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Jay McIntosh

Leggett & Platt's income drops 5.3% as unit volume remains flat

CARTHAGE, Mo. — Leggett & Platt's net income declined 5.3% in the third quarter despite an 8.6% gain in sales compared with the same period a year earlier, the company reported.

Earnings per share stayed level at 31 cents because the components supplier has repurchased some shares of its stock - 9.4 million this year, including 2.6 million in the third quarter at an average price of $19.72.

Sales were $940.9 million in the period, including $470.2 million in its largest segment, residential furnishings, a 6.4% increase from a year ago. The company said sales growth is attributable to items that brought little incremental profit - mainly inflation and currency rate fluctuation accounted, and a change in sales at the company's steel mill (from intra-segment to trade) provided 3% unit growth.

Across the remainder of the company as a whole, unit volume was flat. Unit volume grew just 1% in residential furnishings, while earnings before interest and income taxes decreased $5 million in the segment due to higher raw material and restructuring-related costs, competitive pricing pressure and less favorable sales mix.

"We are not satisfied with our results this quarter," President and CEO David Haffner said. "Though sales were approximately what we anticipated, unit demand was essentially flat. Gross margin declined, largely due to three factors: competitive pricing pressure in certain product categories, ‘decontenting' as customers switched to lower cost and lower value components, and our intentional effort to reduce inventory levels by curtailing production, which has the side effect of reducing overhead absorption.

"Earlier in the year we had expected overall unit demand to pick up this fall. That has not happened, and many of the recent forecasts and surveys from well-regarded sources suggest our economy will be facing headwinds for longer than previously expected," Haffner added. "As a result, we have recently initiated additional efforts to decrease excess production capacity, reduce overhead, and trim our cost structures."

He did say the company would continue as planned to repurchase its stock, however. He said the company has reduced its outstanding shares by 5% this year while maintaining a strong financial base.

The company's board also has boosted its quarterly stock dividend by one cent, to 28 in the third quarter.

Leggett said it anticipates sales for the full year of about $3.6 billion, up 7% from 2010, largely due to inflation, currency fluctuation, and trade sales growth at the steel mill. Most of the company should see essentially flat unit volumes, officials said.

The company now projects 2011 earnings per share of $1.15 to $1.20, a reduction from last quarter's guidance of $1.25 to $1.40 due to reduced expectations for the economy, competitive moves to sustain production volumes, and decontenting by customers.

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