Diversified engineered products manufacturer Leggett & Platt Inc. (LEG) has recently made a series of big-ticket announcements along with Tempur Sealy International Inc. (TPX) – a leading provider of bedding products.
As Tempur Sealy announced its decision to halt innerspring components production in the U.S., Leggett has acquired three of its U.S. innerspring component production facilities and equipment along with the related working capital. The assets were bought for $48.0 million, open to working capital adjustments.
Moreover, Leggett will be the sole long-term supplier of wire-based innersprings and boxsprings in Canada and the U.S. for Tempur Sealy. This significantly enhances the supply connections between the companies.
Tempur Sealy’s exit from innerspring parts production will help it to focus on product innovation, brand development and working capital management. With Leggett’s support, the company will have greater flexibility with regards to product developments.
On the other hand, Leggett is positive on the long-term supply deal with Tempur Sealy as it expects incremental production to improve its economies of scale. Additionally, the company expects this long-term deal to help optimize production across a larger asset base.
Further, Leggett expects this partnership to augment sales by 2% within a year. However, earnings per share are anticipated to remain unaffected by the deal. We believe that this strategic agreement will significantly benefit the companies and position them well on a multi-year path of planned product development.
Leggett currently carries a Zacks Rank #3 (Hold). Other better-ranked retail stocks include Nautilus Inc. (NLS) and Citi Trends, Inc. (CTRN), each carrying a Zacks Rank #1 (Strong Buy).