Leggett & Platt Incorporated (LEG) appears strong as it embraces the earnings season with favorable stock price movement, a strong earnings surprise history, positive estimate revisions and an optimistic outlook.
The home furnishings retailer’s stock performance remained impressive throughout 2014, as is evident from its 52% year-over-year jump. In the trailing four quarters, Leggett has surpassed the Zacks Consensus Estimate three times, adding up to an average surprise of 1.9%. Further, the company has beaten the Zacks Consensus Estimate consecutively in the past two quarters, posting an average surprise of 2.1%.
In fact, in the most recently reported quarter, Leggett 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 carried down the income statement, resulting in an expansion of margins and consistent growth in earnings per share. In the third quarter of 2014, adjusted earnings came in at 51 cents a share, surging 31% year over year.
Following the splendid results, management raised its guidance for 2014. Leggett now expects adjusted earnings to come in the band of $1.75–$1.85 per share, compared with the previous guidance of a range of $1.70–$1.85 per share.
This upgraded outlook triggered an uptrend in the Zacks Consensus Estimate, which climbed 1.1% to $1.81 per share and nearly 2% to $2.09 per share for 2014 and 2015, respectively, over the past 90 days.
Leggett also boasts a solid financial status that 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 Flexsteel Industries Inc. (FLXS), Genuine Parts Company (GPC) and Hooker Furniture Corp. (HOFT), hopes to generate substantial future cash flows.
On analyzing the company’s growth initiatives, 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.
Taking a cue from all the aforementioned factors, we remain optimistic about the company’s fourth-quarter 2014 results, slated to release on Jan 29, 2015.
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