Leggett & Platt, Incorporated (LEG), the manufacturer of diversified engineered products and components, recently posted third-quarter 2010 results that missed the Zacks’ expectation.
The company delivered earnings of 31 cents a share that fell short of the Zacks Consensus Estimate of 36 cents, and dropped 8.8% from last year’s 34 cents, hurt by sluggish residential furnishing market and increase in raw-material costs.
Consequently, management narrowed its guidance range to $1.10-$1.20 per share, compared with the $1.10-$1.30 forecasted earlier.
Total sales of the company climbed 7% in the quarter to $866.5 million compared with $809.9 million a year ago, backed by a surge in unit volume of specialized products. However, the revenue remained below the Zacks Consensus Estimate of $887.0 million.
By Segment
Residential Furnishings revenue remained flat at $443.7 million due to the contraction in unit volume, offset by inflation. Operating income fell 2.0% to $38.3 million.
Total sales of Commercial Fixturing & Components climbed 4.3% to $149.5 million driven by new programs with office furniture makers. However, Operating income dropped 9.0% to $10.0 million as increase in sales was more than offset by rise in raw material cost.
Industrial Materials total sales were $183.2 million, an increase of 6.4%, whereas operating income dipped 33.0% to $14.6 million due to rising cost of raw materials and lost earnings contribution related to the divestiture.
Specialized Products segment witnessed a significant growth of 28.2% to $159.9 million with operating income increasing by 116.0% to $19.2 million.
Margins Contracting
Gross profit for the quarter fell 9.9% to $168.7 million, whereas gross margin contracted 360 basis points to 19.5%, reflecting higher cost of goods sold, partially offset by modest increase in the top- ine. Operating income dropped 20% to $75.6 million, whereas operating margin shrunk 300 basis points to 8.7%.
Leggett Enhances Return
Leggett remains committed to enhance shareholders’ return. The company boosted its quarterly dividend to 27 cents a share, reflecting an increase of 3.8% over the previous quarter. This marks the 39th consecutive year of a hike in dividend, which has been increasing at a CAGR of 14.0%.
During the quarter under review, the company repurchased 0.5 million shares at a price of $21.15 per share. Looking ahead, management plans to buy back a total of 6 to 8 million shares and issue around 3 million shares in fiscal 2010. The company has the authorization to repurchase up to 10 million shares every year.
Other Financial Details
Leggett exited the quarter with cash and cash equivalents of $276.7 million, long-term debt of $833.5 million, reflecting a debt-to-capitalization ratio of 33.0%, and shareholders’ equity of $1515.5 million. Leggett expects to generate more than $300 million in cash from operations in 2010.
Leggett currently retains a Zacks #4 Rank, which translates to a short-term Sell rating. However, our long-term recommendation remains Neutral.
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