Shares of Leggett & Platt Inc. (LEG) achieved a new high of $40.12 yesterday before closing trade at $39.81. The stock has been gaining momentum since the company reported better-than-expected third-quarter 2014 bottom-line performance and raised its 2014 earnings guidance on Oct 22. Notably, this home furnishing retailer amassed a return of 12.5% since reporting the results and 28.7% year-to-date.
The company posted strong results in the quarter, backed by enhanced sales coupled with a lower tax rate and share count. In third-quarter 2014, the company demonstrated a significant progress in its efforts to boost sales, recording 14% year-over-year growth. Moreover, it was the company’s third consecutive quarter of gradual improvement in rate of sales growth driven by robust development in majority of its businesses.
This improvement in top-line performance along with a lowered share count has carried down the income statement resulting in an expansion in margins and consistent growth in earnings per share. We also remain optimistic about the company’s future performance given a positive outlook for fiscal 2014 and upward estimate revisions.
We commend Leggett’s consistent endeavors to keep itself on the growth trajectory through acquisitions that would augment its top-line performance over the long term. In order to enhance the core business operations and improve financial flexibility, Leggett is consistently taking strategic actions to add new products to its portfolio as per the changing preferences of consumers, while simultaneously divesting low-performing businesses.
Some of the steps taken by Leggett during the last year to enhance its business portfolio include the acquisition of three U.S. innerspring component production facilities of Tempur Sealy, investments in machinery to support the significant growth seen in Comfort Core innersprings, expansion in China to sustain rapid growth of its automotive business and a small acquisition of a German designer of motion furniture hardware in the third quarter. On the other hand, the company is in the process of divesting its Store Fixtures business, which has not been performing up to the mark.
We are also impressed with this Zacks Rank #2 (Buy) company’s strong financial base that enables it to make profitable ventures and return value to shareholders. The company’s net debt to net capital ratio stands at 34.8%, close to the mid-point of the company's long-term targeted range of 30%-40%. Furthermore, the company is rationalizing its capital expenditures, including store-remerchandising efforts, to improve its return on investment. As a result, the company expects to generate substantial future cash flows.
Apart from Leggett, Church & Dwight Co. Inc. (CHD), The Clorox Co. (CLX) and Costco Wholesale Corp. (COST) also hit 52-week highs of $73.62, $102.18 and $136.72, respectively, on Nov 4.
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