L&P shedding less-profitable units
By Larry Thomas -- Furniture Today, November 18, 2007
Carthage, Mo. — Components giant and metal bed resource Leggett & Platt will eliminate more than one-fifth of its business portfolio and focus on total shareholder return as part of a major restructuring.
The company will sell off its entire aluminum products segment, which has annual revenues of about $900 million, and sell six additional business units. Also, the store fixtures unit will jettison about $100 million of its least-profitable business, and close four factories.
Once the restructuring is complete, Leggett's annual sales will be cut by about $1.2 billion. The company had sales of $5.5 billion in 2006, and that should fall to about $4.3 billion by 2010.
"We are making significant, necessary changes to the way we assess our portfolio of businesses, and to how we manage our asset base," said President and CEO David Haffner. "We intend to be better stewards of shareholder's capital, generate significantly more free cash, and return a larger amount of cash to our investors."
"The current management team is absolutely dedicated to rapid implementation and precise execution on this change in strategy and focus," he said.
The precise impact on the company's largest business segment, residential furnishings, wasn't immediately clear, but a few poorly performing factories could be shut down as part of the restructuring, the company said.
The residential furnishings segment, which had revenues of $2.8 billion in 2006, includes furniture and bedding components, as well as finished products such as adjustable beds, bed frames and metal beds.
The aluminum products segment makes die cast aluminum components for products such as motorcycles, outdoor lighting, engines and appliances.
Instead of concentrating almost solely on sales growth, as it has done for years, the company said its new objective is to achieve total shareholder return of 12% to 15% annually. Total shareholder return consists of the percentage increase in the stock price plus dividends.
Leggett officials said that means fewer acquisitions, a more rigorous strategic planning process, and strict adherence to various performance standards. Business units that fail to meet those standards will be jettisoned, officials said during a meeting with investors and securities analysts.
"We're tired of over-committing and under-performing," said Karl Glassman, executive vice president and chief operating officer.
The company's board of directors has agreed to a hefty increase in dividends, from its current annual rate of 72 cents per share to $1 per share, a 39% hike. The new dividend will be paid in January to shareholders of record Dec. 14.
At the investors meeting, Haffner said the company should generate more than enough cash to cover the dividend. The businesses being sold are the least profitable in the portfolio, and the remaining entities will enable the company to significantly boost margins, he said.
In addition, there will be about a 40% drop in funds used for capital expenditures and acquisitions. Haffner said about $860 million was spent on these two items from 2005 to 2007, but that will be reduced to about $510 million for 2008-10.
He said the costs of the restructuring haven't been finalized, but likely will result in $150 million to $300 million in non-cash charges. An investment banking firm has been retained to assist with the sale of the aluminum products segment.
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Leggett & Platt to sell some businesses
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