LEGGETT & PLATT INC Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Strategic Priorities: Strengthen balance sheet and liquidity, improve margins by optimizing operations and G&A cost structure, position for profitable growth. Amended revolving credit facility for additional liquidity. Reduced dividend to free up capital for business investments.
• Bedding Products Restructuring: Ongoing restructuring to optimize manufacturing and distribution footprint, with actions like closing smaller U.S. Spring facilities, transitioning manufacturing, downsizing Chinese innerspring operation, and specialty foam consolidations. On track to complete by year-end 2025.
• Business Unit Updates: Rod, wire, and spring have healthy margins but need volume recovery. Specialty Foam is a drag but working on operational improvements. Adjustable Bed impacted by low demand, working on cost reduction. European bedding faces similar challenges but focusing on profitability. Specialized Products: Automotive working on profitability, Aerospace and Hydraulic Cylinders working on production efficiencies. Furniture, Flooring & Textile: Restructuring on track, closed foreign products line, redeployed equipment; Home Furniture closed plant, transferring production; Work Furniture exploring cost reduction.

Segment Performance

• Bedding Products: Sales decreased 15% versus first quarter 2023. U.S. spring volume was down 15%, driven by declines in open coil and wire grids, partially offset by growth in higher-value semifinished products. Domestic mattress market production was likely down high single digits, and full year U.S. mattress consumption is expected slightly down versus 2023. Revenue contribution: Impacted significantly by the downturn in the domestic bedding market.
• Specialized Products: Sales decreased 1% compared to first quarter 2023. Automotive volumes were in line with the market, expecting to outperform Global Automotive production in 2024. Aerospace volume was up 13% as industry production recovered from pandemic impacts. Hydraulic Cylinders sales were negatively impacted by softer demand in heavy construction markets. Revenue contribution: Varied by sub-segment, with Automotive and Aerospace showing some growth.
• Furniture, Flooring & Textile Products: Sales were down 9% versus first quarter 2023. Home Furniture demand was soft, with stronger performance in Asia. Work Furniture demand remained low. Flooring products faced lower residential demand. Geo Components benefited from U.S. civil construction demand, with full year demand expected modestly higher. Revenue contribution: Impacted by soft residential and some sector-specific growth.

Guidance

• Full year sales guidance: $4.35 billion to $4.65 billion, down 2% to 8% versus 2023, reflecting weak residential demand but growth in Specialized Products.
• EPS guidance: $0.95 to $1.25, including $0.20 to $0.25 per share negative impact from restructuring costs and $0.10 to $0.15 per share gain from real estate sales. Adjusted EPS expected to be $1.05 to $1.35.
• Capital expenditures: $100 million to $120 million. Dividends: approximately $135 million, with 2 quarters at $0.46 per share and 2 quarters at $0.05 per share. Minimal spending for acquisitions and share repurchases.

Risks

• Uncertain macroeconomic environment and challenging demand in residential end markets.
• Weakness in specific segments like Specialty Foam and Adjustable Bed due to low demand and market shifts.
• Intense competition in Bedding market with overcapacity and price pressure.
• Impact of interest rates, inflation, and housing affordability on consumer spending, affecting demand for durable products.

Question and Answer

• Q: Perspective on dividend reduction and future earnings A: Dividend cut was due to prolonged residential market downturn, allowing deleveraging and investment in business. Confident in restructuring efforts to improve earnings in near, mid, and long term.
• Q: Bedding segment performance and market gap A: Bedding restructuring is on track, market gap due to product preference shift and price competition. Focus on higher-value products to drive improvement.
• Q: Raw material deflation impact A: Similar to typical dynamics, but timing varies by segment; deflation impacts top line but may help margins over time.
• Q: Capital allocation and opportunism A: Focus on deleveraging to 2x net leverage, but will be opportunistic with acquisitions/share repurchases as progress is made.
• Q: Portfolio review and ongoing activities A: Ongoing review of portfolio and operational efficiencies, with focus on restructuring and G&A cost reduction to strengthen business.