A month has gone by since the last earnings report for Legget & Platt (LEG). Shares have lost about 2.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Legget & Platt due for a breakout? 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 Q2 Earnings Match Estimates
Leggett & Platt, Incorporated reported decent results for second-quarter 2022, with earnings meeting the Zacks Consensus Estimate and net sales surpassing the same. Both the metrics increased on a year-over-year basis. Solid raw material-related selling prices helped the company generate higher sales and earnings. Yet, the company witnessed soft volumes and currency headwinds.
President and CEO of Leggett, Mitch Dolloff, said, "We are lowering our full-year guidance to reflect macroeconomic uncertainties including impacts of inflation, tightening monetary policy, and softening consumer demand continuing through the back half of the year. We expect solid demand in our industrial and automotive end markets to partially offset softer consumer markets.
Dolloff continued, “During the second quarter, we increased our dividend and marked 51 consecutive years of annual dividend increases. We also repurchased $35 million of our stock in the quarter. As we move through the remainder of the year, we will continue to evaluate our capital deployment options while monitoring the current macroeconomic uncertainties."
Quarter in Details
Leggett reported adjusted earnings of 70 cents per share, which increased 6.1% from the year-ago quarter’s figure of 66 cents. The upside was driven by lower tax rates.
Net trade sales totaled $1.334 billion, marginally surpassing the consensus mark of $1.331 billion and increasing 5% from the prior-year quarter’s levels. Organic sales were up 5% year over year. Of this growth, raw material-related selling prices added 13% to sales. Yet, a volume decline of 6% and currency impact of 2% dented top-line growth. Demand softness in residential end markets was partially offset by growth in industrial end markets and Automotive.
Adjusted EBIT decreased 0.7% from the prior-year quarter to $143 million. The downside was caused due to volume declines and lower overhead absorption, partially offset by metal margin expansion and pricing discipline in the Furniture, Flooring & Textile Products segment.
Adjusted EBIT margin contracted 60 basis points (bps) to 10.7% from the year-ago quarter’s figure. EBITDA margin also declined 100 bps to 14.1%.
Net trade sales in Bedding Products (excluding intersegment sales) increased 1% from the year-ago quarter’s levels to $612.5 million. A volume decline of 15% was caused by softness in the United States and European demand, partially offset by strong trade demand in our Steel Rod and Drawn Wire businesses. Increased prices contributed 16% and acquisitions — net of small divestitures — led to sales growth of 1%, despite a 1% decline from currency fluctuation. Organically, sales were flat year over year.
Adjusted EBIT margin fell 60 bps at 11.3%. EBITDA margin also fell 60 bps year over year to 15.6%.
The Specialized Products segment's trade sales rose 8% from the prior-year quarter’s figure to $260.1 million. Sales growth in Automotive, Aerospace and Hydraulic Cylinders helped volume increase by 11%. Favorable selling price added 3% to sales. Currency impact lowered sales by 2%. Organically, sales were up 8% year over year.
Adjusted EBIT margin declined 310 bps to 8.2%. EBITDA margin plunged 440 bps year over year to 12%.
Trade sales in the Furniture, Flooring & Textile Products segment increased 10% from the prior-year quarter’s level to $461.6 million. Volume was down 2%, mainly due to declines in Home Furniture, Textiles and Flooring, more than offset by growth in Work Furniture. Raw material-related selling price added 13% to sales, but currency declined sales 1%. Organically, sales rose 10% year over year.
EBIT margin of 11.1% was up 40 bps from the prior year. EBITDA margin also improved 30 bps to 12.4%.
As of Jun 30, 2022, the company had $1.3 billion in liquidity. It had $269.9 million of cash and equivalents at June-end compared with $361.7 million at 2021-end. Long-term debt at June-end was $1.79 billion, in line from 2021-end. Trailing 12-month net debt-to-adjusted EBITDA was 2.39.
Cash from operations for the second quarter totaled $89.8 million versus $40.9 million in the prior year.
2022 Guidance Lowered
Leggett expects sales in the range of $5.2–$5.4 billion versus $5.3-$5.6 billion expected earlier. This indicates year-over-year growth of 2-6%. The raw material-related price increase, net of currency impact, is likely to contribute to sales. Year-over-year low-to-mid single digits down volume are likely to ail the same. Sales are likely to be down low-double digits in Bedding Products, up low double digits in Specialized Products and roughly flat in Furniture, Flooring & Textile Products segment.
Earnings are now expected to be between $2.65 and 2.80 per share, down from a prior expectation of $2.70-$3.00. The company now expects an EBIT margin of 10.5-10.7% (lowered upper range from 11%).
Capital expenditures, depreciation and amortization costs, operating cash flow, dividend and net interest expenses for 2022 are estimated at $130 million, $200 million, $550–600 million, $230 million and $80 million, respectively. The effective tax rate for the year is projected at 23%.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month.
At this time, Legget & Platt has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, 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 B. 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 has been net zero. Notably, Legget & Platt has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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