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    Leggett & Platt Inc (LEG)

    Business Description

    Leggett & Platt, Incorporated (LEG) is a diversified manufacturer that designs and produces a wide range of engineered components and products found in homes, offices, and automobiles. The company operates approximately 120 production facilities in 18 countries and is organized into three main operating segments. Leggett & Platt sells components and machinery for bedding manufacturers, engineered components for the automotive and aerospace industries, and supplies for residential and work furniture manufacturers.

    1. Bedding Products - Supplies components and machinery for bedding manufacturers, produces private-label finished mattresses, and adjustable bed bases. Includes specialty foam chemicals, steel rod, and drawn steel wire.

      • Key Products: Steel rod and drawn wire, innersprings, specialty foam, private-label finished mattresses, adjustable beds, machinery for bedding production.

    2. Furniture, Flooring & Textile Products - Supplies components for residential and work furniture, produces private-label finished furniture, and distributes carpet cushion, hard surface flooring underlayment, and textile components.

    3. Specialized Products - Provides lumbar support systems, seat suspension systems, motors and actuators, and control cables for automotive manufacturers. Produces and distributes tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders for material-handling and heavy construction industries.

    Q3 2024 Summary

    Initial Price$11.56July 1, 2024
    Final Price$13.67October 1, 2024
    Price Change$2.11
    % Change+18.25%

    What went well

    • ComfortCore products are performing in line with or slightly ahead of market trends, indicating strength in this product line and successful shift from Open Coil to ComfortCore.
    • Leggett & Platt has made early progress on debt reduction, reducing total debt by $124 million in the quarter, leading to a $5 million reduction in interest expense for every $100 million in debt reduced.
    • The company's steel mill is incredibly efficient, and running it at full capacity helps maintain or lower scrap and conversion costs, enhancing profitability.

    What went wrong

    • Margins in the Bedding Products segment are down about 200 basis points, primarily due to unfavorable sales mix and lower volumes, impacting profitability.
    • Home Furniture sales and volumes have taken a notable step down sequentially, affected by industry disruptions like retailer bankruptcies and continued softening demand.
    • Automotive volume is down 9%, with uncertainties about future recovery, indicating potential ongoing challenges in this segment.

    Q&A Summary

    1. Margin Expectations
      Q: What's the outlook for margins in each segment this year?
      A: In Bedding, margins are expected to be down about 200 basis points due to unfavorable sales mix. Specialized Products margins are anticipated to be down slightly. Furniture, Flooring, and Textile margins are projected to be flat.

    2. CapEx Guidance and Investments
      Q: Why is CapEx spend increasing in Q4, and what projects are planned?
      A: CapEx is expected to be around $40 million in Q4, focused on maintenance for the rod mill, growth initiatives in Bedding, and launching new Automotive programs. Investments include a product line refresh in Bedding requiring new equipment, and efficiency improvements in U.S. Spring operations.

    3. Automotive Segment Challenges
      Q: How are delays in new Automotive programs affecting performance, and what is the company doing to mitigate this?
      A: New program launches have been delayed due to industry factors like slow EV adoption and affordability issues, impacting top-line by about 40% of expected growth. To mitigate this, the company is resizing headcount, implementing automation, relocating programs closer to customers, focusing on raw material cost savings, and continuing routine VA/VE work to improve margins.

    4. Steel Rod Business Strategy
      Q: Is the company changing pricing strategy to drive higher trade rod volumes?
      A: The company is not lowering prices but is focusing on keeping the rod mill operating at full capacity by increasing trade rod sales, despite lower margins in this segment. This strategy helps maintain or lower scrap and conversion costs and retains a skilled workforce.

    5. Bedding Volume Decline and Impact of Imports
      Q: How is the Bedding segment performing, considering consumption and imports?
      A: Overall Bedding consumption was flat year-over-year, but domestic production was down high single digits due to increased imports. The U.S. market is expected to decline in Q4, with domestic production impacted more than overall consumption.

