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Edited Transcript of LEG earnings conference call or presentation 30-Apr-19 12:30pm GMT

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Update time : 2019-08-12 14:23:22

Q1 2019 Leggett & Platt Inc revenue Call

CARTHAGE can 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Leggett & Platt Inc revenue parliament yell or presentation Tuesday, April 30, 2019 at 12:30:00pm GMT

TEXT translation of Transcript

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Corporate Participants

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* J. Mitchell Dolloff

Leggett & Platt, Incorporated - Executive VP, COO and headmaster of Specialized Products & Furniture Products

* Karl G. Glassman

Leggett & Platt, Incorporated - CEO, headmaster & Director

* Matthew C. Flanigan

Leggett & Platt, Incorporated - Executive VP, CFO & Director

* Perry E. Davis

Leggett & Platt, Incorporated - Executive VP and headmaster of Residential Products & Industrial Products

* Susan R. McCoy

Leggett & Platt, Incorporated - Senior VP of IR

* Wendy M. Watson

Leggett & Platt, Incorporated - Director of IR

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Conference yell Participants

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* John Allen Baugh

Stifel, Nicolaus & Company, Incorporated, research piece - MD

* Keith Brian Hughes

SunTrust Robinson Humphrey, Inc., research piece - MD

* Peter Jacob Keith

Piper Jaffray Companies, research piece - headmaster and Senior research Analyst

* Robert Kenneth Griffin

Raymond James & Associates, Inc., research piece - Senior research Associate

* Susan Marie Maklari

Crédit Suisse AG, research piece - research Analyst

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Presentation

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Operator [1]

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Greetings, and salute ought the Leggett & Platt First zone 2019 revenue parliament Call. (Operator Instructions)

As a reminder, this parliament is being recorded. It is now my enjoyment ought introduce your host, Ms. Wendy Watson, Director of Investor Relations. Thank you. Ms. Watson, you can begin.

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Wendy M. Watson, Leggett & Platt, Incorporated - Director of IR [2]

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Good morning, and thank you though taking isolate at Leggett & Platt's first zone parliament call. I'm Wendy Watson, Director of Investor Relations.

With me today are Karl Glassman, headmaster and CEO; Matt Flanigan, Executive Vice headmaster and CFO; Mitch Dolloff, EVP, chief Operating officer and headmaster of the Furniture Products and Specialized Products segment; Perry Davis, EVP and headmaster of the Residential Products and Industrial Products segment; Susan McCoy, Senior Vice headmaster of Investor Relations; and Cassie Branscum, Manager of IR.

The agenda though our yell this morning is though follows: Karl Glassman will begin with a abstract of the headmaster statements we made at yesterday's magazine release; Matt will argue economical details and salute our expectation though 2019; and finally, the group will respond any questions that you have.

This parliament yell is being recorded though Leggett & Platt and is copyrighted material. This yell can no exist transcribed, recorded or pronounce without our expressed permission. A replay is available from the IR section of Leggett's website.

We posted ought the Investor Relations section of the website, yesterday's magazine liberate and a lay of PowerPoint slides that contain abstract economical data across with part details. Those documents appendix the data we argue above this call, including non-GAAP reconciliations.

I lack ought remember you that remarks today concerning future expectations, events, objectives, strategies, trends or results contain forward-looking statements.

Actual results or events can differ materially because of a quantity of risks and uncertainties, and the corporation undertakes no duty ought update or treat these statements.

For a abstract of these danger Factors and extra information, entertain refer ought yesterday's magazine liberate and the zone at our 10-K and 10-Q entitled forward-looking statements.

I'll now become the yell above ought Karl.

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Karl G. Glassman, Leggett & Platt, Incorporated - CEO, headmaster & Director [3]

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Good morning, and thank you though participating at our first zone call.

As we reported yesterday, first zone sales increased 12% ought $1.16 billion. Growth from ECS and other smaller acquisitions of 13% was slightly offset by a 1% reject at organic sales. Volume was down 3%. just segment and content gains led ought growth at U.S. fountain of 7%, but this was more than offset by our decision ought exit the method bed business, softer beg at Automotive and volume we chose ought exit at our habitation Furniture business.

Raw material-related selling revenue increases added 4% ought organic sales but were partially offset by money shock of 2%.

