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Lower Price & Soft Volume to Hurt Leggett (LEG) Q1 Earnings

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Leggett & Platt, Incorporated LEG is slated to release first-quarter 2020 results on May 4, after market close.

In the last reported quarter, the company came up with better-than-expected earnings. Its adjusted earnings of 68 cents per share topped the Zacks Consensus Estimate by 3% and rose 9.7% from the year-ago quarter. The company’s net sales missed the consensus mark by 1.1% but increased 9.4% from the prior-year level.

Strong sales in Automotive, U.S. Spring, Work Furniture and Aerospace drove the upside. Also, contributions from the Elite Comfort Solutions acquisition supported the same. However, lower volume from businesses exited in Fashion Bed and Home Furniture, persistent weakness in trade demand for steel rod and wire, along with raw material-related selling price decline exerted pressure on the bottom line.

Trend in Estimate Revision

The Zacks Consensus Estimate for earnings for the quarter to be reported has been unchanged at 40 cents per share over the past 30 days. The said figure indicates a 18.4% decrease from the year-ago earnings of 49 cents per share. The consensus mark for revenues is $1.12 billion, suggesting a 3.1% year-over-year decline.

Leggett & Platt, Incorporated Price and EPS Surprise

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

Leggett & Platt, Incorporated price-eps-surprise | Leggett & Platt, Incorporated Quote

Factors to Note

Despite lower raw material costs and long-term strategic initiatives undertaken, Leggett’s first-quarter 2020 results are likely to reflect reduced selling prices and softer volumes. Also, weak trade demand for steel rod and wire, and negative foreign currency translation are expected to have put pressure on the top line.

In addition to these headwinds, the outbreak of coronavirus in late March impacted the company’s business to some extent, with disruption of global supply chains and increasing job losses. In fact, the company revoked its previously provided guidance in the wake of COVID-19-led shutdowns. The company noted that it has temporarily closed some of its facilities due to reduction in demand in a few markets served as a result of the recent economy slowdown.

The U.S.-China trade war and volatility in steel prices are likely to have been additional concerns for the company.

That said, its focus on the strategic plan — which comprises divesture of low-performing businesses, improvement in margins and returns, and achieving top-line growth of 4-5% annually — is commendable. The positive impacts of these initiatives are expected to have somewhat offset the headwinds in to-be-reported quarter.

Moreover, its systematic inorganic drive, which has been strongly contributing to top-line growth, should have given a meaningful boost to total sales.

What Our Quantitative Model Predicts

Our proven model does not conclusively predict an earnings beat for Leggett this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is +1.86%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Mohawk currently carries a Zacks Rank #5 (Strong Sell).

Stocks Worth a Look

Here are some companies in the Zacks Consumer Discretionary sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

Glu Mobile Inc. GLUU has an Earnings ESP of +600.00% and holds a Zacks Rank #3.

GP Strategies Corporation GPX has an Earnings ESP of +58.33% and carries a Zacks Rank #3.

Casa Systems, Inc. CASA has an Earnings ESP of +19.36% and carries a Zacks Rank #3.

5 Stocks Set to Double

Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.

Today, See These 5 Potential Home Runs >>

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Leggett & Platt, Incorporated (LEG) : Free Stock Analysis Report
GP Strategies Corporation (GPX) : Free Stock Analysis Report
Glu Mobile Inc. (GLUU) : Free Stock Analysis Report
Casa Systems, Inc. (CASA) : Free Stock Analysis Report
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