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Leggett (LEG) Down 2.8% Since Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for Leggett & Platt, Incorporated (LEG - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 catalysts.
Leggett & Platt posted first-quarter 2017 results, wherein quarterly adjusted earnings from continuing operations of $0.62 per share declined 1.6% year over year, but surpassed the Zacks Consensus Estimate of $0.59. During the quarter, benefits from higher sales and lower tax rate were offset by increased raw material costs and other minor factors.
Delving Deeper
Net sales from continuing operations rose nearly 2% to $960.3 million and were in line with the Zacks Consensus Estimate. Same location sales grew 4%. Including inter-segment sales, total sales came in at $1,038.9 million, down 0.7% year over year.
Organic sales improved 4% driven by strong Automotive sales, partly negated by divestitures completed in 2016. This marked the first quarter of organic sales growth after seven consecutive declines that were attributed to deflation and currency headwinds.
Gross profit dropped 3% year over year to $226 million, while gross margin contracted 140 basis points (bps) to 23.5%. The company’s adjusted EBIT margin declined 140 bps to 12.1% in the fourth quarter. In dollar terms, adjusted EBIT was down 8.8% at $115.9 million. The fall in EBIT margin is attributed to the pricing lag that the company generally undergoes in times of commodity inflation.
Segment Details
The company changed its segment reporting in sync with the changes made to the organizational structure, effective Jan 1, 2017. As a result, the Home Furniture group has moved from Residential Products to Furniture Products segment (formerly Commercial Products segment). Further, the Machinery group has moved from Specialized Products to Residential Products segment.
First-quarter Residential Products’ sales of $391.3 million remained nearly flat from last year, backed by a 2% increase in same location sales offset by acquisitions. Volume increased 2% as demand picked up in latter part of the quarter. However, this was neutralized by 4% decline in pass through sales of adjustable beds. Including inter-segment sales, total sales for the segment inched up 0.3% to $396.1 million.
Sales of Furniture Products improved 5.4% to $264.8 million. However, total sales for the segment (including inter-segment sales) remained almost flat at $271.1 million. Benefits from in Adjustable Bed and Work Furniture growth was negated by lower sales of Fashion Bed and Home Furniture.
The Industrial Products segment's sales fell 9.5% to $69.8 million, while same location sales dropped 4%. Total sales, including inter-segment sales, slumped 14% to $135.4 million mainly due to divestitures completed in 2016.
The Specialized Products segment's sales improved 6.6% to $234.4 million. Same location sales rose 9% backed by strong Automotive and Aerospace volumes, partly offset by negative currency impact. Divestitures, net of acquisitions, impacted sales by 2%. Total sales for the segment (including inter-segment sales) also increased 6.7% to $236.3 million.
Financials
Leggett ended the first quarter with cash and equivalents of $268.6 million and long-term debt of $1,119.9 million. Leggett generated $57.7 million in cash flow from operations during the first quarter of 2017.
The company had net debt to net capital ratio of 40% at quarter end, falling within the target range of 30–40%.
In February, the company raised quarterly dividend by $0.02 to $0.34 per share. This marked Leggett’s 46th straight annual dividend hike. Additionally, the company repurchased nearly 2.2 million shares at an average of $48.82 in the first quarter. At the same time, it issued 1 million shares through employee benefit plans and option exercises.
Guidance
Going forward, the company expects sales growth to drive solid earnings in 2017. Sales for 2017 are anticipated to lie in a band of $3.95–$4.05 billion, reflecting a 5–8% year-over-year growth. Further, the company expects mid-single-digit volume growth, driven by strength in Automotive, Bedding, Adjustable Bed, Work Furniture, and Geo Components businesses. Further, the company anticipates raw material price related increases to aid sales growth in 2017. The company expects 2017 EBIT margin of approximately 13%. Consequently, management expects 2017 earnings per share in the range of $2.55–$2.75.
Additionally, continuing with its trend of generating more cash than required to fund dividends and capital expenditures, Leggett expects operating cash flows of over $450 million for 2017. Capital expenditures for the year are anticipated to be approximately $150 million, while the company intends to spend $185 million toward dividend payouts. The company outlined the target dividend payout ratio to be 50–60% of net earnings.
Further, Leggett expects to continue with share repurchase program, having a standing authorization to buy back up to 10 million shares every year, after fulfilling all priority requirements. The company plans to repurchase 3–4 million shares in 2017, while issuing nearly 2 million shares for employee benefit plans.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one downward revision for the current quarter. In the past month, the consensus estimate has shifted downward by 6.7% due to these changes.
Currently, Leggett's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Leggett (LEG) Down 2.8% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for Leggett & Platt, Incorporated (LEG - Free Report) . Shares have lost about 2.8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock’s next earnings release, or is it 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 catalysts.