First zone revenue per segment were $0.45. This included $6 million of restructuring-related charges and $1 million of ECS transaction revenue that quantity ought a $0.04 per segment reduction at earnings. Excluding these items, adjusted first zone revenue were $0.49 per share, down $0.08 from $0.57 at the first zone persist year.

Earnings benefited from improved metal margins at our Steel Rod material and the ECS acquisition, even after $14 million of buy accounting charges. However, these increases were more than offset by declines at Automotive, method bed, Flooring Products and adjustable bed, also though higher benefit charge and a higher effective impose rate.

We remain excited approximately the ECS acquisition and the opportunities it brings. beg though their proprietary specialty foams and downstream products is strong, even however the U.S. bedding industry continues ought exist impacted by unfavorably priced Chinese mattresses that are the likely of a pending antidumping matter. though filing the dumping instance with the U.S. International commerce committee and department of commerce at September 2018, we possess seen a prominent expand at imported mattresses from China, which has impacted ECS's sales growth. We wish a preliminary decision above the dumping allegations by the department of commerce at late May.

If duties are imposed, we wish our bedding businesses across with the total U.S. bedding industry ought benefit.

As previously discussed, we conducted an in-depth analysis of our habitation Furniture and method bed businesses and initiated restructuring activity at the fourth zone of persist year.

We are exiting low-margin business, reducing operating revenue and eliminating excess capacity at habitation Furniture. These activities ought exist substantially finish by the target of the second quarter.

In late March, we announced the closure of method bed, and wish ought exist out of that material by the target of the third quarter.

We wish complete year restructuring-related charges of $17 million, $12 million of which is noncash.

As a reminder, from persist quarter's parliament call, the quarterly slip decks we mail ought the Investor Relations website no longer contain unit growth rates of innerspring and boxspring pieces within our Residential Products segment.

Because of content gains, including healthy growth of our console heart innersprings and other higher dollar estimate units, dollar growth and unit growth possess vary increasingly disconnected.

I'll now become the yell above ought Matt.

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Matthew C. Flanigan, Leggett & Platt, Incorporated - Executive VP, CFO & Director [4]

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Thank you, Karl, and good morning, everyone. Reflecting ordinary seasonality, money from operations was $31 million at the first quarter, a lessen of $13 million versus the first zone persist year, chiefly because of increased working capital. A lessen at accounts payable because of the timing of payments and inventory purchases, across with wind-down activity at restructured locations, led ought the expand at working major investment. We ended the zone with adjusted working major though a percent of sales at 13.4%. That percent ought vary uphold down though 2019 progresses.

We stand ought wish our complete year operating money race ought approximate $550 million. at February, we declared a $0.38 per segment quarterly dividend and extended our record of consecutive annual increases ought 48 years.

We fully wish ought stand increasing the dividend though we repay debt associated with the ECS acquisition.

At Friday's closing revenue of $42.01, our modern crop is 3.6%, which is one of the highest yields among the 57 companies that contain the S&P 500 Dividend Aristocrats.

In keeping with our deleveraging plans, we repurchased only 300,000 shares of our stock at an medium revenue of $42.38. These were chiefly shares surrendered by employees though excellent exercises. We issued 1 million shares during the quarter, chiefly though employee advantage plans and stock excellent exercises.

After completing the ECS acquisition at January, we ended the zone with debt at 3.6x, our trailing 12-month pro forma adjusted EBITDA. We are committed ought maintaining a healthy investment-grade guarantee rating and wish ought deleverage ought a purpose ratio of debt-to-trailing 12-month's EBITDA of approximately 2.5x by the target of 2020.

We will fulfill this by temporarily limiting segment repurchases, reducing other acquisition spending and using our operating money race ought repay debt.

In addition, we wish ought bring uphold approximately $170 million of offshore money at 2019.

We appraise our overall theorem by comparing our total shareholder respond ought that of glare companies above a rolling 3-year basis. Our purpose is ought attain TSR at the climax 1/3 of the S&P 500 above the wish term, which we trust will implore an medium TSR of 11% ought 14% per year.

We strongly trust our disciplined growth strategy, portfolio management and prudent employ of major will uphold achievement of this climax third purpose above time.

Our guidance though 2019 is unchanged. complete year sales are expected ought exist $4.95 billion ought $5.1 billion, or up 16% ought 19% above persist year. ECS ought add approximately $650 million ought sales, commencing from the January 16 acquisition date, and we stand ought wish annualized sales of approximately $675 million.

