Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Inc. (LEG)

Q1 2014 Earnings Conference Call

April 25, 2014 9:00 AM ET

Executives

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

David S. Haffner – Chairman of the Board & Chief Executive Officer

Karl G. Glassman – President & Chief Operating Officer

Matthew C. Flanigan – Executive Vice President & Chief Financial Officer

Susan R. McCoy – Staff Vice President of Investor Relations

Analysts

Josh A. Borstein – Longbow Research LLC

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

Daniel Moore – CSJ Securities

Bobby K. Griffin – Raymond James & Associates, Inc.,

John A. Baugh – Stifel, Nicolaus & Co., Inc.,

Herbert Hardt – Monness, Crespi, Hardt & Co.

Presentation

Operator

Greetings, and welcome to Leggett & Platt's First Quarter 2014 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 now begin.

David M. DeSonier

Good morning and thank you for taking part in Leggett & Platt's first quarter conference call. With me this morning 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. Perry Davis, who is Senior Vice President of the Company and President of the Residential Furnishings 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. Thank you, Dave.

David S. Haffner

Good morning, everyone and thank you participating in our call. Yesterday we reported record first quarter earnings of $0.37 per share and 12% increase versus EPS of $0.33 in the first quarter of 2013. This increase reflects an improved mix of sales across business units and a small gain from the sale of a building. These factors were partially offset by the earnings impact of lower same location sales.

Same location sales decreased 3% during to the quarter primarily from lower volume in Store Fixtures and Commercial Vehicle Products, versus strong prior year comps in both businesses. In addition, to weather-related demand weakness in the U.S. bedding and wire markets, these declines were partially offset by continued growth in automotive residential furniture and international spring.

Consistent with market in public company commentary over the past few months, virtually all of our U.S. based businesses were negatively impacted in the first quarter by extreme winter weather. These impacts included softer than expected market demand production and transportation in efficiencies and higher energy costs. Weather-related issues subsided in the later part of the quarter in sales momentum improved notably.

Following a very soft January and February, March same location sales were up 6% and April sales should be positive as well. Karl will discuss various business impacts in his comments. Despite the first quarter challenges EBIT margin adjusted to exclude the $4 million building gain, remained at the level achieved in the first quarter of 2013. The Company has a high priority on margin enhancement and has engaged in many continues improvement, lean manufacturing and cost containment initiatives throughout the enterprise.

We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling three year basis. Our target is to achieve TSR in the top one-third of the S&P 500 over the long-term, which we believe we’ll require in average TSR of 12% to 15% per year. So far to the three year period that will end on December 31 of 2014, we’ve generated TSR of 22% per year on average, which places us just about mid-point of the S&P 500 companies.

I’ll now turn the call over to Matt Flanigan, who will discuss some additional financial details along with our outlook for 2014. Matt.

Matthew C. Flanigan

Thanks Dave, good morning everyone. Increases in working capital from very low-end 2013 levels, led to negative operating cash of $20 million for the first quarter. This compares with positive operating cash of $24 million in the first quarter of 2013. Working capital typically increases in the first quarter and operating cash is normally added slowest quarterly levels of the year, due to the seasonal pattern of our businesses. This year, there was a larger number than usual in working capital of these factors.

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