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Why Is Legget & Platt (LEG) Down 0.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Legget & Platt (LEG - Free Report) . Shares have lost about 0.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Legget & Platt due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Leggett Beats on Q2 Earnings & Sales, Lifts ’21 View

Leggett & Platt, Incorporated reported impressive second-quarter 2021 results, wherein both the top and bottom lines surpassed the Zacks Consensus Estimate. On a year-over-year basis, both the metrics grew considerably on the back of strong demand and segmental recovery across the business, raw material-related selling price increase as well as favorable currency.

Leggett’s Chairman and CEO, Karl Glassman, said, "While we continue to navigate inflationary pressures along with supply chain disruptions, consumer demand remains strong and we are increasing our full year guidance.”

On Jun 4, Leggett acquired Kayfoam — a leading provider of specialty foam and finished mattresses primarily serving customers in the U.K. and Ireland. Located near Dublin, Kayfoam has two manufacturing facilities with combined annual sales of approximately $80 million. Similar to U.S. Bedding business, Kayfoam acquisition allows Leggett to support the European bedding customers.

Quarter in Details

Leggett reported adjusted earnings of 66 cents per share, which surpassed the consensus mark of 51 cents by 29.4% and grew an impressive 340% from the year-ago figure of 15 cents. The uptrend was backed by improved sales, adjusted EBIT and adjusted EBITDA margins.

Net trade sales totaled $1.27 billion, surpassing the consensus mark of $1.22 billion by 4.3% and increased 50.2% from the prior-year level. Organic sales were up 50% year over year. Of this growth, volume contributed 31%, raw material-related selling price added 16% and currency accounted for 3%.

Adjusted EBIT rose 186% from the prior-year quarter to $143.7 million. The upside stemmed from strong volume growth and metal margin expansion. Adjusted EBIT margin also expanded 530 basis points (bps) to 11.3% from the year-ago figure. Adjusted EBITDA margin improved 360 bps to 15.1%.

Segment Details

Net trade sales in Bedding Products (excluding inter-segment sales) increased 48% from the year-ago level to $608.7 million. Volume growth of 22% was driven by strong demand for home-related products. Increased prices contributed 26% and currency added 2%, while divesture, net of the Kayfoam acquisition, reduced sales by 2%.

Adjusted EBIT margin expanded a notable 680 bps to 11.9%. Adjusted EBITDA margin also grew 470 bps year over year to 16.2%.

The Specialized Products segment's trade sales improved 72% from the prior-year figure to $241.7 million. Strong recovery in Automotive and Hydraulic Cylinders and modest recovery in Aerospace drove volume to 58%. Positive currency and the Aerospace acquisition added 10% and 3%, respectively, to sales. Raw material-related selling price increases also added 1% to sales.

Adjusted EBIT margin expanded 730 bps to 11.3%. Adjusted EBITDA margin grew 480 bps year over year.

Trade sales in the Furniture, Flooring & Textile Products segment jumped 43% from the prior-year level to $419.2 million, mainly due to a 30% rise in volume, given strong demand in Geo Components, Home Furniture and residential components of Flooring Products and Work Furniture businesses. Price increase and currency contributed 10% and 3% to sales, respectively.

Adjusted EBIT margin of 10.7% was up 280 bps from the prior year. Adjusted EBITDA margin also expanded 200 bps to 12.1%.

Financials

As of Jun 30, 2021, the company had $1.3 billion of liquidity. It had $231.6 million of cash and equivalents at reported quarter-end compared with $348.9 million at 2020-end. Long-term debt at June-end was $1.97 billion, up 7% from 2020-end. Trailing 12-month debt-to-adjusted EBITDA was 2.32. Cash from operations in the first six months of 2021 totaled $30.3 million compared with $122.5 million a year ago.

Raised 2021 Guidance

The company now expects sales in the range of $4.9-$5.1 billion versus $4.8-$5 billion expected earlier. This indicates year-over-year growth of 14-19%.  Raw material-related price increase, acquisitions, net of divestitures, and mid-to-high single-digit volume growth are likely to boost sales.

Adjusted EPS is now expected between $2.70 and $2.90 (compared with $2.55 and $2.75 projected earlier). The company expects adjusted EBIT margin between 11.4% and 11.6% compared with prior anticipation of 11-11.5%.

Capital expenditures, depreciation and amortization costs, operating cash flow, dividend, net interest expense and effective tax rate for 2021 are estimated at $140 million, $195 million, $450 million, $215 million, $75 million and 23%, respectively. Also, effective tax rate is projected at 23%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Legget & Platt has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Legget & Platt has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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