Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Incorporated (LEG)

Q4 2013 Earnings Call

January 24, 2014 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

Susan R. McCoy - Vice President of Investor Relations

Jack D. Crusa - Senior Vice President and President of Specialized Products

Analysts

Daniel Moore - CJS Securities, Inc.

Joshua Borstein - Longbow Research LLC

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

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

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

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

Presentation

Operator

Greetings, and welcome to Leggett & Platt's Fourth Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, David DeSonier, Senior Vice President, Strategy and Investor Relations for Leggett & Platt, Incorporated. Thank you, sir. You may now begin.

David M. 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 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. Jack Crusa, who is Senior Vice President of the company and also President of the Specialized Products segment, is also joining us this morning to participate in Q&A.

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 2014, 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 express 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 underlying operating performance in the fourth quarter and encouraged by the sales momentum in certain of our markets. But a few factors impacted us from a reported GAAP earnings perspective. Consistent with our announcement on December 17, we recognized a $67 million or $0.31 per share noncash charge related to the goodwill and intangible assets of our Commercial Vehicle Products business.

In addition, increases in steel costs late in 2013 resulted in a larger-than-expected LIFO expense of $12 million in the quarter. The timing of the steel cost increase has concentrated the LIFO impact into the fourth quarter and ahead of the benefit we expect from selling price increases.

We've begun implementing price increases to recover the higher costs and should realize a benefit in first half of 2014 that offsets this LIFO impact. And the earnings per share impact from higher LIFO expense was essentially offset by a lower-than-normal effective tax rate in the quarter.

Fourth quarter earnings, adjusted to exclude the CVP impairment charge, were $0.35 per share, in line with the guidance we issued in late October. In the fourth quarter of 2012, earnings per share, adjusted to exclude an $0.18 unusual tax benefit, were $0.32.

Same-location sales increased 3% during the fourth quarter, with growth in Automotive, residential furniture, bedding, Carpet Underlay and Machinery, partially offset by lower demand in store fixtures and CVP. EBIT and EBIT margins adjusted to exclude the CVP impairment charge decreased in the fourth quarter. The earnings benefit from sales growth was more than offset by higher steel costs and the concentration of the yet-to-be-recovered LIFO expense that I mentioned earlier.

For the full year, earnings from continuing operations, adjusted to exclude the fourth quarter CVP charge and a $0.06 per share unusual acquisition-related benefit from the third quarter, were $1.54 per share. Full year 2012 earnings from continuing operations, adjusted to exclude an $0.18 per share unusual tax benefit, were $1.47 per share.

Same-location sales were essentially flat, with modest unit gains offset by lower trade sales from our rod mill. Sales grew primarily in automotive and Carpet Underlay, but these gains were partially offset by declines in Store Fixtures, CVP and Adjustable Bed.

Adjusted EBIT and EBIT margins for the year were roughly flat with 2012. We expanded our aerospace tubing business unit in 2013 with the acquisition of 2 companies. The first was a small U.K.-based business acquired in May that extended our capability in aerospace tube fabrication. The second was a larger French-based company acquired in July that added small-diameter, high-pressure, seamless tubing to our product portfolio. With these acquisitions, our Aerospace Products business unit now has an annual revenue run rate of approximately $120 million. The development of this business platform aligns very well with our strategic emphasis on improving the overall margin mix of our businesses by investing in attractive markets where we can build or extend a strong, sustainable competitive advantage.

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