Leggett & Platt Inc. Earnings Cheat Sheet: Fifth Straight Quarter of Shrinking Margins as Net Income Falls

S&P 500 (NYSE:SPY) component Leggett & Platt Inc. (NYSE:LEG) reported its results for the third quarter. Leggett & Platt manufactures a range of engineered components and products, including residential furnishings, commercial fixtures and components, and industrial materials.

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Leggett & Platt Earnings Cheat Sheet for the Third Quarter

Results: Net income for Leggett & Platt Inc. fell to $44.9 million (31 cents per share) vs. $47.4 million (31 cents per share) a year earlier. This is a decline of 5.3% from the year earlier quarter.

Revenue: Rose 8.6% to $940.9 million from the year earlier quarter.

Actual vs. Wall St. Expectations: LEG fell short of the mean analyst estimate of 36 cents per share. Analysts were expecting revenue of $927.2 million.

Quoting Management: President and CEO David S. Haffner commented, “We are not satisfied with our results this quarter. Though sales were approximately what we anticipated, unit demand was essentially flat. Gross margin declined, largely due to three factors: competitive pricing pressure in certain product categories, “decontenting” as customers switched to lower cost and lower value components, and our intentional effort to reduce inventory levels by curtailing production, which has the side effect of reducing overhead absorption. “Earlier in the year we had expected overall unit demand to pick up this fall. That has not happened, and many of the recent forecasts and surveys from well-regarded sources suggest our economy will be facing headwinds for longer than previously expected. As a result, we have recently initiated additional efforts to decrease excess production capacity, reduce overhead, and trim our cost structures. “During the third quarter, as planned, we continued to repurchase our stock. Year-to-date, we have reduced outstanding shares of stock by 5% while maintaining our strong financial base. Operating cash flow continues to be strong, even in this weakened economy, and readily funds dividends and capital expenditures. We ended the quarter with net debt to net capital of 31%, at the lower end of our long-term target range, and over $450 million available under our existing commercial paper program and revolver facility. “We continue to assess our overall performance by comparing our Total Shareholder Return (TSR(one)) to that of peer companies on a rolling three-year basis. For the three-year period that began January 1, 2009, we have so far (over 34 months) generated TSR of 24% per year on average, while the S&P 500 index generated average TSR of 14% per year. Accordingly, our 2009-2011 TSR ranks well within the top half of the companies in the S&P 500 index.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 1.4 percentage points to 18.1% from the year earlier quarter. Over that time, margins have contracted on average 2.4 percentage points per quarter on a year-over-year basis.

Revenue has risen the past four quarters. Revenue increased 8.1% to $945.2 million in the second quarter. The figure rose 9.7% in the first quarter from the year earlier and climbed 4.2% in the fourth quarter of the last fiscal year from the year-ago quarter.

The company has now fallen short of estimates in the last two quarters. In the second quarter, it missed expectations by 2 cents with net income of 35 cents versus a mean estimate of net income of 37 cents per share.

Net income has dropped 5% year over year on average across the last five quarters. Performance was hurt by a 12.7% decline in the third quarter of the last fiscal year from the year earlier quarter.

Looking Forward: The outlook for the company’s results in the upcoming quarter is unfavorable. The average estimate for the fourth quarter is 30 cents per share, down from 32 cents ninety days ago. For the fiscal year, the average estimate has moved down from $1.40 a share to $1.34 over the last ninety days.

Competitors to Watch: Select Comfort Corp. (NASDAQ:SCSS), Tempur-Pedic Intl. Inc. (NYSE:TPX), Sealy Corporation (NYSE:ZZ), La-Z-Boy Incorporated (NYSE:LZB), Flexsteel Industries, Inc. (NASDAQ:FLXS), Airsprung Furniture Group (APG), Hooker Furniture Corp. (NASDAQ:HOFT), Chromcraft Revington, Inc. (AMEX:CRC), and Yatas Yatak ve Yorgan Sanayi Ticaret AS (YATAS).

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(Source: Xignite Financials)