Legget & Platt (LEG) Down 7.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Legget & Platt (LEG). Shares have lost about 7.2% 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’s Q3 Earnings Lag, Sales Top, EPS View Cut

Leggett & Platt, Incorporated reported lackluster earnings for third-quarter 2021. The bottom line missed the Zacks Consensus Estimate and declined on a year-over-year basis. The decline was primarily due to lower EBIT and a higher tax rate.

Its chairman and CEO, Karl Glassman, said, "Leggett remains well-positioned, both competitively and financially, to capitalize on long-term opportunities in our various end markets. Our enduring long-term fundamentals give us confidence in our ability to continue creating long-term value for our shareholders."

Quarter in Details

Leggett reported adjusted earnings of 71 cents per share, which missed the consensus mark of 76 cents by 6.6% and fell 13.4% from the year-ago figure of 82 cents.

Net trade sales totaled $1.32 billion, surpassing the consensus mark of $1.30 billion by 1.5% and increasing 9% from the prior-year level. Organic sales were up 8% year over year. Of this growth, raw material-related selling price added 13% and currency accounted for 1%. Acquisitions, net of divestitures, contributed 1% to sales. Yet, volume decline of 6% due to supply chain constraints in Bedding and Automotive markets offset the positives.

Adjusted EBIT decreased 8% from the prior-year quarter to $144 million. The decline stemmed from lower volume, which offset metal margin expansion in the Steel Rod business. Adjusted EBIT margin also contracted 200 basis points (bps) to 10.9% from the year-ago figure. Adjusted EBITDA margin declined 230 bps to 14.5%.

Segment Details

Net trade sales in Bedding Products (excluding inter-segment sales) increased 13% from the year-ago level to $664.1 million. Volume decline of 8% was due to the challenges associated with chemical and labor availability in the U.S. bedding market and European demand returning to more normal seasonal levels. Increased prices contributed 19%, currency added 1%, and acquisitions — net of divestitures — increased sales by 1%.

Adjusted EBIT margin contracted 80 bps to 12.2%. Adjusted EBITDA margin also fell 120 bps year over year to 16.3%.

The Specialized Products segment's trade sales slipped 3% from the prior-year figure to $235.6 million. Sales in Automotive due to semiconductor shortages impacting global automotive production reduced to 7%. Positive currency and the small Aerospace acquisition added 3% and 1%, respectively, to sales.

Adjusted EBIT margin declined 550 bps to 9.5%. Adjusted EBITDA margin decreased 490 bps year over year.

Trade sales in the Furniture, Flooring & Textile Products segment jumped 12% from the prior-year level to $419.5 million, mainly due to a 13% rise in raw material-related selling price increase. Yet, the segment saw a 1% decline in volume owing to softness in Textiles and Flooring.

Adjusted EBIT margin of 9.8% was down 190 bps from the prior year. Adjusted EBITDA margin also declined 210 bps to 11.2%.

Financials

As of Sep 30, 2021, the company had $965 million in liquidity. It had $234.7 million of cash and cash equivalents at third quarter-end compared with $348.9 million at 2020-end. Long-term debt at September-end was $1.77 billion, down 6% from 2020-end. Trailing 12-month debt-to-adjusted EBITDA was 2.41.

Cash from operations for the first nine months of 2021 totaled $80.4 million compared with $383.8 million in the corresponding year-ago period.

2021 Guidance Narrowed

Leggett has updated its full-year guidance owing to raw material-related price increase and lower expected volume in Automotive. The company now expects sales in the range of $5-$5.1 billion versus $4.9-$5.1 billion expected earlier. This indicates year-over-year growth of 17-19%.  Raw material-related price increase, a 1% rise in acquisitions (net of divestitures) and mid-single digit volume growth are likely to boost sales. Adjusted EPS is now expected between $2.70 and $2.80 (compared with $2.70 and $2.90 projected earlier). The company expects adjusted EBIT margin between 11.1% and 11.2% compared with prior anticipation of 11.4-11.6%.

Capital expenditures, depreciation and amortization costs, operating cash flow, dividend, and net interest expense for 2021 are estimated at $120 million, $190 million, $350 million, $220 million, and $75 million, respectively. The effective tax rate for the year is projected at 23%.

For the fourth quarter, it expects net sales within $1.26-$1.36 billion and earnings of 69-79 cents per share.

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 -6.44% due to these changes.

VGM Scores

Currently, Legget & Platt has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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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