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A month has gone by since the last earnings report for Legget & Platt (LEG). Shares have added about 2.2% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important drivers.
Leggett Q1 Earnings & Sales Top Estimates
Leggett & Platt, Incorporated reported solid results in first-quarter 2022. The top and the bottom line surpassed the Zacks Consensus Estimate and increased on a year-over-year basis. Solid raw material-related selling price and acquisitions 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, “Our full year guidance remains unchanged as we balance strong first quarter results, which were in line with our expectations, with continuing macro market uncertainties, including supply chain constraints, inflation, tighter monetary policy, the invasion of Ukraine, and COVID lockdowns in China.”
Quarter in Details
Leggett reported adjusted earnings of 66 cents per share, which topped the consensus mark of 56 cents by 17.9% and increased 3.4% from the year-ago quarter’s figure of 34 cents. The upside was driven by strong EBIT, partially offset by higher tax rates and interest expenses.
Net trade sales totaled $1.32 billion, surpassing the consensus mark of $1.27 billion by 4.2% and increasing 15% from the prior-year quarter’s levels. Organic sales were up 13% year over year. Of this growth, raw material-related selling price added 18% and acquisitions (net of divestitures) contributed 2% to sales. Yet, a volume decline of 4% and currency impact of 1% dented top-line growth. Demand softness in U.S. and European bedding markets hampered the growth of Work Furniture, Aerospace and Hydraulic Cylinders businesses.
EBIT increased 8% from the prior-year quarter to $138 million, marking a first-quarter record. The upside can be attributed to metal margin expansion in the Steel Rod business and pricing discipline in the Furniture, Flooring & Textile Products segment. This was partially offset by lower volume in the Bedding segment, higher raw material and transportation costs in Automotive generally and production inefficiencies and related premium freight costs in a North American Automotive facility.
Adjusted EBIT margin contracted 70 basis points (bps) to 10.4% from the year-ago quarter’s figure. Adjusted EBITDA margin also declined 120 bps to 13.9%.
Net trade sales in Bedding Products (excluding intersegment sales) increased 19% from the the year-ago quarter’s levels to $639.4 million. A volume decline of 9% was caused by softness in U.S. and European demand. Increased prices contributed 26% and acquisitions — net of small divestitures — led to sales growth of 3%, despite a 1% decline from currency fluctuation. Organically, sales rose 16% year over year.
Adjusted EBIT margin remained flat at 11.9%. Adjusted EBITDA margin fell 80 bps year over year to 16%.
The Specialized Products segment's trade sales rose 2% from the prior-year quarter’s figure to $264.1 million. Sales growth in Aerospace and Hydraulic Cylinders, partially offset by soft sales in Automotive, helped volume increase by 3%. Favorable selling price in Hydraulic Cylinders added 1% to sales. Currency impact lowered sales by 2%. Organically, sales inched up 2% year over year.
Adjusted EBIT margin declined 600 bps to 7.7%. Adjusted EBITDA margin plunged 620 bps year over year to 11.8%.
Trade sales in the Furniture, Flooring & Textile Products segment increased 17% from the prior-year quarter’s level to $418.8 million, mainly due to a 17% rise in the raw material-related selling price increase. Volume was flat due to growth in Work Furniture being offset by declines in Flooring, Textiles and Home Furniture. Organically, sales rose 17% year over year.
Adjusted EBIT margin of 10.2% was up 230 bps from the prior year. Adjusted EBITDA margin also improved 200 bps to 11.6%.
As of Mar 31, 2022, the company had $1.5 billion in liquidity. It had $327.3 million of cash and equivalents at March-end compared with $361.7 million at 2021-end. Long-term debt at December-end was $1.80 billion, down 1% from 2021-end. Trailing 12-month net debt-to-adjusted EBITDA was 2.32.
Cash from operations for the first quarter totaled $39 million versus cash to operations of $10.6 million in the prior year.
2022 Guidance Maintained
Leggett expects sales in the range of $5.3-$5.6 billion. This indicates year-over-year growth of 4-10%. The raw material-related price increase, a 1% rise in 2021 acquisitions and year-over-year flat volume are likely to contribute to sales. Sales are likely to be flat to down mid-single digits in Bedding Products, up mid- to high-single digits in Specialized Products and roughly flat in Furniture, Flooring & Textile Products segment. Earnings are now expected to be between $2.70 and $3.00 per share. The company expects an EBIT margin of 10.5-11%.
Capital expenditures, depreciation and amortization costs, operating cash flow, dividend and net interest expenses for 2022 are estimated at $150 million, $200 million, $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?
In the past month, investors have witnessed an upward trend in estimates review.
The consensus estimate has shifted 6.53% due to these changes.
At this time, Legget & Platt has a subpar Growth Score of D, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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