Q1 2022 Leggett & Platt Inc Earnings Call

Greetings and welcome to Leggett <unk> Platt first quarter 2022 earnings conference calls.

At this time all participants are in listen only mode a brief.

A question and answer session will follow the formal presentation.

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As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Susan Mccoy Senior Vice President of Investor Relations. Thank you and over to you ma'am.

Good morning, and thank you for taking part in Leggett parts first quarter conference call.

On the call today are amidst all of it.

And CEO .

Okay, Executive Vice President and CFO .

Steve Henderson Executive Vice President and President of the specialized products and furniture flooring and textile products segments.

Hi, San Diego Senior Vice President and President of the bedding products segment.

And plus you, Brian Scott Senior director of IR.

The agenda for our call. This morning is as follows.

It will start with a summary of the main points, we made in yesterday's press release and discuss operating results and the main trends.

Jeff will cover financial details and address our outlook for 2022, and Mitch will conclude the call with some comments on our recently issued sustainability report.

This conference call is being recorded for <unk> Platt and is copyrighted material.

This call may not be transcribed recorded or broadcast without our express permission.

Replay is available from the IR portion of its website.

We posted to the IR portion of the website yesterday's press release and a set of Powerpoint slides that contain summary financial information along with segment details.

Those documents supplement the information we discuss on this call, including non-GAAP reconciliations.

I need to remind you that 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 obligation 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.

Entitled Risk factors and forward looking statements.

I'll now turn the call over to Mitch.

Okay.

Good morning. Thank you all for participating in our first quarter call yesterday, we reported first quarter results largely in line with our expectations.

Sales from continuing operations for 132 billion.

Vit was $138 million and earnings per share was <unk> 66.

Sales in the quarter were up 15% versus the first quarter 2021, reflecting our successful pass through of significant inflation over the past several quarters, partially offset by lower volume.

EBIT increased 8% primarily from expanded metal margins in our steel rod business and pricing discipline in our furniture flooring and textile segment, partially offset by lower volume and higher raw material and transportation costs in automotive generally and production inefficiencies and related premium freight costs.

In the North American automotive facility.

EPS of <unk> 66 was a 3% increase versus 64 cents in the first quarter of 2021.

Our full year guidance remains unchanged as we balance strong first quarter results with continuing macro market uncertainties, including supply chain constraints inflation tighter monetary policy, the invasion of Ukraine, and Covid Lockdowns in China.

While our direct business exposure to.

Ukraine, and Russia, as minor or thoughts concern and hope go out to those impacted by the ongoing conflict.

Moving on to the segments.

Sales in our bedding products segment were up 19, 19% versus the first quarter of 2021, primarily from raw materials.

Selling price increases and the <unk> acquisition in Europe .

<unk> was down primarily due to softness as expected in U S and European market demand.

Okay.

Market demand remained soft in the first quarter due to reduced consumer activity and elevated inventory levels across the industry.

Raw material transportation and labor costs continue to increase and we are carefully managing the impact in passing along costs as necessary.

Yeah.

Supply chain constraints have generally improved across the bedding businesses.

We are making progress in reducing certain inventories built under higher demand expectations, but we will make sure that we can still comfortably support near term customer requirements and protect against future disruptions.

We also successfully completed the reheat furnace replacement at our steel Rod mill, enabling us to begin reducing the extra rod inventory, we built for safety stock.

We expect demand softness to continue throughout the second quarter provided no major changes in the macroeconomic backdrop, we would expect gradual sequential improvement throughout the second half of the year.

This should result in full year mattress related volume down mid single digits, we expect full year volume for the segment overall to be flat to down mid single digits, reflecting greater strength in other parts of the business.

Yes.

EBITDA margins in this segment were lower versus first quarter 2021, primarily from lower volume lower overhead absorption as production and inventory levels were adjusted to meet reduced demand and continued investment in labor given difficulties in hiring and training, mostly offset by expanded metal margin that are still.

Rod business.

Sales in our specialized products segment increased 2% versus first quarter 2021 from growth in aerospace and hydraulic cylinders automotive volume was down slightly.

The industry forecast for global automotive production has come down since the beginning of the year, primarily as a result of Russia's invasion of Ukraine and the ongoing conflict.

