Q4 2022 Leggett & Platt Inc Earnings Call

Speaker 2: take them apart and let get them flat with quarter conference call.

Speaker 3: On the call today are Mitch Dollop, President and CEO .

Speaker 4: Jeff Tate, Executive Vice President and CFO .

Speaker 5: Steve Henderson, Executive Vice President and President of the Specialized Products and Furniture Boring and Textile Products Segments.

Speaker 6: Tyson Hagel, Senior Vice President and President of the Vetting Product Segment, and Cassie Branscombe, Senior Director of IR.

Speaker 7: The agenda for our call this morning is as follows.

Speaker 8: Mitch will start with a summary of the main points we made in yesterday's pressure release and discuss operating results and demand trends.

Speaker 9: Shep will cover financial details and address our outlook for 2023, and the group will answer any questions you have.

Speaker 10: This conference call is being recorded for I get in the

Speaker 11: and shredded material. This call may not be transcribed, recorded, or broadcast without our express permission.

Speaker 12: A replay is available from the IR portion of the legacy website.

Speaker 13: We posted to the IR portion of the website yesterday's press release and a set of PowerPoint slides that contain some refinancial information along with segment details.

Speaker 14: Those documents supplement the information we discuss on this call, including non-GAAP reconciliation.

Speaker 15: I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends, or results constitute board-looking statements.

Speaker 16: 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.

Speaker 17: For a summary of these risk factors and additional information, please refer to yesterday's press release and the sections in our most recent 10K and subsequent 10Q entitled risk factors and forward-looking statements.

Speaker 18: I'll now turn the call over to Mitch.

Speaker 19: Good morning and thank you for participating in our fourth quarter call.

Speaker 20: Legit and Platt's diverse portfolio of businesses, strong cash discipline, and the ingenuity and agility of our employees helped us deliver solid results in 2022 despite weak demand in residential end markets.

Speaker 21: Sales grew 1% in 2022 to a record from continuing operations of $5.15 billion, primarily from acquisitions.

Speaker 22: Organic sales were flat with volume declines of 7% and negative currency impact of 2% offset by raw material related selling price increases of 9%.

Speaker 23: Acquisitions net of divestitures added 1% to sales growth.

Speaker 24: Volume declines were driven by demand softness in residential end markets, partially offset by growth in automotive and industrial end markets.

Speaker 25: 2022 EBIT was $485 million, a decrease of $111 million versus 2021 EBIT, and a decrease of $83 million versus 2021 adjusted EBIT.

Speaker 26: Primarily from lower volume, lower overhead absorption from reduced production, operational inefficiencies and specialty foam, and higher raw material and transportation costs and operational inefficiencies and automotive.

Speaker 27: These decreases were partially offset by metal margin expansion in our steel rod business and pricing discipline in the furniture flooring and textile's product segment.

Speaker 28: EBIT margin was 9.4%, down from 2021's EBIT margin of 11.7%, and adjusted EBIT margin of 11.2%.

Speaker 29: Earnings per share in 2022 was $2.27, a decrease of 23% versus EPS of $2.94 in 2021, and a decrease of 18% versus adjusted EPS of $2.78.

Speaker 30: Cash flow from operations was $441 million, a 63% increase versus 2021.

Speaker 31: The current global macroeconomic environment and its impact on the consumer negatively impacted our fourth quarter results.

Speaker 32: Sales were $1.2 billion, EBIT was $91 million, and earnings per share was $0.39.

Sales in the quarter were down 10% versus fourth quarter 2021, primarily from lower volume and currency impact partially offset by raw material related price increases.

Acquisitions added 2% to sales.

The volume decline was driven by continued demand softness in residential end markets, partially offset by growth in automotive, aerospace, and hydraulic cylinders.

Ebit decrease 40% versus fourth quarter 2021, primarily from lower volume and lower overhead absorption as we intentionally kept production in our steel rod business below demand to reduce inventory levels.

These declines were partially offset by metal margin expansion.

