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Leggett & Platt Inc. (LEG - Analyst Report), the manufacturer of diversified engineered products and components, posted a flat year-over-year earnings of 30 cents per share for first-quarter 2012, missing the Zacks Consensus Estimate of 32 cents. Benefits from increased sales were fully offset by higher tax rate, resulting in flat year-over-year earnings growth.

Total sales in the quarter climbed 5.7% to $946.8 million compared with $895.8 million a year ago, benefitting from the acquisition of Western Pneumatic Tube and increased same-location sales. The company’s quarterly sales also rose above the Zacks Consensus Estimate of $928 million. Same-location sales increased 4.5%, driven by unit volume and inflation.

Segment Revenue

Residential Furnishings revenue for the first quarter climbed 7.1% to $492.6 million driven by 2% increase in inflation and a 5% rise in unit volume. However, operating income declined 5% to $40.2 million compared with $42.1 million in the prior-year quarter as the benefit from increased sales were more than offset by higher raw material costs and unfavorable product mix.

Sales of Commercial Fixturing & Components moved down 11.5% to $114.2 million, primarily due to divesture and an 8% decline in same location sales. Consequently, operating income during the quarter decreased 12% to $7.2 million compared with $8.2 million in the prior-year quarter.

First quarter sales for the Industrial Materials segment was up 13% to $237.7 million backed by higher inflation, benefit from acquisition of Western Pneumatic Tube and higher same location sales, partially offset by a 1% decline in unit volume. Conversely, operating income declined 16%, primarily due to some adjustment regarding the acquisition of Western Pneumatic Tube.

Specialized Products segment witnessed growth of 6% to $185.3 million in the first quarter. However, operating income inched down 1% to $17.9 million compared with $18.1 million.

Margins

Gross profit for the quarter grew 4.9% to $178.3 million, while gross margin contracted 20 basis points to 18.8%, mainly due to higher cost of goods sold. Operating income remains almost flat at $74.6 million compared with $74.2 million in the prior-year quarter. However, operating margin shrunk 40 basis points to 7.9% due to a 2% increase in selling & administrative expenses and lower gross margin.

Other Financial Details

Leggett exited the first quarter of fiscal 2012 with cash and equivalents of $261.2 million, long-term debt of $1,046.8 million, and shareholders' equity of $1,343.2 million. During the quarter, the company generated $65.1 million cash from operations and paid $39 million toward dividend and $2.5 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 has raised its sales forecast for the fiscal in the range of $3.65-$3.85 billion instead of $3.6-$3.8 billion anticipated earlier. Further, the company forecasts earnings per share between $1.25 and $1.45 for 2012, up from $1.20-$1.40 guided earlier.

For 2012, the company expects to generate more than $325 million in cash from operations instead of its previous expectation of $300 million, with capital spending and dividends estimated at about $100 million and $160 million, respectively. Further, the company remains open to capture 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 #4 Rank, which translates to a short-term Sell rating.

Moreover, 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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