Business News
Leggett & Platt Announces First Quarter Results
Thursday 23. April 2009 - Q EPS of $.06 per share; sales from Continuing Operations were $718 million, 28% lower than in prior year.
– 1Q EPS of $.06 per share; sales from Continuing Operations were $718
million, 28% lower than in prior year.
– 1Q cash flow from operations of $115 million, 116% higher than in
prior year.
– 2009 EPS guidance of $.60 – $.90, on $2.9 – 3.3 billion of sales from
Continuing Operations.
Diversified manufacturer Leggett & Platt reported first quarter earnings of $.06 per share. In the first quarter of 2008, earnings from Continuing Operations were $.23 per share. The year-over-year reduction in quarterly earnings was primarily due to lower unit sales volumes, which were partially offset by improved margins on selected products as a result of better pricing discipline. First quarter sales from Continuing Operations were $718 million, 28% lower than last year’s sales of $998 million, due to extremely weak market demand.
First quarter cash flow from operations was $115 million, as efforts to reduce working capital contributed significantly to cash flow. Net debt-to-capital was 27.1%, well below the company’s target range of 30-40%. The first quarter tax rate was 52%, atypically high due to the low level and mix of earnings among various tax jurisdictions; the 2009 full year tax rate is now anticipated to be approximately 39%.
Strategic Progress Amid Economic Turmoil
President and CEO David S. Haffner commented, “First quarter earnings were in line with what we anticipated; however, market demand was weaker than we expected, and was the driving force behind the year-over-year reduction in earnings. In addition, as anticipated, first quarter earnings were significantly impacted by steel deflation (as inventory valuation and selling prices reflected lower steel costs). This impact should be essentially offset by a LIFO benefit over the course of the full year, but the timing mismatch of these two offsetting items depressed first quarter earnings and will also impact 2Q, though to a lesser extent.
“We continue to experience very weak demand across our markets. For many of our businesses, demand seems to have stabilized during the first quarter, albeit at levels below what we anticipated. Office furniture volume continues to decline, consistent with industry trends. Though data for our markets affords only limited visibility, based upon first quarter sales and current demand levels we have reduced our guidance for the full year.
“The company’s primary strategic objective is to consistently achieve Total Shareholder Return (TSR(1)) within the top 1/3 of the S&P 500. From January 1, 2008 through April 21, 2009 we posted TSR of negative 8%(2); our performance for that period, though disappointing, ranks within the top 9% of the S&P 500 companies. We believe that our TSR would be much lower had we not implemented, and made significant progress on, our revised strategy.”
Strong Financial Position
Leggett & Platt remains well situated to weather the current challenging economic environment, even if it lasts for an extended period. The company is in an extremely strong financial position with: i) nearly $600 million available under its existing commercial paper program and revolver facility, ii) net debt-to-capital well below the company’s long-term target, and iii) no significant long-term debt maturing until 2012.
The company expects, even under current market conditions, to continue to fund both capital expenditures and quarterly dividends from operating cash flow.
Dividend and Stock Repurchases
During the quarter Leggett declared a $.25 dividend. At yesterday’s closing share price of $14.75, the indicated annual dividend of $1.00 per share generates a dividend yield of 6.8%.
During the first quarter, the company repurchased 1.3 million shares of its stock at an average of $13.26 per share, and issued 2.2 million shares through employee benefit plans. As a result, shares outstanding increased by 0.9 million shares to 156.7 million.
2009 Outlook: $.60 to $.90 EPS
Earnings per share (from Continuing Operations) for the full year 2009 are expected to be $.60 – $.90. Earnings should benefit from previous closures of poorly-performing operations, reduced overhead spending, and lower commodity costs.
Quarterly earnings will be highly variable. The first half of 2009 is being negatively impacted by steel deflation (as inventory valuation and selling prices reflect lower steel costs). This impact should be essentially offset for the full year by a LIFO benefit; Leggett is now forecasting $68 million of LIFO benefit for the year, and anticipates recognizing approximately $17 million in each quarter. As a result of the mismatch in timing of these two offsetting items, earnings for the remaining quarters should improve.
Full year sales (from Continuing Operations) are projected to be $2.9-3.3 billion, or 19%-29% lower than in 2008. This reduction from prior guidance reflects anticipated continuation of extremely weak market demand.
Leggett expects 2009 cash requirements for dividends (approximately $155 million) and capital expenditures (about $100 million) to be funded solely from operating cash flow, which is anticipated to exceed $300 million. The company still intends to use excess cash flow primarily to repurchase shares of its stock; however, the company may complete those purchases at a slower pace than previously anticipated, depending on the outlook for the economy. Management has a standing authorization from the Board of Directors to purchase up to 10 million shares annually.
LIFO Expense
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 will be unusually low. Steel cost decreases in 1Q 2009 were significant, and contributed to an anticipated LIFO benefit of $68 million for the full year (for Continuing Operations), which contrasts with $62 million of LIFO expense in 2008. Earnings for the first quarter reflect a LIFO benefit of $17.0 million, compared to LIFO expense of $3.6 million in 1Q 2008.
SEGMENT RESULTS – First Quarter 2009 (versus 1Q 2008)
Residential Furnishings – Total sales from Continuing Operations decreased $109 million, or 21%. Extremely weak market demand more than offset inflation-related price increases and market share gains in specific product categories. EBIT (earnings before interest and income taxes) from Continuing Operations decreased $36 million, with the income impact of significantly lower unit volumes partially offset by cost reductions.
Commercial Fixturing & Components – Total sales from Continuing Operations decreased $77 million, or 40%, due to the company’s decision to walk away from sales with unacceptable profit margins, market softness in office furniture components, and reduced capital spending by retailers. EBIT from Continuing Operations decreased $11 million.
Industrial Materials – Total sales decreased $48 million, or 22%, as a result of weak demand. EBIT decreased $6 million primarily due to lower sales.
Specialized Products – Total sales from Continuing Operations decreased $65 million, or 38%. Weak global demand in all parts of the segment – automotive, machinery, and commercial vehicle products – led to the decline. EBIT from Continuing Operations declined $24 million due to lower sales.