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Leggett's 1Q Earnings Miss Estimates

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Leggett & Platt, Inc. (LEG - Free Report) – the manufacturer of diversified engineered products and components – reported first-quarter 2013 earnings per share of 33 cents that rose 10.0% from 30 cents reported in the comparable year-ago quarter. Excluding the negative impact from increased accruals for Total Shareholder Return (TSR) and other stock based compensation programs, quarterly earnings came in at 36 cents per share.

The year-over-year increase was mainly driven by effective cost management and better product mix in some businesses. However, Leggett’s earnings for the quarter are below the Zacks Consensus Estimate of 38 cents per share.

During the quarter, total sales of this Zacks Rank #3 (Hold) company fell 1.0% to $936.0 million compared with $946.8 million in the year-ago quarter, while it lagged the Zacks Consensus Estimate of $967.0 million. During the quarter, sales were impacted by a 2% decline in same location sales and a fall in rod mill trade sales, partially offset by a positive impact of 1% due to acquisitions.

Gross profit for the quarter grew 6.2% to $189.4 million, while gross margin expanded 140 basis points (bps) to 20.2%, mainly due to lower cost of goods sold.

Earnings before interest and taxes (EBIT) rose 7.0% to $79.6 million from $74.6 million in the year-ago quarter, benefiting from diminished raw material costs in certain businesses and lower operating expenses. Simultaneously, EBIT margin also improved 60 basis points to 8.5%.

Segment Details

First-quarter Residential Furnishings revenues inched down 1.2% to $484.9 million, primarily due to reduced volumes. Operating income increased 5.0% year over year to $42.3 million, on the back of effective cost management, benefit from hurricane insurance claims and better product mix, partially offset by lower sales.

Sales of Commercial Fixturing & Components moved up 1.2% to $114.6 million. On the other hand, operating income recorded a whopping decline of 78.0% to $1.6 million compared with an operating income of $7.2 million in the comparable prior-year quarter, primarily due to weak office furniture sales, competitive pricing, and absence of the previous year’s divesture gain.

First quarter sales of the Industrial Materials segment witnessed a 3.0% decline coming in at $162.5 million, impacted by 7.0% fall in same location sales. Same location sales were negatively impacted by lower trade sales from the steel mill, partially offset by increased unit volumes. Operating income escalated to $22.2 million versus $11.8 million reported in the year-ago quarter, on the back of lower costs, absence of last year's acquisition related costs and increased volume in some businesses.

Specialized Products segment’s sales fell 0.9% to $174.0 million. Operating income decreased 14.0% to $15.4 million, mainly due to patent infringement related charges.

Other Financial Details

Leggett had a solid financial base at the end of first quarter 2013 with cash and equivalents of $449.4 million, long-term debt of $953.8 million, and shareholders' equity of $1,439.9 million. The company’s net debt to net capital ratio as of Mar 31, 2013 was 29.6%, marginally below the company’s long-term targeted range of 30.0% to 40.0%.

Simultaneously, Leggett has an impressive dividend policy focused on returning better value to the shareholders, along with a regular share repurchase program.  On Apr 15, the company paid a quarterly dividend of 29 cents per share, 3.6% higher than first-quarter 2012, to shareholders of record as of Mar 15. This was the company’s 42nd consecutive annual dividend hike.

Further enhancing investor returns, the company bought back 1.6 million shares in the quarter and issued 2.4 million shares, of which two-thirds related to employee stock options exercises. As of Mar 31, Leggett’s outstanding shares were 142.9 million.


Anticipating a modest economic growth, Leggett now expects its fiscal 2013 sales to increase 2%–6% to $3.80–$3.95 billion. Earlier, the company projected sales between $3.75 billion and $3.95 billion, representing growth of 1%–6% from fiscal 2012 level.

Further, Leggett has increased the lower-end of its 2013 earnings guidance by 5 cents and now anticipates it to come between $1.55 and $1.75 per share versus the earlier guidance range of $1.50–$1.75.

Additionally, continuing its trend of generating more cash than required to fund dividends and capital expenditures, the company expects operating cash flows of over $350 million. Capital expenditures for the year would likely be approximately $100 million, while the company hopes to pay $125 million toward dividend.

Further, Leggett which competes with Hooker Furniture Corp. expects to continue its share repurchase program, having a standing authorization to buy back up to 10 million shares every year. The company also expects to issue about 4 million shares through employee benefit schemes in 2013.

Other Stocks to Consider

Apart from Leggett, other well performing peers include Tempur-Pedic International Inc. (TPX - Free Report) and Virco Mfg. Corporation (VIRC - Free Report) . Tempur-Pedic currently carries a Zacks Rank #1 (Strong Buy) while Virco Mfg. holds a Zacks Rank #2 (Buy).

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