Leggett & Platt, Incorporated (LEG)

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Leggett & Platt Inc. (LEG)

Q4 2009 Earnings Call

January 29, 2010 9:00 am ET

Executives

Dave Haffner - Chief Executive Officer & President

Karl Glassman - Chief Operating Officer

Matt Flanigan - Chief Financial Officer

Susan McCoy - Director of Investor Relations

David DeSonier - Vice President of Strategy & Investor Relations

Analysts

Chad Bolen - Raymond James

Leah Villalobos - Longbow Research

John Baugh - Stifel Nicolaus

Keith Hughes - SunTrust Robinson Humphrey

Joel Harvard - Hilliard Lyons

Allen Zwickler - First Manhattan

Presentation

Operator

Greeting and welcome to the Leggett & Platt fourth quarter 2009 earnings. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David DeSonier, Vice President of Strategy and Investor Relations. Thank you, sir. You may begin.

David DeSonier

Good morning and thank you for taking part in Leggett & Platt’s fourth quarter conference call. I’m Dave DeSonier and with me today are the following. Dave Haffner, our CEO and President; Karl Glassman, who is our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations.

The agenda for the 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 2010 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 reply 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. Those slides are intended to supplement the information we discuss on this call.

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

Dave Haffner

Thank you, Dave. Good morning and thank you all for participating in our call. We’re pleased with the fourth quarter and full year 2009 results we reported yesterday, despite what was very challenging year. Fourth quarter 2009 earnings from Continuing Operations adjusted to exclude unusual tax items were $0.30 per share.

In the fourth quarter of 2008, adjusted earnings from Continuing Operations were $0.03 per share. This year-over-year improvement reflects several factors, including cost reduction initiatives, pricing discipline, and a $0.06 per share LIFO benefit. Fourth quarter sales from Continuing Operations decreased 13% from the prior year, largely due to steel related price deflation.

Unit volume declines moderated in the fourth quarter, primarily reflecting much easier prior year comps. For the full year 2009, sales from Continuing Operations decreased 25%, reflecting a combination of weak market demand, steel related price deflation, and our decision to exit some specific sales with unacceptable margins.

Despite the significant sales decline, full year earnings from Continuing Operations adjusted to exclude unusual items, decreased only modestly to $0.86 per share in 2009, from $0.88 per share in 2008. Cost structure improvements and pricing discipline offset nearly all the impact from lower sales.

Our primary focus this year has been on margin improvement. Margins for both the fourth quarter and full year improved significantly in 2009, despite weak markets. Fourth quarter gross margin, excluding the $15 million LIFO benefit, was 20.2%. For the full year, gross margin was 20.6%, the highest level since the year 2000.

Fourth quarter EBIT margin excluding the LIFO benefit was 8%, and for the full year was 8.2% after adjusting for unusual items. These improvements reflect substantial operational progress through a combination of aggressive cost containment efforts, headcount reductions, facility consolidations, and dispositions.

Throughout 2009, we discussed the quarterly mismatch in the recognition of LIFO benefits versus the FIFO income associated with the consumption of higher steel cost that we had in inventory and on order at the beginning of 2009. In the first and second quarters, we consumed the majority of the higher cost steel, but recognized only half of the offsetting LIFO benefit. Therefore, first half reported earnings were unusually low.

In contrast, second half reported earnings were unusually high, as we recognized the remainder of the LIFO benefit with only minimal offsetting costs. We continue to discuss this issue because it is critical in understanding the quarterly pattern and variability in our 2009 operating margins. Full year margins require no special consideration for these items because for the full year, the LIFO and FIFO impacts roughly offset.

The company’s primary financial objective is to consistently achieve total shareholder return within the top one third of the S&P 500. From January 1, 2008 through December 31, 2009, we posted TSR of 32%, which ranks in the top 4% of the S&P 500. For the year, we generated $565 million of cash from operations, of which $135 million occurred in the fourth quarter.

This is the second highest annual level of operating cash in our history, and primarily reflects our focus this past year on working capital optimization. 2009 marked Leggett’s 38 consecutive years of annual dividend increases. In August, we increased our quarterly dividend by a penny to $0.26 per share. At yesterday’s closing price of $19.81, the current dividend yield is 5.2%.

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