks
Consensus Estimate of $976 million. The year-over-year decline in
the top line was largely attributable to a 3% decrease in comps,
owing to poor volumes in Commercial Vehicle Products and Store
Fixtures and soft demand in other businesses due to unfavorable
weather, partly offset by a 2% benefit from acquisitions.
Due to a falling top line, gross profit declined 5% year over
year to $180 million with the gross margin contracting 70 basis
points (bps) in the quarter to 19.6%. However, due to lower
amortization and selling, general and administrative (SG&A)
expenses, Leggett's operating income climbed 4% to $82.5 million.
Although operating margin expanded approximately 50 bps to 9%, on
excluding the effect of gain from sale of a building, it remained
revenues increased 2.5% to $498.8 million on the back of a rise
in volumes for International spring and Furniture Components,
partly reduced by weak demand in U.S. Spring. Operating income
increased 21% year over year to $51.3 million owing to increased
sales and improved cost management.
Commercial Fixturing & Components
plunged 22.2% to $89.9 million mainly because of the absence of
specific key Store Fixture retailer programs in 2013. Also, the
segment recorded an operating loss of $2 million, compared with
an income of $1.6 million in the comparable prior-year quarter,
primarily due to a decline in sales.
segment's sales witnessed a 5.2% drop to $211.6 million,
attributable to poor unit volumes in rod and wire. Operating
income slumped 49% year over year to $11.1 million, due to
negative impact of weather on expenses, along with lower metal
margins and sales.
segment's sales rose 6.4% year over year to $198.3 million,
driven by robust demand for Leggett's Automotive parts, offset by
the downside in Commercial Vehicle Products (CVP). Operating
income for the segment soared 59% to $25 million, backed by
strong sales and absence of litigation overhead worth $5 million,
present last year.
Leggett, which competes with
Stanley Furniture Co. Inc.
Hooker Furniture Corp.
), ended the first quarter with cash and equivalents of $268.6
million, long-term debt of $811.0 million and shareholders'
equity of $1,370.0 million. The company's net debt to net capital
ratio as of Mar 31, 2014 was 31.5%, close to the company's
long-term targeted range of 30%-40%. Moreover, it has roughly
$450 million remaining under its current commercial paper
During the quarter, Leggett bought back 1.5 million shares,
issued 1 million shares and hiked its quarterly dividend from 29
to 30 cents a share, thus marking its 43rd dividend increase in a
row. The company's regular dividend hikes and its common practice
of share buybacks reflect its healthy financial position and
focus on enhancing shareholder value.
Leggett is expecting higher growth in sales, EBIT margin and
operating earnings per share (EPS) in 2014. The company continues
to project its sales in 2014 to grow in the range of 3%-8% and
come in between $3.85 billion and $4.05 billion.
The company now envisions 2014 earnings to lie in the band of
$1.70- $1.85 per share, compared to its previously predicted
range of $1.65-$1.85. Currently, the Zacks Consensus Estimate is
pegged at $1.71 per share, falling within the company's guidance
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 approximately be $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 3 - 6 million shares and issue nearly 2 million shares under
the employee benefit plans in 2014.
Management seems impressed with its sound financials and it
continues to anticipate record earnings in 2014. Thereafter,
Leggett remains positive about its performance, given the
strength of various businesses like Bedding, Office, Furniture,
Aerospace and Automotive. Also, the company strives to remain in
the top 3 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). However,
another better-ranked stock in the same industry includes
Norcraft Companies Inc.
) with a Zacks Rank #2 (Buy).