Why Is Legget & Platt (LEG) Up 6.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Legget & Platt (LEG). Shares have added about 6.8% in that time frame, underperforming 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 Q1 Earnings Top, Down Y/Y on Low Organic Sales

Leggett & Platt, Incorporated reported impressive earnings in first-quarter 2020. However, its top and bottom line declined on year over year basis.

It witnessed lower sales in the last two weeks of the first quarter and stabilized sales trends in the first three weeks of April, with an average level of 55%. Backed by aggressive cost reductions, aligned variable cost structure to current demand levels and eliminated non-essential expenses, the company expects fixed cost reduction of $130-$150 million in 2020. It reduced capital expenditure by more than 60% to $60 million and suspended future acquisitions.

The company revoked its previously announced 2020 guidance due to coronavirus-led uncertainty.

Quarter in Details

The company reported adjusted earnings of 41 cents per share, beating the Zacks Consensus Estimate of 40 cents by 2.5%. However, the figure declined 16.3% from the year-ago period due to lower EBIT and a higher tax rate (2 cents per share).

Net trade sales totaled $1.046 billion, which missed the consensus mark of $1.117 billion by 6.4% and decreased 9.5% from the prior-year level. The downside was mainly due to a 12% decline in organic sales, partially offset by 3% contribution from acquisition (primarily ECS).

Adjusted EBIT fell 11.4% from the prior-year period to $93 million, owing to lower volume and higher bad debt expense, partially offset by low raw material costs. Adjusted EBIT margin also contracted 20 basis points (bps) to 8.9%. Adjusted EBITDA margin improved 30 bps year over year to 13.4%.

Segment Details

On Nov 5, 2019, the company announced changes in its segment structure, effective Jan 1, 2020. The modified structure consists of three segments, seven groups and 15 business units.

Net trade sales in Bedding Products (excluding inter-segment sales) decreased 11% from the year-ago level to $490.6 million. Organically, sales fell 15% from the prior-year quarter. Nonetheless, acquisitions added 4% to total net sales.

Adjusted EBIT margin contracted 120 bps to 7.8%. Adjusted EBITDA margin also fell 30 bps year over year.

The Specialized Products segment's trade sales declined 11% from the prior-year figure to $234.5 million. Organically, sales contracted 11% year over year. The downside was owing to a 9% year-over-year decline in volumes on reduced demand in Automotive and Hydraulic Cylinders. Negative currency further impacted sales by 2%. EBIT margin decreased 180 bps to 11.8%. EBITDA margin also contracted 90 bps from the prior year.

Trade sales in the Furniture, Flooring & Textile Products segment declined 5% from the prior-year level to $320.4 million, mainly due to 7% lower organic sales. Nevertheless, a small Geo Components acquisition contributed 2% to sales. Adjusted EBIT margin of 8.3% was up 260 bps from the prior year. Adjusted EBITDA margin also expanded 270 bps year over year to 10.3%.

Financials

As of Mar 31, 2020, the company had $734 million of liquidity, $506 million of cash on hand and $228 million in available capacity under the commercial paper program, within a revolving credit facility.

Long-term debt at March-end was $2.4 billion, slightly up from the corresponding period of last year. Debt of $37.5 million is scheduled to mature in 2020, with no other maturity until August 2022. Trailing 12-month debt-to-adjusted EBITDA was 3.48.

The quarterly dividend was 40 cents, which was 2 cents higher than the prior-year quarter. Cash flow from operations was $10.4 million, down from $31.4 million a year ago.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month. The consensus estimate has shifted -750% due to these changes.

VGM Scores

At this time, Legget & Platt has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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

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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