Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Incorporated (LEG)

Q3 2013 Earnings Call

October 24, 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

Joseph D. Downes - Senior Vice President and President of Industrial Materials Segment

Susan R. McCoy - Vice President of Investor Relations

Analysts

Joshua Borstein - Longbow Research LLC

Daniel Moore - CJS Securities, Inc.

Rohit Seth - SunTrust Robinson Humphrey, Inc., Research Division

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

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

Dillard Watt - Stifel, Nicolaus & Co., Inc., Research Division

Presentation

Operator

Greetings, and welcome to the Leggett & Platt Third 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, sir. You may begin.

David M. DeSonier

Good morning, and thank you for taking part in Leggett & Platt's third quarter conference call. With me today are the following: Dave Haffner, our Board Chair and 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. In addition, Joe Downes, who is Senior Vice President of the company and President of the Industrial Materials segment, is joining us this morning to participate in Q&A.

As we mentioned earlier this year, we plan to periodically include each of the segment presidents in these calls.

The agenda for our this 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 the remainder of 2013; Karl Glassman will provide segment highlights; and finally, the group will answer any questions that 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 will now turn the call over to Dave Haffner

David S. Haffner

Good morning, and thank you for participating in our call. As we reported yesterday, third quarter earnings were $0.49 per share versus $0.45 per share in the third quarter of 2012. Current quarter results, including $9 million or $0.06 per share benefit from an acquisition purchased at a negotiated price less than the total accounting fair value of its net assets. Excluding this unusual item, earnings per share decreased to $0.43 primarily due to lower sales.

Same location sales decreased 3% during the quarter from a combination of factors, including, one, the non-recurrence, as expected, of the large JCPenney Store Fixtures programs that were concentrated in the third quarter last year. Two, lower trade sales from our rod mill; and three, weak demand in Commercial Vehicle Products. These declines were partially offset by continued strength in global automotive demand and growth in carpet underlay.

Excluding the unusual acquisition-related benefit, EBIT and EBIT margins decreased in the third quarter, primarily from lower sales.

In late July, we acquired another aerospace Tubing business with annual revenues of approximately $40 million, adding to the business unit that was formed in early 2012. This French-based acquisition expands our portfolio of Tubing products to include small diameter, high pressure, seamless tubing. This Tubing is used in hydraulic, fuel, engine instrumentation and air conditioning systems and is complementary to the large diameter, low pressure welded tubing produced by Western Pneumatic Tube, which was the initial platform acquisition we made last year. We have identified meaningful cross-selling opportunities across our 4 aerospace businesses, as well as opportunities to improve the performance of this recently acquired operation.

With this acquisition, and a smaller U.K.-based business we acquired in the second quarter, our aerospace products business unit now has an annual revenue run rate of approximately $120 million. The development of this new business platform aligns very well with our strategic emphasis on improving the overall margin mix of our businesses by entering attractive markets where we can develop or extend a strong, sustainable, competitive advantage.

In conjunction with our priority on critically reviewing our businesses for strategic value, we are continuing to explore possible alternatives for our Commercial Vehicle Products business. One of which is the potential divestiture of that business. 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.

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