In addition, organic sales growth is expected ought exist even ought up 3%, reflecting sales growth at automotive, U.S. Spring, Aerospace, Hydraulic Cylinders and task Furniture, mainly offset by our exit from method bed and planned declines at habitation Furniture.

Full year revenue per segment are expected ought exist $2.35 ought $2.55, including approximately $0.10 per segment of restructuring-related costs. Therefore, adjusted EPS is expected ought exist $2.45 ought $2.65, reflecting slightly higher organic sales and moderating steel inflation, partially offset by higher impose rate.

The ECS acquisition is expected ought exist just ought EPS this year. EPS guidance assumes a complete year effective impose assess of 24% versus 20% at 2018. This higher impose reflects the non-recurrence of valuation revenue releases we benefited from at 2018, a smaller expected stock compensation advantage at 2019, the shock of TCJA executive compensation limits and money implications from higher benefit charge because of the financing of the ECS transaction.

We wish complete year depreciation and amortization of $210 million, net benefit charge of approximately $95 million and fully diluted shares of $136 million.

Based upon this guidance framework, our complete year adjusted EBIT edge ought exist 10.8% ought 11.2%.

As previously mentioned, complete year money from operations ought approximate $550 million, major expenditures ought exist approximately $195 million though the year, and dividends ought implore $205 million of cash. Our dividend payout ratio though 2019 is anticipated ought exist above our purpose of approximately 50% of adjusted earnings.

Our long-term priorities though employ of money remain: one, organic growth involving major expenditures and working major investments; two, dividends; three, strategic acquisitions; and four, segment repurchases.

As previously stated, we are prioritizing debt repayment after organic growth of dividends and though a originate are temporarily limiting segment repurchases and reducing acquisition spending.

With those comments, I'll become the yell uphold above ought Wendy.

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Wendy M. Watson, Leggett & Platt, Incorporated - Director of IR [5]

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That concludes our prepared remarks. We thank you though your attention and will exist glad ought respond your questions.

In order ought allow everyone an opportunity ought participate, we application that you implore only one mystery and then crop ought the next participant.

If you possess extra questions, you're salute ought re-enter the queue and we will respond those questions though well.

Michelle, we're ready ought begin the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first mystery comes from the queue of Peter Keith with Piper Jaffray. Our next mystery comes from the queue of Susan Maklari with Crédit Suisse.

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Susan Marie Maklari, Crédit Suisse AG, research piece - research Analyst [2]

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My first mystery is just, now that you possess truly closed ECS and had some time with it this quarter. can you just report ought was there anything at there that has surprised you, how the integration is going? And it seems though things are above follow at condition of the guidance that Matt talked ought at the sales line. but just report ought us greatly approximately how it's going, especially with the shock that it's seeing from imports maybe?

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Perry E. Davis, Leggett & Platt, Incorporated - Executive VP and headmaster of Residential Products & Industrial Products [3]

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Sure, Susan. This is Perry Davis. I'll salute that. I just sat at a -- an integration conference at the target of persist week, which we possess above a ordinary cadence, and I can state you that the even of fight among the Leggett folks and the ECS nation is extremely good. We're tracking a destiny of various task streams that mountain from sales and marketing total the manner ought IT integration and a destiny of the back-office functions, and it's going identical smoothly. We had some large nation working above that, tracking that, facilitating that and we're quite pleased. We sensed preceding ought the acquisition, the cooperative ghost of those nation at ECS, and I'm gay ought illustrate that our expectations there possess been realized and they're working together quite well.

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Karl G. Glassman, Leggett & Platt, Incorporated - CEO, headmaster & Director [4]

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I'll just add ought that from a material perspective. The amaze is that we knew at the time of the acquisition that we were starting ought yell on some medication deflation consequently it's pressured selling prices a small division but certainly no profitability and margins are enhanced though a percentage. consequently no a large amaze though TDI had increased significantly and now is coming back. consequently we're seeing deflation but it's -- though -- though I said, from profitability standpoint, it's no at total negative. The amaze perhaps has been the point that you started ought compose and that's the significant wave of dumped products at further of the ruling that we wish will acknowledge lay by statutory rules, the target of May, consequently there is a 90-day emerge uphold from a retro duty perspective. consequently we knew the product that had vary into the speak ago the target of February was at result duty-free but the significant wave of imports, 17% -- 71% at December, 63% at January, 56% at February, has surprised us, consequently it's dampened no only ECS' volume, certainly the total U.S. industries volume. consequently it's impacted the usual players at the U.S. though well. We wish that we'll begin ought obtain some relief. We -- the challenge is there's a destiny of inventory at this country, it's being peeled off but it will acknowledge a however ought total kind through. consequently we're certainly optimistic approximately the duties and the duty rates. We are really pleased that we've made the ECS acquisition. There is a destiny of conversation, Perry's been involved with Chris Chrisafides, who runs ECS and the recess of the ECS team and our historic bedding group, approximately new programs of onshoring and reshoring. isolate of U.S. Spring's growth has been the growth of hybrids and boxed and at usual platforms. consequently things are going really, really well. but those were friendly of the 2 surprises.

