Leggett (LEG) To Post Q4 Earnings: What's In The Offing?

Leggett & Platt, Incorporated (NYSE:LEG) is scheduled to release fourth-quarter 2018 results on Feb 4. In the last reported quarter, the company’s earnings and revenues missed the Zacks Consensus Estimate by 6.9% and 1%, respectively. Moreover, this designer and manufacturer of a variety of engineered components and products delivered lower-than-expected results in three of the last four quarters, with the average negative earnings surprise being 3.4%.

How are Estimates Faring?

Let’s take a look at estimate revisions in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the to-be-reported quarter is pegged at 57 cents, which remained unchanged over the past 30 days. This reflects a decrease of 3.4% from the year-ago earnings of 59 cents per share. Revenues are expected to be $1.02 billion, up 4% year over year.

Leggett & Platt, Incorporated Price and EPS Surprise

Leggett & Platt, Incorporated Price and EPS Surprise | Leggett & Platt, Incorporated Quote

Factors at Play

Leggett’s fourth-quarter 2018 results are likely to be impacted by multiple headwinds. The company has been grappling with softness in the demand for Home Furniture, Fashion Bed and European Spring, as well as lower overhead recovery in Adjustable Bed. Again, lower-than-expected sales in Automotive, along with pricing lag on raw material increases in European Spring, Flooring Products and Fabric businesses added to the woes.

Owing to these multiple headwinds, Leggett has trimmed full-year earnings projection in the range of $2.40-$2.50 per share from $2.55-$2.70 projected earlier. Management also lowered its sales guidance for 2018. Sales are now projected at approximately $4.25 billion, which is at the lower end of the prior guided range of $4.25-$4.35 billion. The current sales expectation reflects 8% year-over-year growth.

Notably, its performance over the last few quarters was mainly hurt by volatility in raw material prices, with steel being one of the key raw materials and the steel market being cyclical in nature. Further, margins remained under pressure mainly due to raw material cost increases. Gross margin and adjusted EBIT margin contracted 640 basis points (bps) and 20 bps year over year, respectively, in the third quarter.

That said, the company has been working on minimizing the price lag by increasing raw material-related selling prices. In the third quarter, steel cost was up 17% year over year and its recovery ratio improved about 60-65%. The company expects to close that gap in the fourth quarter, with the figure likely to move closer to 90%.

Meanwhile, Leggett’s fourth-quarter 2018 results are likely to be driven by higher demand, strategic acquisitions, an increase in raw material-related price alongside volume growth. The company has been experiencing higher sales, as is evident from its 9% year-over-year net sales growth in the first nine months of 2018. Acquisitions contributed around 2% in each of the prior three quarters.

Leggett has successfully completed the first two parts of its strategic plan and is currently working on the third part that aims at achieving top-line growth of 4-5% annually. Solid market demand coupled with market share gains have been enhancing capacity utilization over the years.

What Our Model Says

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 or 5 (Sell rated) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Leggett has an Earnings ESP of 0.00% and currently carries a Zacks Rank #3, a combination that does not conclusively show that Leggett is likely to beat estimates in the to-be-reported quarter.

Stocks With Favorable Combination

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming quarterly release:

WillScot Corporation (NASDAQ:WSC) has an Earnings ESP of +147.1% and a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

NIKE, Inc. (NYSE:NKE) has an Earnings ESP of +8.4% and holds a Zacks Rank #3.

Penn National Gaming, Inc. (NASDAQ:PENN) has an Earnings ESP of +4.8% and a Zacks Rank #3.

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