A month has gone by since the last earnings report for Legget & Platt (LEG). Shares have added about 3% 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's (LEG) Q3 Earnings Beat Estimates, View Up
Leggett & Platt, Incorporated reported third-quarter 2019 results, with earnings and revenues beating the Zacks Consensus Estimate. The bottom line surpassed the consensus mark for the second straight quarter. The company also raised its 2019 earnings view.
Adjusted earnings of 76 cents per share beat the Zacks Consensus Estimate of 67 cents by 13%. The figure rose from the year-ago quarter’s profit level of 66 cents by 15.2%. Strong sales in Automotive, U.S. Spring and Work Furniture added drove the upside. Also, contributions from the Elite Comfort Solutions (ECS) acquisition as well as continued market share and content gains in U.S. Spring led to the upside. However, lower volume from businesses exited in the Fashion Bed and Home Furniture along with weak trade in the Industrial Products segment partly offset the positives.
Quarter in Details
The company’s net sales of $1,239.3 million beat the consensus mark of $1,215 million by 2% and increased 13.5% from the prior-year quarter’s level. The improvement was primarily driven by solid contribution from the ECS acquisition. Leggett also benefited from ongoing market share and content gains in U.S. Spring (up 6%). However, the positives were partly offset by lower volumes arising from its decision to exit businesses in the Fashion Bed and Home Furniture Products segment along with weak trade demand in the Industrial Products.
Volumes declined 1% in the quarter versus 3% growth reported in the year-ago quarter. Organically, sales dropped 2% in the quarter against 6% growth in third-quarter 2018. That said, minor acquisitions contributed 16% to sales in the quarter. Raw material-related selling prices and negative currency impact lowered sales by 1%.
The company’s overall gross margin expanded 140 basis points (bps) to 22.2% in the quarter. Adjusted EBIT margin also advanced 50 bps to 11.9%, primarily due to lower raw material costs (including LIFO benefit) and improved earnings performance in Furniture Products. Also, the ECS acquisition added to the positives. Adjusted EBITDA margin surged 130 bps year over year to 15.8% in the quarter.
Net sales in Residential Products (excluding inter-segment sales) increased 41.5% from the year-ago quarter’s level to $631.9 million. Organically, sales rose 3%.. Volume was up 4% as market share and content gains in U.S. Spring were intact. However, raw material-related selling price decline and currency impact lowered sales by 1%. Including inter-segment sales, total sales in the segment rose 41.3% from the year-ago quarter’s figure to $635.6 million.
Sales in the Industrial Products segment declined 29.6% from the prior-year quarter’s level to $68.6 million. Organically, sales fell 17% against 28% growth in the year-ago quarter. Total sales, including inter-segment revenues, fell 16.7% from the prior-year quarter to $144.4 million, mainly due to raw material price decline (down 5%) and weak trade demand for steel rod and wire (down 12%).
Net sales in Furniture Products dropped 7.7% from the year-ago quarter’s figure to $271.6 million on 8% lower volumes. Its exit from Fashion Bed and planned declines in Home Furniture, partially offset by growth in Work Furniture and Adjustable Bed, impacted the results. Raw material-related selling price increases were offset by a negative currency impact. Total sales of the segment (including inter-segment sales) fell 8.1% year over year to $273.8 million. Organically, sales declined 8% against 4% growth in the comparable period last year.
The Specialized Products segment's sales increased 5.4% from the prior-year quarter’s figure to $267.2 million. Organically, sales increased 6% (versus 3% growth in third-quarter 2018), courtesy of an increase in volume growth in the automotive market. The upside was partially offset by negative currency impact. Total sales in the segment (including inter-segment sales) increased 5.5% from the year-ago quarter’s level to $268.1 million.
Leggett ended the third quarter with cash and cash equivalents of $242 million versus $363.5 million in the year-ago quarter. The company had a long-term debt of $2.2 billion compared with $1.35 billion in the prior-year quarter. It generated $212.9 million cash flow from operations in the quarter, up 68% year over year.
2019 Guidance Updated
Sales are projected in the range of $4.7-$4.8 billion compared with previous expectation of $4.7-$4.85 billion. The projection indicates an increase of 10-12% from 2018 level. The company expects its Automotive business to exceed market growth by 600-700 basis points. It also expects EBIT to benefit from ECS acquisition, higher sales, lower steel costs (including LIFO benefit) and improved performance in Furniture Products.
Adjusted earnings are projected in the range of $2.48-$2.63 per share compared with previous expectation of $2.40-$2.60. Adjusted EBIT margin is envisioned in the band of 11-11.3%. Leggett expects 2019 operating cash flow from operations to exceed $550 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, Legget & Platt has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Legget & Platt has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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