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Charges Likely to Impact Leggett & Platt's (LEG) Q4 Earnings

Leggett & Platt, Incorporated LEG expects restructuring and impairment charges to reflect in fourth-quarter 2018 bottom line. Fourth-quarter results are slated to be released on Feb 4, after market close.

The company expects total restructuring charges (pretax) in fourth-quarter 2018 to be roughly $16 million, out of which $8 million is anticipated to be non-cash and the remaining is likely to constitute cash expense. Moreover, total restructuring charges for 2019 are expected to be $17 million, of which $12 million is likely to account for non-cash and $5 million for cash expense. The restructuring activity is expected to be completed by 2019. These charges are related to Fashion Bed and Home Furniture operations.

Leggett & Platt, a global manufacturer of engineered components and products, has been experiencing higher raw material costs and soft demand in the above-mentioned businesses in the recent quarters. Hence, after a comprehensive analysis, the company has decided to discontinue low-margin businesses, reduce operating costs and remove excess capacity. The move is likely to improve segmental operating performance in 2019.

In addition, the company expects to incur a non-cash note impairment charge amounting to $16 million in the fourth quarter, which will likely impact the bottom line in the quarter.

Reflective of these charges, EPS is expected to be impacted by about 19 cents. The company has not yet updated its 2018 guidance.

Notably, during the third-quarter earnings call, management lowered its guidance for 2018. EPS was projected in the range of $2.40-$2.50 per share compared with the earlier projection of $2.55-$2.70.

The major reasons behind the reduced expectation were softness in Home Furniture and European Spring, as well as lower overhead recovery in Adjustable Bed. Also, the downside can be attributed to the impact of lower-than-expected sales in Automotive, along with pricing lag on raw material increases in European Spring, Flooring Products and Fabric businesses.

Meanwhile, the company’s shares have declined 21.7% over a year. Earnings estimates for 2018 and 2019 have declined 6.9% and 8.2%, respectively, over the past 60 days, depicting analysts’ concern surrounding the company’s earnings growth potential.

Zacks Rank & Stocks to Consider

Leggett & Platt currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Consumer-Discretionary sector are Liberty Broadband Corporation LBRDK, Rogers Communications Inc. RCI and DISH Network Corporation DISH. While Liberty Broadband sports a Zacks Rank #1 (Strong Buy), Rogers Communications and DISH Network both carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Liberty Broadband has an expected earnings growth rate of 107.1% for the next year.

Rogers Communications has an expected earnings growth rate of 19.2% for the current year.

DISH Network’s expected earnings growth rate for the current year is pegged at 17.7%.

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