Leggett Q1 Earnings Beat Estimates, Reiterates View
Leggett & Platt posted first-quarter 2017 results, wherein quarterly adjusted earnings from continuing operations of $0.62 per share declined 1.6% year over year, but surpassed the Zacks Consensus Estimate of $0.59. During the quarter, benefits from higher sales and lower tax rate were offset by increased raw material costs and other minor factors.
Delving Deeper
Net sales from continuing operations rose nearly 2% to $960.3 million and were in line with the Zacks Consensus Estimate. Same location sales grew 4%. Including inter-segment sales, total sales came in at $1,038.9 million, down 0.7% year over year.
Organic sales improved 4% driven by strong Automotive sales, partly negated by divestitures completed in 2016. This marked the first quarter of organic sales growth after seven consecutive declines that were attributed to deflation and currency headwinds.
Gross profit dropped 3% year over year to $226 million, while gross margin contracted 140 basis points (bps) to 23.5%. The company’s adjusted EBIT margin declined 140 bps to 12.1% in the fourth quarter. In dollar terms, adjusted EBIT was down 8.8% at $115.9 million. The fall in EBIT margin is attributed to the pricing lag that the company generally undergoes in times of commodity inflation.
Segment Details
The company changed its segment reporting in sync with the changes made to the organizational structure, effective Jan 1, 2017. As a result, the Home Furniture group has moved from Residential Products to Furniture Products segment (formerly Commercial Products segment). Further, the Machinery group has moved from Specialized Products to Residential Products segment.
First-quarter Residential Products’ sales of $391.3 million remained nearly flat from last year, backed by a 2% increase in same location sales offset by acquisitions. Volume increased 2% as demand picked up in latter part of the quarter. However, this was neutralized by 4% decline in pass through sales of adjustable beds. Including inter-segment sales, total sales for the segment inched up 0.3% to $396.1 million.
Sales of Furniture Products improved 5.4% to $264.8 million. However, total sales for the segment (including inter-segment sales) remained almost flat at $271.1 million. Benefits from in Adjustable Bed and Work Furniture growth was negated by lower sales of Fashion Bed and Home Furniture.
The Industrial Products segment's sales fell 9.5% to $69.8 million, while same location sales dropped 4%. Total sales, including inter-segment sales, slumped 14% to $135.4 million mainly due to divestitures completed in 2016.
The Specialized Products segment's sales improved 6.6% to $234.4 million. Same location sales rose 9% backed by strong Automotive and Aerospace volumes, partly offset by negative currency impact. Divestitures, net of acquisitions, impacted sales by 2%. Total sales for the segment (including inter-segment sales) also increased 6.7% to $236.3 million.
Financials
Leggett ended the first quarter with cash and equivalents of $268.6 million and long-term debt of $1,119.9 million. Leggett generated $57.7 million in cash flow from operations during the first quarter of 2017.
The company had net debt to net capital ratio of 40% at quarter end, falling within the target range of 30–40%.
In February, the company raised quarterly dividend by $0.02 to $0.34 per share. This marked Leggett’s 46th straight annual dividend hike. Additionally, the company repurchased nearly 2.2 million shares at an average of $48.82 in the first quarter. At the same time, it issued 1 million shares through employee benefit plans and option exercises.
Guidance
Going forward, the company expects sales growth to drive solid earnings in 2017. Sales for 2017 are anticipated to lie in a band of $3.95–$4.05 billion, reflecting a 5–8% year-over-year growth. Further, the company expects mid-single-digit volume growth, driven by strength in Automotive, Bedding, Adjustable Bed, Work Furniture, and Geo Components businesses. Further, the company anticipates raw material price related increases to aid sales growth in 2017. The company expects 2017 EBIT margin of approximately 13%. Consequently, management expects 2017 earnings per share in the range of $2.55–$2.75.
Additionally, continuing with its trend of generating more cash than required to fund dividends and capital expenditures, Leggett expects operating cash flows of over $450 million for 2017. Capital expenditures for the year are anticipated to be approximately $150 million, while the company intends to spend $185 million toward dividend payouts. The company outlined the target dividend payout ratio to be 50–60% of net earnings.
Further, Leggett expects to continue with share repurchase program, having a standing authorization to buy back up to 10 million shares every year, after fulfilling all priority requirements. The company plans to repurchase 3–4 million shares in 2017, while issuing nearly 2 million shares for employee benefit plans.
How Have Estimates Been Moving Since Then?
Following the release, investors have witnessed a downward trend in fresh estimates. There has been one downward revision for the current quarter. In the past month, the consensus estimate has shifted downward by 6.7% due to these changes.
Leggett & Platt, Incorporated Price and Consensus
Leggett & Platt, Incorporated Price and Consensus | Leggett & Platt, Incorporated Quote
VGM Scores
Currently, Leggett's stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with an 'F'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for growth investors than value investors.
Outlook
Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.