The most significant reductions are in Europe , but all the geographies are impacted to varying degrees.

We anticipated reductions to industry forecast in our initial guidance. So these changes are less impactful to our outlook.

Consumer demand remains strong and vehicle inventory remains at record low levels.

Supply chain to begin to stabilize the industry should see improving production in the second half of 2022.

Industry forecast now indicate recovery continuing through 2024.

In our aerospace business demand for fabricated duct assemblies remains at pre pandemic levels and we continue to see modest demand recovery for welded and seamless tube products. We expect continued recovery in 2022 and the industry is anticipated to return to 2019 demand.

Levels in 2024.

End market demand in hydraulic cylinders is strong and order backlogs in the industry are at record levels. However, global supply chain constraints and labor availability have hampered the ability of our OEM customers to ramp up production.

It could be late 2022 or longer before industry backlogs normalized.

We expect our sales in this business to continue to grow as OEM production increases.

EBITDA margins in the segment declined primarily from higher raw material and transportation costs in automotive generally and production inefficiencies related premium freight costs in our North American automotive facility.

Sales in our furniture flooring and textile products segment were up 17% versus first quarter of 2021, primarily from raw material related selling price increases and volume recovery in work furniture, partially offset by lower volume in flooring products textiles at home furniture.

And home furniture market demand remained the market demand that mid level and upper price points remains relatively strong however demand at lower price points has softened.

This is impacting our business in China. The Chinese market also has been impacted by Covid related lockdowns.

Work furniture sales have recovered to above pre pandemic levels from strong demand for products sold for residential use and improvement in contract markets as companies redesigned their footprints and invest in office space to attract and retain employees as more people return to the office.

We expect continued growth in this business in 2022.

We expect Geo components to grow in 2022 as demand remains strong across both civil construction and retail markets.

And flooring products residential demand has softened with lower home improvement activity, while hospital hospitality demand is improving but remains well below pre pandemic levels.

EBITDA margins in the segment improved versus the first quarter of 2021, primarily from pricing discipline.

Before I turn the call over to Jeff I would like to thank our employees for your ingenuity collaboration and dedication is because of your collective efforts that we were able to once again navigate dynamic and challenging circumstances and delivered record first quarter results.

Thank you Mitch and good morning, everyone.

First quarter, we generated cash from operations up $39 million.

Up $50 million versus an $11 million use of cash in 2021.

First quarter is normally our lowest cash flow quarter of the year with increased working capital driven by the normal cadence of our business.

Working capital increased significantly last year due to restocking efforts following inventory depletion in 2020.

<unk> increased to a lesser extent this year as we began to return to more normal levels of inventory.

We continue to expect cash from operations of approximately $600 million and 2022 as last year's significant inflationary impacts are not anticipated to recur and we continued to balance inventory levels.

We ended the first quarter with adjusted working capital as a percentage of annualized sales of 15, 2%.

Yeah.

Our priorities for use of cash are unchanged.

Include in order priority funding organic growth.

Paying dividends funding strategic acquisitions and share repurchases with available cash.

Total capital expenditures in the first quarter were $19 million.

In February our board of directors declared a <unk> 40 to <unk> first quarter dividend.

<unk> or 5% higher than last year's first quarter dividend.

At an annual indicated dividend of $1, 68%. The yield is four 7% based upon Fridays closing price of $35 63.

One of the highest among the dividend kings.

During the quarter, we divested a small south Africa spraying operation, formerly a part of the international bidding with annual sales of approximately $8 million.

With the deleveraging we have accomplished over the past few years share repurchases have returned as one of our priorities for use of cash.

Level of repurchases will vary depending on various considerations, including alternative use of the cash and opportunities to repurchase shares at an attractive price.

We took advantage of the decline in share price in recent months and repurchased approximately 400000 shares in March at an average price of $36 68 per share.

Total repurchases for the quarter, including approximately 200000 shares related to employee benefit plans were $22 million.

We ended the first quarter with net debt to trailing 12 month adjusted EBITDA of $2 three two times.

Our strong financial base gives us flexibility, when making capital and investment decisions.

We remain focused on cash generation, while maintaining our balance sheet strength and deploying capital in a balanced and disciplined manner that positions us to capture near and long term growth opportunities, both organically and through strategic acquisitions.

