It has been about a month since the last earnings report for Legget & Platt (LEG). Shares have lost about 1.3% 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 its most recent earnings report in order to get a better handle on the important drivers.
Leggett Misses on Q3 Earnings & Sales Estimates, Lowers '24 Guidance
Leggett & Platt reported lower-than-expected results for the third quarter of 2024. Adjusted earnings and sales missed the Zacks Consensus Estimate and declined year over year.
The quarterly results reflect weak demand in the company’s residential end markets due to a challenging macro environment and soft consumer spending. Although LEG carried out its restructuring and operating efficiency improvement initiatives, the headwinds mentioned above overshadowed the prospects to a great extent.
The Automotive business continues to face headwinds from the varying impacts of the transition to electric vehicles, consumer affordability issues and economic softness in Europe.
Legget believes that the weakness in demand will continue into the fourth quarter, based on which it lowered its 2024 sales and earnings per share (EPS) guidance.
Q3 in Details
Leggett’s adjusted EPS of 32 cents lagged the Zacks Consensus Estimate by 3% and decreased 11% from 36 cents a year ago.
Net trade sales of $1.102 billion marginally missed the consensus mark of $1.106 billion by 0.4% and declined 6% from the prior-year quarter’s $1.175 billion (all organic). Volume declined 4% due to continued demand softness in residential end markets, expected loss of a customer in Specialty Foam and demand headwinds in Automotive and Hydraulic Cylinders. Raw material-related selling prices and currency impact lowered sales by 2%.
Adjusted EBIT declined 12% to $76 million from the prior-year quarter’s level of $86 million. The decline was due to an unfavorable sales mix in Steel Rod and Specialty Foam, lower volume, metal margin compression and higher bad debt reserves. This was partially offset by lower amortization, operational efficiency improvements and restructuring benefits.
Adjusted EBIT margin contracted 40 basis points (bps) to 6.9% from the year-ago quarter’s figure of 7.3%. Adjusted EBITDA margin also contracted 90 bps from the year-ago quarter to 10.2%.
Segmental Details
Bedding Products' net trade sales decreased 8% from the year-ago quarter’s level to $445.5 million. A volume decline of 3% was caused by the expected loss of a customer in Specialty Foam and demand softness in U.S. and European bedding markets, partially offset by higher trade rod and wire sales. Raw material-related selling price, net of currency benefit, reduced sales by 5%.
Adjusted EBIT margin contracted 90 bps to 4.4%. Adjusted EBITDA margin also contracted 300 bps year over year to 7.7%.
The Specialized Products segment's trade sales decreased 6% from the prior-year quarter’s figure to $299.9 million. Volume was down 7% due to declines in Automotive and Hydraulic Cylinders, partially offset by growth in Aerospace. Raw material-related selling price, net of currency benefit, aided sales by 1%.
Adjusted EBIT margin contracted 30 bps to 9.5%, primarily due to unfavorable sales mix in Steel Rod and Specialty Foam and metal margin compression. Adjusted EBITDA margin grew 10 bps year over year to 13.2%.
Trade sales in the Furniture, Flooring & Textile Products segment declined 4% from the prior-year quarter’s level to $356.3 million. Volume was down 2%, mainly due to declines in Home Furniture, Geo Components and Fabric Converting. Raw material-related selling price decreases, net of currency benefit, reduced sales 2%.
Adjusted EBIT margin of 7.8% was down 10 bps from the prior year mainly due to lower volumes. Adjusted EBITDA margin also declined 10 bps to 9.3%.
LEG’s Financials
As of Sept. 30, 2024, Leggett had $748 million in liquidity. It had cash and equivalents worth $277.2 million at the end of third quarter, down from $365.5 million at 2023-end.
Long-term debt totaled $1.578 billion, down from $1.68 billion recorded at 2023-end. The trailing 12-month net debt-to-adjusted EBITDA was 3.78x compared with 3.16x at the end of 2023.
Cash from operations totaled $183.4 million during the first nine months of 2024 compared with $351.1 million in the prior-year period. Capital expenditures totaled $18 million in the third quarter, sequentially up from $15 million.
Q4 View
Consolidated sales are expected to be between $973 million and $1.073 billion. Adjusted EPS is expected to be between 16 cents and 26 cents. In 2023, the company reported net sales of $1.1 billion and adjusted EPS of 26 cents.
LEG Revises 2024 Guidance
Leggett expects sales of $4.3-$4.4 billion compared with the prior expectation of $4.3-$4.5 billion, indicating a 7-9% decline year over year. Volume is expected to be down mid-single digits (compared with prior expectations of down low to mid-single digits). Raw-material-related price decreases and currency impact are likely to reduce sales by low single digits.
Volume is still likely to be down high-single digit in Bedding Products and mid-single-digit in Furniture, Flooring & Textile Products segments. Net sales are expected to be down mid-single digit (earlier expected flat growth rate) for Specialized Products.
Adjusted EPS expectation has been narrowed to $1.00-$1.10 from $1.10-$1.25, down from $1.39 reported in 2023. This is due to lower expected volume in the reportable three segments, pricing responses related to global steel cost differentials, unfavorable sales mix, primarily in Bedding Products, and metal margin compression. This is partially offset by lower amortization resulting from the 2023 long-lived asset impairment, restructuring benefit, operational efficiency improvements and pricing discipline.
LEG now expects the adjusted EBIT margin to be in the band of 6.0-6.4% compared with earlier expected range of 6.5-6.9%.
How Have Estimates Been Moving Since Then?
It turns out, estimates revision have trended downward during the past month.
The consensus estimate has shifted -28.21% due to these changes.
VGM Scores
At this time, Legget & Platt has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, 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 A. 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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
