Leggett & Platt, Incorporated (LEG) ended its run for 2014 with its fourth-quarter 2014 adjusted earnings from continuing operations climbing 7.9% year over year to 41 cents a share. However, earnings fell short of the Zacks Consensus Estimate of 44 cents.
The improvement in earnings was backed by enhanced sales, coupled with lower LIFO expenses. This was partly offset by greater adjusted tax rate and increased accruals associated with the company’s stock-based compensation plans.
However, including one-time items and discontinued operations, the company reported earnings of 14 cents per share, significantly up from earnings of 4 cents in the fourth quarter of 2013.
Delving Deeper
Backed by growth in all its business segments, net sales of this Zacks Rank #2 (Buy) stock increased nearly 11% year over year to $953.3 million, surpassing the Zacks Consensus Estimate of $946 million.
Same location sales climbed 6%, benefiting from robust volume increase in most of the company’s Residential, Work Furniture and Automotive businesses, along with a contribution of 5% from acquisitions.
Benefiting from top-line growth, gross profit jumped 23.4% year over year to $203.8 million, with gross margin expanding 220 basis points (bps) to 21.4%. Additionally, the company’s adjusted operating margin improved 110 bps to 9.5% in the fourth quarter.
A Glance at 2014
Leggett’s full-year 2014 earnings soared 19% year over year to $1.78 per share, missing the Zacks Consensus Estimate of $1.81. Also, on the back of its solid segments, the company’s full-year sales advanced roughly 9% year over year to $3,782.3 million, beating the Zacks Consensus Estimate of $3,775 million and its own target of 4%–5% growth.
Adjusted operating margin from continuing operations also achieved a 60 bps increase to 10.2%, double of management’s target of achieving an increase of 20–30 bps.
Segment Details
Fourth-quarter Residential Furnishings sales increased 20.9% to $583.9 million. Same location sales for the segment were up 12% on the back of a rise in unit volumes in most product categories, along with benefits from acquisitions. However, operating income decreased 35% year over year to $25.7 million as the benefit from higher sales was more than offset by litigation expenses of $22 million.
Sales of Commercial Fixturing & Components escalated 14.7% to $52.3 million, with the segment’s operating income improving 10% year over year to $3.4 million.
The Industrial Materials segment's sales witnessed a 4.5% increase to $206.9 million, primarily driven by strong wire volumes. Operating income surged 10% year over year to $13.5 million on higher sales.
The Specialized Products segment's sales rose 4.8% year over year to $213.5 million, fuelled by strength witnessed at Leggett's Automotive parts, somewhat offset by weakness at Commercial Vehicle Products (“CVP”). Operating income for the segment soared significantly to $29.7 million from a loss of $39.1 million in the prior-year quarter, backed by strong sales.
Financials
Leggett, which competes with Genuine Parts Company (GPC), ended the year with cash and equivalents of $332.8 million, long-term debt of $766.7 million and shareholders' equity of $1,154.9 million. The company's net-debt-to-capital ratio as of Dec 31, 2014 was 31.5%. This stood within the company's long-term targeted range of 30%–40%. Moreover, the company had its full $600 million available under its commercial paper program.
During 2014, Leggett’s cash flow from operations came in at $382 million. The company bought back 5.4 million shares, while it issued 3.9 million shares, spending about $128 million on its net repurchases during the year. Further, Leggett incurred nearly $168 million on dividend payments, $70 million in acquisitions and $94 million as capital expenditures during the year.
Also, the company’s Total Shareholder Return (“TSR”) for 2014 was 43% and on the basis of 3-year TSR, the company stands among the top S&P 500 companies.
Overall, management remains impressed with the company’s performance in 2014, as it was a year that witnessed record earnings, impressive stock price increase and spectacular TSR, all stemming from robust financials coupled with solid margins and volumes.
Going forward, the company intends to remain focused on its main goal of achieving a three-year rolling TSR which will place it among the top-third of all S&P 500 companies. In order to achieve this goal, Leggett remains committed to its balanced strategy which includes increasing revenue, generating significant dividend yield, enhancing margins and reducing the count of shares outstanding.
Guidance
Following a strong year and optimistic statements, Leggett anticipates generating greater sales growth, achieving higher operating margin improvement and delivering record earnings in 2015.
The manufacturer of diversified engineered products projects sales from continuing operations in 2015 to grow in a 3%–8% range and to come within $3.9–$4.1 billion.
Further, Leggett envisions earnings to come in the band of $1.90 to $2.10 per share that is within the Zacks Consensus Estimate currently pegged at $2.09 per share.
Additionally, continuing its trend of generating more cash than required to fund dividends and capital expenditures, the company expects operating cash flows for 2015 to be roughly $350 million. Capital expenditures for the year are anticipated to be approximately $120 million, while the company hopes to spend $170 million toward dividend payout.
Further, Leggett expects to continue with its share repurchase program, having a standing authorization to buy back up to 10 million shares every year. The company also intends to buy back shares which are enough to compensate for its expected issuance of 2–3 million shares.
Other Stocks to Consider
Other retail stocks looking attractive at current levels include Masonite International Corporation (DOOR) and Select Comfort Corporation (SCSS), each sporting a Zacks Rank #1 (Strong Buy).
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