Now moving to guidance.

As Mitch stated earlier, our 2022 guidance is unchanged.

2022 sales are expected to be $5 3 billion to $5 6 billion.

Four up 4% to 10% over 2021.

Guidance reflects roughly flat volume overall with the bedding product segment flat to down mid single digits.

Specialized product up mid to high single digits, and furniture flooring and textile products roughly flat.

Guidance also reflects continued inflationary impact primarily from the raw material related price increases, including those implemented as we move through 2021.

Yeah.

Acquisitions in 2021 should add 1% to sales growth, but will be partially offset by small divestitures.

We expect volume growth in automotive as the industry supply chain issues improve as well as sequential improvement in production efficiencies and premium freight costs.

We also expect continued recovery in work furniture aerospace and hydraulic cylinders.

Embedding, we anticipate improved operating efficiency as industry demand becomes more stable.

2022 earnings per share are expected to be in the range of $2 72.

$3.

The midpoint reflects metal margin expansion in our steel rod business and higher volume in automotive.

We offset by increased transportation and labor costs and reduced overhead absorption as we continue to balance inventory levels.

Based upon this guidance framework, our 2022 full year adjusted EBIT margin range should be 10, 5% to 11%.

Earnings per share guidance assumes a full year effective tax rate of 23% depreciation and amortization to approximate $200 million net interest expense of approximately $80 million and fully diluted shares of $137 million.

For the full year 2022, we expect capital expenditures of approximately $150 million dividends should approximate $230 million and share repurchases to offset share issuances.

In closing leg it remains well positioned both competitively and financially to capitalize on long term opportunities in our various end markets are enduring fundamentals give us confidence in our ability to continue creating long term value for our shareholders.

I will now turn the call back over to Mitch.

Thanks, Jeff.

Mid April we issued our second sustainability report, we are committed to enhancing lives through our people our products and our processes by finding new ways to care for the health and wellness of our employees and their families attract and retain talent develop our employees to their fullest potential and advance our inclusion diversity and equity equity efforts.

By striving to advance innovative sustainable solutions for our customers and the end consumer by continuing to aggressively pursue resource efficiency and conservation practices and by ensuring a culture of good governance and high ethical standards within our businesses.

In 2022, our key ESG initiatives include conducting a materiality assessment to further define the ESG opportunities that provide the greatest value to our stakeholders and are the most meaningful to our company.

Measuring and reporting our greenhouse gas emissions data <unk>.

Advancing our inclusion diversity and equity efforts.

Evaluating opportunities for establishing key management systems to improve data collection and contribute to broader companywide sustainability advancement.

And enhancing our supplier assessment process, including a heightened emphasis on labor and social standards and cyber security controls.

We are pleased with the progress we made in 2021 and look forward to sharing the progress we make in 2022 as we continue to build and improve upon our ESG practices and processes.

With those comments I'll turn the call over to Susan.

That concludes our prepared remarks, we thank you for your attention and I'll be glad to answer your questions Michal Director a question and answer session.

Well I'll answer your questions.

We are ready to begin the Q&A.

Thank you.

Ladies and gentlemen, we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.

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All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

One moment, please while we poll for questions.

We have our first question from the lineup Susan Mcclary with Goldman Sachs. Please go ahead.

Thank you good morning, everyone and congrats on a good quarter.

My first question is focusing on getting you've obviously see volumes down 13% this quarter and spring in U S spring and 20% in especially phones business appreciating the commentary that you gave on the on the call Mitch, but can you talk a little bit more about the demand.

How the inventories within the channel are moving through and just how youre thinking about the upcoming quarters and production rates there.

Yes, good morning, Susan Thanks, that's a great question and said that we've been talking a lot about on our side I think it's interesting to look sort of what happened did over the time period of last year and what we expect to happen in the first and second half of this year, but tightened I'll turn that over to you for the detail sure good morning, Susan.

As you'll recall when we talked about the results in the fourth quarter that we shared our thoughts about coming slowdown in the bedding market and at the time it was.

Our thought that our position in the value chain with inventories that had been built up that we were feeling the impacts first and largely because of continued inflation and also the breakout of omicron and we expected the start of the year to be slower and then to improve as we move through the year and we started off the first quarter.

