Leggett & Platt Lowers 3Q and Full Year Guidance
Carthage, MO, September 20, 2005--Leggett & Platt said its third quarter earnings are expected to be within the range of $0.30 to $0.35 per share, significantly lower than the $0.42 to $0.47 per share guidance issued in July.
Sales are expected to be in the range of $1.30 - 1.35 billion, or about $40 million lower than previously anticipated. Factors contributing to the reduced earnings guidance, in approximate order of importance, include significantly higher costs for raw materials and energy, lower than anticipated sales volume, higher workers compensation costs, lower than anticipated LIFO income, deflation in some product lines, and inventory obsolescence.
Felix E. Wright, chairman and CEO, commented, "We are very disappointed with the reduction in our anticipated results for this quarter and the full year. Even though some of the issues -- namely market demand, energy and raw material costs -- are beyond our control, we must deliver better performance. In response, Dave Haffner and I have issued two directives within the company.
"First, when it becomes clear that recent raw material and energy cost increases are not going to abate, we will have no choice but to pass along these increases. To that end, last week Dave and I notified our customers about the cost inflation the company is experiencing. Typically, Leggett tries to work with customers by absorbing small amounts of inflation, but passes along larger and more lasting changes in costs. We were previously of the opinion that recent cost increases would likely be temporary, but we are no longer comfortable with that assumption. Accordingly, we plan to adjust our product prices immediately in some lines of business, and closely monitor raw material costs in other product categories.
"Second, over the next few months we will be investigating additional consolidation or divestiture opportunities, and expect soon to begin reducing both the number of operating facilities and the amount of excess plant capacity we carry. Over the last few years we have purposely chosen to maintain spare capacity, expecting demand in the markets we serve to return to the levels seen in the late 1990s. That incremental demand has not materialized, and our patience has finally run out. We will wait no longer. We have decided to eliminate spare capacity to match the demand levels experienced over the last few years. We will also take this opportunity to close or divest a few operations which, though operating near capacity, are chronically unprofitable or marginally profitable. Most of the changes will occur within the Residential Furnishings and Commercial Fixturing and Components segments, with modest adjustments in the other three segments. In total, we expect to consolidate, close or divest between 20 and 30 production or warehouse facilities. We will provide additional information about these efforts in the coming months."
The company provided the following additional details regarding the substantial recent increases in raw materials and energy costs. Oil was trading at $48 in mid-May, increased to $57 at the time of Leggett's July conference call, and has traded in the $63 - $71 level for the last five weeks. Natural gas has followed a similar pattern, peaking at an unprecedented $12 per MCF in late August (nearly double what it cost in May). As a result, all oil-related products, including diesel, gasoline, polymers, resins and chemicals have experienced significant cost increases. In addition, the market price for scrap steel, after declining a bit through June, has risen about $100 per ton (an 80% increase) over the last three months, and is now at the highest price seen this year.
It is important to note that some of the commodity increases primarily affect North America, with worldwide prices remaining fairly stable. Accordingly, in some instances, we have chosen to delay passing along cost increases in order to help our customers remain competitive.
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