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Leggett & Platt Inc. (LEG - Analyst Report), the manufacturer of diversified engineered products and components, posted fourth-quarter and full-year 2011 results, surpassing the Zacks Consensus Estimates.

Leggett's fourth-quarter earnings of 22 cents per share, marginally inched above the Zacks Consensus Estimate and year-ago earnings of 21 cents. The company’s full-year 2011 earnings of $1.20 per share beat the Zacks Consensus Estimate by 1 cent per share and the year-ago earnings by 5 cents per share. The increase in the bottom line was attributed to the company’s share buyback program and a lower effective tax rate.

Total sales in the quarter climbed 6.5% to $854.1 million compared with $801.9 million a year ago, benefitting from inflation and higher trade sales at the steel mill. The company’s quarterly sales also rose above the Zacks Consensus Estimate of $827 million. Same location sales of 6% in the quarter were flat compared with the year-ago quarter.

For full year, Leggett reported total sales of $3.636 billion, up 8% from the year-ago sales of $3.359 billion. The company’s yearly sales mainly benefitted from inflation and currency rate changes. Total sales for the year also compared favorably with the Zacks Consensus Estimate of $3.609 billion. Yearly volumes per unit recorded a growth of 3% driven by a shift in the sales mix at the company's steel mill.

Segment Revenue

Residential Furnishings revenue for the fourth quarter increased 6.2% to $434.7 million driven by inflation and a 1% increase in unit volume. Segment revenue for 2011 was up 5% to $1.827 billion, again on the back of inflation and currency changes.

Sales of Commercial Fixturing & Components moved down 4% to $96.8 million. Full-year sales totaled $502.4 million, down 5.3%, primarily due to reduced volumes in the store fixture operations.

Fourth quarter sales for the Industrial Materials segment was up 19.8% to $148.1 million, backed by steel-related price inflation and higher trade sales from steel mill. The company’s full-year sales increased 23.8% to $616.7 million.

Specialized Products segment witnessed a growth of 3.9% to $174.5 million in the fourth quarter, while full-year sales came in at $689.1 million, increasing 16.6%. The increase was driven mainly by unit volume growth in all three sectors of the segment.

Margins

Gross profit for the quarter inched up 1.1% to $143.0 million, and gross margin contracted 90 basis points to 16.7%, mainly due to higher cost of goods sold. Operating income dropped 74% to $12.9 million, and operating margin shrunk 470 basis points to 1.5% due to a 10% increase in selling & administrative expenses.

Sighting a flat demand scenario in 2011, the company remains focused on tightly managing costs, divesture of loss making units and other elements of its strategic plan. However, operating profit for the year declined 17% with margins contracting 210 basis points. The 2011 margins decline emanated from restructuring costs, inflation, and weak market demand for some products. However, the company is hopeful of reversing this trend in 2012.

Leggett Returns Value to Shareholders

Leggett remains committed to returning value to shareholders. Fiscal 2011 marked the 40th consecutive year of a dividend hike, which has been increasing at a CAGR of 14.0% and a yield of about 5%. The board of directors increased the quarterly dividend by a penny to 28 cents per share in 2011.

During 2011, the company also repurchased 10.1 million shares and issued 3.3 million shares under employee benefit and stock purchase plans. This brings the year-end total shares outstanding count to 139 million, a 5% decline from the previous year.

Other Financial Details

Leggett exited fiscal 2011 with cash and cash equivalents of $236.3 million, long-term debt of $833.3 million, and shareholders' equity of $1,307.7 million. During the year, the company produced $329 million cash from operations, of which $231 million was used to pay dividends and toward capital expenditure and $205 million to buy back the company’s shares.

Guidance

Going forward, the company expects to gain momentum as the economy expands. Anticipating a modest economic recovery in 2012, the company is forecasting sales in the range of $3.6-$3.8 billion. Further, the company is guiding earnings per share in the $1.20-$1.40 range for 2012. The company’s 2012 earnings is expected to include a 7 cents to 10 cents gain related to its restructuring activities, offset in part, by higher anticipated interest expense and effective tax rates. The current Zacks Consensus Estimate for fiscal 2012 is $1.36 per share.

For 2012, the company expects to generate more than $300 million in cash from operations, with capital spending and dividends estimated at about $100 million and $160 million, respectively. Further, the company remains open to capturing acquisition opportunities that fit its strategy and meet its criteria.

Leggett faces stiff competition from its rivals, such as Flexsteel Industries Inc. , Genuine Parts Company (GPC - Analyst Report) and Steelcase Inc. (SCS - Snapshot Report). The company currently retains a Zacks #2 Rank, which translates to a short-term Buy rating. However, we remain cautious on the stock and uphold our long-term 'Underperform' recommendation. At this stage, our caution is guided by the company's history of missing the Zacks Consensus Estimate and we wait to see further catalysts before becoming more positive on the stock.

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