Pretty much in line with expectations and things were slow, but at a really consistent and stable level.

But once we saw the invasion of the Ukraine in late late February early March we did see some further slowdown.

Our thought that.

The additional shock of energy costs and also just general consumer sentiment led to some lower demand levels.

But our expectation is once that that kind of moves through the system that we will return to some more reasonable levels of demand as we move through the year and probably getting closer to what we've seen more than historical seasonality.

We kind of add all that up and we feel like as we go through the year, probably ending up down for the total market somewhere in the mid single digit range.

Okay.

Very helpful. Thank you.

And I guess going on that could limit the margin there was really impressive. Despite all these headwinds and moving parts that you faced in the quarter was basically flat year over year can you talk a little bit about what drove those margins and I guess with that too I know you mentioned in your comments that you completed the reheat furnace replacement and so I think it's.

Especially impressive when you think about that thrown in there as well and so just any commentary on the margin drivers.

Where we are it sounds like the reheat furnace is done and behind you, but any color there as well.

Yes, sure Nick ill turn this over to you, but I think that first off it shows the diversity that benefits of the diversity of our business overall, but even with embedding right that we were able to hit the.

Helped by the strong spread at the Rod Mill and I, just want to say thanks to the team that.

Did the work to do complete the reheat furnace replacement. They did a great job there really anticipating many problems that might occur and we're very thoughtful and careful about that and it's great to have that back up and running but I'll. Let you add on yes, I think thats exactly right Mitch the diversity of our businesses, even with embedding really does does help and we've been able to maintain.

To maintain overall EBIT margin year over year.

A big part of that is the metal margin and I think it's worth pointing out that.

Strong over overall demand in the steel market has allowed us to sell some of our excess capacity of production into the market outside of the bedding market.

At the same time, that's helping us offset some weakness in demand in our inner spring and mattress business.

But also because we saw some some signs of demand flowing in the fourth quarter. We started taking some actions then.

To slow our production rates and although we had what I would call a reasonable amount of cushion in our inventory. We did want to go ahead and start bringing that down to some more manageable levels as we got through the first part of this year. So.

That also did impact our overhead recovery as well and so you can add all that up and Thats. How we have we kind of been able to manage.

Margins in that same kind of range, maybe one more thing do you think that also as we've gone through the surge and the declines were a little bit more stable that we've been able to improve our production efficiency. Yes. It's a good point that you may also as we've seen the slowdown in demand. It has given us an opportunity to it really across all of our business groups to get a handle on.

Both labor.

Trained employees, we've added some capacity and get to a place where we are producing more efficiently.

Okay. That's great and then just squeeze one more in here because it didn't get passed me that you did do some share buybacks this quarter finally.

Above just what was issued as part of your employee plans until I guess can you talk a little bit about the decision to get into the market here and.

Any thoughts on how youre thinking about capital structure targeted debt levels as you've obviously worked really hard to get that deleveraging through in the last couple of years and now sit in a much better position overall.

Yes, Thanks, Susan Jeff I'll, let you take that one but I would just say, it's great to be in a position to having.

Such great work on the deleveraging to be able to restart the share buybacks, but Jeff I'll, let you chime in with more detail.

Great. Thanks, Matt and good morning, Susan I. Appreciate the question Yeah from our perspective as you mentioned the deleveraging efforts over the past couple of years are really positioned as well in terms of having better financial flexibility to execute on our capital allocation priorities, which you are very familiar with in terms of funding our organic growth continued to be committed to our dividend growth.

And then looking at strategic acquisitions now that we're in a better leveraging space and looking at that target leverage range that we've been working on here, we felt like going through the first quarter. There were some opportunities to take advantage of the decline in our share price that we saw in recent months, which allowed us to get into the market and buy those shares that you mentioned.

To continue to execute on our capital allocation priorities as we go through the year, while heavily focusing on our cash flow generation and we've guided to a $600 million range at this point and as we continue to assess that and evaluate that versus other alternative uses of cash if it makes sense from a value creation perspective to go up.

And purchased additional shares beyond our issuances issuances, then we'll look at that but at this point, we're still guiding to share repurchases based basically being neutral to share issuances for the year.

