Leggett & Platt, Incorporated (LEG)

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Leggett & Platt, Incorporated (LEG)

Q3 2012 Earnings Call

October 30, 2012 9:00 am ET

Executives

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

David S. Haffner - Chief Executive Officer, President, Director and Member of Executive Committee

Karl G. Glassman - Chief Operating Officer, Executive Vice President and Director

Susan R. McCoy - Director of Investor Relations

Matthew C. Flanigan - Chief Financial Officer, Senior Vice President, Director and Chairman of Enterprise Risk Management Committee

Analysts

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

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

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

David S. MacGregor - Longbow Research LLC

Presentation

Operator

Greetings, and welcome to the Leggett & Platt Second Quarter (sic) [ Third Quarter ] 2012 Earnings. [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 Inc. Thank you, Mr. DeSonier, you may begin.

David M. DeSonier

Good morning, and thank you for taking part in Leggett & Platt's Third Quarter Conference Call. With me this morning are the following: Dave Haffner, our CEO and President; Karl Glassman, who is our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our Staff VP of Investor Relations. 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. Karl Glassman will provide operating highlights. Dave will then address our outlook for the remainder of the year, and finally, the group will answer any questions you have.

This call 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.

David S. Haffner

Good morning, and thank you for participating in our call. Before I start my formal comments, I want to let everyone know that our thoughts and prayers go out to all of our friends and, indeed, all of the folks that are being affected by this horrific storm, Sandy. We're especially sensitive to the trauma that such weather-related events can cause, and we hope the best for the many people dealing with this horrific storm.

So now I'll commence my formal comments. We're very pleased with our third quarter results. As we reported yesterday, earnings per share from continuing operations were a record $0.45 during the quarter compared to earnings of $0.31 per share in the third quarter last year. Third quarter same-location sales increased 3% over the third quarter of 2011. Unit volumes increased 7% but were partially offset by lower trade sales from our rod mill and changes in currency rates.

Sales grew in several of our major businesses, including store fixtures, automotive, U.S. spring, furniture components, adjustable bed, carpet underlay and commercial vehicle products. As expected, we realized significant earnings leverage on the higher sales during the quarter.

EBIT increased and EBIT margins improved both year-over-year and sequentially to 10.7%. Earnings benefited from higher unit volumes, lower raw material costs in some of our operations and cost improvements associated with restructuring activities. In addition, the Western Pneumatic Tube acquisition that we completed in January continues to exceed our expectation for strong operating performance and contributed to the earnings and margin improvement during the quarter.

Optimizing returns continues to be a major focus for our operations. We ended the quarter with working capital at 13.2% of annualized sales, well below our 15% target. We generated $95 million of cash from operations during the quarter. For the full year, we expect operating cash of more than $350 million which will once again comfortably exceed the amount required to fund capital expenditures and dividends. Capital expenditures should be approximately $80 million this year, and dividends should require about $160 million.

In anticipation of long-term debt maturing next April, during the quarter, we took advantage of the current attractive interest rate environment and issued $300 million of 10-year notes. With the proceeds, we reduced our use of commercial paper during the quarter and ended with nearly $600 million available under the existing commercial paper program. Our financial base remains very strong. We ended September with net debt at 33% of net capital, which is comfortably within our long-term targeted range of 30% to 40%.

In August, we increased the quarterly dividend by $0.01 to $0.29 per share. 2012 marks the 41st consecutive annual dividend increase for the company, a record we plan to extend. At Friday's closing price of $25.40, the current dividend yield is 4.6%. Leggett possesses the highest dividend yield among all of the S&P 500's Dividend Aristocrats that have over 30 consecutive annual dividend increases.

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