    6. Debt Paydown and Interest Savings
      Q: What are the expected interest savings from debt paydown?
      A: For every $100 million reduction in debt, the company expects to reduce expenses by about $5 million.

    7. EBITDA Margins in Specialized Products Segment
      Q: How do the businesses in the Specialized Products segment rank in terms of EBITDA margins?
      A: The ranking from highest to lowest EBITDA margins is: Automotive, Aerospace, then Hydraulics.

    8. Home Furniture Segment Decline
      Q: What's causing the decline in the Home Furniture segment?
      A: The industry is challenged due to retail bankruptcies and a soft market, leading to decreased sales and volumes. There's also a comp issue due to inventory adjustments and shifts in production locations.

    9. Impact of Upcoming Election on Consumer Behavior
      Q: How is the upcoming election affecting consumer behavior and sales?
      A: Consumers are distracted ahead of the election, leading to softness in sales. Higher advertising costs and customers watching inventories are also impacting demand.

    10. ComfortCore Performance
      Q: How is the ComfortCore product performing compared to the market?
      A: ComfortCore is performing slightly better than the market due to a shift from Open Coil to ComfortCore and favorable customer performance.

    Key Metrics

    View all financials →

    Questions to Ask Management

    1. As you are exploring the potential sale of your Aerospace business as part of your strategic review, can you elaborate on how this divestiture will impact your overall profitability and long-term growth strategy?

    2. With the domestic Bedding market being more negatively impacted than overall consumption due to imports, what specific strategies are you implementing to mitigate the impact of imports on your domestic production, and how do you plan to regain market share?

    3. Given that Automotive volumes decreased by 9% this quarter and considering the volatility in markets like China and Europe, how are you adjusting your operations to address these challenges, and what are your expectations for the Automotive segment moving forward?

    4. The unfavorable product mix in Bedding Products and metal margin compression have significantly affected your EBIT; what initiatives are you undertaking to improve your product mix and margins in the Bedding segment, and when do you expect to see the benefits of these actions?

    5. Considering you have lowered your full-year sales and EPS guidance due to weaker demand trends and identified $10 million in corporate cost savings, are there additional cost-saving measures or restructuring plans, especially within your G&A functions, to align your cost structure with the current market conditions?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateAugust 7, 2024
    End Date/DurationNo specific end date; remains in force until repealed by the Board
    Total Additional AmountUp to 10 million shares each calendar year
    Remaining Authorization10 million shares as of Q3 2024
    DetailsRepurchases depend on factors like stock price, cash flow, and alternative uses for cash. Minimal repurchases expected for 2024.

    Past Guidance

    1. Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Expected to be $4.3 billion to $4.4 billion, representing a 7% to 9% decline versus 2023. Revised from prior guidance of $4.3 billion to $4.5 billion.
      2. Volume:
        • Overall: Down mid-single digits.
        • Bedding Products: Down high single digits.
        • Specialized Products: Down mid-single digits (revised from flat).
        • Furniture, Flooring & Textile Products: Down mid-single digits (revised from low single digits).
      3. Deflation and Currency Impact: Expected to reduce sales by low single digits.
      4. Adjusted EPS: Expected to be $1.00 to $1.10, revised from $1.10 to $1.25.
      5. Adjusted EBIT Margin: Expected to be 6.0% to 6.4%, revised from 6.5% to 6.9%.
      6. Cash from Operations: Expected to be approximately $300 million, revised from $300 million to $350 million.
      7. Restructuring-Related EBIT Benefit: Expected to be $10 million to $15 million in 2024. Total annualized benefit after full implementation (late 2025): $50 million to $60 million (revised from $40 million to $50 million).
      8. Restructuring-Related Sales Attrition: Expected to be $15 million in 2024 (revised from $25 million). Total annualized attrition after full implementation: $80 million.
      9. Restructuring-Related Real Estate Proceeds: Expected to be $20 million in 2024 (revised from $15 million to $25 million). Additional $40 million to $60 million expected in 2025. Total proceeds: $60 million to $80 million.
      10. Debt Reduction: Plans to repay $300 million of notes maturing in November 2024 using the commercial paper program.
      11. Leverage Ratio: Expected to progress toward the long-term target of 2x in Q4 2024.
      12. G&A Cost Savings: Approximately $10 million expected in 2025.

