Leggett & Platt Inc. (LEG) has been gaining traction on the back of its long-term strategic initiatives focused on boosting its top line and the policy of streamlining its business portfolio through acquisitions and divestitures. Its strong financial base and sturdy quarterly performances also position it well. Over the long term, the company expects to attain sales growth of 4%–5% annually.
We commend Leggett’s consistent endeavors to keep itself on the growth trajectory through acquisitions that would eventually augment its top-line performance. In order to enhance core business operations and improve financial flexibility, Leggett has been persistently undertaking strategic actions to add new products to its portfolio to satisfy the changing preferences of consumers, while simultaneously divesting underperforming businesses.
Some of the steps taken by Leggett last year to enhance its business portfolio include the acquisition of three U.S. innerspring component production facilities of Tempur Sealy, investment 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 motion furniture hardware designer in the third quarter of 2014.
On the other hand, the company recently divested a major chunk of its Store Fixtures operations, which had not been performing up to the mark for quite some time. The unit, which formed part of Leggett’s Commercial Fixturing & Components segment, was sold to Lozier Corporation for roughly $62 million. The company had been considering this sale for a long time.
We are also impressed by the company’s strong financial base which enables it to make profitable ventures and return value to shareholders. The company’s net-debt-to-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, Leggett, which competes with Genuine Parts Company (GPC), hopes to generate substantial future cash flows.
Gathering momentum from its fundamental strength, the shares of this manufacturer of diversified engineered products surged to a 52-week high of $43.08 on Dec 29, 2014. This Zacks Rank #3 (Hold) stock has also amassed a year-to-date return of 38.8%.
Coming to Leggett’s quarterly performances, the company has posted positive earnings surprises in three of the trailing four quarters, with an average surprise of 1.9%. In third-quarter 2014, the company demonstrated 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 of 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
Other Stocks to Consider
Other stocks performing well in the furniture sector include Hooker Furniture Corp. (HOFT) and Norcraft Companies Inc. (NCFT), both carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment