Why is Legget & Platt (LEG) down 20.9% since its last earnings report?

About a month has passed since Legget & Platt (LEG) last reported earnings. Shares have lost about 20.9% in that time, 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 the recent reaction from investors and analysts, let’s take a quick look at the company’s most recent earnings report in order to get a better handle on the important factors influencing the situation.

Leggett Delays First Quarter Earnings and Sales, Cuts Dividend by 89%

Leggett & Platt, Incorporated reported weak first-quarter 2024 results, with earnings and net sales missing the Zacks Consensus Estimate.

Rates declined year-over-year due to continued weak demand in most markets served and lower price realization.

Leggett significantly cut its second-quarter dividend to 5 cents from 46 cents a year earlier. The company noted that this action was taken to free up capital, accelerate deleveraging of its balance sheet and consolidate its long-term financial strength.

The dividend will be paid on July 15, 2024, and to registered shareholders on June 14.

The quarter in detail

Leggett reported adjusted earnings per share (EPS) of 23 cents, up 8% from the consensus estimate of 25 cents and down 41% from the 39 cents reported a year ago.

Trade net sales of $1.1 billion topped the consensus estimate of $1.11 billion by 1.5% and were down 9.6% from the prior-year quarter’s $1.2 billion level (all organic).

Volume declined 6% due to continued weakness in demand in residential end markets. Selling prices for raw materials reduced sales by 4%.

Adjusted EBIT fell to $64 million from $89 million in the prior-year quarter. The decline was due to lower volume, higher provision for bad debts, lower benefits from the prior year acquisition-related contingent purchase price liability reduction and the lack of re-reimbursement for pandemic-related costs. This was partially offset by lower depreciation costs.

Adjusted EBIT margin decreased 160 basis points (bps) to 5.8% compared to 7.4% in the year-ago quarter. Adjusted EBITDA margin also declined 230 basis points to 8.8% compared to the year-ago quarter.

Segment details

Bedding products(excluding inter-segment sales), net trade sales decreased 15% (fully organic) from prior-year levels to $448 million. The 10% volume decline was driven by softness in the U.S. and European bedding markets. The selling price related to the raw material, after taking into account exchange rate gains, reduced sales by 6%.

Adjusted EBIT margin declined 250 basis points to 3.8%, primarily due to lower volume, increased bad debt provision and steel-related price adjustments, partially offset by lower depreciation expense.

Adjusted EBITDA margin also declined 400 basis points year-over-year to 7.1%.

The Specialized products Segment sales decreased 1% (all organically) from the prior-year quarter to $316 million. Volume remained flat as aerospace growth was offset by declines in hydraulic cylinders. The selling price related to raw materials and currency conversion influenced sales by 1%.

EBIT margin decreased 140 bps to 7.5%. EBITDA margin also declined 160 basis points year-over-year to 10.7%.

Commercial sales in Furniture, flooring and textile products segment declined 9% from the prior-quarter level to $333 million. Volume declined 5%, primarily due to continued weak demand in the residential end market. The drop in raw material sales prices resulted in a 4% decrease in sales.

Adjusted EBIT margin of 6.9% declined 90 basis points from prior-year levels due to lower volume. Adjusted EBITDA margin also declined 90 basis points to 8.5%.

The story continues

Financial

As of March 31, 2024, the company had liquidity of USD 806 million. At the end of March, the company had cash and cash equivalents of $361 million, up from $365.5 million at the end of 2023.

Long-term debt was $1.77 billion, up from $1.68 billion recorded at the end of 2023.

Trailing 12-month net debt to adjusted EBITDA was 3.61x compared to 3.16x at end-2023.

Cash from operations for the reported quarter totaled $6 million, compared to cash from operations of $97 million in the prior-year period.

First-quarter capital expenditures were $26 million, up from $38 million a year ago.

Maintaining the guidelines for 2024

Leggett expects sales in the range of $4.35 billion to $4.65 billion, down 2% to 8% year over year. Volume is expected to decline in the low to mid-single digits. The decline in commodity prices and currency impacts are likely to reduce sales by a single-digit decline.

Volume is likely to decline by a high single-digit decline in the bedding segment and a low single-digit decline in the furniture, flooring and textile segments. However, the same growth is expected to be low to single digits for specialty products.

EPS is expected to range from 95 cents to $1.25. This includes a negative impact from restructuring costs of 20 to 25 cents per share and a gain of 10 to 15 cents per share from the sale of properties, which consist of unused properties and properties subject to restructuring initiatives.

Adjusted EPS is likely to be in the range of $1.05-$1.35, compared to $1.39 reported in 2023. This is due to lower expected volumes in the bedding and furniture, flooring and textiles segments, price responses related to with global differences in steel costs and metal margin compression. This is partially offset by lower depreciation resulting from the impairment of long-term assets in 2023. LEG expects adjusted EBIT margin in the range of 6.4-7.2% compared to 7.1% a year earlier.

How have estimates changed since then?

It turns out that estimate revisions have been trending downward over the past month.

VGM results

At this point, Legget & Platt’s average Growth Rating is a C, but its Momentum Score is doing slightly better with a B. Plotting a somewhat similar path, the stock is rated an A on the value side, putting it in the top quintile for this investment strategy.

Overall, the company’s Total VGM Score is A. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company generally show a downward trend, and the scale of these adjustments was net zero. No wonder Legget & Platt has a Zacks Rank #4 (Sell). We expect a below-average rate of return on stocks in the coming months.

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