    2. Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Expected to be $4.3 billion to $4.5 billion, representing a 5% to 9% decline versus 2023. Revised from prior guidance of $4.35 billion to $4.65 billion.
      2. Volume:
        • Overall: Down low to mid-single digits.
        • Bedding Products: Down high single digits.
        • Specialized Products: Flat.
        • Furniture, Flooring & Textile Products: Down low single digits.
      3. Deflation and Currency Impact: Expected to reduce sales by low single digits.
      4. Adjusted EPS: Expected to be $1.10 to $1.25, revised from $1.05 to $1.35.
      5. Adjusted EBIT Margin: Expected to be 6.5% to 6.9%, revised from 6.4% to 7.2%.
      6. Cash from Operations: Expected to be $300 million to $350 million.
      7. Restructuring Plan Metrics:
        • EBIT Benefit: $10 million to $15 million in 2024 (revised from $5 million to $10 million). Total annualized benefit: $40 million to $50 million by late 2025.
      8. Real Estate Sales Proceeds: Expected to generate $15 million to $25 million in 2024. Total proceeds: $60 million to $80 million by 2025.
      9. Net Debt to Adjusted EBITDA: Expected to peak at 3.83x in Q2 2024 and improve toward the long-term target of 2x in the second half of the year.
      10. Debt Repayment: Plans to repay $300 million of notes maturing in November 2024 using the commercial paper program.

    3. Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Expected to be $4.35 billion to $4.65 billion, down 2% to 8% versus 2023.
      2. Volume:
        • Overall: Down low to mid-single digits.
        • Bedding Products: Down high single digits.
        • Specialized Products: Up low single digits.
        • Furniture, Flooring & Textile Products: Down low single digits.
      3. Deflation and Currency Impact: Expected to reduce sales by low single digits.
      4. Adjusted EPS: Expected to be $1.05 to $1.35.
      5. Adjusted EBIT Margin: Expected to be 6.4% to 7.2%.
      6. Cash from Operations: Expected to be $300 million to $350 million, revised from $325 million to $375 million.
      7. Capital Expenditures: Expected to be $100 million to $120 million.
      8. Dividends: Approximately $135 million, reflecting two quarters at $0.46 per share and two quarters at $0.05 per share.
      9. Debt Repayment: Plans to repay $300 million of notes maturing in November 2024 using the commercial paper program.
      10. Leverage Ratio: Expected to modestly increase in Q2 2024 before improving toward the long-term target of 2x.

    4. Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Sales: Expected to be $4.35 billion to $4.65 billion, down 2% to 8% versus 2023.
      2. Volume:
        • Overall: Down low to mid-single digits.
        • Bedding Products: Down high single digits.
        • Specialized Products: Up low single digits.
        • Furniture, Flooring & Textile Products: Down low single digits.
      3. Deflation and Currency Impact: Expected to reduce sales by low single digits.
      4. Adjusted EPS: Expected to be $1.05 to $1.35.
      5. Adjusted EBIT Margin: Expected to be 6.4% to 7.2%.
      6. Cash from Operations: Expected to be $325 million to $375 million, down from $497 million in 2023.
      7. Capital Expenditures: Expected to be $100 million to $120 million.
      8. Dividends: Approximately $245 million, reflecting an annual dividend of $1.84 per share.
      9. Debt Repayment: Plans to repay $300 million of notes maturing in November 2024 using the commercial paper program.
      10. Real Estate Sales Proceeds: Expected to generate $20 million to $30 million in 2024.

    This table summarizes the issued and guided periods along with the exhaustive guidance metrics for each of the last four earnings calls.