Okay. Thank you for that I'll turn it over here and good luck with everything.

Thank you Susan.

Thank you. Your next question from the line of Keith Hughes with.

Please go ahead.

Okay.

Your line is I'm just talking about.

Sorry could you. Please repeat the question again, okay. Thank you.

Yes. My question is on metal margins.

It's a big help in the quarter.

Talk about your expectations on that here in the near term it does look like.

Those prices and steel are lightening up here in the last week or two is that a trend you expect to continue.

Continue or will it have an impact.

Yes, good morning, Keith and thanks for the question.

Yeah.

Tyson you want to take that one I think we've been.

Long term, what's going to happen there, but I think that what we've been seeing is pretty.

Yeah, Hey, good morning, Keith.

Mitch as right as we started the year, we expected metal margins overall to start tapering sometime in the second quarter, but it's been a pretty dynamic market I mentioned that there has been relatively strong demand across steel products outside of bedding.

Late and part of that is demand driven and then I think also continued inflation and conversion cost has also driven some of the pricing in rod and wire and then on top of that this is also another factor coming from the Ukrainian invasion.

Of run up in scrap costs. So that's also driven.

More run up in overall metal margin and rod pricing and so as we kind of added up all those things as we move through the first quarter, where we initially thought.

That margin would start tapering in the second quarter, we think thats likely can take some time for all of that to unwind and so more likely it's good.

Going to stay kind of where it is or at least an extended period back into the later part of the third quarter and ended the fourth quarter.

So at least as we can see things now like I said, it's pretty dynamic because thats, how we feel about the.

The expectation until we said this that they get that first quarter.

The fourth quarter call, but that we.

We still expected the spread overall on average for the year to be up over last year, we'd still say, that's the case, yes, right and those impacts to you on that.

Broader steel market the invasion of Ukraine.

Not only are rod business, but also flat steel right that applies at different parts of our business.

Okay. Thank you and then final question still got a pretty wide guidance range here what would be the.

The top one or two variables.

When you to the high end or swing Youtube alone.

Yeah.

Yes.

Any I'll start with this one.

Which one do you think.

That could change as well.

The question is really what happens to the consumer demand right. It's been despite all of these challenges has been holding up pretty well. So I think that's one that's out there and do.

Tightening monetary policy hit.

Line and be able to help us sort of level off it taper inflation without destroying that consumer demand.

That's probably the biggest one out there I mean, there is certainly that.

Ukraine invasion, Covid Lockdown is China and all of those things are potentially are disruptive and impactful.

But I think over the last couple of years, we've found a way to service that consumer not always.

That always neatly, but but.

Be able to do it despite those sorts of challenges. So we will see I don't know Jeff Susan is there any others that you would add in there or that you would place higher.

No I think those are some of the key drivers that we would see that could really swing the range as we look at our guidance for the remainder of the year I think that we would make it more specific to our business unit based on that consumer sentiment. It would be some of the things I think we called out in our prepared remarks around what happens.

With volumes in automotive.

We go through the remainder of the year and then looking at the metal margins, which we just finished talking about.

Okay, great. Thank you.

Yes.

Yes, Thank you Keith.

Thank you next question is from the line of Bobby Griffin with Raymond James. Please go ahead.

Good morning, Brian Thanks for taking the questions.

I guess first I wanted to look at specialized obviously a lot going on there between supply chain higher shipping raw materials, but trailing 12 month margin in that business on EBIT is probably around 10%.

<unk> it was around 16%. So can we just maybe unpack a little bit the size of the headwinds you're facing and kind of talk about it.

If we get back to a quote unquote normal do you can you recapture that lost 600 basis points of margin or some of it probably going to be more structural now where the margin profile of that segment could be a little different going forward just any further detail around that.

Yes, good morning, Bobby that's a great question I'm glad that you asked and I'll take a shot and then.

Steve chime in as well, but I think a couple of things Bob.

Certainly its hard dynamic.

Pandemic hit in 2020, certainly had a big impact on all of our businesses in that segment. So we had significant volume impacts in automotive aerospace held up for a little bit, but then went down and Phd as well. So the good news is I think that we see the outlook for volumes increasing across all three of those businesses in automotive we can dig into that.

