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Will Charge on Store Fixtures Affect Leggett (LEG) Earnings?

Zacks Equity Research

Leggett & Platt Inc. (LEG) is set to report second-quarter 2014 results on Jul 25. Last quarter, the company posted a negative earnings surprise of 2.63%. Let us see how things are developing for this announcement.

Factors Influencing the Upcoming Quarter

In a recent announcement, Leggett and Platt revealed that it is considering various alternatives for its Store Fixtures business which forms a part of the Commercial Fixturing & Components segment. The company stated that performance of the Store Fixtures business remained distressed even in the second quarter impacting profitability in the months of May and June of 2014. The company also declared that for the second quarter of 2014, it envisions recording pre-tax non-cash goodwill impairment charge of nearly $108 million against the write off of the goodwill related to its Stores Fixtures business. This is expected to impact second quarter earnings by 65 cents per share. This makes us apprehensive about the company’s second quarter earnings.

Moreover, we are concerned about rising raw material costs, which have been adversely impacting the company’s margins over the past few quarters. Leggett’s operating performance is greatly dependent on the price of raw materials, particularly of steel.

Earnings Whispers?

Our proven model does not conclusively show that Leggett is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: ESP for Leggett is 0.00% since the Most Accurate Estimate stands at 47 cents, which is in line with the Zacks Consensus Estimate.

Zacks Rank #3 (Hold): Leggett's Zacks Rank #3 when combined with a 0.00% ESP makes surprise prediction difficult. We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Leggett is not the only firm looking up this earnings season. Our model shows that the following stocks have the right combination of elements to post an earnings beat:

Avis Budget Group Inc. (CAR) with an Earnings ESP of +3.18% and a Zacks Rank #1 (Strong Buy)

Archer Daniels Midland Company (ADM) with an Earnings ESP of +8.33% and a Zacks Rank #2 (Buy)

Colgate-Palmolive Co. (CL) with an Earnings ESP of +1.37% and a Zacks Rank #2

Read the Full Research Report on LEG
Read the Full Research Report on ADM
Read the Full Research Report on CAR
Read the Full Research Report on CL

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