Leggett (LEG) to Post Q2 Earnings: What's in the Offing?

Leggett & Platt, Incorporated LEG is set to release second-quarter 2019 results on Jul 29.

In the last reported quarter, the company came up with lower-than-expected earnings and revenues. Its top and bottom lines missed the Zacks Consensus Estimate by 2.4% and 5.8%, respectively. Also, earnings declined 14% year over year due to softness in Automotive, Fashion Bed, Flooring Products and Adjustable Bed.

In fact, its earnings and revenues missed analysts’ expectation in four of the trailing six quarters. The above-mentioned headwinds are likely to impact the upcoming quarterly results.

Leggett & Platt, Incorporated Price and EPS Surprise

 

Leggett & Platt, Incorporated Price and EPS Surprise

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

 

How are Estimates Faring?

Let’s take a look at estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the earnings release.

For the quarter to be reported, the Zacks Consensus Estimate for earnings has declined 1.6% over the past seven days to 63 cents. The projected earnings are flat with the year-ago figure. Revenues are expected to be $1.28 billion, suggesting an increase of more than 15.9% year over year.

Factors at Play

Leggett’s second-quarter 2019 results are likely to be negatively impacted by headwinds, like soft demand, especially for Home Furniture, Fashion Bed and Flooring Products.

Lower margins have been a major concern for the company. Higher raw material costs, with steel being one of the key components for its Industrial Products segment, are likely to act as headwinds in the to-be-reported quarter. That said, moderating steel inflation is expected to benefit the bottom line to some extent.

These initiatives, comprising long-term strategic growth plan and acquisition strategy, are expected to drive growth. Per the strategic plan, the company has already executed the first two parts, which comprise divesture of low-performing businesses, and an improvement in margins and returns. The company is now working on the third part of the plan that aims at achieving top-line growth of 4-5% annually. These initiatives are expected to strengthen the company’s performance in to-be-reported quarter.

Leggett follows a systematic inorganic strategy that is likely to contribute to top-line growth. Acquisitions of Precision Hydraulic Cylinders, a leading global manufacturer of engineered hydraulic cylinders, and Elite Comfort Solutions, Inc. (ECS), a leader in proprietary specialized foam technology, should give a meaningful boost to its total sales.

Overall, the company’s second quarter is expected to benefit from higher organic sales, and sales growth in Automotive, U.S. Spring, aerospace, Hydraulic Cylinders and work furniture. However, higher raw material costs pose a significant risk to its bottom line.

What Our Model Indicates

Our proven model does not show that Leggett is likely to beat earnings estimates in the to-be-reported quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can see the complete list of today’s Zacks #1 Rank stocks here.

Leggett, which shares space with Mohawk Industries, Inc. MHK, Interface, Inc. TILE and Culp, Inc. CULP in the Zacks Textile - Home Furnishing industry, has an Earnings ESP of -3.56% and currently carries a Zacks Rank #4 (Sell), making surprise prediction difficult. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

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