* 3Q EPS of $.31
* 3Q sales of $867 million, 7% higher than in prior year
* Updated 2010 EPS guidance to $1.10 - 1.20 on sales of $3.30 - 3.35 billion
Diversified manufacturer Leggett & Platt reported third quarter earnings per diluted share of $.31 (including a $.02 per share net LIFO expense). In the third quarter of 2009, earnings were $.34 per share (including a $.05 per share net LIFO benefit). Compared to third quarter 2009, third quarter 2010 earnings benefited from higher unit volumes and lower effective tax rates; these factors were more than offset by an increase in net LIFO expense (of $.07 per share) and higher-cost raw materials.
Sales from Continuing Operations were $867 million, 7% (or $57 million) higher than 2009 third quarter sales, primarily due to unit volume growth in the Specialized Products segment.
President and CEO David S. Haffner commented, "Certain of our key markets, primarily related to residential furnishings, weakened noticeably in the third quarter. As a result, our third quarter sales were lower than those of second quarter, which rarely occurs. Though aggregate unit volume increased 6% in the third quarter (compared to 3Q 2009), this was a much slower pace than the 15% unit growth experienced during the first half of 2010. We believe the stronger consumer demand during the first half of the year was driven, in part, by larger income tax refunds and house purchase incentives. In addition, raw material costs temporarily increased beyond the amounts anticipated when we implemented price increases during the second quarter; however, we are seeing costs begin to retreat to expected levels. As a result, we are revising our full year EPS guidance to the lower half of our prior range.
"Strategically, during the quarter we completed the sale of the seventh, and last, of the businesses we planned to divest as part of the company's strategic realignment. The seven divestitures collectively generated $433 million of after tax cash proceeds, exceeding the original $400 million goal. Cash flow remains strong and net debt declined during the quarter.
"We remain well positioned as the economy recovers. Given our unused production capacity, sales can rebound to at least $4 billion before we need to invest much capital. We continue to expect an incremental EBIT margin of 25-35% as unit volumes increase; as a result, EBIT margin should improve as sales grow.
"Since 2008, when we implemented our new strategy, we have exceeded our goal of providing Total Shareholder Return (TSR(1)) that ranks within the top 1/3 of the S&P 500. Longer term, we believe that modest sales growth, continued margin improvement, our dividend yield, and stock buybacks will enable us to continue to attain that goal."
Dividend and Stock Repurchases
In August, Leggett & Platt's Board of Directors declared a $.27 third quarter dividend, a 3.8% increase versus the second quarter dividend. Leggett & Platt has increased annual dividends for 39 consecutive years, at a compound annual growth rate of 14%. At yesterday's closing share price of $22.88, the indicated annual dividend of $1.08 per share generates a dividend yield of 4.7%.
During the third quarter, the company repurchased 0.5 million shares of its stock at an average price of $21.15 per share, and issued 0.4 million shares. Year to date, the company repurchased 4.7 million shares and issued 2.4 million shares; as a result, shares outstanding decreased to 146.5 million (14% lower than it was three years ago).
For the full year, the company anticipates repurchasing a total of 6 to 8 million shares of its stock and issuing approximately 3 million shares (primarily for employee purchases of stock). The company has standing authorization from the Board of Directors to repurchase up to 10 million shares each year, but has established no specific repurchase commitment or timetable.
Leggett anticipates full year 2010 sales of approximately $3.30 - 3.35 billion, and EPS of $1.10-1.20. Cash from operations should exceed $300 million for the full year, which is more than sufficient to provide the cash needed for capital expenditures and dividends.
All of Leggett's segments use the FIFO (first-in, first-out) method for valuing inventories. An adjustment is made at the corporate level to convert about 60% of the inventories to the LIFO (last-in, first-out) method.
LIFO accounting created significant variability in 2009 quarterly earnings. Steel deflation negatively impacted segment earnings for the first half of 2009. This impact was offset by a LIFO benefit at the corporate level, but that benefit was spread across all four quarters in 2009. As a result, earnings for the third quarter 2009 included a LIFO benefit of $16.0 million; in contrast, third quarter 2010 earnings reflect a LIFO expense of $5.3 million.
SEGMENT RESULTS - Third Quarter 2010 (versus 3Q 2009)
Residential Furnishings - Total sales were unchanged; unit volume decreases were offset by inflation. EBIT (earnings before interest and income taxes) decreased $1 million due to reduced unit volume.
Commercial Fixturing & Components - Total sales increased $6 million, or 4%, primarily due to new programs with office furniture manufacturers. EBIT decreased $1 million; gains due to higher sales were more than offset by higher raw material costs and a less favorable sales mix.
Industrial Materials - Total sales increased $11 million, or 6%; unit volume was 2% higher, inflation increased sales by 10%, and a small divestiture reduced sales by 6%. EBIT decreased $7 million, with the impact of higher volume more than offset by higher raw material costs and lost earnings contribution associated with the divestiture.
Specialized Products - Total sales increased $35 million, or 28%, with all portions of the segment showing meaningful improvement. EBIT increased $10 million due to higher volume.
COMPANY DESCRIPTION: Leggett & Platt (NYSE: LEG) is a diversified manufacturer (and member of the S&P 500) that conceives, designs and produces a broad variety of engineered components and products that can be found in most homes, offices, and automobiles. The company serves a broad suite of customers that comprise a "Who's Who" of U.S. manufacturers and retailers. The 127-year-old firm is comprised of 19 business units, 20,000 employee-partners, and more than 140 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 and lumbar systems; e) carpet underlay; f) power foundations; g)bedding industry machinery.
SOURCE: Leggett & Platt
Have something to say? Share your thoughts with us in the comments below.