Leggett & Platt, Incorporated

Greetings and welcome to the Leggett and Platt second quarter 2022 webcast and earnings conference call. At this time, all participants are in a 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, Vice President of Investor Relations for Leggett and Platt.

Please go ahead. Good morning, and thank you for taking part in Leggett and Platt's second quarter conference call. On the call today are Mitch Dollop, 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 Betting Products Segment, and Tassie Granscombe, Senior Director of Investor Relations. 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 the group will answer any questions you have. This conference call is being recorded for Leggett and Platt in its 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 discussed 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 obligations to update or revise these statements. For a summary of the risk factors and additional information, please refer to yesterday's press release and the sections in our most recent 10-K and subsequent 10-Q entitled Risk Factors and Forward-Looking Statements. I'll now turn the call over to Mitch.

Thanks, Susan. Good morning, and thanks, everybody, for participating in our second quarter call. Our employees continued to drive strong results in the quarter despite ongoing macroeconomic, geopolitical, and various in-market challenges. Sales from continuing operations were a quarterly record of $1.33 billion. EBIT was $143 million, and earnings per share was $0.70. Sales in the quarter were up 5% versus second quarter 2021, reflecting our successful pass-through of significant inflation over the past several quarters, partially offset by lower volume and currency impact. EBIT decreased 17% versus second quarter 2021 and was down slightly versus second quarter 2021 adjusted EBIT. Last year's second quarter EBIT included a $28 million gain from the sale of real estate associated with our exited fashion bed business. EBIT decreased slightly versus last year's adjusted EBIT primarily from volume declines and lower overhead absorption, as production and inventory levels were adjusted to meet reduced demand, mostly in bedding. These decreases were largely offset by expanded metal margins in our steel rod business and pricing discipline in our furniture, flooring, and textiles product segment. EPS was 70 cents, a 15% decrease versus second quarter 2021, and a 6% increase versus last year's adjusted EPS. We are lowering our full-year guidance to reflect macroeconomic uncertainties, including impacts of inflation, tightening monetary policy, and softening consumer demand, continuing through the back half of the year. We expect solid demand in our industrial and automotive end markets to partially offset softer consumer markets. Now I'll move on to the segments. Sales in our vetting product segment were up 1% versus second quarter of 2021. Raw material-related selling price increases, strong trade demand in steel rod and drawn wire, and the addition of our CAFOAM acquisition made in the second quarter of last year were largely offset by volume declines from soft demand in U.S. and European betting markets. Market demand was negatively impacted by higher energy costs and general inflation early in the quarter, but then remained relatively consistent. Mattress consumption has been on the leading edge of consumer spending activity and began to slow in the fourth quarter of last year, making year-over-year comparisons difficult. Sequentially, demand was down only slightly from the first quarter. Commodity costs seem to have stabilized, although at historically high levels. Other manufacturing inputs, including energy, continued to increase during the quarter. We are carefully managing these costs and the impact to our business and our customers. Within our vetting businesses, the supply chain remains stable, and we are well protected against future disruptions. We began to adjust production, manufacturing costs, and inventory in the fourth quarter of last year. Inventory levels have turned down since that time, and we will continue to monitor them closely while maintaining our ability to service customer requirements. We are well positioned to address further demand changes, whether up or down, and will respond quickly and responsibly. Provided no major changes in the macroeconomic backdrop, we expect demand in the segment for the back half of the year to remain consistent with levels seen in the first half of the year. EBITDA margins in the segment were lower versus second quarter 2021 adjusted EBITDA margins, primarily from lower volume and lower overhead absorption as production and inventory levels were adjusted to meet reduced demand, mostly offset by expanded metal margin in our steel rod business. Sales in our specialized product segment increased 8% versus second quarter 2021 from strong volume growth in all three businesses. These volume gains were partially offset by currency impact. The industry forecast for global automotive production has stabilized since April. The current forecast anticipates just under 5% growth in the major markets this year. Consumer demand remains strong and vehicle inventory remains at record low levels. As supply chains continue to stabilize, the industry should see improving production for the next several years. 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 well and seamless tube products. We expect continued recovery in 2022, and the industry is anticipated to return to 2019 demand levels in 2024. End-market demand in hydraulic cylinders is strong, and order backlogs in the industry are at record levels. However, labor availability and global supply chain constraints have hampered the ability of our OEM customers to ramp up production. We're seeing some improvement in these areas, but 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 declined primarily from higher raw material and transportation costs, labor inefficiencies, and currency impact, partially offset by higher volume. Sales in our furniture, flooring, and textile product segment were up 10% versus second quarter 2021, primarily from raw material-related selling price increases and volume recovery in work furniture, partially offset by lower volume in home furniture, textiles, and flooring. In home furniture, mid and upper level price points should remain relatively strong through the third quarter due to customer backlogs. However, backlogs are coming down due to consumer demand shifts and macroeconomic uncertainties. Demand at lower price points has continued to soften, negatively impacting our business in China. The Chinese market was also impacted by COVID-related lockdowns during the second quarter. We expect work furniture sales to continue to grow from improving demand in the contract market as companies redesign their footprints and invest in office space. However, demand for products sold for residential use is softening. In textiles, we expect geo components to grow in 2022 as demand remains strong across both the civil construction and retail markets. In flooring products, residential demand has softened with lower home improvement activity and hospitality demand remains well below pre-pandemic levels. EBITDA margins in the segment improved versus second quarter 2021, primarily from pricing discipline partially offset by lower volume. Before I turn the call over to Jeff, I'd like to thank our employees for once again delivering strong quarterly results. Your collective ingenuity, commitment, and effort allows us to effectively navigate this dynamic operating environment. Jeff, I'll hand it over to you.