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» Leggett & Platt, Incorporated's CEO Discusses Q2 2011 Results - Earnings Call Transcript
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We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information. Those slides supplement the information we discuss on this call, including non-GAAP reconciliation. I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward looking statements. Actual results or events may differ materially due to a number of risks and uncertainties, and the company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled, forward-looking statements.I'll now turn the call over to Dave Haffner. David S. Haffner Good morning, and thank you for participating in our call. As we reported yesterday, earnings for the third quarter were $0.31 per share or flat with the same quarter of last year. Third quarter sales grew 9% versus the prior year from items that brought little incremental profit. Inflation and currency rate fluctuation accounted for the bulk of the growth, and trade sales from our steel mill provided 3% unit growth. Across the remainder of the company as a whole, unit volume was essentially flat. We are not satisfied with our results this quarter. Earnings and margins decreased both year-over-year and sequentially. Competitive pricing and customer down spec-ing, both of which Karl will talk about in his segment comments, are impacting certain product categories. When combined with our efforts to reduce inventory by curtailing production, which also reduced overhead absorption, earnings and margins were under pressure. Earlier in the year, we had expected overall unit demand to improve this fall. That has not happened, and many of the recent forecasts and surveys from well-regarded sources suggest that our economy will be facing headwinds for longer than previously expected. We have been too patient and are no longer willing to wait for an economic recovery to bolster earnings. As a result, we have recently initiated additional efforts to decrease excess production capacity, reduce overhead and trim our cost structure.
For the quarter, we generated operating cash of $101 million, which includes the reduction in inventory levels that I mentioned earlier. With ongoing concerns about weak markets, our operating folks continue to closely monitor the working capital levels.We ended the quarter with working capital at 12.5% of annualized sales. New this quarter was a $30 million current liability associated with an interest rate swap that we entered in late 2010. Excluding that item, working capital was at 13.3% of annualized sales, still well below our 15% target. In August, we increased the quarterly dividend by $0.01 to $0.28 per share, reinforcing our commitment to consistent shareholder returns and our confidence in Leggett's strong cash generation. 2011 marks our 40th consecutive year of annual dividend increases. Out of all the S&P 500, there are only 11 companies that have a longer string of annual increases than Leggett, and only 2 that have higher growth rates over that 40-year period. Maintaining our dividend track record is very important to us. And again, this year, we expect operating cash to comfortably exceed the amount required to fund capital expenditures and dividends. For the year, operating cash should approximate $300 million. Capital expenditures should not exceed $80 million, and dividends should require about $155 million. During the quarter, as planned, we continued purchasing our stock while maintaining our strong financial base. So far this year, we have repurchased 9.4 million shares under the current 10 million share authorization. We have also issued 2.9 million shares year-to-date through various employee benefit and stock purchase programs. We ended the third quarter with net debt at 31% of net capital, which is at the low-end of our long-term targeted range of 30% to 40%. Read the rest of this transcript for free on seekingalpha.com