Leggett & Platt Inc. (LEG) – the manufacturer of diversified engineered products – reported better-than-expected fourth quarter and full-year 2013 results. This generated positive sentiment in the market as reflected in the company’s share price, which rose 2.3% in the after-hour trading session.
Leggett’s fourth-quarter adjusted earnings from continuing operations increased 9% year over year to 35 cents per share and beat the Zacks Consensus Estimate by a couple of cents. The improved bottom-line results were primarily driven by increased sales, leverage operating expenses, lower interest payments and a decline in outstanding number of shares. These positives were partly offset by higher steel costs.
The company’s fourth-quarter adjusted earnings excluded a non-cash impairment charge of 31 cents, which, if included would have led to earnings per share of 4 cents, down 92% from the year-ago comparable quarter figure of 50 cents (including one-time items). Fourth-quarter 2012 earnings included an unusual tax benefit of 18 cents per share.
Net sales of the company grew 5% to $896.8 million from $850.1 million in the prior-year quarter and surpassed the Zacks Consensus Estimate of $890.0 million. The year-over-year improvement in the top line was largely attributable to a 3% increase in unit volume and 2% benefit from acquisitions.
Despite solid top-line growth, gross profit declined 5.9% year over year to $166.2 million mainly due to higher cost of goods sold. Consequently, gross margin contracted 230 basis points (bps) in the quarter to 18.5%. Further, operating income including non-cash impairment charge declined to $0.7 million from $75.8 million in the year-ago quarter.
Fourth-quarter Residential Furnishings revenues increased 6.2% to $482.8 million on the back of a rise in volumes and increased pricing for Carpet Underlay. Operating income increased 17% year over year to $40.3 million owing to increased sales.
Sales of Commercial Fixturing & Components fell 7.8% to $83.7 million. On the other hand, the segment recorded an operating loss of $2.5 million, compared with an income of $0.9 million in the comparable prior-year quarter, primarily due to a decline in sales.
The Industrial Materials segment’s sales witnessed 5.8% growth to $197.9 million, mainly benefiting from acquisitions but partially offset by a 4% fall in same-location sales. Same-location sales were adversely affected by decline in steel prices at the beginning of the quarter that more than offset the benefit of increased unit volume. Operating income dipped 20% year over year to $12.6 million, due to lower metal margins.
Specialized Products segment’s sales rose 8.6% year over year to $203.7 million, driven by strong sales in Automotive and Machinery, offset by the downside in Commercial Vehicle Products (:CVP). However, the segment recorded an operating loss of $38.8 million, mainly due to CVP impairment charges.
Highlights of Full-Year 2013 Performance
The company’s adjusted earnings for 2013 came in at $1.54 per share, up 5% from the comparable year-ago figure of $1.47. The rise was primarily driven by solid top-line growth, leveraged operating expenses and lower share count. Adjusted earnings also exceeded the Zacks Consensus Estimate by a penny. Total sales for the year rose 1% year over year to $3,706.1 million. However, the company’s top line missed the Zacks consensus Estimate of $3,744 million.
Other Financial Details
Leggett, which competes with Stanley Furniture Co. Inc. (STLY), maintained a solid financial position as of the end of 2013, with cash and equivalents of $272.7 million, long-term debt of $688.4 million and shareholders' equity of $1,399.2 million. The company’s net debt to net capital ratio as of Dec 31, 2013 was 27%, below the 2012 level of 29% as well as the company’s long-term targeted range of 30.0%–40.0%.
During 2013, Leggett generated cash flow of $417 million from its operational activities, which it utilized to meet capital expenditure and in dividend payments and share buybacks. During the period, the company made capital expenditure of $81 million, dividend payment of $125 million and repurchased shares of worth $133 million.
Buoyed by better-than-expected 2013 performance, Leggett is expecting higher growth in sales, EBIT margin and operating earnings per share (EPS) in 2014. The company projects its sales in 2014 to grow in the range of 3%–8% and come in between $3.85 billion and $4.05 billion. On this basis, EPS is anticipated to come in the range of $1.65–$1.85. Currently, the Zacks Consensus Estimate is pegged at $1.72 per share.
Additionally, continuing its trend of generating more cash than required to fund dividends and capital expenditures, the company expects operating cash flows of over $350 million. Capital expenditure for the year will approximately be $100 million, while the company hopes to spend $170 million toward dividend payout.
Further, Leggett expects to continue with its share repurchase program, having a standing authorization to buy back up to 10 million shares every year. Further, the company intends to issue nearly 2.5 million shares under the employee benefit plans in 2014.
Other Stocks to Consider
Currently, Leggett carries a Zacks Rank #3 (Hold). However, other well performing stocks in the furniture industry include Hooker Furniture Corp. (HOFT) and Virco Mfg. Corp. (VIRC). Both these have a Zacks Rank #1 (Strong Buy).