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Leggett (LEG) Narrows 2017 View After Mixed Q3 Earnings
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Leggett & Platt Incorporated (LEG - Free Report) reported mixed results for third-quarter 2017. While earnings were in line with estimates, sales lagged marginally. Further, the bottom line dropped year over year and sales grew. Following the mixed quarter, the company narrowed earnings and sales guidance for 2017.
While the results had no impact on the stock price, shares of Leggett have underperformed the industry year to date. Leggett has dipped 1.3%, while the industry grew 5%.
The company’s quarterly adjusted earnings of 61 cents per share dropped nearly 9% year over year. However, earnings for the quarter were in line with the Zacks Consensus Estimate. During the quarter, benefits from higher sales were more than offset by increased raw material expenses.
Delving Deeper
While net sales rose 6% to $1,009.7 million, it fell marginally short of the Zacks Consensus Estimate of $1,010.2 million. Including inter-segment sales, total sales came in at $1,083.6 million, up 4.3% year over year.
Organic sales improved 6%, driven by persistent strength in Automotive, Adjustable Bed, and several other businesses. Additionally, sales gained from 4% rise in unit volume and 2% gain from raw material price inflation and currency. Also, acquisitions aided sales growth by 2%, somewhat offset by divestitures.
Gross profit dropped 5% year over year to $215.8 million, while gross margin contracted 260 basis points (bps) to 21.4%. The company’s EBIT margin declined 290 bps to 10.8% in the third quarter. In dollar terms, adjusted EBIT was down 16% at $109.2 million. The fall in EBIT margin can be attributed to the pricing lag that the company generally undergoes in times of commodity inflation.
Segment Details
Third-quarter Residential Products’ sales of $426.7 million increased 5.8% from last year, as a 4% contribution from buyouts was offset by a 3% fall in same location sales. Volumes remained flat as growth in most businesses was fully offset by 2% sales decline due to lower pass-through sales of adjustable beds. Additionally, raw material price inflation and currency contributed 2% to sales. Including inter-segment sales, total sales for the segment rose 5.9% to $431.2 million.
Sales of Furniture Products jumped 11.5% to $284 million, thanks to benefits from higher Adjustable Bed sales. Total sales for the segment (including inter-segment sales) grew 8.2% to $287.7 million. Same location sales for the segment were up 7%.
The Industrial Products segment's sales fell 0.3% to $71.2 million, mainly due to divestitures completed in 2016 and a 3% fall in same location sales. Total sales, including inter-segment sales, slumped 6.7% to $135 million.
The Specialized Products segment's sales improved 3.7% to $227.8 million. Same location sales rose 9% backed by solid Automotive volumes and favorable currency impact. Divestiture of CVP hurt sales by 5%. Total sales for the segment (including inter-segment sales) climbed 3.8% to $229.7 million.
Financials
Leggett ended the quarter with cash and equivalents of $342.9 million and long-term debt of $1,044.4 million. The company generated $105.4 million in cash flow from operations in the third quarter, with year-to-date cash flows of $261.5 million.
The company had net debt to net capital ratio of 38% at quarter end, close to the higher end of its targeted range of 30-40%. Further, Leggett’s debt was 2.1times of its trailing 12-month adjusted EBITDA.
In August, management announced third-quarter dividend of 36 cents per share. Additionally, the company repurchased nearly 0.9 million shares for an average price of $47.24 during the quarter under review, where it also issued 0.4 million shares through employee benefit plans and option exercises. In first three quarters of 2017, Leggett bought back 3.3 million shares, while it issued 1.6 million shares.
Guidance
Following the third quarter, management narrowed sales and earnings outlook for 2017. Sales for 2017 are now anticipated to grow by 5-7% to $3.95-$4 billion. This reflects the raising of the lower-end of the guidance range from the old sales guidance of 4-7% growth to $3.9-$4.0 billion. Consequently, adjusted EBIT margin is expected to be nearly 12%.
Moreover, management narrowed reported EPS range to a band of $2.49-$2.54 from the previous range of $2.55-$2.65. Adjusted EPS is now envisioned in the range of $2.45-$2.50, compared with the previous range of $2.40-$2.50.
For the fourth quarter, the company now anticipates sales of $0.99-$1.04 billion. Reported earnings per share are expected to be in the range of 62-67 cents, while adjusted earnings are projected in the 58-63 cents per share range.
Additionally, continuing with its trend of generating more cash than required to fund dividends and capital expenditures, Leggett expects operating cash flows of about $425 million for 2017. Capital expenditures for the year are anticipated to be approximately $160 million, while the company intends to spend $185 million toward dividend payouts. The company outlined the target dividend payout ratio to be 50-60% of net earnings.
Further, this Zacks Rank #4 (Sell) company expects to continue with share repurchase program, having a standing authorization to buy back up to 10 million shares every year, after fulfilling all priority requirements.
3 Trending Picks From Consumer Discretionary Space
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Adidas has gained a whopping 41.6% year to date. Moreover, it has a long-term earnings growth rate of 20.9%.
G-III Apparel has improved 10.4% in last six months. Further, the company has a long-term earnings growth rate of 15%.
