Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Incorporated (LEG)

Q1 2011 Earnings Call

April 29, 2011 9:00 am ET

Executives

Susan McCoy - Director of Investor Relations

David DeSonier - Senior Vice President of Strategy & Investor Relations

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

Karl Glassman - Chief Operating Officer, Executive Vice President and Director

David Haffner - Chief Executive Officer, President, Director and Member of Executive Committee

Analysts

John Baugh

Leah Villalobos - Longbow Research LLC

Chad Bolen - Raymond James

Robert Kelly - Sidoti & Company, LLC

Keith Hughes - SunTrust Robinson Humphrey, Inc.

Presentation

Operator

Greetings, and welcome to the Leggett & Platt First Quarter 2011 Earnings 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 of Strategy and Investor Relations for Leggett & Platt Incorporated. Thank you, sir. You may begin.

David DeSonier

Good morning, and thank you for taking part in Leggett & Platt's First Quarter Conference Call. 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 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; then Dave will address our outlook for 2011; and finally the group will answer any questions you have.

This conference is being recorder 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. 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 and the section in our 10-K entitled, Forward-looking Statements. I will now turn the call over to Dave Haffner.

David Haffner

Thanks, Dave. Good morning, and thank you all for participating in our call. We were very encouraged to see higher market demand and sales growth during the first quarter. As we reported yesterday, first quarter sales increased 10%, reflecting unit volume growth and raw material-related price inflation. Earnings per year -- per share for the quarter were $0.30, unchanged from the first quarter of last year. The earnings benefit from higher unit volume was offset by higher raw material cost as previously expected.

We continue to experience strong demand in several of our key businesses during the first quarter, including Automotive and Office Furniture. In contrast, Store Fixtures volume declined versus the prior year as this business faced very difficult comparisons related to high levels of remodeling activity by large customers in the first quarter of 2010.

During the quarter, we implemented price increases in response to rising commodity cost. The magnitude of the price increases varied by product category and the timing generally lagged the cost inflation. First quarter margins were compressed approximately 100 to 150 basis points due to the lag, but should improve in subsequent quarters.

Our Intermarkets have stabilized and appeared to be gradually improving. As a result, we utilized a significant portion of our share purchase authorization during the first quarter and repurchased 5.4 million shares of our stock. Under the current authorization we can purchase up to 10 million shares annually. We also issued 1.8 million shares during the quarter through various employee benefit and stock purchase programs.

In February, we declared a quarterly dividend of $0.27 per share and extended to 40 years our record of consecutive annual dividend increases. At yesterday's closing price of $24.54 the current dividend yield is 4.4%. We ended the first quarter with net debt to net capital at 27.5%, which is below our long-term targeted range of 30% to 40%. No significant fixed-term debt matures until 2013, and we have over $450 million available under our existing bank facility.

Our operating folks continue to do an excellent job of closely managing working capital, which reflects our focus on return optimization. We ended the quarter with working capital at 14.3% of annualized sales.

For the quarter, we generated operating cash of $47 million. We expect operating cash for the full year of over $300 million, which had once again comfortably exceed the amount required to fund capital expenditures and dividends.

Capital expenditures should approximate $85 million for this year and dividends should require about $155 million. We assess our overall performance by comparing our Total Shareholder Return on a rolling 3-year basis to that of peer companies. We target 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. To date for the 3-year period that will end on December 31 of 2011, we have generated TSR of 29% per year on average, which ranks in the top half but not yet among the top 1/3 of the companies in the S&P 500 index. So we still have some work to do in order to reach our goal. With those comments, I'll turn the call over to Karl Glassman who will provide some operating highlights. Karl?

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