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Leggett & Platt, Incorporated LEG reported impressive earnings in first-quarter 2020. Following the earnings release, the company’s shares grew 1.3% in the after-hour trading session on May 4.
It witnessed lower sales in the last two weeks of the first quarter and stabilized sales trends in the first three weeks of April, with an average level of 55%. Backed by aggressive cost reductions, aligned variable cost structure to current demand levels and eliminated non-essential expenses, the company expects fixed cost reduction of $130-$150 million in 2020. It reduced capital expenditure by more than 60% to $60 million and suspended future acquisitions.
The company revoked its previously announced 2020 guidance due to coronavirus-led uncertainty.
Quarter in Details
The company reported adjusted earnings of 41 cents per share, beating the Zacks Consensus Estimate of 40 cents by 2.5%. However, the figure declined 16.3% from the year-ago period due to lower EBIT and a higher tax rate (2 cents per share).
Leggett & Platt, Incorporated Price, Consensus and EPS Surprise
Leggett & Platt, Incorporated price-consensus-eps-surprise-chart | Leggett & Platt, Incorporated Quote
Net trade sales totaled $1.046 billion, which missed the consensus mark of $1.117 billion by 6.4% and decreased 9.5% from the prior-year level. The downside was mainly due to a 12% decline in organic sales, partially offset by 3% contribution from acquisition (primarily ECS).
Adjusted EBIT fell 11.4% from the prior-year period to $93 million, owing to lower volume and higher bad debt expense, partially offset by low raw material costs. Adjusted EBIT margin also contracted 20 basis points (bps) to 8.9%. Adjusted EBITDA margin improved 30 bps year over year to 13.4%.
On Nov 5, 2019, the company announced changes in its segment structure, effective Jan 1, 2020. The modified structure consists of three segments, seven groups and 15 business units.
Net trade sales in Bedding Products (excluding inter-segment sales) decreased 11% from the year-ago level to $490.6 million. Organically, sales fell 15% from the prior-year quarter. Nonetheless, acquisitions added 4% to total net sales.
Adjusted EBIT margin contracted 120 bps to 7.8%. Adjusted EBITDA margin also fell 30 bps year over year.
The Specialized Products segment's trade sales declined 11% from the prior-year figure to $234.5 million. Organically, sales contracted 11% year over year. The downside was owing to a 9% year-over-year decline in volumes on reduced demand in Automotive and Hydraulic Cylinders. Negative currency further impacted sales by 2%. EBIT margin decreased 180 bps to 11.8%. EBITDA margin also contracted 90 bps from the prior year.
Trade sales in the Furniture, Flooring & Textile Products segment declined 5% from the prior-year level to $320.4 million, mainly due to 7% lower organic sales. Nevertheless, a small Geo Components acquisition contributed 2% to sales. Adjusted EBIT margin of 8.3% was up 260 bps from the prior year. Adjusted EBITDA margin also expanded 270 bps year over year to 10.3%.
As of Mar 31, 2020, the company had $734 million of liquidity, $506 million of cash on hand and $228 million in available capacity under the commercial paper program, within a revolving credit facility.
Long-term debt at March-end was $2.4 billion, slightly up from the corresponding period of last year. Debt of $37.5 million is scheduled to mature in 2020, with no other maturity until August 2022. Trailing 12-month debt-to-adjusted EBITDA was 3.48.
The quarterly dividend was 40 cents, which was 2 cents higher than the prior-year quarter. Cash flow from operations was $10.4 million, down from $31.4 million a year ago.
Leggett — which shares space with Masonite International Corporation DOOR, American Woodmark Corporation AMWD and WillScot Corporation WSC in the Furniture industry — currently carries a Zacks Rank #5 (Strong Sell).
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