As a result of these impacts and inflation, EBIT margin was 7.6%, down from 11.4% in the fourth quarter of 2021.

Journeys per share decrease 49% versus fourth quarter 2021.

During the year, we completed four strategic acquisitions.

In late August , we acquired a leading global manufacturer of hydraulic cylinders for heavy construction equipment with operations in Germany, China, and the US, and annualized sales of approximately $100 million.

This acquisition builds scale in our hydraulic cylinder growth platform and brings us into an attractive segment of the market that aligns well with trends in automation and autonomous equipment.

Also in August , we acquired a small textiles business that converts industry of these construction fabrics for the furniture embedding industries with annual sales under $10 million.

In early October and mid-December, we acquired two Canadian-based distributors of products used for erosion control, storm water management, and various other applications with combined sales of our approximately $50 million.

We have successfully expanded our textiles business over the years through small strategic acquisitions that leverage textiles supply chain expertise and attractive in markets.

Now, moving on to the segments.

Sales in our Bedding Product segment were down 19% versus 4th quarter of 2021 and decreased 4% for the full year.

Demand in the U.S. betting market softened during the fourth quarter as macroeconomic impacts on consumer spending persisted.

We expect demand in 2023 to remain consistent with levels experienced in 2022, with relatively consistent sequential volumes continuing in the first half of the year and modest increases in the second half of the year.

Volume in US Spring was down 22% in 2022, which is comparable to the domestic mattress market.

After a mid-single digit share loss early in the pandemic related to supply shortages, we estimate that our share of the Interspring mattress market has remained stable over the last two years despite a volatile environment.

Although consistent demand is assumed in 2023, we expect to increase production after limiting output in 2022 to align inventory with lower demand levels.

Strong trade demand for rod and wire provided Ernie's benefit in the first half of the year.

However, trade rod demand slowed considerably in the back half of 2022, and as a result, we cut production significantly to reduce inventory.

Steel rod production in 2023 is expected to be in line with 2022 but remain well below normal levels.

We expect higher internal consumption to offset lower trade demand.

Increased metal margin provided earnings benefit throughout the year, but to a lesser extent in the latter part of the year as steel prices softened.

While this is difficult to predict steel pricing, we anticipate continued softening in 2023.

However, we expect rod pricing and metal margins to remain at historically elevated levels due to higher conversion costs.

Demand in European betting has stabilized in recent months, and we expect demand in 2023 to be relatively flat with 2022.

The actions we took in 2022 to reduce inventory across the segment have brought levels back in line with those needed to support current demand.

With the capacity we have in place, we are prepared to respond quickly to changing demand and remain focused on servicing customer requirements.

Full year 2022 segment earnings were significantly impacted by difficulties experienced in our specialty phone business.

About two-thirds of the earnings challenge in specialty foam was a result of low demand, which dropped quickly in the fourth quarter of 2021 and remained at depressed levels throughout 2022.

Demand was impacted from three areas.

The first being the general betting market decline of approximately 20% following demand surges in 2020 and 2021 and chemical shortages in 2021.

The second was channel focused.

Finished goods production in specialty foam is weighted heaviest to digitally native brands, which declined more than the overall market due to changes in consumer privacy laws and customer cash constraints.

And finally, we suffered share loss from a small number of customers with sales shifting from finished goods to components in some cases.

Especially foam earnings were also impacted by the volatile chemical supply environment.

Like all other foam producers, we experienced significant chemical inflation through the course of 2021, and costs remained at historically high levels in 2022.

Given the level of material cost, efficiently pouring and converting foam is of even greater importance than normal. As an canop to I Republic when it comes to Commissioner powers, you could already see that all of theirRedditor

However, because of high demand in 2021 and chemical shortages, our first priority became servicing customers.

Between paused integration and the need to service customers, we have not operated at target material efficiency levels.

Material inefficiencies at these high chemical costs had a detrimental impact on earnings.

While it will take some time to see improvements in specialty foam, especially with the continued challenging demand environment, we're confident in our recovery plan and are making progress.

