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Why Is Legget & Platt (LEG) Down 2.3% Since Last Earnings Report?

It has been about a month since the last earnings report for Legget & Platt (LEG). Shares have lost about 2.3% 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 the most recent earnings report in order to get a better handle on the important drivers.

Leggett & Platt Lags Q3 Earnings & Sales, Lowers Guidance

Leggett & Platt reported tepid third-quarter 2023 results, with earnings and sales missing the Zacks Consensus Estimate.

The top and the bottom line declined on a year-over-year basis. The downtrend was caused by persistent weak demand in the Bedding Products and Furniture and Flooring & Textile Products segments, partially offset by strong demand in the Specialized Products segment.

The company lowered its 2023 guidance due to ongoing macroeconomic volatility, weak consumer demand in residential markets and the modest impact of the UAW strike on North American automakers.

Quarter in Detail

Leggett reported adjusted earnings of 36 cents per share, missing the Zacks Consensus Estimate of adjusted earnings of 39 cents per share by 7.7%. Also, the bottom line decreased 30.8% from 52 cents per share reported a year ago.

Trade sales of $1.18 billion missed the consensus mark of $1.24 billion by 5.5%. The metric also declined 9% from the prior-year quarter’s levels of $1.29 billion.

Organically, sales were down 11% year over year. Raw-material-related selling prices decline (net of currency benefit) ailed the results by 5%. Volume was down 6% due to continued demand softness in residential end markets, partially offset by growth in the Automotive and Aerospace businesses. That said, acquisitions contributed 2% to sales growth.

Adjusted EBIT declined 24% from the prior-year quarter’s levels to $86 million. The downside was due to lower volume in residential end markets and lower metal margins in the Steel Rod business. This was partially offset by a $5.4 million gain from a real estate sale within the company’s Bedding segment.

Adjusted EBIT margin contracted 140 basis points (bps) to 7.3% from the year-ago quarter’s figure. Adjusted EBITDA margin also declined 110 bps to 11.1%.

Segment Details

Bedding Products: Net trade sales (excluding intersegment sales) decreased 17% (all organic) from the year-ago quarter’s levels to $483.3 million. This segment’s sales missed our model’s prediction of $504.5 million. An 8% decline in volume, primarily caused by softness in domestic markets. Raw-material-related selling price impacted sales by 10%. However, currency benefits increased the sales by 1%.

Adjusted EBIT margin fell 220 bps to 5.3%. Adjusted EBITDA margin also contracted 130 bps year over year to 10.7%.

Specialized Products: Trade sales rose 10% as reported and 3% organically from the prior-year quarter to $319.4 million. This segment’s sales missed our model’s prediction of $322.4 million.

Volume increased by 3% across the segment, primarily driven by growth in Aerospace and Automotive businesses. The decrease in raw material-related selling price was offset by currency benefits. Hydraulic Cylinders acquisition contributed 7%.

EBIT margin contracted by 90 bps to 9.8%. EBITDA margin also fell 100 bps year over year to 13.1%.

Furniture, Flooring & Textile Products: Trade sales declined 11% from the prior-year quarter’s level to $372.7 million. This segment’s sales missed our model’s prediction of $410.3 million. Organically, the figure declined 14% year over year.  Volume was down 11% across the segment. Raw-material-related selling price decline (net of currency benefit) reduced sales by 3%. Textiles acquisitions added 3% to the growth.

Adjusted EBIT margin of 7.9% was down 120 bps from the prior year. Adjusted EBITDA margin also contracted 100 bps to 9.4%.

Financials

As of Sep 30, the company had $595 million in liquidity. It had $273.9 million of cash and equivalents at third-quarter 2023 end, down from $316.5 million at the 2022 end.

Long-term debt was $1.96 billion, down 5% from $2.07 billion from 2022 end. The trailing 12-month net debt-to-adjusted EBITDA was 3.15x at the third-quarter end, compared with 2.63x in the year-ago period and 2.66x at the 2022 end.

Cash from operations for the reported quarter totaled $143.8 million, compared with $65.5 million in the prior year. Capital expenditures were $22 million in the third quarter, compared with $25 million in the previous year.

Lowered 2023 Sales & EPS Guidance

Leggett now expects sales in the range of $4.7–$4.75 billion (previously expected $4.75-$4.95 billion), indicating a decline of 8% to 9% year over year owing to low expected volume in residential end markets. Volumes are expected to decline by mid-single digits at the midpoint. Raw-material-related price decrease and currency impact are likely to reduce sales by mid-single digits, while acquisitions are expected to aid the same by about 2%.

Sales are likely to be down high-single digits in the Bedding Products and down low double-digit in Furniture, Flooring & Textile Products segments. Nonetheless, the same is expected to be up high single-digits in Specialized Products.

Earnings are projected to be between $1.35 per share and $1.45 per share (previously expected in the range of $1.45-$1.65 per share). This excludes about 7 cents per share gain from net insurance proceeds from tornado damage and 3 cents per share gain from the sale of real estate. LEG expects adjusted EBIT margin to be in the range of 7-7.3% compared with the previous range of 7.3-7.7%.

Capital expenditures, depreciation and amortization costs and operating cash flow are estimated to be $110-$130 million, approximately $185 million and $450-$500 million, respectively. Dividend and net interest expenses are likely to be nearly $240 million and $85 million, respectively. The effective tax rate for the year is anticipated to be 24%. Fully diluted shares are projected to be approximately 137 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -29.25% due to these changes.

VGM Scores

At this time, Legget & Platt has an average Growth Score of C, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% 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 #4 (Sell). We expect a below average return from the stock in the next few months.

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