Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Incorporated (LEG)

Q1 2013 Earnings Call

April 26, 2013 9:00 am ET

Executives

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

David S. Haffner - Chief Executive Officer, Director 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

Perry E. Davis - Senior Vice President and President of the Residential Furnishings Segment

Susan R. McCoy - Vice President of Investor Relations

Analysts

Joshua Borstein - Longbow Research LLC

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

Daniel Moore - CJS Securities, Inc.

Herbert Buchbinder

Fred H. Speece - Speece Thorson Capital Group Inc.

Presentation

Operator

Greetings, and welcome to the Leggett & Platt First 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 our first 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 Vice President and CFO; and Susan McCoy, our Staff VP of Investor Relations. Perry Davis who is Senior Vice President of the company and also President of the Residential Furnishings segment is also joining us this morning. We plan to periodically include each of the segment presidents in these calls to participate in Q&A, and this quarter we're starting with Perry.

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. 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 and 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, and thank you for participating in our call. We are pleased with our start to 2013 and remain optimistic longer term that we will continue to realize benefits from ongoing consumer and housing market recoveries.

As we reported yesterday, first quarter earnings were $0.33 per share, up 10% versus the $0.30 per share we earned in the first quarter of 2012. First quarter same-location sales decreased 2% with lower trade sales from our rod mill and deflation in rod and wire prices contributing in roughly equal parts to the decline. Lower volumes in bedding, portions of residential furniture, office furniture and machinery were offset by growth in carpet underlay, store fixtures and Commercial Vehicle Products. Despite sluggish demand in some of our key businesses, earnings increased during the quarter from cost improvements and strong product mix within certain business units. These improvements were partially offset by an unusually high accrual for our TSR-driven and other long-term stock based incentive compensation plans. Matt will discuss this further in his comments.

Including all of these issues, EBIT grew and EBIT margins also improved to 8.5% in the quarter compared to 7.9% in first quarter of 2012.

Optimizing returns on capital employed continues to be a major focus for our operations. We ended the first quarter with working capital at 12.9% of annualized sales, well below our 15% target. Operating cash was $24 million during the quarter, which was consistent with our internal expectations. In February, we declared a quarterly dividend of $0.29 per share and extended to 42 years our record of consecutive annual dividend increases. At yesterday's closing price of $33.65, the current yield is 3.4%, which is one of the highest yields among all of the S&P 500's Dividend Aristocrats.

During the quarter, we purchased 1.6 million shares of our stock and issued 2.4 million shares. 2/3 of the issuance is related to employee stock option exercises, which have increased in recent quarters with a significant share price appreciation. Consistent with our stated priorities for the use of excess cash flow, we will prudently buy back our stock subject to the outlook for the economy, our level of cash generation and other potential opportunities to strategically grow the company. We have a standing authorization from the board to repurchase up to 10 million shares each year, but have established no specific repurchase commitment or timetable.

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 of this year, we have so far generated TSR of 23% per year on average, which currently places us in the top 21% of the S&P 500 companies.

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