Legget & Platt (LEG) Down 17.7% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Legget & Platt (LEG). Shares have lost about 17.7% 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 its most recent earnings report in order to get a better handle on the important drivers.

Leggett Q4 Earnings & Sales Top Estimates, Tepid 2020 View

Leggett & Platt (NYSE:LEG), Incorporated reported better-than-expected earnings in fourth-quarter 2019. The bottom line surpassed the Zacks Consensus Estimate for the third straight quarter.

However, its top line missed analysts’ expectation due to lower raw material-related selling price and currency headwinds.

Quarter in Details

Leggett reported adjusted earnings of 68 cents per share, beating the Zacks Consensus Estimate of 66 cents by 3%. The figure rose 9.7% from the year-ago profit level of 62 cents per share. Strong sales in Automotive, U.S. Spring, Work Furniture and Aerospace drove the upside. Also, contributions from the Elite Comfort Solutions (ECS) acquisition led to the upside.

However, lower volume from business exited in Fashion Bed and Home Furniture, continued weak trade demand for steel rod and wire, along with raw material-related selling price decline exerted pressure on the bottom line.

The company’s net sales of $1,144.9 million missed the consensus mark of $1,158 million by 1.1% but increased 9.4% from the prior-year level. Acquisitions, primarily ECS, contributed 13% to total net sales. Volumes (minus the impact of the exited business) added 2% to net sales. However, organic sales dropped 4% in the quarter, mostly due to raw material-related selling price decreases and negative currency, which negatively impacted the top line by 3%.

Adjusted EBIT grew 17% from the prior-year period. Adjusted EBIT margin also advanced 70 basis points (bps) to 12.2%, primarily due to the ECS acquisition, lower raw material costs (including LIFO benefit) and improved earnings performance in Furniture Products. Adjusted EBITDA margin also improved 160 bps year over year to 16.4%.

Segment Details

Net sales in Residential Products (excluding inter-segment sales) increased 32.3% from the year-ago level to $556 million. Acquisitions added 33% to total net sales. Organically, sales fell 1% from the prior-year quarter. Volume was up 2% from the year-ago quarter as market share and content gains in U.S. Spring were offset by a 3% decline in raw material-related selling price.

Including inter-segment sales, total sales in the segment rose 31.6% from the year-ago figure to $559.1 million. Adjusted EBITDA margin grew an impressive 130 bps year over year.

Sales in the Industrial Products segment declined 37.2% from the prior-year level to $57.5 million. Total sales — including inter-segment revenues — fell 23.7% from the prior-year quarter to $126.8 million, mainly due to raw material price decline and 14% lower volumes owing to weak trade demand for steel rod and wire. Nonetheless, adjusted EBITDA margin expanded 550 bps year over year to 19.6%.

Net sales in Furniture Products dropped 4.9% from the year-ago figure to $261.7 million on 4% lower volumes. Raw material-related selling price and negative currency impacted sales by 1%. Total sales of the segment (including inter-segment sales) fell 5.3% year over year to $263.8 million. Adjusted EBITDA margin grew 280 bps from a year ago.

The Specialized Products segment's sales increased 3.9% from the prior-year figure to $269.7 million. The upside was driven by 5% year-over-year growth in volumes, partially offset by 1% negative currency impact. Total sales in the segment (including inter-segment sales) increased 3.9% from the year-ago level to $270.4 million. Adjusted EBITDA contracted 10 bps from the prior year.

Financials

Leggett ended 2019 with cash and cash equivalents of $247.6 million versus $268.1 million in 2018. The company had a long-term debt of $2.7 billion compared with $1.2 billion in the prior-year period. It generated $668 million cash flow from operations, up 52% year over year.

2019 Highlights

In the full year, adjusted earnings grew 3.6% year over year to $2.57 per share. Revenues also increased 11% from the year-ago period to $4.75 billion. Acquisitions added 14% to revenues, partially offset by 3% decline in organic sales. Adjusted EBIT margins were flat year over year.

2020 Guidance

Sales are projected in the range of $4.7-$4.9 billion, indicating a 1% decline to 3% increase from a year ago. Acquisitions might add 1% to net sales growth in 2020. Organic sales are expected between negative 2% and growth 2% year over year. Volumes are likely to be within negative 1% to 3% growth (including 1% decline from the exited business). Raw material-related selling price is anticipated to impact sales by 1%.

Earnings are projected in the range of $2.40-$2.60 per share. EBIT margin is envisioned in the band of 10.7-11%.

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 -20.86% due to these changes.

VGM Scores

At this time, Legget & Platt has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. 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.