Our team has a strong pipeline of opportunities influenced by our specialty foam technologies.

We've also focused on driving improvement in material margins through both process and equipment changes.

We remain confident that our specially foamed business will drive long-term, profitable growth for the segment and are placing our highest level of attention on short-term improvements in sales and material management.

Sales in our specialized product segment increased 15% versus 4th quarter of 2021 and were up 12% for the full year. The January forecast for global automotive production shows approximately 4% growth in the major markets in 2023.

While improving year over year, automotive industry production forecasts could remain dynamic as supply chain, macroeconomic, geopolitical, and COVID impacts bring continued volatility.

Cost recovery is continuing and automotive and we expect to make further progress in 2023.

In our aerospace business, we expect continued strong demand in 2023, however, raw material and labor shortages are creating some volatility across the industry.

End market demand in hydraulic cylinders is strong and order backlogs in both the material handling and heavy construction equipment market segments remain at elevated levels.

Demand is expected to remain strong into the first half of 2023, with some potential slowing in the back half of the year as backlogs ease.

Sales in our Furniture, Flowing, and Textiles product segment were down 12% vs. 4th Q2021 and up 3% for the full year.

Home furniture demands flow during the quarter at both the mid and high end of the market. And customer backlogs largely have been depleted.

Demand at lower price points remained extremely weak and customers across all price points are working to reduce inventory levels.

This demand softness also impacted volume and fabric converting.

We expect lower market volume through at least the first half of 2023.

Work furniture sales decreased in the fourth quarter as contract demands slowed and demand for products with residential exposure continued to soften.

We expect this trend to continue into 2023.

In flooring products, residential demand has softened modestly with the slowing housing market and lower home improvement activity.

Hospitality demand is slowly improving but remains well below pre-pandemic levels.

Geo-components demand remained solid heading into 2023, particularly in the civil construction market and to a somewhat lesser extent in retail.

As we move through 2023, we are focused on improving the things that we can control and continuing to mitigate the impacts of market challenges on our business.

We are working with our customers on new product opportunities, continuing our focus on improving operating efficiency and driving strong cash management.

Our financial strength gives us confidence in our ability to successfully navigate challenging markets while investing in long-term opportunities.

Finally, I would like to thank our employees for your strength, tenacity, and dedication to driving long-term results.

Your commitment to our values results in the collaboration, agility, and ingenuity required to drive our company forward despite challenging macroeconomic circumstances.

Each of you is key to our continued success.

I'll now turn the call over to Jett.

Thank you, Mitch, and good morning, everyone. In 2022, we generated cash from operations of $441 million, $170 million higher than the $271 million we generated in 2021.

This large increase reflects a much smaller use of cash for working capital, partially offset by lower earnings.

Working capital increased significantly in 2021 due to restocking efforts following inventory depletion in 2020, but increased to a much lesser extent in 2022 as we return to inventory levels more reflective of current demand.

This improvement was partially offset by a decrease in accounts payable as purchases slowed due to lower volume and our efforts to reduce inventory levels.

We ended the year with adjusted working capital as a percentage of annualized sales of 15.3%.

Cash from Operations is expected to be $450 million to $500 million in 2023 as we continue to focus on optimizing working capital in a softer macroeconomic environment.

Our long-term priorities for use of cash are consistent and unchanged.

They include an order priority, funding organic growth, paying dividends, funding strategic acquisitions, and share repurchases with available cash.

Total capital expenditures in 2022 were $100 million, reflecting a balance of investing for the future while controlling our spending.

We raised our annual dividend for the 51st consecutive year in 2022, honoring our ongoing commitment to return value to our shareholders.

In November , our Board of Directors declared a quarterly dividend of 44 cents per share.

2 cents or 5% higher than last year's fourth quarter dividend.

At an annual indicated dividend of $1.76, the yield is 4.7% based upon Friday's closing price, one of the highest among the dividend kings.

We used $83 million during the year for the four strategic acquisitions that Mitch discussed earlier.

With the deliverting we accomplished over the past few years, Sherry Purchases returned as one of our uses of Cash in 2022.