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Leggett (LEG) Narrows 2017 View After Mixed Q3 Earnings
Leggett & Platt Incorporated (LEG - Free Report) reported mixed results for third-quarter 2017. While earnings were in line with estimates, sales lagged marginally. Further, the bottom line dropped year over year and sales grew. Following the mixed quarter, the company narrowed earnings and sales guidance for 2017.
While the results had no impact on the stock price, shares of Leggett have underperformed the industry year to date. Leggett has dipped 1.3%, while the industry grew 5%.
The company’s quarterly adjusted earnings of 61 cents per share dropped nearly 9% year over year. However, earnings for the quarter were in line with the Zacks Consensus Estimate. During the quarter, benefits from higher sales were more than offset by increased raw material expenses.
Delving Deeper
While net sales rose 6% to $1,009.7 million, it fell marginally short of the Zacks Consensus Estimate of $1,010.2 million. Including inter-segment sales, total sales came in at $1,083.6 million, up 4.3% year over year.
Organic sales improved 6%, driven by persistent strength in Automotive, Adjustable Bed, and several other businesses. Additionally, sales gained from 4% rise in unit volume and 2% gain from raw material price inflation and currency. Also, acquisitions aided sales growth by 2%, somewhat offset by divestitures.
Gross profit dropped 5% year over year to $215.8 million, while gross margin contracted 260 basis points (bps) to 21.4%. The company’s EBIT margin declined 290 bps to 10.8% in the third quarter. In dollar terms, adjusted EBIT was down 16% at $109.2 million. The fall in EBIT margin can be attributed to the pricing lag that the company generally undergoes in times of commodity inflation.
Segment Details
Third-quarter Residential Products’ sales of $426.7 million increased 5.8% from last year, as a 4% contribution from buyouts was offset by a 3% fall in same location sales. Volumes remained flat as growth in most businesses was fully offset by 2% sales decline due to lower pass-through sales of adjustable beds. Additionally, raw material price inflation and currency contributed 2% to sales. Including inter-segment sales, total sales for the segment rose 5.9% to $431.2 million.
Sales of Furniture Products jumped 11.5% to $284 million, thanks to benefits from higher Adjustable Bed sales. Total sales for the segment (including inter-segment sales) grew 8.2% to $287.7 million. Same location sales for the segment were up 7%.
The Industrial Products segment's sales fell 0.3% to $71.2 million, mainly due to divestitures completed in 2016 and a 3% fall in same location sales. Total sales, including inter-segment sales, slumped 6.7% to $135 million.
The Specialized Products segment's sales improved 3.7% to $227.8 million. Same location sales rose 9% backed by solid Automotive volumes and favorable currency impact. Divestiture of CVP hurt sales by 5%. Total sales for the segment (including inter-segment sales) climbed 3.8% to $229.7 million.
Financials
Leggett ended the quarter with cash and equivalents of $342.9 million and long-term debt of $1,044.4 million. The company generated $105.4 million in cash flow from operations in the third quarter, with year-to-date cash flows of $261.5 million.
The company had net debt to net capital ratio of 38% at quarter end, close to the higher end of its targeted range of 30-40%. Further, Leggett’s debt was 2.1times of its trailing 12-month adjusted EBITDA.
In August, management announced third-quarter dividend of 36 cents per share. Additionally, the company repurchased nearly 0.9 million shares for an average price of $47.24 during the quarter under review, where it also issued 0.4 million shares through employee benefit plans and option exercises. In first three quarters of 2017, Leggett bought back 3.3 million shares, while it issued 1.6 million shares.
Guidance
Following the third quarter, management narrowed sales and earnings outlook for 2017. Sales for 2017 are now anticipated to grow by 5-7% to $3.95-$4 billion. This reflects the raising of the lower-end of the guidance range from the old sales guidance of 4-7% growth to $3.9-$4.0 billion. Consequently, adjusted EBIT margin is expected to be nearly 12%.
Moreover, management narrowed reported EPS range to a band of $2.49-$2.54 from the previous range of $2.55-$2.65. Adjusted EPS is now envisioned in the range of $2.45-$2.50, compared with the previous range of $2.40-$2.50.
For the fourth quarter, the company now anticipates sales of $0.99-$1.04 billion. Reported earnings per share are expected to be in the range of 62-67 cents, while adjusted earnings are projected in the 58-63 cents per share range.
Additionally, continuing with its trend of generating more cash than required to fund dividends and capital expenditures, Leggett expects operating cash flows of about $425 million for 2017. Capital expenditures for the year are anticipated to be approximately $160 million, while the company intends to spend $185 million toward dividend payouts. The company outlined the target dividend payout ratio to be 50-60% of net earnings.
Further, this Zacks Rank #4 (Sell) company expects to continue with share repurchase program, having a standing authorization to buy back up to 10 million shares every year, after fulfilling all priority requirements.
3 Trending Picks From Consumer Discretionary Space
Some better-ranked stocks in the consumer discretionary space include Skechers U.S.A., Inc. (SKX - Free Report) , Adidas AG (ADDYY - Free Report) and G-III Apparel Group, LTD. (GIII - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Skechers has a long-term EPS growth rate of 14%. Further, the stock has returned 14.9% in three months.
Adidas has gained a whopping 41.6% year to date. Moreover, it has a long-term earnings growth rate of 20.9%.
G-III Apparel has improved 10.4% in last six months. Further, the company has a long-term earnings growth rate of 15%.
Wall Street’s Next Amazon
Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.
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