Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Inc. (LEG)

Q2 2010 Earnings Conference Call

July 23, 2010 9:00 AM ET

Executives

David DeSonier – VP, Strategy and IR

Dave Haffner – President and CEO

Karl Glassman – EVP and COO

Matt Flanigan – CFO

Susan McCoy – Director, IR

Analysts

Budd Bugatch – Raymond James & Associates

Keith Hughes – SunTrust Robinson Humphrey

John Baugh – Stifel Nicolaus

Robert Kelly – Sidoti & Company

Joel Havard – Hilliard Lyons

Presentation

Operator

Greetings and welcome to the Leggett & Platt's Second Quarter 2010 Earnings Call. (Operator Instructions) It is now my pleasure to introduce your host, Dave DeSonier, Vice President of Strategy and Investor Relations for Leggett & Platt. Thank you. Mr. DeSonier, you may begin.

David DeSonier

Good morning and thank you for taking part in Leggett & Platt's second quarter conference call. I'm Dave DeSonier, the Vice President of Strategy and Investor Relations. And with me today are the following; Dave Haffner, our CEO and President; Karl Glassman, the 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 the 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 the full year; 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 contains 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'll now turn the call over to Dave Haffner.

Dave Haffner

Good morning, and thank you for participating in our call. We are very pleased with the second quarter results we reported yesterday. For the quarter, sales from continuing operations increased 15% over the prior year. Unit volumes grew approximately 14% during the quarter, reflecting improved demand and market share gains in certain businesses. Sales also increased slightly during the quarter as a result of price increases implemented to recover higher steel cost.

Second quarter 2010 earnings from continuing operations improved significantly to $0.34 per share. In the second quarter of 2009, earnings from continuing operations were $0.12 per share and included a $0.04 per share charge related to the write-down of a divestiture note. The year-over-year earnings increased primarily reflects higher sales and the associated improvement in capacity utilization.

We've continued to keep a tight hold on fixed cost as sales have increased. As anticipated, the incremental unit volume we realized in the second quarter generated contribution margins in line with our approximate 30% expectation. This further reinforces our confidence in the company's earnings potential as markets rebound in the future. The company's primary financial objective is to consistently achieve total shareholder return within the top one third of the S&P 500. From the first of January of 2008 through the 21st of July, 2010, we posted TSR of 36% which ranks in the top 5% of the S&P 500.

We continued to be very comfortable with our strong financial profile. We ended the quarter with net debt at 27.3% of net capital, which is below our long-term targeted range of 30% to 40%. We currently have approximately $350 million available and nearly two years remaining on our $600 million bank facility. And we have no significant fixed-term debt maturities until 2013. Our cash balance at the end of the second quarter was $244 million. We generated $67 million of cash from operations during the quarter. Working capital remains at a favorable 14% of sales and reflects our ongoing focus on optimizing returns.

We purchased approximately 2.3 million shares of our stock during the quarter at an average price of $23.17 per share. We also declared a second quarter dividend of $0.26 per share. At yesterday's closing price of $21.32, the current dividend yield is 4.9%. The dividend remains a key component in achieving our TSR goal.

As has consistently been the case for many years, we expect operating cash in 2010 to comfortably exceed the amount required to fund dividends and capital expenditures. For the full year, we expect operating cash to exceed $300 million. Capital expenditures for the year should approximate $75 million and dividends will require about $155 million.

With those comments, I'll turn the call over to Karl who will provide some operating highlights. Karl?

Karl Glassman

Thank you, Dave. Good morning. I'd like to quickly discuss a few major topics. You will find segment details in yesterday's press release and in the slide presentation on our website that David DeSonier mentioned earlier.

Second quarter sales increased 9% in our Residential Furnishing segment, reflecting unit volume growth in several key businesses. In our U.S. Spring business, Innerspring unit volumes increase approximately 5% from the second quarter as a result of improved market demand. Box spring units grew approximately 10% during the quarter reflecting improved demand and market share gains. Unit volumes in our Furniture Component business increased significantly in the second quarter due to market share gains and ongoing market strength in motion upholstery.

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