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Leggett & Platt Inc. (LEG - Analyst Report) – the manufacturer of diversified engineered products and components – reported fourth-quarter 2012 earnings per share of 32 cents that rose sharply by 45% year over year. Quarterly earnings of this Zacks Rank #3 (Hold) stock also swept past the Zacks Consensus Estimate of 29 cents.

For the full year, Leggett posted record earnings per share of $1.46, up 22% from 2011 level. However, earnings missed the Zacks Consensus Estimate of $1.49. The year-over-year increase was mainly driven by a sturdy operational performance that comprised superior volume and margin growth, better cost management and the acquisition of Western Pneumatic Tube.

Total sales during the quarter fell marginally to $853.0 million compared with $854.1 million in the year-ago quarter, while it missed the Zacks Consensus Estimate of $873 million. During the quarter, sales were impacted by 2% decline in same location sales and a fall in rod mill trade sales, partially offset by 1% increase in unit volume and 2% jump in acquisitions.

Net sales for the full year grew 2% year over year to $3,720.8 million, but missed the Zacks Consensus Estimate of $3,740 million. For the year, volume grew 3%, while acquisitions made for 1% of net sales. However, sales results were offset by lower sales from rod mill trade and currency translation effects.

Margins

Gross profit for the quarter surged 23.8% to $177.0 million, while gross margin expanded 410 basis points to 20.8%, mainly due to lower cost of goods sold.

Operating income increased substantially to $75.6 million from $12.9 million in the year-ago quarter, benefiting from higher unit volumes, diminished raw material costs in certain businesses and the acquisition of Western Pneumatic Tube. Simultaneously, operating margin also improved 740 basis points to 8.9%.

Segment Details

Fourth quarter Residential Furnishings revenues climbed 4.2% to $454.8 million, benefiting mainly from unit volume growth. Operating income increased 66% year over year to $34.4 million, on the back of increased sales and absence of restructuring costs that occurred in the year-ago quarter.

Sales of Commercial Fixturing & Components moved down 7.2% to $90.8 million resulting from the divestiture. On the other hand, operating income recorded a whopping increase to $0.9 million compared with an operating loss of $6.7 million in the prior-year quarter, driven by higher cost improvement benefits and absence of last year’s restructuring costs.

Fourth quarter sales of the Industrial Materials segment witnessed a 5.8% decline to $189.1 million impacted by lower trade sales from the steel mill, offset by revenues from acquisitions. Operating income escalated substantially to $15.8 million versus a loss of $10.9 million reported in the year-ago quarter, on the back of lower costs, absence of last year's restructuring related costs and improved earnings from acquisitions.

Specialized Products segment’s sales inched up 0.6% to $188.3 million. Operating income grew 16% to $19.6 million, mainly due to absence of last year's restructuring related costs.

Other Financial Details

Leggett had a solid financial base at the end of 2012 with cash and equivalents of $359.1 million, long-term debt of $853.9 million, and shareholders' equity of $1,442.2 million. The company’s net debt to net capital ratio as of Dec 31, 2012 was 29.4%.

The cash generated from operations increased 64% to $208.7 million in the fourth quarter, with net cash from operations increasing 37% to $449.7 million for the year.

Simultaneously, the company has an impressive dividend policy alongside a regular share repurchase program, focused on returning better value to the shareholders. During the year, the company declared 4 quarterly dividends, but paid 5 of them. This was due to the advance payment of the Jan 2013 dividend in Dec 2012. In doing so, the company paid $200 million of its cash for dividend payments in 2012.  

Further enhancing investor returns, the company bought back nearly 2.0 million shares in 2012 and issued 4.7 million shares, of which two-thirds related to employee stock options exercises.

Guidance

Leggett forecasted full-year 2013 earnings per share between $1.50 and $1.75, representing a significant rise from earnings per share of $1.46 reported in 2012. Net sales are anticipated in the range of $3.75–$3.95 billion, reflecting growth of 1% to 6%.

Further, continuing its trend of generating cash in excess of the amount required to fund dividends and capital expenditures, the company predicted operating cash flows of over $350 million. Capital expenditures for the year are expected to be about $100 million, while the company anticipates paying $125 million toward dividend.

Going into 2013, the company plans to return to its normal dividend payment trend of 4 dividends a year. As a result, the company expects to announce 4 dividends but pay only 3 of them, with the fourth dividend being payable in Jan 2014. Further, the company expects to continue its share repurchase program, having a standing authorization to buy back up to 10 million shares every year. Moreover, the company expects to issue about 3 million shares through employee benefit schemes in 2013.

Other Stocks to Consider

Apart from Leggett, furnishing peers that are performing well include Sealy Corporation , Virco Mfg. Corporation (VIRC), both of which have a Zacks Rank #1 (Strong Buy) and Hooker Furniture Corp. (HOFT - Snapshot Report), which carries a Zacks Rank #2 (Buy).

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