Leggett & Platt Incorporated (LEG) – the manufacturer of diversified engineered products and components – reported third-quarter 2013 earnings per share from continuing operations of 43 cents, down nearly 4.4% from 45 cents in the comparable year-ago quarter. The quarterly earnings also missed the Zacks Consensus Estimate by a penny.
The company’s third-quarter earnings included a gain of 6 cents from the acquisition completed during the quarter, including which, earnings per share came in at 49 cents, up 8.9% from 45 cents in the prior-year quarter.
Total sales of this Zacks Rank #2 (Buy) company dipped 2.1% to $957.7 million, compared with $978.1 million in the year-ago quarter, while it also lagged the Zacks Consensus Estimate of $993.0 million. Sales were negatively affected by a 3% decline in same-store sales, resulting from diminished fixture unit volume, partially offset by a 1% positive impact from acquisitions.
Gross profit declined 5.8% year over year to $193.0 million, mainly due to lower sales, partly offset by a slight decline in cost of goods sold.
Operating income rose 1.2% to $106.2 million from $104.9 million in the year-ago quarter. Simultaneously, operating margin improved 40 basis points to 11.1%.
Segment Details
Third-quarter Residential Furnishings revenues increased 5.6% to $508.6 million, primarily due to a rise in volumes and raw material prices. Operating income increased 18.4% year over year to $47.0 million, on the back of higher unit volume.
Sales of Commercial Fixturing & Components slipped 20.5% to $129.5 million due to the absence of robust sale of store fixtures to a major retailer compared to last year. On the other hand, operating income recorded a substantial decline of 58.3% to $8.0 million, compared with $19.2 million in the comparable prior-year quarter, primarily due to a decline in sales.
The Industrial Materials segment’s sales witnessed a 4.5% decline to $206.0 million, impacted by a 10.0% fall in same-location sales. Same-location sales were negatively impacted by lower trade sales at the rod mill, deflationary trends in steel prices and lower unit volume. Operating income dipped 15.6% year over year to $16.2 million, due to lower sales and metal margins.
Specialized Products segment’s sales rose 1.2% year over year to $192.0 million, driven by strong sales in Automotive, offset by the downside in Commercial Vehicle Products (CVP). Operating income declined 4.4% to $21.9 million, mainly due to lower sales and operational challenges in CVP.
Other Financial Details
Leggett possesses a solid financial base as of the end of third-quarter 2013, with cash and equivalents of $298.9 million, long-term debt of $957.5 million, and shareholders' equity of $1,463.7 million. The company’s net debt to net capital ratio as of Sep 30, 2013 was 27.9%, marginally below the company’s long-term targeted range of 30.0%–40.0%.
Simultaneously, Leggett has an impressive dividend policy focused on returning better value to shareholders, along with a regular share repurchase program. In August, the company raised its quarterly dividend to 30 cents per share, up 3.4% from second-quarter 2013. Further enhancing investor returns, the company bought back 1.1 million shares in the quarter, bringing the total repurchases for the nine months of 2013 to 3.9 million shares.
Guidance
Leggett now expects its 2013 sales to increase 1% to $3.75 billion, against the previous forecast of $3.75–$3.85 billion.
For 2013, Leggett expects adjusted EPS in the range of $1.50–$1.55, compared with the prior guidance of $1.50–$1.65. The revised guidance excludes the 6 cents gain from the acquisition in the third quarter. Including the acquisition gain, EPS is expected to be in the range of $1.61–$1.66.
Additionally, continuing its trend of generating more cash than required to fund dividends and capital expenditures, the company expects operating cash flows of over $350 million. Capital expenditure for the year will approximately be $85 million, while the company hopes to pay $125 million toward dividend.
Further, Leggett expects to continue with its share repurchase program, having a standing authorization to buy back up to 10 million shares every year.
Other Stocks to Consider
Apart from Leggett, other well performing stocks in the consumer discretionary sector include Deckers Outdoor Corp. (DECK), Hanesbrands Inc. (HBI) and Brown Shoe Co. Inc. (BWS). All these stocks carry a Zacks Rank #1 (Strong Buy).
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