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Leggett & Platt Inc. (LEG - Analyst Report), the manufacturer of diversified engineered products and components, reported earnings per share of 39 cents, representing a year-over-year increase of 11.4%. Quarterly earnings also swept past the Zacks Consensus Estimate of 36 cents.

Total sales dipped 0.7% to $938.8 million compared with $945.2 million a year ago, while it also missed the Zacks Consensus Estimate of $979 million. Sales decline for the quarter resulted from a decrease of 2% in same location sales, which slipped due to lower trade sales at the steel rod mill, currency rates, and reduced store fixture sales. Excluding these factors, however, same location sales registered a 2% increase with flat to positive unit volume growth across most of the company’s businesses.

Segment Details

Residential Furnishings revenue for the second quarter climbed 1.5% to $474.7 million driven by 3% increase in unit volume, offset in part, by currency translation effects. However, operating income declined 3% year over year to $40.0 million as the benefit from increased volumes were more than offset by an unfavorable product mix in some of the company’s businesses.

Sales of Commercial Fixturing & Components moved down 17.2% to $114.9 million, primarily due to a 10% decline in same location sales as well as small divestiture. Consequently, operating income during the quarter decreased 59% to $3.1 million compared with $7.5 million in the prior-year quarter. Other factors, which led to the downside, include the absence of contribution from divested businesses as well as higher restructuring-related expense.

Second quarter sales for the Industrial Materials segment was up 3% to $236.0 million backed by an 8% gain from the acquisition of Western Pneumatic Tube. On the other hand, same location sales dipped 5% driven by lower trade sales at the steel rod mill. Operating income was up 31% to $17.8 million, on the back of the Western acquisition and last year's restructuring activity.

Specialized Products segment witnessed a growth of 5% to $195.9 million. Operating income grew 21% to $25.9 million compared with $21.4 million, mainly due to improved sales.

Margins

Gross profit for the quarter grew 2.9% to $187.2 million, while gross margin expanded 70 basis points to 19.9%, mainly due to lower cost of goods sold. Operating income jumped nearly 9% year over year to $86.2 million. Simultaneously, operating margin also improved 80 basis points to 9.2% driven by a rise in unit volume in certain businesses, restructuring activity in the previous quarter, and the Western Tube acquisition.

Other Financial Details

Leggett exited the second quarter of fiscal 2012 with cash and equivalents of $271.2 million, long-term debt of $821 million, and shareholders' equity of $1,347 million. During the quarter, the company generated $81.2 million of cash from operations and paid $39.2 million toward dividend and $0.3 million for buying back the company’s shares.

The strength in the company’s financial base also reflected from its ongoing commercial paper program and revolver facility balance in excess of $330 million. Net debt to net capital at quarter end was 33%, a decline from 34% in the previous quarter. The company’s current net debt to net cap ratio remains within its long-term target range of 30% - 40%.

Guidance

Reflecting the gains from the second quarter’s one-time items as well as better margins, the company has raised its earnings forecast for fiscal 2012. The company now expects full-year earnings per share between $1.35 and $1.50, with net sales for the year in the range of $3.65 - 3.80 billion. The raised earnings guidance compares with the previous forecast of $1.25 - $1.45 per share.

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 about $350 million in cash from operations, with capital spending and dividends estimated at about $90 million and $160 million, respectively. Further, the company expects to distribute about 2 million of its common shares in the form of employee benefit and stock purchase plans.

The company also has an approved share repurchase authorization making it eligible to buy back up to 10 million shares every year. However, the company has not sketched any specific share repurchase plan for fiscal 2012.

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 #3 Rank, which translates to a short-term Hold rating.

Moreover, we remain slightly cautious on the stock and uphold our long-term Neutral recommendation, waiting to see further catalysts before becoming more positive on the stock.

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