Leggett Outshines, Ups Guidance - Analyst Blog
April 29 2011 - 5:00AM
Zacks
Leggett & Platt
Inc. (LEG), the manufacturer of diversified engineered
products and components, recently posted first-quarter 2011 results
that outpaced the Zacks Consensus Estimates.
The company's quarterly earnings of
30 cents a share surpassed the Zacks Consensus Estimate of 20
cents, but remains flat compared with the prior-year quarter.
Total sales of the company climbed
9.7% in the quarter to $895.8 million compared with $816.4 million
a year ago, backed by a surge in unit volume of Specialized
Products and Industrial Materials segments. Increase in price
contributed 4% to total revenue, which beats the Zacks Consensus
Estimate of $834.0 million.
Margins
Gross profit for the quarter soared
2.7% to $170.0 million. However, gross margin contracted 130 basis
points to 19.0%, reflecting higher cost of goods sold. Operating
income dropped 3.9% to $74.2 million, and operating margin shrunk
120 basis points to 8.3%.
During the quarter under review,
inflation was the main concern for Leggett, which were offset by
increasing product prices.
By Segment
Residential
Furnishings revenue increased 5.8% to $459.8 million in
the quarter due to price increase and expansion in unit volume.
However, increased material costs and lower income from building
sales resulted in fall in operating income by 14.3% to $42.1
million.
Total sales of Commercial
Fixturing & Components declined 9.0% to $129.0
million. However, operating income inched up 3.8% to $8.2 million
as the effect of lower sales was more than offset by a rise in gain
from building sale.
Industrial
Materials logged a total sales increase of 18.7% to $210.3
million as well as rise in operating income of 4.5% to $14.0
million due to benefits from higher volumes and increased prices
partially offset by increase in raw material costs.
Specialized
Productssegment witnessed a significant growth of 28.2% to
$174.8 million with operating income increasing robustly by 115.5%
to $18.1 million primarily due to increase in volumes.
Leggett Enhances
Return
Leggett remains committed to
returning value to shareholders. Fiscal 2011 marked the 40th
consecutive year of a hiked dividend, which has been increasing at
a CAGR of 14.0%. The board of directors has increased the quarterly
dividend by a penny to 27 cents a share.
During the quarter under review,
the company repurchased 5.4 million shares at an average price of
$23.29 per share and has issued 1.8 million shares under employee
benefit and stock purchase plan.
Looking ahead, management plans to
buy back a total of 10 million shares, its maximum authorization in
a year, and issue around 3 million shares in fiscal 2011.
Other Financial
Details
Leggett exited the quarter with
cash and cash equivalents of $195.4 million, long-term debt of
$821.9 million, and shareholders' equity of $1,457.8 million.
Leggett expects to generate more than $300 million in cash from
operations in 2011. Leggett plans to deploy $85 million of the cash
generated in capital expenditure programs and another $155 million
in dividend payouts.
Guidance
Anticipating a steady revival in
the economy, the company has increased its sales guidance for
fiscal 2011 in the range of $3.5 to $3.8 billion from $3.4 to $3.6
billion. On the back of promising sales, Leggett also increased its
forecasted 2011 EPS in the range of $1.25 to $1.50 per share from
$1.20 to $1.40 per share.
Leggett & Platt is a leading
manufacturer of components used in residential and office
furniture, carpet underlay, drawn steel wire and automotive seat
support and lumbar systems in North America. Moreover, the company
has a well-diversified customer base and solid research and
development (R&D) capabilities, which offers a competitive edge
to the company and strengthens its pricing power in the market.
Leggett is in the midst of its
three-part strategic plan, which was announced in November 2007 by
the company. The company has till now successfully completed the
first two-part of its strategic plan. The first part of the
strategic plan was to divest low performing businesses while the
second part comprised improvement in margins and returns. At
present, Leggett is moving toward the third part of its strategic
plan to achieve an annual growth rate of 4.0% to 5.0%.
Moreover, Leggett has significant
operating leverage to accomplish its third part of strategic plan
as the company has a considerable amount of retained spare
production to meet the demand of $4.0 billion. Hence, the company
will not require making any large capital investment.
The company nevertheless faces
stiff competition from its rivals, such as Flexsteel
Industries Inc. (FLXS), Genuine Parts
Company (GPC) and Steelcase Inc.
(SCS).
Leggett currently retains a Zacks
#4 Rank, which translates to a short-term 'Sell' rating. However,
our long-term recommendation remains 'Neutral'.
GENUINE PARTS (GPC): Free Stock Analysis Report
LEGGETT & PLATT (LEG): Free Stock Analysis Report
STEELCASE INC (SCS): Free Stock Analysis Report
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