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Leggett & Platt Reports First Quarter Sales Increase of 5.7%

Furniture Industry News Update - Furniture World Magazine
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Article Summary: Same location sales grew 4.5%, with unit volume gains and inflation each contributing roughly one-half of the growth.


Diversified manufacturer Leggett & Platt reported first quarter earnings per diluted share of $.30. In the first quarter of 2011, earnings were also $.30 per share. First quarter 2012 earnings benefited from higher unit volumes; first quarter 2011 included a $.03 per share benefit from unusual items (that did not recur in 2012).

First quarter 2012 sales were $947 million, a 5.7% (or $51 million) increase versus the prior year. Same location sales grew 4.5%, with unit volume gains and inflation each contributing roughly one-half of the growth. Acquisitions, net of divestitures, increased sales by 1.2%.

Increasing Demand

President and CEO David S. Haffner commented, "We are pleased with first quarter results. Aggregate unit volume increased, compared to a reasonably strong first quarter last year, and contributed to improved operating results. In addition, we are realizing the expected benefits from the restructuring activities initiated in late 2011, and continue to anticipate meaningful, full-year margin improvement. It is worth noting that our effective 1Q tax rate was about 300 basis points higher than what we anticipate for the remainder of the year. As a result of our operational performance, we increased our guidance range for both EPS and sales.

"The Western Pneumatic Tube acquisition is exceeding our expectations for strong performance. In the first half of this year, we are recognizing $6 million of charges from an acquisition-related fair value adjustment to inventory; these charges will cease after the second quarter. As a result, Western's earnings should improve as the year progresses.

"Given the cash outlay to acquire Western, we did not conduct any open-market repurchase of our stock during the first quarter. However, consistent with our often-stated priorities for use of excess cash flow, we expect eventually to resume buying back our stock, subject to the outlook for the economy, our level of cash generation, and any potential opportunities to further grow the company.

"We continue to assess our overall performance by comparing our Total Shareholder Return (TSR(1)) to that of peer companies on a rolling three-year basis. For the three-year period that began January 1, 2010, we have so far (over the last 28 months) generated TSR of 12% per year on average, in line with the TSR of the S&P 500 index. Our target is to achieve TSR in the top one-third of the S&P 500 companies over the long-term.

"We have maintained our strong financial base. We have over $270 million available under our existing commercial paper program and revolver facility. And we ended the quarter with net debt to net capital at 34%, within our long-term 30%-40% target range, despite the sizeable acquisition we made."

Dividends and Stock Repurchases

In February, Leggett & Platt's Board of Directors declared a $.28 first quarter dividend, one cent higher than last year's first quarter dividend. Thus, 2012 marks the 41st consecutive annual dividend increase for the company, with a compound annual growth rate of 13%. Notably, only 11 members of the S&P 500 have a longer string of consecutive annual dividend increases. Further, Leggett & Platt possesses the highest dividend yield among all of the S&P 500's Dividend Aristocrats with at least 30 consecutive annual dividend increases. At yesterday's closing share price of $23.60, the indicated annual dividend of $1.12 per share generates a dividend yield of 4.7%.

2012 Outlook

Leggett & Platt anticipates 2012 sales of approximately $3.65-3.85 billion, including modest inflation. Based upon that sales expectation, the company projects 2012 EPS of $1.25 - 1.45.

Over the last few years, Leggett & Platt significantly reduced its fixed cost structure, but purposely retained spare production capacity. Accordingly, unit sales can rebound appreciably without the need for large capital investment. As a result, the company has meaningful operating leverage that should significantly benefit future earnings as market demand rebounds.

For over 20 years the company has generated operating cash in excess of the amount needed to fund dividends and capital expenditures. That should again be true this year, as cash from operations is expected to exceed $325 million for 2012. Capital expenditures should be approximately $100 million for the year, and dividend payments should approximate $160 million.

For the full year, the company expects to issue approximately 2-3 million shares of its stock (via its employee benefit and stock purchase plans). The company has standing authorization from the Board of Directors to repurchase up to 10 million shares of its stock each year, and expects to repurchase shares during 2012, but has established no specific repurchase commitment or timetable.

SEGMENT RESULTS – First Quarter 2012 (versus the same period in 2011)
Residential Furnishings – Total sales increased $33 million, or 7%; unit volume increased 5%, and inflation accounted for 2% of the sales increase. EBIT (earnings before interest and income taxes) decreased $2 million, with the benefit from higher unit volumes more than offset by non-recurrence of last year's $4 million gain from a building sale, higher raw material costs, and less favorable sales mix.

Commercial Fixturing & Components – Total sales decreased $15 million, or 12%; same location sales decreased 8%, and the remaining 4% decline is attributable to a small divestiture. EBIT decreased $1 million primarily due to non-recurrence of last year's $4 million gain from a building sale. The earnings impact from lower revenue was more than offset by a $2 million gain from the sale of a business, restructuring-related benefits, and other cost savings.

Industrial Materials – Total sales increased $27 million, or 13%; one-half of the growth is from the acquisition of Western Pneumatic Tube. Same location sales grew 6%; unit volume declined 1% but was more than offset by 7% inflation. EBIT declined by $2 million, due to the $3 million fair value adjustment to Western Tube's inventory.

Specialized Products – Total sales increased $11 million, or 6%. EBIT was essentially flat, with the benefit from higher sales offset by several small items.

COMPANY DESCRIPTION: Leggett & Platt (LEG) is a diversified manufacturer (and member of the S&P 500) that conceives, designs and produces a variety of engineered components and products that can be found in most homes, offices, and automobiles. The 129-year-old firm is comprised of 20 business units, 18,000 employee-partners, and 130 manufacturing facilities located in 18 countries.

Leggett & Platt is the leading U.S. manufacturer of: a) components for residential furniture and bedding; b) office furniture components; c) drawn steel wire; d) automotive seat support & lumbar systems; e) carpet underlay; f) adjustable bed bases; g) bedding industry machinery.

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