Manufacturing company Leggett & Platt (NYSE:LEG) reported Q4 FY2023 results exceeding Wall Street analysts' expectations, with revenue down 6.7% year on year to $1.12 billion. On the other hand, the company's full-year revenue guidance of $4.5 billion at the midpoint came in 3.9% below analysts' estimates. It made a non-GAAP profit of $0.26 per share, down from its profit of $0.39 per share in the same quarter last year.

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President and CEO Mitch Dolloff commented, "2023 was another challenging year for residential end markets as our Bedding Products and Furniture, Flooring & Textile Products segments faced ongoing weak market demand. Encouragingly, our Specialized Products segment benefited from sustained demand strength as industrial end markets continue to recover post-pandemic.

Founded in 1883, Leggett & Platt (NYSE:LEG) is a diversified manufacturer making products for various industries.

Home Furnishings

A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.

Sales Growth

Reviewing a company's long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Leggett & Platt's annualized revenue growth rate of 2% over the last 5 years was weak for a consumer discretionary business. Within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends. That's why we also follow short-term performance. Leggett & Platt's recent history shows a reversal from its already weak 5-year trend, as its revenue has shown annualized declines of 3.5% over the last 2 years.

We can dig even further into the company's revenue dynamics by analyzing its three largest segments: Bedding, FF&T, and Specialized Products, which are 40.2%, 31.2%, and 28.6% of revenue. Over the last 2 years, Leggett & Platt's Bedding (mattresses, foundations) and FF&T (sofa parts, tiles ) revenues averaged year-on-year declines of 9.9% and 3.8% while Specialized Products (automobile components) averaged 13.4% growth.

This quarter, Leggett & Platt's revenue fell 6.7% year on year to $1.12 billion but beat Wall Street's estimates by 0.8%. Looking ahead, Wall Street expects revenue to decline 1.2% over the next 12 months.

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Cash Is King

If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.

Over the last two years, Leggett & Platt has shown mediocre cash profitability, putting it in a pinch as it gives the company limited opportunities to reinvest, pay down debt, or return capital to shareholders. Its free cash flow margin has averaged 7.5%, subpar for a consumer discretionary business.

Leggett & Platt's free cash flow came in at $122.7 million in Q4, equivalent to a 11% margin, down 42.2% year on year.

Key Takeaways from Leggett & Platt's Q4 Results

It was encouraging to see Leggett & Platt narrowly top analysts' revenue expectations this quarter. On the other hand, its full-year 2024 revenue and EPS guidance missed analysts' expectations due to ongoing weakness in its Bedding Products and FF&T segments. Management also projects sales volumes to decline in the low to mid-single digits. Lastly, on January 16, 2024, the company announced a restructuring plan primarily impacting its Bedding Products segment. Overall, the results could have been better. The company is down 5% on the results and currently trades at $22.1 per share.

Leggett & Platt may not have had the best quarter, but does that create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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