Leggett & Platt, Incorporated

Greetings and welcome to the Leggett & Platt first quarter 2025 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, Cassie Branscombe, VP of Investor Relations. Thank you, Ms. Branscombe. You may begin.

Good morning and welcome to Leggett and Platt's first quarter 2025 earnings call. With me on the call today are Carl Glassman, CEO, Ben Burns, CFO, Tyson Hagel, President of the Bedding Products segment, and Sam Smith, President of the Specialized Products and Furniture, Flooring, and Textile Products segment. The agenda for our call this morning is as follows. Carl will provide an update on our strategic priorities and outline our current exposure to and plans to address tariffs. Then we'll cover our first quarter operating results, demand trends, additional financial details, and provide an update to our 2025 guidance. And the group will answer any questions you have. This conference call is being recorded for Leggett and Platt and is copyrighted material. This call may not be transcribed, recorded, or broadcast without our express permission. A replay will be available on the Investor Relations section of our website. We posted to the IR section of our website yesterday's press release and a set of slides that contain summary financial information along with segment details, a tariff overview, and a restructuring update. These documents supplement the information we discuss on this call, including non-GAAP reconciliations, 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 these 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 Carl.

Good morning, and thank you for joining our call today. We are pleased to report better than anticipated first quarter earnings. Our earnings improvement is a testament to the excellent execution of our restructuring plan and operational efficiency improvement initiatives, as well as disciplined cost management. In the first quarter, we made further progress on our restructuring plan. In bedding, we divested a small U.S. machinery business, helping us to further narrow our product focus. In flooring products, we launched Phase 2 of our consolidation efforts. Finally, we continue to make significant strides on our restructuring initiatives within hydraulic cylinders. We expect restructuring activity to be substantially complete by year-end. We are also continuing to make progress on our strategic business review. We recently signed an agreement to sell our aerospace business and expect to receive after-tax cash proceeds of approximately $240 million. This transaction is expected to close this year and represents a step towards a more focused portfolio. While our experience management team remains focused on our strategic priorities, They are also diligently working to guide our business through a complex and fluid tariff environment. Before I walk through the most significant potential tariff impacts, I would like to provide some context. On the supply side, prior to recently implemented tariffs, our U.S. business is approximately $100 million from China. On the sales side, the majority of our trade revenues are produced in the geography of consumption. Approximately 60% of our trade revenues are produced and consumed in the US, while another 8% of revenues produced abroad are consumed in the US, with 5% currently exempt under USMCA. Tariffs present positive and negative impacts across our businesses, but in aggregate are likely a net positive for us. However, we remain concerned that wide-ranging tariffs will drive inflation, hurt consumer confidence, and pressure consumer demand. Across our businesses, our teams are engaging with our customers and suppliers, as well as taking action to mitigate tariff impact by sourcing in less impacted geographies, shifting production where we have a global footprint, and passing on price increases when necessary. We are also actively pursuing opportunities to capture demand where interest for domestically produced products has increased, although such opportunities may be limited as low-cost foreign competitors implement measures to minimize market share loss. Global reciprocal tariffs could benefit U.S. mattress production. These tariffs are another avenue to help level the playing field versus low-priced import mattresses that have flooded the market for years amid difficult enforcement of anti-dumping measures. Additionally, steel tariffs have the potential to benefit domestic innerspring producers. Within our betting segment, steel tariffs are currently leading to expanded metal margins and higher demand for our steel rod and drawn wire operations. As a leading U.S. Interspring manufacturer, we are well positioned to quickly support customers looking to shift from imported to domestic product. In some cases, this may also present an opportunity for us to provide a semi-finished product, which improves manufacturing efficiencies and total product costs for our OEM partners. The most significant tariff exposure in bedding is within our adjustable bed business, where we produce adjustable bases both domestically and in Mexico. In Mexico, the steel content of our bases is currently subject to a 25% tariff. In the U.S., global reciprocal tariffs impact all imported components, with electronics from China representing our largest exposure. In contrast, most of our competitors are importers who manufacture bases primarily in Southeast Asia. These importers are currently only subject to a 25% tariff on the steel content of their adjustable bases. As a result, our domestic production is now significantly disadvantaged in comparison to import competitors. To offset this disadvantage, we are heavily leaning into our Mexican operations, which still provides our customers with the advantages of a North American footprint. Within specialized products, our automotive business will likely have the largest indirect tariff exposure. The North American auto industry is highly integrated across borders, and implementation of tariffs on auto components on May 3rd is expected to be very disruptive throughout the supply chain. The majority of our North American production is in Canada and Mexico, but our products are USMCA compliant and therefore currently exempt from tariffs on these countries. Implementation of global auto parts tariffs will have very little direct impact on us, but will likely cause Tier 1s and OEMs to shift production and sourcing. trigger pricing negotiations in the supply chain, and disrupt demand. In furniture, flooring, and textiles products, tariffs impact our businesses to varying degrees. In home furniture, our Chinese operations primarily sell components to Asian customers who export finished furniture to the US. Our Chinese customers have slowed production significantly and are ramping up Southeast Asian factories. Additionally, we sell components to U.S. customers and have some intercompany supply from our Chinese operation. We are moving some sourcing of our production in another low-cost country and will be on par in the second half of the year with our competitors who have low-cost facilities. Finally, our textiles business would have faced the largest direct tariff exposure in this segment. We have proactively been sourcing outside of China. We are well positioned to serve customers that may face supply disruption from their existing vendors. Our other businesses, including aerospace, have minimal impact from the various tariffs in effect today. Now more than ever, we are committed to our strategic priorities of strengthening our balance sheet, improving profitability and operational efficiency, and positioning the company for long-term growth. Our sharp focus in these key areas has enabled us to perform well in challenged end markets and gives us confidence in our ability to weather current macro uncertainties and dynamic trade policies. I will now turn the call over to Ben.