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Why Is Legget & Platt (LEG) Down 4.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Legget & Platt (LEG). Shares have lost about 4.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Legget & Platt due for a breakout? 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's Q4 Earnings Miss Estimate, 2023 View Tepid

Leggett & Platt, Incorporated reported tepid results for fourth-quarter 2022. Both the earnings and net sales missed their respective Zacks Consensus Estimate and decreased on a year-over-year basis.

The downtrend was caused by weak demand in residential end markets, dynamic macroeconomic and geopolitical environment pressure. The company anticipates 2023 to be a challenging year due to these headwinds.

President and CEO of Leggett, Mitch Dolloff, said, "We are focused on improving the things that we can control and continuing to mitigate the impacts of market challenges on our business. We are working with our customers on new product opportunities, continuing our focus on improving operating efficiency, and driving strong cash management. Our financial strength gives us confidence in our ability to successfully navigate challenging markets while investing in long-term opportunities.”

Quarter in Details

Leggett reported adjusted earnings of 39 cents per share, which lagged the consensus estimate of 48 cents by 18.8% and decreased 49% from 77 cents reported a year ago. Lower EBIT, a higher tax rate and higher interest expenses affected the bottom line.

Net trade sales of $1.196 billion also missed the consensus mark of $1.22 billion by 2% and declined 10% from the prior-year quarter’s levels of $1.33 billion. Organically, sales were down 12% year over year. Raw material-related selling prices added 2% and acquisitions, net of small divestitures, contributed 2% to sales growth. Volume declined by 12% due to continued demand softness in residential end markets, partially offset by growth in the Automotive, Aerospace, and Hydraulic Cylinders businesses. Currency also impacted sales by 2%.

Adjusted EBIT declined 40.1% from the prior-year quarter’s levels to $91.2 million. The downside was due to lower volume and reduced overhead absorption as LEG intentionally cut production in the Steel Rod business to reduce inventory levels.

Adjusted EBIT margin contracted 380 basis points (bps) to 7.6% from the year-ago quarter’s figure. Adjusted EBITDA margin also declined 350 bps to 11.4%.

Segment Details

Net trade sales in Bedding Products (excluding intersegment sales) decreased 19% from the year-ago quarter’s levels to $522.4 million. A volume decline of 19% was caused by softness in the United States and European demand as well as lower demand in the Steel Rod and Drawn Wire businesses. Increased prices contributed 1% amid a 1% decline from currency fluctuation. Organically, sales were down 19% year over year.

Adjusted EBIT margin fell 590 bps to 5.8%. Adjusted EBITDA margin also fell 510 bps year over year to 10.8%.

The Specialized Products segment's trade sales rose 15% from the prior-year quarter’s figure to $302.8 million. Volume increased by 10% across the segment. A favorable selling price increased sales by 4% and Hydraulic Cylinders acquisition contributed 10%. Currency impact lowered sales by 9%. Organically, sales were up 5% year over year.

EBIT margin contracted by 300 bps to 8.7%. EBITDA margin plunged 330 bps year over year to 12.1%.

Trade sales in the Furniture, Flooring & Textile Products segment rose 3% from the prior-year quarter’s level to $370.6 million. Volume was down 6%, mainly due to declines in Home Furniture, Fabric Converting and Flooring, partially offset growth in Work Furniture. Raw material-related selling price added 10% to sales, but currency declined sales by 1%. Organically, sales were down 13% year over year.

EBIT margin of 8.8% was down 200 bps from the prior year. EBITDA margin also contracted 180 bps to 10.4%.

2022 Highlights

Net revenues for the year totaled $5.15 billion, up 1% from $5.07 billion and flat organically year over year. Adjusted earnings came in at $2.27 per share compared with $2.78 in the previous year.

Adjusted EBIT fell 14.6% from the prior year to $485 million, owing to lower volume and overhead absorption from reduced production, operational inefficiencies in Specialty Foam and Automotive, and higher raw material and transportation costs. Adjusted EBIT margin also contracted 180 bps from the year-ago figure to 9.4%. Adjusted EBITDA margin declined 200 bps to 12.9%.

Financials

As of Dec 31, 2022, the company had $1 billion in liquidity. It had $316.5 million of cash and equivalents in 2022-end compared with $361.7 million at 2021-end. Long-term debt at the 2022-end was $2.07 billion, up 16% from $1.79 from 2021-end. The trailing 12-month net debt-to-adjusted EBITDA was 2.66x in 2022 versus 2.29x in 2021.

Cash from operations for 2022 totaled $441.4 million versus $271.3 million in the prior year. Capital expenditures were $100 million in 2022.

In 2022, dividends were $1.74 per share compared with $1.66 per share in 2021. In 2022, Leggett repurchased 1.7 million shares at an average price of $35.94 and issued 0.9 million shares through employee benefit plans. At the end of 2022, it had 132.6 million outstanding under the repurchase program.

Q1 Guidance

For the first quarter of 2023, earnings per share are anticipated to be down significantly from previous quarter mainly owing to the timing of performance-based compensation accruals and normal seasonality in some of its businesses.

2023 Guidance

Leggett expects sales in the range of $4.8–$5.2 billion. This indicates a 7% decline to 1% growth year over year. The raw material-related price decrease and currency impact are likely to reduce sales by mid-single digits. Sales are likely to be down low single digit in Bedding Products, up high single digit in Specialized Products and down low single digit in Furniture, Flooring & Textile Products segment. In 2022, acquisitions are expected to add nearly 3% to sales.

Earnings are expected to be between $1.50 and $1.90 per share down from 2022 level due to lower metal margins in the Steel Rod business, lower volume in some businesses and moderate pricing pressure from deflation. The company expects an EBIT margin of 7.5-8%.

Capital expenditures, depreciation and amortization costs, and operating cash flow are estimated at $100 million, $200 million and $450–500 million, respectively. Dividend and net interest expenses are likely to be $240 million and $85 million, respectively. The effective tax rate for the year is projected at 24%. Fully diluted shares are projected to be approximately 137 million.

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How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -46.47% due to these changes.

VGM Scores

At this time, Legget & Platt has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Legget & Platt has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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