Leggett & Platt, Incorporated Management Discusses Q2 2012 Results - Earnings Call Transcript

Leggett & Platt, Incorporated (LEG)

Q2 2012 Earnings Call

July 27, 2012 9:00 am ET


David M. DeSonier - Senior Vice President of Strategy & Investor Relations

David S. Haffner - Chief Executive Officer, President, Director and Member of Executive Committee

Karl G. Glassman - Chief Operating Officer, Executive Vice President and Director

Susan R. McCoy - Director of Investor Relations

Matthew C. Flanigan - Chief Financial Officer, Senior Vice President, Director and Chairman of Enterprise Risk Management Committee


David S. MacGregor - Longbow Research LLC

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Chad Bolen

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Robert J. Kelly - Sidoti & Company, LLC

Robert Kennedy - Gradient Analytics, Inc.

Herbert Hardt - Monness, Crespi, Hardt & Co., Inc., Research Division

Allen Zwickler - First Manhattan Co., Research Division



Greetings, and welcome to the Leggett & Platt Second Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David DeSonier, Senior Vice President Strategy and Investor Relations for Leggett & Platt Incorporated.

Thank you. Mr. DeSonier, you may begin.

David M. DeSonier

Good morning, and thank you for taking part in Leggett & Platt's second quarter conference call. With me this morning are the following: Dave Haffner, our CEO and President; Karl Glassman, our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our Staff VP of Investor Relations.

The agenda for the call this morning is as follows: Dave will start with a summary of the major statements we made in yesterday's press release; Karl will provide operating highlights; Dave will then address our full year outlook for 2012; and finally, the group will answer any questions you have.

This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our expressed permission. A replay is available from the IR portion of Leggett's website.

We posted to the IR portion of the website a set of PowerPoint slides that contains summary of financial information. Those slides supplement the information we discuss on this call, including non-GAAP reconciliations. 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

Thank you, Dave. Good morning, and thank you, all, for participating in our call. We are pleased with the second quarter earnings and margin improvement we reported yesterday. Earnings per share for the quarter were $0.45 compared to $0.37 during the second quarter of last year. Second quarter 2012 earnings include a $0.04 per share unusual tax benefit and a $0.02 per share benefit in discontinued operations from a litigation settlement associated with the previously divested business.

Second quarter of last year, earnings included $0.02 per share unusual tax benefit. Second quarter same location sales were down 2% from the prior year, primarily due to lower trade sales from our Rod mill, currency rates and lower store fixtures sales, a portion of which was volume we chose to exit. Apart from these 3 factors, same location sales increased 2%.

Unit volumes were flat to positive across the majority of the company and the strongest growth continuing -- with the strongest growth continuing to come from our automotive and adjustable bed businesses. EBIT increased and EBIT margins improved both year-over-year and sequentially to 9.2% during the quarter. Earnings are benefiting, as expected, from higher unit volumes and the cost savings associated with the restructuring activities we initiated in late 2011. In addition, the Western Pneumatic Tube acquisition that we completed in January is exceeding our expectation for strong operating performance. We are very pleased with the return we're generating on this investment.

Reflecting our broad focus on returns, we ended the quarter with working capital at 12% of annualized sales. Current liabilities include $41 million associated with an interest rate swap that we entered in 2010. Excluding this item, working capital was 13.1% of annualized sales, well below our 15% target. Cash from operations was strong during the quarter at $81 million. We expect operating cash for the full year of approximately $350 million, which had once again comfortably exceed the amount required to fund capital expenditures and dividends.

Capital expenditures should be approximately $90 million this year and dividends should require about $160 million. We continue to maintain our strong financial base and ended the second quarter with net debt at 33% of net capital, which is within our long-term target range of 30% to 40%.

In May, we declared a quarterly dividend of $0.28 per share. 2012 marks the 41st consecutive annual dividend increase for the company, a record we plan to extend. At yesterday's closing price of $22.49, the current dividend yield is 5%. Leggett possesses the highest dividend yield among all of the S&P 500 dividend aristocrats that have over 30 consecutive annual dividend increases.

Given the cash outlay earlier in the year to acquire Western Pneumatic Tube, we did not complete any open market purchases of our stock during the second quarter. However, consistent with our stated priorities for the use of excess cash flow, we expect eventually to resume buying back our stock subject to the outlook for the economy, our level of cash generation and other potential opportunities to strategically grow the company.

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