Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Inc. (LEG)

Q2 2013 Earnings Call

July 26, 2013 9:00 am ET

Executives

David M. DeSonier - Senior Vice President of Strategy & Investor Relations

David S. Haffner - Chairman, Chief Executive Officer and Member of Executive Committee

Matthew C. Flanigan - Chief Financial Officer, Executive Vice President, Director and Chairman of Enterprise Risk Management Committee

Karl G. Glassman - President, Chief Operating Officer and Director

Dennis S. Park - Senior Vice President and President of Commercial Fixturing & Components

Susan R. McCoy - Vice President of Investor Relations

Analysts

Joshua Borstein - Longbow Research LLC

Daniel Moore - CJS Securities, Inc.

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Herbert Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Presentation

Operator

Greetings, and welcome to the Leggett & Platt Second Quarter 2013 conference call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David DeSonier, Senior Vice President, Strategy and Investor Relations for Leggett & Platt, Incorporated. Thank you, Mr. DeSonier. You may begin.

David M. DeSonier

Good morning, and thank you for taking part in Leggett & Platt's second quarter conference call. With me this morning are the following: Dave Haffner, our CEO; Karl Glassman, who is President and Chief Operating Officer; Matt Flanigan, our Executive VP and CFO; and Susan McCoy, our Staff VP of Investor Relations. Dennis Park, who is Senior Vice President of the company and also President of the Commercial Fixturing & Components segment is also joining us this morning to participate in Q&A. As we mentioned last quarter, we plan to periodically include each of the segment presidents in these calls.

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. Matt Flanigan will discuss financial details and address our outlook for 2013. Karl Glassman will provide segment highlights, 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 expressed permission. A replay is available from the IR portion of Leggett's website. We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information, along with segment details. Those slides supplement the information we discuss on this call, including non-GAAP reconciliations.

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 in the section in our 10-K entitled forward-looking statements. I'll now turn the call over to Dave Haffner.

David S. Haffner

Good morning, everyone, and thank you for participating in our call. As we reported yesterday, second quarter earnings from continuing operations were $0.44 per share, up 13% versus the $0.39 per share from continuing operations that we earned in the second quarter of 2012. Same location sales grew 2% during the quarter. Unit volumes increased 3%, but were partially offset by lower trade sales from our rod mill. Unit volume growth was largely driven by strength in carpet underlay, Store Fixtures, automotive and Commercial Vehicle Products. EBIT grew and EBIT margins improved by 100 basis points to 10.3% in the second quarter, primarily from higher unit volumes. During the quarter, we exited 3 small operations, and as a result, recorded a $0.05 per share benefit in discontinued operations, primarily driven by taxes. These 3 operations collectively generated only about $15 million of annual sales during 2012, but posted slightly negative EBIT. We are also exploring possible strategic alternatives for our Commercial Vehicle Products business, one of which is the potential divestiture of that business. In late May, we acquired a small aerospace 2 fabrication business, adding to the aerospace products business unit that was formed in early 2012 with the acquisition of Western Pneumatic Tube. We continue to look for opportunities to carefully grow the company through well-screened acquisitions in attractive markets.

Optimizing returns on capital employed continues to be a major focus for our operations. We ended the second quarter with working capital at 12.5% of annualized sales, which is well below our 15% target. In May, we declared a quarterly dividend of $0.29 per share. 2013 marks our 42nd consecutive annual dividend increase at a compound annual growth rate of 13%. At yesterday's closing price of $31.71, the current yield is 3.7%, which is one of the highest among all of the S&P 500's dividend aristocrats. We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling 3-year basis. Our target is to achieve TSR in the top 1/3 of the S&P 500 over the long term, which we believe will require an average TSR of 12% to 15% per year. For the 3-year period that will end on December 31, 2013, we have so far generated TSR of 19% per year on average, which currently places us in the top third of the S&P 500 companies. I'll now turn the call over to Matt Flanigan, who will discuss some additional financial details along with our outlook for the remainder of the year. Matt?

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