Leggett Misses, Lowers Guidance - Analyst Blog
October 28 2011 - 11:30AM
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 earnings of 31 cents a share fell short
of the Zacks Consensus Estimate of 36 cents. However, quarterly
earnings were flat compared with the prior-year quarter.
Total sales of the company climbed 8.6% in the quarter to $940.9
million compared with $866.5 million a year ago, primarily backed
by sales growth in items that brought little incremental profit.
Moreover, increased pricing and favorable currency translations
mainly accounted for the growth. Total revenue of the company beats
the Zacks Consensus Estimate of $931.0 million.
Margins
Despite flat volume growth, gross profit for the quarter inched
up 1.0% to $170.4 million. However, gross margin contracted 140
basis points to 18.1%, reflecting higher cost of goods sold.
Operating income dropped 5.3% to $71.6 million, and operating
margin shrunk 110 basis points to 7.6% due to an increase of 7.2%
in Selling & Administrative Expenses.
The company has anticipated that the demand will pick up in the
second half of fiscal 2011. However, it came in the opposite
direction and analysts believe that it will take much longer time
than anticipated to see favorable economic scenario.
By Segment
Residential Furnishings revenue upped 6.4% to
$472.3 million in the quarter due to increased prices, units sold
and favorable foreign currency translations. However, increased
material costs, unfavorable sales mix and competitive pricing
resulted in a fall in operating income by 12.5% to $33.5
million.
Total sales of Commercial Fixturing &
Components moved down 5.2% to $141.7 million, primarily
due to a decline of 7.0% in unit volume. Consequently, operating
income plummeted 33.0% to $6.7 million.
Industrial Materials logged a total sales
increase of 18.3% to $216.7 million, backed by an increase in
prices and a shift in sales from intra-segment to trades sales.
However, operating income plunged 19.9% to $11.7 million due to
lower wire and tubing volumes and increased raw material costs.
Specialized Products segment witnessed a
significant growth of 17.4% to $187.7 million with operating income
increasing robustly by 7.3% to $20.6 million, primarily due to
increase in volumes partially offset by increased raw material
costs.
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 28
cents a share.
During the quarter under review, the company repurchased 2.6
million shares at an average price of $19.72 per share. The total
number of shares purchased during the fiscal has reached to 9.4
million. Year-to-date, the company has issued 2.9 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
$218.8 million, long-term debt of $897.3 million, and shareholders'
equity of $1,338.1 million. Leggett expects to generate more than
$300 million in cash from operations in 2011.
Guidance
Anticipating a lower market growth expectation, the company has
lowered its sales guidance for fiscal 2011 from the range of $3.5 –
$3.7 billion to $3.6 billion. On the back of promising sales,
Leggett also lowered and narrowed its forecasted 2011 EPS in the
range of $1.15 – $1.20 per share from $1.25 – $1.40 per share.
Leggett faces stiff competition from its rivals, such as
Flexsteel Industries Inc. (FLXS), Genuine
Parts Company (GPC) and Steelcase Inc.
(SCS), The company currently retains a Zacks #3 Rank, which
translates to a short-term Hold rating. However, our long-term
recommendation on the stock 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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