Leggett Misses, Trims Outlook - Analyst Blog
July 29 2011 - 5:30AM
Zacks
Leggett & Platt
Inc. (LEG), the manufacturer of diversified engineered
products and components, recently posted second-quarter 2011
results that missed the Zacks Consensus Estimates.
The company's quarterly adjusted
earnings of 35 cents a share fell short of the Zacks Consensus
Estimate of 37 cents. However, quarterly earnings improved by a
penny from the prior-year quarter.
Total sales of the company climbed
8.0% in the quarter to $945.2 million compared with $874.3 million
a year ago, primarily backed by an increase in price that brought
little incremental profit. Total revenue of the company beats the
Zacks Consensus Estimate of $928.0 million.
Margins
Despite flat volume growth, gross
profit for the quarter inched up 1.2% to $181.9 million. However,
gross margin contracted 140 basis points to 19.2%, reflecting
higher cost of goods sold. Operating income dropped 7.1% to $79.1
million, and operating margin shrunk 130 basis points to 8.4% due
to an increase of 10.0% in Selling & Administrative
Expenses.
During the quarter under review,
inflation was the main concern for Leggett, which were offset by
increasing product prices.
By Segment
Residential
Furnishings revenue upped 2.3% to $467.7 million in the
quarter as increase in prices more than offset a decline of 4.0% in
unit volume. However, increased material costs resulted in a fall
in operating income by 8.0% to $41.2 million.
Total sales of Commercial
Fixturing & Components moved down 2.1% to $138.8
million primarily due to a decline of 4.0% in unit volume.
Consequently, operating income plummeted 14.0% to $7.5 million.
Industrial
Materials logged a total sales increase of 17.7% to $229.1
million, backed by an increase in prices and unit volumes. However,
operating income plunged 19.0% to $13.6 million due to benefits
from higher volumes and increased prices, more than offset by
increase in raw material costs.
Specialized
Products segment witnessed a significant growth of 19.5%
to $186.5 million with operating income increasing robustly by
14.0% to $21.4 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 2.0 million shares at an average price of
$25.86 per share and has issued 0.9 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 4 million shares in fiscal 2011.
Other Financial
Details
Leggett exited the quarter with
cash and cash equivalents of $203.3 million, long-term debt of
$856.6 million, and shareholders' equity of $1,454.7 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 lower market growth
expectation, the company has narrowed its sales guidance range for
fiscal 2011 from $3.5 – $3.8 billion to $3.5 – $3.7 billion. On the
back of promising sales, Leggett also narrowed its forecasted 2011
EPS in the range of $1.25 – $1.40 per share from $1.25 – $1.50 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
#3 Rank, which translates to a short-term 'Hold' 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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