On the EBIT margins, there and then as we got into the back half of last year, we started to see some inflationary impact on raw materials and transportation costs in automotive, but it wasn't as.

Significant towards the end of last year, but has been increasing as we go into this year and we also we mentioned had a struggle with some operational difficulties in one of our North American operations, and we're making sequential improvements in that but that has been pretty impactful as well on margins and the team there has really step.

People from all around the world really have gone to help us turn that bit that operation around and we're making good progress and we expect to see sequential improvement, particularly as we go into.

Q2, and the rest of the year there. So all that being said it has been impactful the negative on our margins there, but I'm very optimistic and I think reasonably optimistic that we will return to the close closer to those historical margins that you quoted.

Okay. Thank you that's helpful. I guess two quick ones and then one just inventories.

Pretty pretty high versus sales I think up 30% year over year, while sales is up closer to 15 is that just the extra rod inventory in wire inventory that was built with the steel plant furnace changes you are doing or is there anything else there to unpack.

Yes, Bobby.

Tyson chime in here, but I think it is that extra inventory that we have.

Safety stock, there, which will work down pretty quick in the second quarter second quarter, and then I think.

The impacts of inflation as well still still hit US, yes, thats right, Mitch and I think the only other spots will be just where we've had some areas where we have really long supply chains and we've had.

Some extra stock that we've been keeping in place just so we can ensure that we can comfortably support our customers, but we expect those who kind of work their way out through the course of the year, Yes. That's a really good point I mean, I think we've mentioned it in the.

In the opening remarks, but yet you and the team have taken a really balanced approach to say hey, what's the best a little bit of labor.

Onto inventory to make sure we can service our customers, but overall I'd say generally our inventory is in pretty good shape right from the spring <unk>.

Perspective overall I'd say, we're in a pretty good place other than just what we're making what we think are reasonable investments yeah. Okay. Okay that helps.

Yes, that's very helpful. And then lastly, you mentioned.

Was this a modest trim on the volume guidance and you guys mentioned in the quarter came in pretty in line with expectations. So I just wanted to make sure I understand kind of.

What changed from the volume that is it just what you saw late in the quarter with some of the uncertainty or you just factoring in that there should be a little bit more weakness going forward given what's taking place in the world with new shutdowns and things like that it's just just trying to understand has it been what <unk> seen over March or April that surprised you or is it just expectations going forward.

I think it's both probably right.

Lower demand starting to materialize as Tyson commented on the embedded overall, so that was part of the driver there and then but then we see increased.

Volumes in work furniture optimistic about what we'll see as we talked about in specialized throughout the year, particularly the second half of the year. There. So I think it reflects the benefits of the diversity of our business right. We saw some things go a little bit more negative and some things go a little bit more positive which was allowed us to.

Who hold the guidance overall, but make appropriate shifts.

Okay I appreciate the details best of luck here.

Okay. Thanks, Bobby.

Thank you we have next question from the line of Peter Keith with Piper Sandler. Please go ahead.

Hi, Thanks, Good morning, everyone hope you're doing well.

Maybe just a follow up on that last part around specialized I was curious around the volume growth guidance that you are baking in on the specialized segment from mid to high single digit growth.

Presumably that would bake in automotive getting quite a bit better since thats by far the largest business within specialized so maybe just help frame that up a little bit more it does seem like the demand backdrop for automotive is falling off.

And there is no supply chain issues and restocking, but what's really embedded in there for automotive as you look towards the back half of the year and what are the drivers to get it better.

Yes.

Yes, sure Peter Thanks, Ed.

I don't see that part of the consumer demand falling off think inventories are at all time lows not only in the U S. But around the world. So I think there is still a big backlog as consumer demand, we've got aging vehicles.

So it's going to take some time to work through that.

As well as restock inventories. So I think that is a longer term tailwind for the automotive sector. So I think that that that outlook.

Just have a different viewpoint on.

In terms of how we see the year playing out.

Really I think that if we look at the major market vehicle production was down about 5% in the first quarter of course, we were just down one.

Forecasted to be about flat in Q2, and then significantly improved about 20%, 21% in the third quarter and six or 7% in the fourth quarter and that just kind of relates back to last year was stronger than the first half and then Q3 of last year was the low point versus some recovery at this point so.

