Leggett & Platt, Incorporated (LEG) – the manufacturer of diversified engineered products and components – reported second-quarter 2013 earnings per share from continuing operations at 44 cents, up nearly 13.0% from 39 cents in the comparable year-ago quarter. The quarterly earnings came in line with the Zacks Consensus Estimate.
During the quarter, the company discontinued three small operations. Including the impact of these, earnings per share came in at 48 cents, up 7.0% from 45 cents in the prior-year quarter.
Total sales of this Zacks Rank #3 (Hold) company rose 3.0% to $958.8 million, compared with $934.6 million in the year-ago quarter, while lagging the Zacks Consensus Estimate of $978.0 million. Sales were favorably impacted by a 2% rise in same-store sales, a 3% rise in unit volume and positive impact of 1% due to acquisitions, partly offset by declining rod mill trade sales.
Gross profit grew 6.6% year over year to $199.1 million, mainly due to higher sales, partly offset by a rise in the cost of goods sold.
Operating income rose 13.0% to $98.5 million from $86.8 million in the year-ago quarter. Simultaneously, operating margin improved 100 basis points to 10.3%.
Segment Details
Second-quarter Residential Furnishings revenues inched up 2.6% to $484.4 million, primarily due to rises in volumes and raw material prices. Operating income increased 6.0% year over year to $42.4 million, on the back of higher unit volume, positive product mix in the U.S. spring, and benefits from building sales, which were partly offset by pressured margin in fabric converting.
Sales of Commercial Fixturing & Components moved up 11.0% to $126.2 million. On the other hand, operating income recorded a whopping rise of 155.0% to $7.9 million, compared with $3.1 million in the comparable prior-year quarter, primarily due to surge in sales and absence of the previous year’s restructuring-related expense.
The Industrial Materials segment’s sales witnessed a 6.9% decline to $155.8 million, impacted by a 9.0% fall in same-location sales. Same-location sales were negatively impacted by lower trade sales at the rod mill and deflationary trends in steel prices. Operating income escalated 20.0% year over year to $21.9 million, due to absence of the past year's costs involved in acquisition-related activities, benefit from equipment sales, and earnings derived from acquisitions.
Specialized Products segment’s sales rose 6.0% year over year to $192.0 million. Operating income increased 9.0% to $28.4 million, mainly due to higher sales.
Other Financial Details
Leggett had a solid financial base at the end of second-quarter 2013, with cash and equivalents of $280.3 million, long-term debt of $973.9 million, and shareholders' equity of $1,433.7 million. The company’s net debt to net capital ratio as of Jun 30, 2013 was 29.3%, 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. On Jul 15, the company paid a quarterly dividend of 29 cents per share, up 3.6% from second-quarter 2012, to shareholders of record as of Jun 14.
Further enhancing investor returns, the company bought back 1.2 million shares in the quarter.
Guidance
Leggett now expects its 2013 sales to increase 1%–4% to $3.75–$3.85 billion. Earlier, the company projected sales to increase 2%–6%.
For 2013, Leggett expects EPS from continuing operations to be in the range of $1.50–$1.65, marginally below the prior guidance of $1.55–1.75. Including tax benefits from discontinued operations, EPs is expected to be in the range of $1.55–$1.70.
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 likely be approximately $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 retail sector include Skechers USA Inc. (SKX), Wolverine World Wide Inc. (WWW) and Brown Shoe Co. Inc. (BWS). All these stocks carry a Zacks Rank #1 (Strong Buy).
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