Leggett & Platt (NYSE:LEG) Misses Q1 Revenue Estimates, Stock Drops

Anthony Lee /
2024/04/30 5:07 pm EDT

Manufacturing company Leggett & Platt (NYSE:LEG) fell short of analysts' expectations in Q1 CY2024, with revenue down 9.6% year on year to $1.10 billion. On the other hand, the company's outlook for the full year was close to analysts' estimates with revenue guided to $4.5 billion at the midpoint. It made a non-GAAP profit of $0.23 per share, down from its profit of $0.39 per share in the same quarter last year.

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Leggett & Platt (LEG) Q1 CY2024 Highlights:

  • Revenue: $1.10 billion vs analyst estimates of $1.12 billion (2% miss)
  • EPS (non-GAAP): $0.23 vs analyst expectations of $0.24 (4.6% miss)
  • The company reconfirmed its revenue guidance for the full year of $4.5 billion at the midpoint
  • Gross Margin (GAAP): 17%, down from 18% in the same quarter last year
  • Free Cash Flow was -$32 million, down from $122.7 million in the previous quarter
  • Market Capitalization: $2.45 billion

President and CEO Mitch Dolloff commented, "First quarter results were in line with our expectations and our full year sales and EPS guidance range remain unchanged. We are making steady progress on the restructuring plan announced in January to optimize our manufacturing and distribution footprint and remain on track to achieve our objectives within our stated timeline."

Founded in 1883, Leggett & Platt (NYSE:LEG) is a diversified manufacturer making products for various industries.

Home Furnishings

A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.

Sales Growth

A company’s long-term performance can give signals about its business quality. Any business can put up a good quarter or two, but many enduring ones muster years of growth. Leggett & Platt's revenue was flat over the last five years. Leggett & Platt Total RevenueWithin consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Leggett & Platt's recent history shows a reversal from its five-year trend as its revenue has shown annualized declines of 6.3% over the last two years.

We can better understand the company's revenue dynamics by analyzing its three most important segments: Bedding, FF&T, and Specialized Products, which are 40.8%, 30.4%, and 28.8% of revenue. Over the last two years, Leggett & Platt's Bedding (mattresses and foundations) and FF&T (sofa parts and tiles ) revenues averaged year-on-year declines of 14% and 6.9% while Specialized Products (automobile components) averaged 13% growth.

This quarter, Leggett & Platt missed Wall Street's estimates and reported a rather uninspiring 9.6% year-on-year revenue decline, generating $1.10 billion of revenue. Looking ahead, Wall Street expects revenue to decline 2% over the next 12 months.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Over the last two years, Leggett & Platt has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7%, subpar for a consumer discretionary business.

Leggett & Platt Free Cash Flow Margin

Leggett & Platt burned through $32 million of cash in Q1, equivalent to a negative 2.9% margin. This caught our eye as the company shifted from cash flow positive in the same quarter last year to cash flow negative this quarter.

Key Takeaways from Leggett & Platt's Q1 Results

We struggled to find many strong positives in these results as its revenue and EPS fell short of Wall Street's estimates. The company stated its underperformance stemmed from weak demand in its residential end markets. Additionally, operating cash flows were negative $6 million, down from $103 million in Q1 2023. This was primarily driven by lower accounts payable and earnings.

Looking ahead, the company reconfirmed its revenue guidance for the full year, but its earnings forecast missed. Overall, this was a bad quarter for Leggett & Platt. The company is down 8.7% on the results and currently trades at $16.5 per share.

Leggett & Platt may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.