During the year, we used $60 million to repurchase 1.7 million shares at an average price of $35.94.

We used our Commercial Paper Program to repay $300 million of 3.4% 10-year bonds that matured in August .

We ended the year with net debt to Trulling 12 month adjusted EBITDA of 2.66 times and total liquidity of a billion dollars.

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

We remain focused on cast generation while maintaining our balance sheet strength and deploying capital in a balanced and disciplined manner.

Now moving to the 2023 full year guidance.

2023 sales are expected to be $4.8 billion to $5.2 billion, or down 7% to up 1% versus $3.2 billion, reflecting macro uncertainty across our markets.

Volume at the midpoint of our guidance is expected to be down low single digits.

with bedding products down low single digits, specialized products up high single digits, and furniture, flooring, and textile products down low single digits.

The guidance also assumes the impact of deflation in currency combined is expected to reduce sales mid-single digits.

And acquisitions in 2022 should add approximately 3% to sales growth in 2023.

With declines expected in work furniture, home furniture, adjustable bed, and trade sales of steel rod and drawn wire. We expect generally stable demand in our other bedding businesses, reflecting continued low-volume levels. 2023 earnings per share are expected to be in the range of $1.50 to $1.90. The midpoint primarily reflects lower metal margins in our steel rod business, lower volume and some of our businesses, and moderate pricing pressure from deflation. Based upon this guidance framework, our 2023...

And spending for acquisitions and share repurchases are expected to be minimal as we focus on conserving cash. refers to holiday or spring, the

And while we're not providing quarterly guidance, we do expect first quarter earnings to be down meaningfully versus fourth quarter 2022, primarily due to the timing of performance-based compensation accruals, which are typically highest in first quarter, as well as normal seasonality in some of our businesses.

We expect a continuation of normal seasonality with higher earnings in the second and third quarters of the year. In closing, while the macroeconomic environment remains challenging, especially in the first half of the year, Leggett is well positioned to navigate these challenges with continued operating and financial discipline.

We are keenly focused on strong cash generation and our enduring fundamentals give us confidence in our ability to continue creating long-term value for our shareholders.

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

That concludes our prepared remarks. We thank you for your attention and would be glad to answer your questions.

Operator, we're ready to begin the Q&A session.

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One moment please while we poll for your questions.

Our first questions come from the line of Susan McLeary with Goldman Sachs. Please proceed with your questions.

Thank you. Good morning, everyone.

Good morning, Susan.

My question is, you know, and taking for all the details in the prepared comments, I think it was very helpful. When you think about the efforts in specialty foam and you walk through some of those changes that you're making, it's been very

Can you give us a sense of where you are within that process and how we should be thinking about the benefits of that starting to flow through to the results perhaps later this year or is it something that'll be more 2024 event?

Yeah, that's a great question, Susan, and thanks for listening in on the comments. I know it was long, but we wanted to try and provide some clarification there. Tyson, I'll let you comment on ECS. I know you've been working really diligently with the team there to assess where we are and put some recovery plans in place.

Sure thing and good morning, Susan. I'll start with the commercial side of our plans of you know

as was noted in the pre-recorded remarks, it's tough in a slow demand environment, especially where we've weighted our business historically, but our commercial team has done a really good job, even in the slow environment, building our commercial pipeline and looking at opportunities to diversify our customer base.

So, despite some near-term headwinds just with the overall market slowness, I feel good about our pipeline there, and especially because we're able to really return, and our customers are interested in returning to looking at some of our specialty film technologies. And chemicals got really short.

Our development team really had to pivot and spend more of their time and resources working on formulations just to make sure we could continue servicing our customers. But as those have improved, as are constraints of ease and our customers have returned to looking at differentiation and other new product introductions, we've been able to get back to that as well.

with slow demand and the full benefit probably coming into next year, but also the fact that we're using our specially fund technologies as part of those projects as well. So on the course side of things, that's how I would feel about it. The operations which we've mentioned as well, working through challenges there.

