Driven by solid volume gains and high margins, Leggett & Platt, Incorporated LEG started off 2015 on a solid note. The company’s first-quarter 2015 adjusted earnings from continuing operations surged 31.6% year over year to 50 cents a share, handily beating the Zacks Consensus Estimate of 46 cents.
Shares of the company inched up 1.2% in the after-market session following the earnings announcement.
Including discontinued operations, the company’s earnings jumped 35.1% year over year.
Delving Deeper
Backed by improved demand that propelled volume growth across almost all the business segments, Leggett’s net sales advanced 10.4% year over year to $966.2 million. Net sales were almost in line with the Zacks Consensus Estimate of $966 million.
In particular, the company gained from a shift from the bedding markets to Comfort Core springs. Moreover, new programs along with ongoing content gains fuelled results.
Same location sales grew 5.6%, benefiting from an 8.5% improvement in volumes, a contribution of 4.8% from acquisitions, partly offset by adverse currency effects and raw-material price deflation.
Benefiting from top-line growth, gross profit jumped 23% year over year to $217.8 million, with gross margin expanding 230 basis points (bps) to 22.5%. Additionally, the company’s adjusted EBIT (earnings before interest and income taxes) margin improved 180 bps to 11.6% in the first quarter, reflecting enhanced efficiency, improved sales and effective pricing.
Segment Details
First-quarter Residential Furnishings sales ascended 18.1% to $529.5 million. Same location sales for the segment were up 10% on the back of a rise in unit volumes in most product categories, partly offset by currency headwinds. Further, EBIT jumped 11% year over year to $52.1 million, benefitting from higher sales.
Sales of Commercial Products escalated 20.9% to $141 million, with the segment’s EBIT soaring 40% year over year to $8 million. Same location sales at the segment were up 17%, as a result of robust demand in the Adjustable Bed unit.
The Industrial Materials segment's sales witnessed a 6.5% increase to $192.4 million, primarily driven by strong wire volumes. However, to some extent, results of this segment bore the brunt of a fall in steel prices. EBIT climbed 4% year over year to $8 million on higher volume, partly offset by an impairment charge recorded in the Steel Tubing business unit.
The Specialized Products segment's sales rose 5.8% year over year to $228.5 million, fuelled by strength witnessed at Leggett's automotive parts, somewhat offset by negative currency translations. EBIT for the segment soared 42% to $39.3 million, owing to improved volumes coupled with productivity enhancements in the European aerospace operations.
Financials
Leggett ended the quarter with cash and equivalents of $262.2 million, long-term debt of $798 million and shareholders' equity of $1,116.4 million.
During the quarter, Leggett’s cash flow from operations came in at $32.1 million. The company bought back 1.5 million shares worth $66.8 million, while it issued another 1.5 million shares through employee benefit programs and options.
Further, during the quarter, Leggett announced a quarterly dividend of 31 cents a share.
Also, on a 3-year basis starting Jan 1, 2013, the company’s Total Shareholder Return (“TSR”) so far ranks 34% among the top S&P 500 companies.
Going forward, the company intends to stay 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 revenues, generating significant dividend yield, enhancing margins and reducing the count of shares outstanding.
Further, the company intends to achieve this goal on the back of GDP expansion, its internal attempts to enhance market share, undertake innovations and continue making profitable acquisitions.
Guidance
Overall, management is impressed with the company’s performance in the very first quarter of the year. Going ahead, for 2015, Leggett anticipates generating record sales and EPS, along with highest EBIT margin since 2000.
Following a strong quarter and optimistic statements, Leggett continues to project sales from continuing operations in 2015 to grow in the 3%–8% range and to come within $3.9–$4.1 billion.
Notably, Leggett raised the lower end of its earnings outlook. The company now envisions full year earnings to range from $1.95–$2.10 per share, compared to $1.90 to $2.10 predicted earlier.
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. During 2015, Leggett intends to buy back 3–5 million shares, apart from issuing an additional 3 million shares through option exercises and employee benefit schemes.
Zacks Rank
Leggett currently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the sector include American Woodmark Corp. AMWD, Hooker Furniture Corp. HOFT and Virco Mfg. Corporation VIRC, each carrying a Zacks Rank #1 (Strong Buy).
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