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Factors Setting the Tone for Leggett's (LEG) Q1 Earnings

Zacks Equity Research

Leggett & Platt, Incorporated LEG is scheduled to release first-quarter 2019 results on Apr 29. In the last reported quarter, the company’s earnings and revenues surpassed the Zacks Consensus Estimate by 8.8% and 2.2%, respectively. Also, the top and bottom lines increased 6% and 5%, respectively, on a year-over-year basis.

How are Estimates Faring?

Let’s take a look at estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate for earnings has declined 7.1% over the past 30 days to 52 cents. This indicates a decline of 8.8% from 57 cents in the year-ago quarter. However, revenues are expected to be $1.18 billion, suggesting an increase of more than 15% year over year.

Leggett & Platt, Incorporated Price and EPS Surprise

Leggett & Platt, Incorporated Price and EPS Surprise | Leggett & Platt, Incorporated Quote

Factors at Play

Leggett’s performance in first-quarter 2019 is likely to be impacted by multiple headwinds. The company has been witnessing soft demand for Home Furniture and Fashion Bed, as well as lower volumes across the business, which might affect the upcoming results. Also, lesser promotional activity in Adjustable Bed is expected to hurt sales in the first quarter.

Margins have remained under pressure over the last few quarters mainly due to raw material cost increases. Given volatility in raw material prices, with steel being one of the key raw materials and the steel market being cyclical in nature, its margins are likely to remain pressurized in the to-be-reported quarter. However, moderating steel inflation is expected to benefit the bottom line to some extent.

Its recent acquisition of Elite Comfort Solutions or ECS is certainly not proving to be accretive to the company’s earnings in the to-be-reported quarter. In fact, the purchase accounting for acquired ECS inventory is expected to hamper its bottom line in the first quarter. The company expects adjusted operating margins in the first quarter to be lower than the year-ago period due to the above-mentioned headwinds.

Nonetheless, Leggett has undertaken certain initiatives that are expected to drive sales growth in the to-be-reported quarter. In January, the company acquired Precision Hydraulic Cylinders, a leading global manufacturer of engineered hydraulic cylinders. It has initiated restructuring activity in Fashion Bed and Home Furniture businesses.

Overall, the upcoming quarterly results are expected to benefit from higher organic sales and sales growth in Automotive, U.S. Spring, aerospace and Hydraulic Cylinders. However, higher tax rate and restructuring costs are significant headwinds that may restrict the company’s bottom-line growth.

What Our Model Indicates

Our proven model does not show that Leggett is likely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

It has an Earnings ESP of -1.29% and currently carries a Zacks Rank #3, making surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in the upcoming releases:

JAKKS Pacific, Inc. JAKK has an Earnings ESP of +17.86% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Wynn Resorts, Limited WYNN has an Earnings ESP of +1.78% and a Zacks Rank #3.

Boyd Gaming Corporation BYD has an Earnings ESP of +8.84% and a Zacks Rank #3.

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