Leggett & Platt, Incorporated

Greetings and welcome to Leggett and Platt's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Susan McCoy, Senior Vice President of Investor Relations. Thank you, and over to you, ma'am.

Good morning, and thank you for taking part in Leggett & Platt's first quarter conference call. On the call today are Mitch Dollick, President and CEO, Jeff Tate, Executive Vice President and CFO, Steve Henderson, Executive Vice President and President of the Specialized Products and Furniture, Flooring, and Textile Products segments, Tyson Hagel, Senior Vice President and President of the Bedding Products Segment, and Cassie Branscombe, Senior Director of IR. The agenda for our call this morning is as follows. Mitch will start with a summary of the main points we made in yesterday's press release and discuss operating results and demand trends. Jeff will cover financial details and address our outlook for 2022. And Mitch will conclude the call with some comments on our recently issued sustainability report. This conference call is being recorded for Leggett and Platt in copyrighted material. This call may not be transcribed, recorded, or broadcast without our express permission. A replay is available from the IR portion of Leggett's website. We posted to the IR portion of the website yesterday's press release, and a set of PowerPoint slides that contain summary financial information along with segment details. Those documents supplement the information we discuss on this call, including non-GAAP reconciliations. I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties, and the company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our most recent 10-K entitled Risk Factors and Forward-Looking Statements. I'll now turn the call over to Mitch.

Good morning. Thank you all for participating in our first quarter call. Yesterday, we reported first quarter results largely in line with our expectations. Sales from continuing operations were $1.32 billion. EBIT was $1.38 million, and earnings per share was 66 cents. Sales in the quarter were up 15% versus first quarter of 2021, reflecting our successful pass-through of significant inflation over the past several quarters, partially offset by lower volume. EBIT increased 8%, primarily from expanded metal margins in our steel rod business and pricing discipline in our furniture, flooring, and textile segment, partially offset by lower volume, and higher raw material and transportation costs in automotive generally, and production inefficiencies and related premium freight costs in a North American automotive facility. EPS of 66 cents was a 3% increase versus 64 cents in first quarter of 2021. Our full year guidance remains unchanged as we balance strong first quarter results with continuing macro market uncertainties, including supply chain constraints, inflation, tighter monetary policy, the invasion of Ukraine, and COVID lockdowns in China. While our direct business exposure to Ukraine and Russia is minor, our thoughts, concern, and hope go out to those impacted by the ongoing conflict. Moving on to the segments. Sales in our bedding product segment were up 19% versus first quarter of 2021, primarily from raw material-related selling price increases and the KFOM acquisition in Europe. Volume was down primarily due to softness, as expected, in U.S. and European market demand. Market demand remained soft in the first quarter due to reduced consumer activity and elevated inventory levels across the industry. Raw material, transportation, and labor costs continue to increase, and we are carefully managing the impact and passing along costs as necessary. Supply chain constraints have generally improved across the bedding businesses. We are making progress in reducing certain inventories built under higher demand expectations, but we will make sure that we can still comfortably support near-term customer requirements and protect against future disruptions. We also successfully completed the reheat furnace replacement at our steel rod mill, enabling us to begin reducing the extra rod inventory we built for safety stock. We expect demand softness to continue throughout the second quarter. Provided no major changes in the macroeconomic backdrop, we would expect gradual sequential improvement throughout the second half of the year. This should result in full year mattress related volume down mid single digits. We expect full year volume for the segment overall to be flat to down mid single digits, reflecting greater strength in other parts of the business. EBITDA margins in the segment were lower versus first quarter 2021, primarily from lower volume, lower overhead absorption as production and inventory levels were adjusted to meet reduced demand, and continued investment in labor given difficulties in hiring and training, mostly offset by expanded metal margin in our steel rod business. Sales in our specialized product segment increased 2% versus first quarter 2021, from growth in aerospace and hydraulic cylinders. Automotive volume was down slightly. The industry forecast for global automotive production has come down since the beginning of the year, primarily as a result of Russia's invasion of Ukraine and the ongoing conflict. The most significant reductions are in Europe, but all geographies are impacted to varying degrees. We anticipated reductions to industry forecasts in our initial guidance, so these changes are less impactful to our output. Consumer demand remains strong, and vehicle inventory remains at record low levels. As supply chains begin to stabilize, the industry should see improving production in the second half of 2022. Industry forecasts now indicate recovery continuing through 2024. In our aerospace business, demand for fabricated duct assemblies remains at pre-pandemic levels, and we continue to see modest demand recovery for welded and seamless tube products. We expect continued recovery in 2022, and the industry is anticipated to return to 2019 demand levels in 2024. In-market demand in hydraulic cylinders is strong, and order backlogs in the industry are at record levels. However, global supply chain constraints and labor availability have hampered the ability of our OEM customers to ramp up production. It could be late 2022 or longer before industry backlogs normalize. We expect our sales in this business to continue to grow as OEM production increases. EBITDA margins in the segment decline primarily from higher raw material and transportation costs in automotive generally and production inefficiencies and related premium freight costs in a North American automotive facility. Sales in our furniture, flooring, and textiles product segment We're up 17% versus first quarter of 2021, primarily from raw material and related selling price increases and volume recovery in work furniture, partially offset by lower volume in flooring products, textiles, and home furniture. In home furniture, market demand at mid-level and upper price points remains relatively strong. However, demand at lower price points has softened. This is impacting our business in China. The Chinese market also has been impacted by COVID-related lockdowns. Work furniture sales have recovered to above pre-pandemic levels from strong demand for products sold for residential use and improvement in contract markets as companies redesign their footprints and invest in office space to attract and retain employees as more people return to the office. We expect continued growth in this business in 2022. We expect geocomponents to grow in 2022 as demand remains strong across both civil construction and retail markets. In flooring products, residential demand has softened with lower home improvement activity, while hospitality demand is improving but remains well below pre-pandemic levels. EBITDA margins in the segment improved versus the first quarter of 2021, primarily from pricing disciplines. Before I turn the call over to Jeff, I would like to thank our employees for your ingenuity, collaboration, and dedication. It's because of your collective efforts that we were able to once again navigate dynamic and challenging circumstances and deliver record first quarter results.