L&P lowers projections
By Larry Thomas -- Furniture Today, October 10, 2005
Carthage, Mo. — Citing high raw materials costs and weak demand for some of its products, components kingpin Leggett & Platt said third-quarter earnings will be sharply lower than earlier projections.
The company, the largest supplier of furniture and bedding components, also said it will close or sell 20 to 30 plants to rid itself of excess capacity and cut costs.
In an unusual mid-quarter conference call to discuss the revised earnings projections with security analysts, L&P executives said prices of natural gas, oil and scrap steel have skyrocketed since June, driving up the company's energy and raw materials costs.
"We initially thought the July and August increases might be temporary, but we are no longer comfortable with that assumption," said Felix Wright, chairman and CEO.
Wright told analysts that scrap steel, for example, is now priced at $100 per ton — some 80% higher than June — while oil has soared from $59 a barrel in July to nearly $70 today.
Those increased costs, combined with weak demand, increased worker's compensation costs and bloated inventory levels, caused the company to slash projected third-quarter earnings to 30 cents to 35 cents per share. Earlier, it had forecast earnings at 42 cents to 47 cents per share.
For the full year, the new earnings projection is $1.35 to $1.45 per share, down from $1.55 to $1.65.
Wright told analysts the company already has raised prices on urethane foam, carpet underlay, fiber and fabrics, and has added fuel surcharges to some other products. He warned that additional price hikes are likely.
Executives acknowledged that some customers may resist the price increases, but said L&P is prepared to stop shipping to those who refuse to pay the new price.
"We'll do everything possible to educate and communicate with our customers, but if we have to, we'll walk away from some business," said David Haffner, president and chief operating officer.
Of the 20 to 30 poorly performing plants that may be sold or closed, he said the list would be announced when Leggett & Platt reports third-quarter earnings in middle to late October.
