A drop off in consumer spending has hit consumer staples companies like Leggett & Platt (NYSE:LEG) hard the past year. With cash flows declining, balance sheet health becomes more of an issue, leaving some companies with significant debt at risk of exceeding debt-to-revenue covenants. This market climate has forced long-time dividend aristocrat, Leggett & Platt to make an 89% dividend cut.
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Of course, market reaction was swift, and the stock dropped over -25% the next day, punctuating a -46% slide so far in 2024.
The stock now trades at a discount, but instead of reaching for a falling knife, investors may want to hold off until the company demonstrates signs of a positive turnaround.
A Legacy of Manufacturing
Leggett & Platt is a 141-year-old manufacturer of consumer durables and industrial products, such as bedding, flooring, textiles, and specialized Products. Over the years, the company has expanded into a diversified conglomerate comprising 15 different business units.
The primary business lines are categorized under three main segments: Bedding Products, Specialized Products, and Furniture, Flooring, and Textile Products.
Bedding Products is a home industry supplier that provides products such as mattress springs or adjustable beds. Specialized Products supplies high-quality metals to the aerospace industry and the construction market. The Flooring & Textile Products cater to manufacturers of office, residential, and contract furniture.
Recently, the company announced a restructuring plan, mainly for the bedding products, to reduce debt and create a more focused organization aligned with current market needs.
Leggett & Platt’s Recent Financials
The company announced sales of $1.1 billion in the first quarter, a 10% decrease from the previous year’s first quarter. EPS of $0.23 also decreased from the prior year and slightly missed expectations of $0.24.
As of March 31, 2024, the company reported a total debt of $2.1 billion, including $279 million of outstanding commercial paper. Net debt was 3.61 times the trailing 12-month adjusted EBITDA.
The company was able to amend an existing credit agreement to offer more liquidity and flexibility, changing the financial covenant to 4.0x net debt to the 12-month adjusted EBITDA through June 30, 2025. After that date, the ratio reverts to 3.5x.
The board declared a second-quarter dividend of $.05 per share, a significant decrease from the prior dividend level of $0.46. It disclosed that the dividend cut was to liberate capital, hasten the deleveraging process of its balance sheet, and reinforce its long-standing financial stability.
Despite the slowdown, management expects sales to reach between $4.35 and $4.65 billion and an adjusted EPS of $1.05–$1.35.
What is the Price Target for LEG Stock?
The stock is rated a Moderate Sell based on the recommendations and 12-month price targets issued over the past three months by three Wall Street analysts. The average price target for LEG stock is $13.00, representing a -4.76% change from current levels.
Analysts following the company have taken a cautious stance on the stock. Truist analyst Keith Hughes recently lowered the price target on the stock from $16 to $13 while maintaining a Hold rating on the shares. He cited the company’s substantially reduced dividend and limited sales and profit growth as reasoning.
The stock has been trending downward for the past three years, losing over -70% of its value. It trades at the low end of its 52-week price range of $11.02-$33.11 and continues to show downward momentum, trading below the 20-day (19.00) and 50-day (20.07) moving averages.
Bottom Line on Leggett & Platt
In response to its financial hurdles, Leggett & Platt has undertaken a restructuring initiative and substantially cut its dividend to hasten its balance sheet’s deleveraging process. While management remains optimistic for the remainder of 2024, investors might consider holding off until more explicit signs of a positive turnaround emerge.