We're all for the major markets the full year.

Is up about four 8%.

In terms of production so that gets you to that mid single digits right there.

Benefit in that in that North America is up the most about 13% and Asia has been pretty strong. So we mentioned.

<unk> has been the most impacted.

With the Ukraine <unk>.

But our mix is the smallest in Europe about 17% in about 35% or so in North America.

Little less than 50% in Asia, So that favorable regional mix helped to this and we also think we will have some incremental awards that will help us.

Hopefully move beyond that mid single digits points. There and then we also talked about the volume gains pretty significant in the aerospace and ph D and so well, while they're smaller businesses more hydroxyl hydraulic cylinders business. While they are smaller that's helpful. As well so we feel like that mid to high single digit range series.

Quite reasonable.

Okay.

Helpful detail.

Separately.

Note that the EBIT margin for the furniture flooring and textile segment was up rather substantially about 230 basis points could you just walk us through the drivers to that and is that type of improvement sustainable.

Yes, it does a great job by our team there really glad to see that but Steve do you want to jump in on that one.

Yes, good morning, Peter Yeah. Every every business in the segment was extremely disciplined.

And their approach to understanding their costs and using pricing to offset inflation firm not just raw materials, but labor and freight.

Through throughout the quarter end.

And to this quarter.

Yes, the primary.

Yes, the primary actions on top of the as Mitch mentioned the volume growth.

And work furniture offsetting some of the.

Slowdowns in the other and the other Bds, but it's really the pricing.

Kudos to those to those businesses.

Okay.

Maybe I'll sneak in one just one last one so I understand everything that's going on with the bedding market in the recent slowdown in demand.

The only permits expecting more stability in the back half.

But I wanted to dig in more into the specialty film because the volumes there were down 20% and it just doesn't feel like the market is nearly down that much. So is there some share loss going on with specialty foam, what's really happening with that segment.

Particularly in light of recent anti dumping duty you said it seems like there should be shifting production back to the U S.

So I'll, let you take that one area you've been working on that Sarah Good morning, Peter.

Yes.

I understand the question and we do feel like there are some additional headwinds in that part of our business just with.

The customer base that we serve there.

Has been a bit more challenging of late.

I've heard others talk about this and we agree that the cost of acquisition, where we typically service a lot of customers in the E. Commerce channel has gone up and that seems to have been more challenged of late than even the more traditional channels.

That's certainly been a factor do you feel like we're still working through.

Some of the issues that we faced last year, when we had shortages of chemicals and film in and had to Unfortunately places our customers on allocations and so still working our way through that part of it as well our teams are working really hard to pivot and diversify our customer base as well as our chemicals have become more stable we've.

<unk> been returning to sell more products outside of embedding into furniture products also working with our customers on expanding their channel reach and some new products that help us there as well so doing what we can but that is an area, where we have faced some additional headwind delayed.

Okay very helpful. Thanks, a lot guys and good luck.

Thank you Peter Thank you Peter.

Thank you.

Next question from the line of Susan Mcclary with Goldman Sachs. Please go ahead.

Thank you.

A couple of follow ups for you. One I guess is you know across the call you've definitely given some commentary on demand trends and what you're seeing across various end markets and channels in the business, but when you sort of take a step back and you think about the consumer overall, because I think that there is a lot of concern about their health and their ability to continue to spend at the levels that we saw.

And more recently what are you seeing in the business. How are you thinking about the overall health of the consumer.

I guess then on the other side as well it seems like from your commentary that the industrial sides of your business is definitely strengthened and are seeing some healthier levels demand and so I guess, one is that right and how youre thinking about those trends and maybe what is coming through there and I guess also any commentary on aerospace.

Any moves in the quarter in terms of those end markets.

Okay. Thanks, Susan.

Perfect.

On the consumer trend.

That's the big question out there right for everybody and we watch it closely is particularly impactful to us in bedding and home furniture and as you said some of those more consumer facing businesses, but we are concerned about the impact of inflation.

And as <unk> had mentioned that it was holding pretty steady and then with the sort of shock in gas prices.

In the U S and North America, I would say and then the.

The conflict overall impact on Europe , right that we did see some softening there.

But.

We'll see what's happened.