I feel good about the team that's being put together, both from the team that came along with the acquisition and also filling in some gaps along the way. So we're in a good place with our operational leadership. Some of the things that we've talked about I think before as well, being able to really get back to the integration of four companies now being brought into the L&P umbrella.

but we're being, I would not cautious, but realistic about the timeframe to install the IT system across all of our specialty phone business. We also during the pandemic made investments in equipment, especially focused on automation and helping us control.

material efficiency, that equipment is starting to arrive, but like a lot of investments over the last couple of years, lead times are pretty long. So even if they start to show up, it'll take some time to get it integrated and up and running to pull efficiency. So I would say back half of this year and into next year, we'll start to see more of the benefits from our equipment investments.

So I know that was a lot, but just to give you a little bit of a frame reference both on the commercial and operational side just how things are rolling out.

Yeah, no, that's very helpful. Thank you. And I guess, you know, following up on that, as we do think about the outlook that you gave us for 2023, especially as it does relate to some of the different parts of the betting business, how are you thinking about the cadence of the margins in that segment for this year? When you think about normal seasonality on top of some of these.

you know, what happens from a scractor rod spread and it's really difficult to precisely predict that. You know, we have anticipated some contraction over the course of the year. That's probably that in volume would be the biggest impact.

Okay.

And also, just one more comment. Yes, we do see the market returning to more normal seasonal patterns. And also, we talked about this before as well, but over the course of the last year, demand was soft. But we were also really intentional about bringing down our inventory.

our production was below even the demand level so that we could control that. Which is tough to do in a slow demand environment, but our team really did a good job in pushing that through region towards the end of the year. So I think even as we get back to this year and more more seasonal patterns, we should be back to a place we're producing and have better overhead recovery. That was a real challenge for us.

consistent, as opposed to the big high levels we had the first part of the year and low in the last half of the year. And then similarly, as you said, with just overall production being more similar. So I think it would just be a bit more normalized, hopefully, than what we saw last year.

Okay, that's very helpful. Yeah, Susan, a little bit specific on your margin question. We talked about lower first quarter expectations for the company overall that holds true with bedding with a return to more seasonal patterns as we move through the year.

So, that also holds true to batting with, again, their historically highest seasonal quarter has been third quarter. So I step up the margins as we make through the year is from the margin person's perspective what we're showing.

Okay, okay, that's very helpful. I'll get back in the queue. Thank you.

Thank you. Our next questions come from the line of key cues with true with securities. Please proceed with your questions. Thank you. I guess you would indicated the slow start to the year in the first quarter. Are you still planning to see rod production or tailments into the first quarter? Is that playing a role?

Good morning, Keith. Good question. Tyson, I'll let you handle that one. Sure. Good morning, Keith. Yes, really, Keith, that's something that at this point we're planning really throughout the year. As we got into the back half of 2022 and we saw trade demands slow, we had to take more aggressive action in the back half of the year.

from sequentially from the fourth quarter, 22 to the first quarter, 23, we would see increased production. That's right. But if we looked at it year over year, we'd see significantly lower production because it was so strong in Q1 of 22s that's the right way to think about it. I think that's the right way to think about it, okay? And...

So, if that's the case, I'm a little confused with why the EPS is going to be so much lower. Another seasonal change, always, seasonally your EPS comes down from forth to first, given the seasonality in the business. But it seems like some higher production would be offsetting that. Are you assuming the metal margin steps down a lot in the first quarter? First is last year, we're starting to...

Well, we are expecting and experiencing some modest decline in overall metal margin, especially compared to the first part of last year when the conflict in Ukraine and just overall market capacity constraints really drove things up higher in the first part of the year. So it's overall relatively modest but still less than the first half of last year we look at our production and metal margin.

Okay, and are you assuming for the guidance for 23 are you sending those metal margins to cheer right all through the year and kind of what did they end up at the end of the year?

