Business Overview and History
Leggett & Platt, Incorporated (LEG) is a diversified manufacturer that has been an integral part of many homes, offices, and automobiles for decades. With a presence in over 120 production facilities across 18 countries, the company has established itself as a leading supplier of a wide range of engineered components and products.
Leggett & Platt was founded in 1883 in Carthage, Missouri, by J.P. Leggett and C.B. Platt, initially manufacturing bedding components such as woven wire mattress supports. The company's history is marked by strategic diversification and resilience in the face of challenges. In the early 1900s, Leggett & Platt expanded into automotive parts, a move that helped it weather the Great Depression when bedding product demand declined. Over the decades, the company continued to grow and diversify, acquiring other businesses and expanding into new product lines.
The 1970s presented a significant challenge for Leggett & Platt, with rising steel prices and labor costs pressuring profits. The company responded by investing in automation and improving operational efficiency, maintaining its competitiveness and growth trajectory. In the 1980s and 1990s, Leggett & Platt expanded internationally, establishing manufacturing facilities in Europe, Asia, and Mexico to better serve global customers.
The 2000s brought increased competition from imports, particularly in the bedding components business. Leggett & Platt countered this challenge by investing in new technologies and product innovations to maintain market leadership. The company also pursued antidumping cases against certain imported products to protect its domestic manufacturing base.
Today, Leggett & Platt's operations are organized into three reportable segments: Bedding Products, Specialized Products, and Furniture, Flooring & Textile Products.
The Bedding Products segment supplies a variety of components and machinery used by bedding manufacturers, as well as produces private-label finished mattresses and adjustable bed bases. This segment is also vertically integrated, producing specialty foam chemicals, steel rod, and drawn steel wire for internal use and external customers. It contributed 40% of Leggett's trade sales during the first six months of 2024.
The Specialized Products segment provides lumbar support systems, seat suspension systems, motors and actuators, and control cables for automotive manufacturers. It also produces and distributes tubing and tube assemblies for the aerospace industry and engineered hydraulic cylinders used in material-handling and heavy construction industries. This segment accounted for 28% of Leggett's trade sales in the first six months of 2024.
The Furniture, Flooring & Textile Products segment supplies a wide range of components for residential and work furniture manufacturers, as well as select lines of private-label finished furniture. This segment also produces or distributes carpet cushion, hard surface flooring underlayment, and textile and geo components. It contributed 32% of Leggett's trade sales in the first six months of 2024.
Financial Performance and Ratios
In the 2023 fiscal year, Leggett & Platt reported revenue of $4.73 billion and a net loss of $136.80 million. The company's operating cash flow and free cash flow stood at $497.20 million and $383.40 million, respectively. Leggett & Platt's current ratio of 1.48 and debt-to-equity ratio of 2.80 indicate a stable financial position, though the net loss and declining revenue in the recent period are areas of concern.
For the most recent quarter (Q3 2024), Leggett & Platt reported revenue of $1.1 billion, a 6% decrease compared to Q3 2023, primarily due to volume declines across all segments and raw material-related selling price decreases. Net income for Q3 2024 was $44.9 million, a 15% decrease from the same period last year. This decline was mainly attributed to unfavorable product mix in Bedding, lower volume, metal margin compression, and higher bad debt reserves, partially offset by lower amortization expense, operational efficiency improvements, and restructuring benefits.
The company's gross profit margin was 18.0% in the latest fiscal year, while its operating profit margin was 6.8%. Leggett & Platt's return on assets and return on equity stood at -2.96% and -8.17%, respectively, reflecting the challenges it has faced.
For the first six months of 2024, Leggett & Platt reported trade sales of $2.23 billion, down 9% compared to the same period in 2023. Organic sales, which excludes sales from acquisitions and divestitures, also decreased 9% year-over-year. Earnings Before Interest and Taxes (EBIT) for this period was $551 million, down from $185 million in the prior year period, primarily due to a $675 million non-cash goodwill impairment charge. Earnings per share for the first six months of 2024 was $4.16 compared to $0.79 in the same period of 2023.
Liquidity
Leggett & Platt's liquidity position, as indicated by its current ratio of 1.48 and quick ratio of 0.84, suggests that the company has sufficient short-term assets to cover its short-term liabilities. The operating cash flow of $497.20 million and free cash flow of $383.40 million in 2023 demonstrate the company's ability to generate cash from its operations, which is crucial for maintaining liquidity and funding future growth initiatives.
As of the latest report, Leggett & Platt had $307 million in cash on hand and $992 million available under its revolving credit facility, providing additional financial flexibility.
Navigating Evolving Market Dynamics
Leggett & Platt has been navigating a challenging macroeconomic environment, with weakening demand in its key residential end markets and ongoing volatility in the automotive industry. The company has faced headwinds such as declining mattress consumption, program launch delays, and product trade-downs in the automotive sector, which have impacted its financial performance.
In response, Leggett & Platt has implemented a restructuring plan focused on consolidating production and distribution facilities, improving operational efficiency, and reducing costs. The company expects the plan to generate $50 million to $60 million in annualized EBIT benefits once fully implemented by late 2025. Additionally, Leggett & Platt is exploring the potential sale of its aerospace business as part of a strategic review to streamline its portfolio.
Risks and Challenges
Leggett & Platt faces several risks and challenges that could impact its future performance. These include:
- Continued weakness in residential end markets, particularly the domestic bedding industry, which could further depress demand for the company's products.
- Ongoing volatility and uncertainty in the global automotive industry, as the transition to electric vehicles and changing consumer preferences create challenges for the company's automotive business.
- Potential disruptions in its supply chain and manufacturing operations, which could be exacerbated by severe weather events or other external factors.
- Competitive pressures, both from domestic and foreign manufacturers, which could erode the company's market share and profitability.
- Successful execution of its restructuring plan and strategic initiatives, which will be critical to improving the company's financial performance and positioning it for long-term growth.
Forward Guidance
Leggett & Platt has revised its guidance for the full year 2024 due to weaker than anticipated demand in residential end markets and headwinds in Automotive, Hydraulic Cylinders, and Geo Components. The company now expects:
- Full-year sales of $4.3 billion to $4.4 billion, representing a 7% to 9% decrease compared to 2023. This is a downward revision from the previous guidance of $4.3 billion to $4.5 billion.
- Volume is expected to be down mid-single-digits overall, with Bedding Products down high-single-digits, and both Specialized Products and Furniture, Flooring & Textile Products down mid-single-digits.
- Adjusted EPS is projected to be $1 to $1.10, lower than the previous guidance of $1.10 to $1.25.
- Full-year adjusted EBIT margin is expected to range from 6.0% to 6.4%, down from the previous guidance of 6.5% to 6.9%.
- Cash from operations is now anticipated to be approximately $300 million, compared to the previous guidance of $300 million to $350 million.
These revisions reflect the ongoing challenges in Leggett & Platt's key markets and the company's efforts to adapt to the evolving business environment.
Conclusion
Leggett & Platt is a diversified manufacturer with a long history of serving a wide range of industries. However, the company has faced significant headwinds in recent periods, leading to declining revenue and profitability. While Leggett & Platt's restructuring efforts and strategic initiatives aimed at streamlining its operations and portfolio are encouraging, the company will need to navigate the evolving market dynamics effectively to regain its financial footing and deliver sustainable long-term growth for its shareholders. The revised guidance for 2024 underscores the challenges ahead, but also reflects the company's commitment to transparency and adaptation in the face of market pressures.