It has been about a month since the last earnings report for Legget & Platt (LEG). Shares have added about 5.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Legget & Platt due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Leggett's Q3 Earnings Beat, Tepid Views
Leggett & Platt, Incorporated reported better than expected results for third-quarter 2022, wherein earnings and net sales surpassed the Zacks Consensus Estimate. However, both metrics decreased on a year-over-year basis.
Despite experiencing demand and margin recovery in the Specialized Products segment, net sales declined due to a stable U.S. bedding market and slowness in other markets such as European bedding, home furniture, work furniture, and steel.
President and CEO of Leggett, Mitch Dolloff, said, "Third quarter earnings per share were slightly better than expected primarily due to incentive compensation adjustments. At the midpoint of guidance, fourth quarter is now expected to be slightly lower than third quarter primarily due to further reductions in steel rod production in response to the slowing steel market.”
Quarter in Details
Leggett reported adjusted earnings of 52 cents per share, which topped the consensus estimate of 49 cents by 6.1% but decreased 26.8% from the year-ago quarter’s figure of 71 cents. Global economic conditions and their effect on the consumer affected the bottom line.
Net trade sales totaled $1.29 billion, surpassing the consensus mark of $1.23 billion by 5.1% but declined 2% from the prior-year quarter’s levels. Organic sales were down 3% year over year. Raw material-related selling prices added 8% to sales growth and Hydraulic Cylinders and Textile acquisitions (completed in August), net of small divestitures, contributed 1% to the positives. Yet, a volume decline of 8% and a currency impact of 3% offset the positives.
Adjusted EBIT declined 21% from the prior-year quarter’s levels to $113.2 million. The downside was caused due to volume declines and lower overhead absorption from reduced production, and operational inefficiencies in Specialty Foam, partially offset by metal margin expansion.
Adjusted EBIT margin contracted 220 basis points (bps) to 8.7% from the year-ago quarter’s figure. Adjusted EBITDA margin also declined 230 bps to 12.2%.
Segment Details
Net trade sales in Bedding Products (excluding intersegment sales) decreased 12% from the year-ago quarter’s levels to $582 million. A volume decline of 20% was caused by softness in the United States and European demand, partially offset by strong trade demand in Steel Rod and Drawn Wire businesses. Increased prices contributed 9% despite a 1% decline from currency fluctuation. Organically, sales were down 12% year over year.
Adjusted EBIT margin fell 470 bps at 7.5%. Adjusted EBITDA margin also fell 430 bps year over year to 12%.
The Specialized Products segment's trade sales rose 24% from the prior-year quarter’s figure to $291.3 million. Sales growth in Automotive, Aerospace and Hydraulic Cylinders helped volume increase by 22%. Favorable selling price added 5% to sales and Hydraulic Cylinders acquisition contributed 5%. Currency impact lowered sales by 8%. Organically, sales were up 19% year over year.
EBIT margin improved 120 bps to 10.7%. Adjusted EBITDA margin plunged 40 bps year over year to 14.1%.
Trade sales in the Furniture, Flooring & Textile Products segment remained flat from the prior-year quarter’s level to $421.1 million. Volume was down 6%, mainly due to declines in Home Furniture, Fabric Converting and Flooring, more than offset by growth in Geo Components and Work Furniture. Raw material-related selling price added 7% to sales, but currency declined sales 1%. Organically, sales were flat year over year.
EBIT margin of 9.1% was down 70 bps from the prior year. Adjusted EBITDA margin also contracted 80 bps to 10.4%.
Financials
As of Sep 30, 2022, the company had $1 billion in liquidity. It had $226.2 million of cash and equivalents in September-end compared with $361.7 million at 2021-end. Long-term debt at the third quarter-end was $2.13 billion, up from $1.79 from 2021-end. The trailing 12-month net debt-to-adjusted EBITDA was 2.63.
Cash from operations for the third quarter totaled $65 million versus $50 million in the prior year. Capital expenditures were $25 million in the third quarter.
At the end of the third quarter, it had 132.6 million outstanding under the repurchase program as it bought back 0.1 million shares from its common stock for an average price of $38.42.
Q4 Guidance
For the fourth quarter, net sales are expected to be $1.15–$1.25 billion and earnings per share are anticipated to be between 42 cents and 57 cents. In fourth-quarter 2021, it reported net sales of $1.333 billion and earnings per share of 77 cents.
2022 Guidance
Owing to the lower demand levels and challenging macroeconomic environment, Leggett lowered its 2022 guidance on Oct 10.
Leggett now expects sales in the range of $5.1–$5.2 billion versus $5.2–$5.4 billion expected earlier. This indicates year-over-year flat to 2% growth from 2-6% estimated earlier. The raw material-related price increase, net of currency impact, is likely to offset high single-digit volume decline. Sales are likely to be down mid-teens in Bedding Products, up low double digits in Specialized Products and down by low single digits in Furniture, Flooring & Textile Products segment. Acquisitions, net of small divestitures, are expected to add nearly 1% to sales.
Earnings are now expected to be between $2.30 and $2.45 per share, down from a prior expectation of $2.65-$2.80. The company now expects an EBIT margin of 9.5-10% (lower than the previous projection of 10.5-10.7%).
Capital expenditures, depreciation and amortization costs, and operating cash flow are estimated at $115 million, $180 million, and $400–450 million versus $130 million, $200 million, and $550–600 million expected earlier, respectively. Dividend and net interest expenses are likely to be $230 million and $80 million, respectively. The effective tax rate for the year is projected at 23%. Fully diluted shares are projected to be approximately 137 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -5.88% due to these changes.
VGM Scores
Currently, Legget & Platt has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Legget & Platt has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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