Sure, so through the course of the year we have some modest compression. It's really hard to predict. It's been especially difficult over the last couple of years. But for the full year, yes, it's down modestly as we move through the year. And if we looked at the year in total, so 2023 versus 2022, on a percentage basis, we would expect right now a metal margin.

here. But in the first guessprite, three quarters, we saw that O'Mart just continuing to expand and then in the fourth quarter, contracted a little bit. Like 10% in the fourth quarter. So nothing's tanking, it's just moderating. That's right. And fourth quarter was a little difficult as an indicator, just because I think

So it's still pretty dynamic in trying to predict that that's right, Mitch.

So, one final question, sorry to pause the call here, but, so, it took it to low in the range, it's a pretty substantial reduction in EPS from what we saw in 22.

If you had to kind of list one, two, three, the biggest drivers for that, what would those be for the reduction?

Susan and Cassie, you guys want to take that?

Keith, as always, volume is the driver. It could be, but we're trying to predict what's happening with metal margin and frankly nobody knows that. So we have our assumption built into the forecast, but if it drops more than we're expecting, then that's also meaningful downsize.

The number one would be volume and then things like metal margin and maybe some deflation would be.

secondary drivers, is that a fair statement? Yes, that's a fair statement. Definitely it leads with volume. That's where probably the greatest amount of uncertainty exists in this environment. And it could be up, it could be down. That's why we've got such a wide range. Okay, all right, thank you very much.

Thank you. Thank you. Our next question comes from the line of Bobbi Griffith with Raymond James. Please proceed with your questions. Good morning, everybody. Thanks for taking my questions. I appreciate the detail there on the metal margins. Always hard to predict but helpful to know what the...

underlying assumption is in the guidance. I guess first, Mitch, I wanted to ask about specialized products and, you know, where you guys are in the journey of the cost recovery and kind of what's embedded for 2023. I was admittedly a little surprised to kind of see them step back down sequentially despite a little bit better volume sequentially but understand that there is...

margins that you guys used to be able to do in those businesses.

Sure, good morning, Bobbie. And Steve, I'll make a few comments, but then invite you to join in as well. So yeah, it is a little bit dynamic for sure. In, you know, we continue to see strong volume gains and specialize across all three of the businesses and expect those to continue as we go into 2023.

We definitely had some impacts in the fourth quarter, particularly in automotive. We had a little bit higher material costs, as you mentioned, we've been working on those, but also some labor inflation, particularly where we had increased overtime premiums in China when the COVID restrictions were lifted and then there was the large...

a one-off there. I would say in automotive overall, I don't want to go in too much detail here, but we continue to make good progress in the pricing recovery, in the cost recovery. I'd say that we got about 60 to 65% of it recovered in 2022 with the balance we expect to come in 23. We've talked about that. It's a challenging thing to accomplish.

labor shortages throughout the supply chain at the OEM level as well, but making progress. Continue to see really low inventories and vehicles age rates at very high levels that were around 12 years or so in the US. So I think that outlook is good.

We see that kind of 3 to 4 percent growth forecasted for the next year, three years ago, 23 to 25. But I would just remind to the folks that, if we look at the forecast for major market.

Production in 23 is about 70 million vehicles just below that. You know, improving back in 2019, which is actually a down year, is still 75 million. So we're still below where we were pre-pandemic, but I think what it does provide is a long-term tailwind for the recovery in the automotive market.

I think we've seen the really strong backlogs in hydraulic cylinders and that's, you know, I think a strong benefit for our business there. We also see strong demand in aerospace, although, you know, it's hard to start anything up really fast, especially with the long time lead times that we see there. But I think that those...

increase as the OEMs recover their production challenges and we expect you know that to continue through the year and as Mitch said we're hopeful that that'll carry on into the second half of the year. We did have a few operational challenges that the team has done a really good job of dealing with so looking for you know continued growth there.

You know, in aerospace, air travel continues to recover. We don't see business travel recovering until 2025, so there's still some tailwinds there. That kind of, as Mitch has alluded to, you know, the operation performance across the supply chain is kind of similar to automotive as they look to ramp back up. You know, we're seeing the same types of order changes and cancellations.

going to have to come on capital spending. And I guess I'm just asking, you know, in the context that, I think pre-COVID, this was $140, $150 million a year CapEx business, at least in 2019. And we're not coming up on two years of just $100 million. And it's running well below DNA.

