Leggett & Platt, Incorporated (LEG)

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Leggett and Platt Inc. (LEG)

Q2 2009 Earnings Call

July 24, 2009 9:00 am ET

Executives

David DeSonier – Vice President of Strategy and Investor Relations

David Haffner – President and Chief Executive Officer

Karl Glassman – Executive Vice President and Chief Operating Officer

Matthew Flanigan – Senior Vice President and Chief Financial Officer

Susan McCoy – Director of Investor Relations

Analysts

Budd Bugatch – Raymond James

Mark Rupe – Longbow Research

John Baugh – Stifel Nicolaus

Joel Havard – Hilliard Lyons

Keith Hughes – SunTrust Robinson Humphrey

Michael Smith – Kansas City Capital

[Misha Majeed] from [Sutton Brook]

Ron Fisher – US Steel

[Brian Derubio] – [Yield Capital Appreciation Partners]

Presentation

Operator

Welcome to the Leggett and Platt second quarter 2009 earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host, Dave DeSonier, Vice President of Strategy and Investor Relations for Leggett and Platt.

David DeSonier

I'm Dave DeSonier and with me today are the following Dave Haffner our CEO and President, Karl Glassman our Chief Operating Officer, Matt Flanigan, our CFO, and Susan McCoy our Director of Investor Relations. The agenda for our call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Karl Glassman will provide operating highlights. Dave will then address our outlook for the full year. And finally, the group will answer any questions you have.

This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our express permission. A replay is available from the IR portion of Leggett's website.

This quarter we're trying something new, yesterday we posted to the investor relations portion of Leggett's website a set of PowerPoint slides that contain summary financial information. If you find these slides helpful or if you don't, please let Susan or me know. Your feedback will help determine if we continue to post such slides in the future.

I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties, and the company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled forward-looking statements.

I'll now turn the call over to Dave Haffner.

David Haffner

Yesterday we announced our second quarter results. To quickly recap, sales from continuing operations decreased 29% versus the second quarter of 2008. Weak global markets, which led to significant unit volume declines and our decision to exit some specific sales volume with unacceptable margins, were the primary factors contributing to the sales decrease.

Second quarter earnings from continuing operations were $0.12 per share. In the second quarter 2008, earnings from continuing operations were $0.25 per share. The year-over-year decrease is primarily due to lower unit volumes and a write-down of a note accepted as partial payment in last year's aluminum divesture.

Late in the quarter we learned that the aluminum operations divested last summer needed a capital infusion from the buyer due to deterioration in business conditions. This led to a reduction in the estimated value of the note that we accepted as partial payment. As an inducement to the capital infusion, we accepted a more subordinate position in the capital structure of the divested operations.

As a reminder, when we sold the aluminum business we received $300 million of cash proceeds and also received non-cash proceeds in the form of a $25 million face amount note, which we recorded at $14 million in July of 2008, and a small amount of preferred shares of the acquiring entity. The note write-down resulted in a $10.6 million non-cash reduction in pre-tax income for the quarter, but also will generate a $6.4 million cash flow benefit in the last half of the year due to lower taxes.

Excluding this non-cash charge, second quarter earnings would have been $0.16 per share. Earnings in both the first and second quarters of 2009 reflect a significant impact from consuming higher cost steel inventories, but this cost overhang is substantially behind us as we enter the second half of the year.

Operationally much progress has been made over the past several quarters. Despite the volume declines we're experiencing, second quarter gross margins were 19.4%, and for the full year should approach 20%. This is a significant improvement over recent years and reflects our aggressive cost containment efforts, headcount reduction, facility consolidations, and dispositions.

The company's primary objective is to consistently achieve total shareholder return within the top 1/3 of the S&P 500. From January 1, 2008 through July 22, 2009 we posted TSR of 1%, which ranks in the top 7% of the S&P 500. We continue to believe that our TSR would have been much lower had we not implemented and made significant progress on our revised strategy.

Leggett's already strong financial profile improved further during the second quarter and remains a notable differentiation. We ended the quarter with net debt at 24% of net capital, which is well below the low end of our long-term targeted range of 30% to 40%. We have no commercial paper outstanding, but have $600 million available and nearly three years remaining on our bank facility. We also have no significant maturities of fixed term debt until 2013.

Read the rest of this transcript for free on seekingalpha.com