What will happen and I think that if inflation starts to stabilize and maybe come down a little bit.

People. It has still been spending I mean, we saw it even in this last quarter with GDP down when you go through the details consumer spending was still pretty decent level. So it is a big question. I think we are I guess optimistic that while it might soften a little bit that it does not just fall apart.

So I think that's reflected in our guidance I think we have a pretty a very realistic outlook.

For how we how we put those numbers together.

I think Youre also right that the industrial side of the business is picking up and it's great to see that.

We saw very strong demand in aerospace we saw.

That.

Improved we seen improved demand in hydraulic cylinders for quite some time and optimistic about what we see happening in automotive and well I guess not directly industrial even improvement in the contract side.

Our work furniture business, but Steve do you want to add some more detail or color around aerospace or hydraulic cylinders.

Sure.

Our customers are.

Demand.

2020.

As Mitch said.

Okay.

Four.

In our assembly business is operating at normal levels.

<unk> business is recovering.

<unk>.

Lower than normal, but we are now having to add manpower to fulfill that demand so that feels good.

There is a little uncertainty with the Ukraine invasion, but.

With that being said the <unk> group, which is.

Very expert.

Overall market increase of 22% this year and aircraft backlogs remain high so.

Works through the <unk>.

Covering our NFC that.

<unk> improvement there from.

From hydraulics perspective.

Their forecasts are really strong for them for the rest of the year.

Seeing short term volatility to all of the reasons talked about raw material availability transportation and labor.

But we did see production kicked up pretty significantly in March which is encouraging and we're not sure how valuable that is in the face of the challenges but.

The backlog has been above historical levels for 17 consecutive months and it really is sitting at 16 months of backlog right now.

That will take several quarters to work down minimally if they are able to maintain the march levels of production.

Yes.

Sustainability for this year anyway.

Okay.

It's very helpful and I guess, just following up on that a bit.

When you look at the pricing power I mean, youre continuing to see some really exceptional levels of pricing across the businesses and especially coming up against some really tough comps in there, which I think is truly speaks to your ability to realize that and be able to offset the inflation in there, but as you look out how do you think about the puts and takes of that meaning is there any sort of.

Kind of negative mix shift that youre seeing or how do you think about sustaining volume versus prices. We do go forward and anything that could come through from that perspective.

Yes, it's a great question and I think a couple of things and I'll, let you chime in on this we talked about it the other day, but no we're not seeing negative mix shift at this point, but there are opportunities right.

If.

Increased inflation does start restricting consumer demand that we can work with our customers to improve some of that but I would say the baseline increases in raw materials and labor costs and transportation costs are so extreme it had been over the last couple of years that it's not a situation where you are fighting with your customer to save when we issued absorb them.

Because it's just too much and so I think across about all of the end markets that it's been pass through like really.

Ever seen it before.

It's big enough that it has to be but I'll, let you add to that yes, I totally agree I mean, it's been a global event and at levels that can't be simply absorbed and I think the industry all the way through the value chain has done a good job recognize them recognizing the magnitude of the impacts and passing it through but it's definitely something that we're watching we know our customers are watching it as well and I do.

That's part of our value proposition with our customers, we've always worked with them.

Understand.

Substitute product options and also value engineering options to help them work through other material efficiency options to help offset some of this as well I mean, that's something we've done for a long time and are doing right. Now frankly, that's something that we definitely have to bring to the table for our customers. It's part of the advantage that we have.

Okay.

Okay.

Go ahead I'm sorry.

Im sorry, I was just going to say it helps it helps it helps our customers and helps us as well, making sure volume is stable.

Yes, no absolutely and I appreciate all that color and so I will.

I'll end it there that was very helpful. Though.

Alright, Thank you Susan.

Yeah.

Thank you.

No further questions at this time and I'd like to turn the floor back to Susan Mccoy for closing comments over to you.

Okay.

Okay.

Susan are you there.

Susan <unk> alright.

Well again this quarter I'm sorry, thank you for joining us today.

Thank you again on August 2nd accurately report our second quarter results. If you have questions in the meantime, please contact us using the information in yesterday's press release.

Thank you.

Thank you.

Gentlemen. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Okay.

Yeah.

Yes.

Yes.

Okay.