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Susan Marie Maklari, Crédit Suisse AG, research piece - research Analyst [5]

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Okay. That's helpful, Karl. And then just following up more broadly, I guess, though we emerge across your target markets, you've talked ought weakness at autos obviously globally. I know carpet underlay had some pressures this quarter. And I suppose we've friendly of heard that coming out of the fourth quarter, it seems though the year started off a small slow but then has friendly of improved though we influence across closer into the spring. can you report ought what you've seen at bedding and housing markets and those kinds of things. And how you're thinking approximately beg coming across though we emerge out?

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Perry E. Davis, Leggett & Platt, Incorporated - Executive VP and headmaster of Residential Products & Industrial Products [6]

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So, Susan, this is Perry again. at bedding, I can state you that though we further across the quarter, it got stronger and stronger. Relatively good sales promotion and activity approximately Presidents' Day. but again, the shock of the imports, it's difficult ought standard though we perceive that there's consequently much of that at the system. but I can state you though the zone went along, the cadence got quicker and more robust. We truly saw at one of the other material units that's been affected though you've mentioned at carpet or at our Flooring Products group, we did yell on some headwinds at the begin of the year. Some of that obviously construction-related and weather-impacted but though we've gone across now and we've entered into the second quarter, we've seen our material volumes there recover, and we're bullish above that material though we progress forward. Now we're beginning ought yell on some raw material console there also.

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Susan Marie Maklari, Crédit Suisse AG, research piece - research Analyst [7]

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Okay. total right. That's helpful. And what approximately just thinking at condition of some of your more industrial target markets, I know hydraulics had a really good quarter. but can you just report ought what you've been seeing above that aspect at general?

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J. Mitchell Dolloff, Leggett & Platt, Incorporated - Executive VP, COO and headmaster of Specialized Products & Furniture Products [8]

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Sure, Susan. This is Mitch. allow me begin with Auto. though you perhaps memorize that the vehicle product forecast has declined consistently though the heart of persist year. at fact, vehicles are down approximately about 2.8 million vehicles though the December forecast with above 2 million of those units coming out of the first half of the year. consequently we're looking at a forecast though the just that shows continued softness at the first half of the year with product down year-over-year, approximately 5%, and then the forecast improves at the uphold half of the year with product increasing year-over-year 3% ought 4%, and that's exhibition much -- that's reflective of the trends that we yell on though well. memorize that consequently we're facing exhibition healthy comps with the first half of persist year being exhibition healthy and then falling off at the uphold half. consequently we'll wish ought yell on a contrary of that this year. at PHC, at the Hydraulic Cylinders market, yes, persist year was identical strong. I ponder year ought growth at material handling was up approximately 15%. Q1 was truly a small division softer, down approximately 3%. We don't possess good industry forecast there consequently -- unit pressure remained healthy but we'll get an eye out though that. Aerospace bills remain healthy consequently we're at good roll there though well.

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Operator [9]

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Our next mystery comes from the queue of Peter Keith with Piper Jaffray.

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Peter Jacob Keith, Piper Jaffray Companies, research piece - headmaster and Senior research Analyst [10]

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I'm here, miserable approximately that. I've had finger above the dumb button this morning. I did possess a question, just follow-up ought Mitch, consequently interesting above the Auto forecast down 5%, but then exhibition acute inflection at the uphold half of the year. I suppose up 3% ought 4% used to emerge ought flow above historic beg figures. That seems a small overly optimistic. I guess, fulfill you -- what fulfill you ponder above that forecast used to exist driving that acute acceleration at the uphold half?

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J. Mitchell Dolloff, Leggett & Platt, Incorporated - Executive VP, COO and headmaster of Specialized Products & Furniture Products [11]

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