Diversified manufacturer Leggett & Platt reported first quarter earnings per diluted share of $.29. Earnings from Continuing Operations were $.30 per share, including a $.03 per share net benefit from unusual items (a $.05 per share benefit associated with the sale of a building, and several smaller items that net to a $.02 per share expense). In the first quarter of 2009, earnings were $.02 per share (including a $.04 per share expense associated with a significant customer bankruptcy). Earnings increased primarily as a result of higher sales, cost structure improvements, and pricing discipline.
Sales from Continuing Operations were $816 million, 14% higher than in the first quarter of 2009; unit volumes improved approximately 18%, but were partially offset by reduced prices associated with steel-related deflation that largely occurred during the first half of 2009.
Markets Improving
President and CEO David S. Haffner commented, "We are encouraged to see market improvement and sales growth during the first quarter. That growth, combined with last year's significant cost reduction efforts, led to meaningful earnings improvement. Gross margin remained over 20%, despite a noteworthy increase in steel costs during the first quarter.
"Our balance sheet and cash flow remain strong. We maintain significant financial flexibility; we have lower net debt (in dollars) than for most of the past decade, no significant fixed-term debt maturing until 2013, and over $400 million available in our commercial paper program.
"Strategically, we have essentially concluded the first part of the three-part strategic plan we announced in November 2007, having successfully refocused the company by divesting low-performing businesses. We've also made substantial progress on the second step of the plan - to improve margins and returns on the businesses we have kept - despite significant declines in market demand. Margins should continue to increase as the economy improves.
"The third step of our strategy is to grow the company at 4-5% per year, on average, over the long term. For the next couple of years, gradual market recovery should provide ample growth, and we should benefit significantly from our advantaged competitive positions, improved cost structure, and spare production capacity. Longer term, we aim for growth to come from development and commercialization of innovative new products, and from identification of and expansion into potential new growth platforms.
"While operating under our new strategy, we have achieved Total Shareholder Return (TSR(1)) of 49% over the last 28 months, which ranks within the top 4% of all S&P 500 companies. TSR for the S&P 500 index was negative 13% over that identical time period."
Dividend and Stock Repurchases
Leggett & Platt's Board of Directors declared a $.26 first quarter dividend, one cent higher than last year's first quarter dividend. Thus, 2010 should mark the 39th consecutive annual dividend increase for the company, with a compound annual growth rate of approximately 14% during that period. At yesterday's closing share price of $22.64, the indicated annual dividend of $1.04 per share generates a dividend yield of 4.6%.
During the first quarter, the company repurchased 2.0 million shares of its stock at an average price of $19.75 per share, and issued 1.0 million shares through employee benefit plans. As a result, shares outstanding decreased to 147.8 million. For the full year, the company now anticipates repurchasing approximately 3 to 6 million shares of its stock (subject to the amount of cash flow generated from operations, stock price fluctuations, and other potential uses of cash) and issuing approximately 3 million shares via employee benefit plans. As a result, the number of outstanding shares is anticipated to decline by up to 3 million shares (or 2%) during 2010. The company has standing authorization from the Board of Directors to repurchase up to 10 million shares each year, but has established no specific repurchase commitment or timetable.
2010 Outlook Improved
Leggett anticipates full year 2010 sales of approximately $3.1 - 3.4 billion. Considering uncertainties including market demand and steel pricing, Leggett projects that it should generate 2010 EPS of $.95 - 1.30. At the midpoint of its sales and EPS guidance the company would generate an EBIT margin of about 9.3%.
Cash from operations should exceed $300 million for the full year. Uses of cash include less than $90 million for capital expenditures and approximately $155 million for dividends.
LIFO
All of Leggett's segments use the FIFO (first-in, first-out) method for valuing inventories. An adjustment is made at the corporate level to convert about 60% of the inventories to the LIFO (last-in, first-out) method. Since the LIFO benefit is not recorded at the segment level, 2009 segment EBIT margins were unusually low. Earnings for the first quarter 2010 reflect a LIFO expense of $2.1 million, compared to a LIFO benefit of $17.0 million in 1Q 2009.
Furthermore, LIFO created significant variability in 2009 quarterly earnings. Steel deflation negatively impacted segment earnings for the first half of 2009. This impact was offset by a LIFO benefit at the corporate level, but that benefit was spread across all four quarters. LIFO-related impacts are not anticipated to be as significant during 2010.
SEGMENT RESULTS - First Quarter 2010 (versus 1Q 2009)
Residential Furnishings - Total sales increased $20 million, or 5%, as a result of improved market demand; unit volume increased 10%, but was partially offset by lower unit prices (from steel-related deflation that occurred during the first half of 2009). EBIT (earnings before interest and income taxes) increased $56 million due to improved sales, price discipline, cost structure improvements, the benefit associated with the sale of a building, and absence of last year's bad debt expense related to a customer bankruptcy.
Commercial Fixturing & Components - Total sales increased $26 million, or 23%, due to our strong position with value-oriented retailers and new programs with office furniture manufacturers. EBIT increased $11 million due to sales growth, cost reductions, and operational improvements.
Industrial Materials - Total sales increased $12 million, or 7%; unit volume was 18% higher, but was partially offset by lower unit prices (from deflation that occurred during the first half of 2009). EBIT was flat, with the impact of higher volume offset by lower metal margins (reflecting higher costs for scrap steel).
Specialized Products - Total sales increased $32 million, or 31%; significantly improved automotive demand was partially offset by weaker demand for machinery and commercial vehicle products. EBIT increased $17 million, with the benefit from higher volume, cost reductions, and operational improvements partially offset by unusual items (that total $4 million of expense).
FOR MORE INFORMATION: Visit Leggett's website at www.leggett.com.
COMPANY DESCRIPTION: Leggett & Platt (NYSE: LEG) is a diversified manufacturer (and member of the S&P 500) that conceives, designs and produces a broad variety of engineered components and products that can be found in most homes, offices, and automobiles. The company serves a broad suite of customers that comprise a "Who's Who" of U.S. manufacturers and retailers. The 127-year-old firm is comprised of 19 business units, 19,000 employee-partners, and more than 140 manufacturing facilities located in 18 countries.
Leggett & Platt is North America's leading independent manufacturer of: a) components for residential furniture and bedding; b) components for office furniture; c) drawn steel wire; d) automotive seat support and lumbar systems; e) carpet underlay; f) adjustable beds; and g) bedding industry machinery for wire forming, sewing and quilting.