Leggett & Platt, Incorporated LEG posted second-quarter 2015 results, wherein its earnings from continuing operations increased 10% year over year to 53 cents per share, on the back of solid volume gains and record EBIT (earnings before interest and income taxes) margins. However, the bottom line fell a penny short of the Zacks Consensus Estimate.
Including discontinued operations, the company’s earnings came in at 54 cents per share, comparing favorably with a loss of 17 cents reported in the year-ago period.
Delving Deeper
Driven by robust volume growth across almost all its business segments, Leggett’s net sales advanced 4% to $997.3 million. However, the figure missed the Zacks Consensus Estimate of $1,031.2 million. On including inter-segment sales, total sales came in at $1,114.9 million, up 6.3% year over year.
In particular, the company gained from Comfort Core innersprings and adjustable beds, which generated volume growth of more than 70%. Moreover, the company witnessed over 10% organic volume growth in U.S. Spring, Automotive, Fashion Bed, Machinery and Aerospace. The positive impact was somewhat negated by lower CVP sales.
Sales volume during the second quarter rose 9%, mainly attributable to same location unit volume growth coupled with gains from acquisitions, partially offset by adverse currency effects and raw-material price deflation. However, total same location sales from continuing operations slipped 1% during the quarter.
Benefiting from top-line growth, gross profit jumped 14.9% year over year to $230.7 million, with the gross margin expanding 210 basis points (bps) to 23.1%.
Additionally, the company’s adjusted EBIT margin improved 130 bps to 12.0% in the second quarter, marking Leggett’s highest quarterly EBIT margin over the past 15 years. This was backed by better capacity utilization, improved sales and effective pricing.
Segment Details
Second-quarter Residential Furnishings’ sales ascended 10% to $522.2 million. Same location sales for the segment were up 3% on the back of a rise in unit volumes in most product categories and acquisition-related gains which were partly offset by currency headwinds and raw material price deflation. Further, EBIT rose 3% year over year to $51.2 million, benefiting from higher sales.
Sales of Commercial Products escalated 20.1% to $135.4 million, with the segment’s EBIT soaring 42% year over year to $10.8 million. Same location sales at the segment were up 18%, backed by robust demand in the Adjustable Bed unit, along with benefits from acquisitions.
The Industrial Materials segment's sales slumped 20.4% to $106.3 million, owing to a fall in steel prices. However, EBIT soared 64% year over year to $14.8, benefiting from cost curtailments and better pricing.
The Specialized Products segment's sales dropped 0.6% to $233.4 million owing to negative currency translations and reduced CVP volumes. EBIT for the segment increased 4% to $37.7 million, primarily attributable to higher volumes, offset mainly by greater performance-based compensation costs.
Financials
Leggett ended the quarter with cash and equivalents of $275.1 million, long-term debt of $831.7 million and shareholders' equity of $1,110.0 million.
During the first two quarters, Leggett’s cash flow from operations came in at $126.9 million. During the second quarter of 2015, the company bought back 1.2 million shares worth $57.6 million, while it issued another 0.2 million shares through employee benefit programs and options. The company has repurchased and issued 2.8 million and 1.8 million shares year to date, respectively.
Further, during the second quarter, Leggett announced a quarterly dividend of 31 cents a share.
Also, on a three-year basis, from Jan 1, 2013, the company’s annual Total Shareholder Return (“TSR”) so far, is 31% per year which places it 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 position 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 outstanding share count.
Further, the company intends to achieve this goal on the back of GDP expansion, its internal attempts to enhance market share, undertake innovations and make profitable acquisitions.
Guidance
Overall, management is impressed with the company’s performance in the first half 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 raised its sales and earnings guidance for the year.
The company now projects sales from continuing operations for 2015 to grow in the range of 4%–8% to $3.95–$4.10 billion. This is likely to meet or beat Leggett’s targeted annual sales growth of 4%–5%. The company’s previous sales projection for the year was of 3%–8% growth resulting in sales of $3.9–$4.1 billion.
Consequently, Leggett now envisions full-year earnings to range from $2.00–$2.15 per share, up from its previous forecast of $1.95–$2.10 per share.
Additionally, continuing with its trend of generating more cash than required to fund dividends and capital expenditures, the company expects operating cash flows for 2015 to surpass $350 million. Capital expenditures for the year are anticipated to be approximately $120 million, while the company hopes to spend $170 million toward dividend payouts.
Further, Leggett expects to continue with its share repurchase program, having a standing authorization to buy back up to 10 million shares every year, after fulfilling all priority requirements. During 2015, Leggett intends to buy back 3–5 million shares, apart from issuing 2.5 million shares through option exercises and employee benefit schemes.
Zacks Rank
Leggett currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Hooker Furniture Corp. HOFT, Virco Mfg. Corporation VIRC, each sporting a Zacks Rank #1 (Strong Buy), and Masonite International Corporation DOOR, carrying a Zacks Rank #2 (Buy).
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