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With persistent focus on developing its business portfolio, strategic initiatives and a disciplined capital allocation strategy, Leggett & Platt, Incorporated (LEG - Free Report) remains confident of performing well in future. Moving ahead, the company plans to sustain its solid momentum in 2017, where it aims to achieve volume growth via content gains, new products and enhanced market share.

Leggett has successfully completed the first two parts of its long-term strategic plan, which was announced in Nov 2007. These parts focused on divesting low-performing businesses and improvement in margins as well as returns. Currently, management is on track with its third part of the plan, which aims to achieve top-line growth in the range of 4–5% annually. And we believe Leggett has significant operating leverage to accomplish this phase, as it has a considerable amount of retained spare production to meet the demand.

Further, the company remains focused on enhancing its business portfolio by increasing investments in areas that provide a competitive edge. Some recent actions include the acquisitions of a manufacturer of aerospace tube assemblies; a distributor of geosynthetic products, and a South African innerspring manufacturer. On the other hand, the company divested four small ventures in 2016. All these actions position Leggett well toward achieving its goals for 2019.

Sturdy Performance Leads the Way

Leggett performed well in 2016, as it witnessed record EPS, superb EBIT margin, healthy cash flows and its 45th dividend hike. In fact, the company posted its highest ever EBIT margin in 2016, ever since 1999. Going forward, it also expects solid profit margins and increased EPS for 2017 alongside predicting sales growth in the band of 5–8%.

Additionally, Leggett outlined its goals for 2019, based on the achievement of its top-third total shareholder return target, over the next three years. These targets include revenues of about $4.75 billion, EBIT margin of 13.3%, EPS of $3.25 and a dividend of $1.70 per share. The company intends to achieve these goals, given a stable macro environment, with decent demand enhancement and persistent content gains as well as product introductions.


However, Leggett posted dismal results for fourth-quarter 2016. In fact, its quarterly adjusted earnings from continuing operations of 53 cents per share declined nearly 17% year over year and also came below the Zacks Consensus Estimate of 58 cents. The bottom line was primarily hurt by a sudden inflation in steel costs toward the end of 2016, which is expected to persist in 2017, thereby posing threats. Likewise, the company’s sales also fell year over year and missed our estimate.

In addition, Leggett remains exposed to major volatility in raw material prices, with steel being one of the company’s key raw materials and the steel market being cyclical in nature. Apart from this, the company is also susceptible to fluctuating metal margins as it is a manufacturer of steel rods. These factors are likely to weigh adversely upon the company’s performance.

Furthermore, the company’s significant global presence exposes it to various risks operating internationally. Intense competition coupled with macroeconomic headwinds, also pose significant threats to the company.

Bottom Line

We noted that this Zacks Rank #3 (Hold) stock returned 6.3% over the past one year, clearly underperforming the Zacks categorized Furniture industry, which gained 12.8%. Only time will tell whether the company’s endeavors will help it combat the aforesaid challenges and, in turn, help the stock propel higher. Leggett boasts a Momentum Score of “B”, which boosts confidence.

Key Picks

Better-ranked stocks in the broader Consumer Discretionary space include Masonite International Corporation (DOOR - Free Report) , American Woodmark Corporation (AMWD - Free Report) and Fastenal Company (FAST - Free Report) .

Masonite International Corporation has posted an average earnings beat of 18.1% in the past four quarters. Also, it increased 28.7% over the past six months. The stock currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

American Woodmark Corporation, which carries a Zacks Rank #2 (Buy) has jumped 27.2%, in the past one year. Moreover, the stock posted an average earnings beat of 10.6% over the trailing four quarters.

Fastenal Company, a Zacks Rank #2 stock has a long-term earnings growth rate of 16.3%. Also, the stock rose 28.7%, over the past six months.

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