So, as the businesses change, where the capital requirements are just not as much, or is there going to be kind of a cap catch up period here if the economy improves that we have to kind of spend a little bit more on the capital side.

Yeah, that's a great question, Bobby. Thanks for asking that. I don't see that there's a big catch up. We haven't been constraining any kind of critical investment. In fact, we've had some things like, for example, IT that we've had to increase our investment, and we think that those are critical to do and continue to do so.

I think, you know, certainly the biggest use of CAPEX comes in embedding US Spring historically as well. I think we've done a good job of managing that a little bit differently, not that we don't invest in capacity or in innovation. We'll continue to do so, but we think we can do that a little bit more efficiently. And then the second one would be in automotive. And I think part of the impact there's been with all the volatility there's been just...

less new programs starting and so some of that has been pushed out as well. But it's not like it's going to get pushed out, it's just going to change the whole time frame so you don't get double the investment in one year, it's just going to change the time frame a little bit. So, you know, I think we probably will, you know, hopefully as we get back to a stronger growth environment, increase our capex sum.

but I'll see any big ketchup or big surge that won't negatively impact us. Thank you. I appreciate the details and that's what.

catch up or big surge that won't negatively impact us. Thank you. Appreciate the details and invest a lot. Thanks, Bobby.

Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question is come from the line of Peter Keat with Piper Sandler. Please proceed with your questions.

Okay, thanks. Good question. I'll take the easy part of it and then turn it over to Susan or Cassie for the LIFO piece. But I think in general, you know, we've talked about as inflation has occurred throughout the last couple of years that we've been successful in passing it on, but largely passing on the dollar amounts, right, for the most part. And so that's had a drag on our margin. So I think as we see deflation and we pass those past that along Turkish mergers, we see that same dollar change, but we shouldn't see so big impact in our margin profile. You know, there's some pluses of minuses. Some of that is tiny around what kind of inventory we have. And for the most part, we're in very good shape there. Don't have a lot of...

in a deflationary environment.

as predictably, it would generate a benefit. So, you know, that's just...

high level what to expect and thankfully we don't have to deal with that anymore. Great, thanks. And then secondly, can you walk us through the furniture segment and maybe explain why the year-over-year volumes and furniture are starting to kind of drop off? Yeah, sure. Steve, I'll ask you to jump in there, but it's really a couple of dynamics and we have to...

and then really started to see the contract business which had been recovering slow down in the fourth quarter. So that's probably the biggest change there, but Steve, I'll let you chime in as well. Yeah, thanks, good morning. Yeah, from a home furniture perspective, the answer is much, much lower retail demand, so we had seen the...

here hopefully in the first half of 2023 and start to return to a more normalized demand level. And from a work furniture perspective, as Mitch said, our customers are reporting volume declines in incoming contract orders.

And that's really driven by the surge of, you know, back to office that they saw and that's worked its way through. And now they're seeing a little bit more lower level of return to office trends, particularly in the Americas, which is lowering that demand. And then you can add on top of that, you know, the retail residential slowdown that we spoke to.

from a home furniture perspective. So those are the two big issues that are impacting a work furniture at this point in time. Steve, if I remember right, the business forecast, which would be for North America was down about 8% or so for this year. Hey, hey, hey, hey, hey, hey, hey, hey. Yeah, yeah, so in line with industry dynamics there, unfortunately.

And as we've mentioned before, so the fabric converting side of our textiles business also moves along largely with bedding and home furniture, so we see that down. But what does not is the geo textiles component side of that, and we see that driven by construction industry to continue to be strong as we go into 2023. Great. Thank you all.

The fabric converting side of our textiles business also moves along largely with bedding and home furniture, so we see that down. What does not is the geo-textiles component side of that, and we see that driven by construction industry to continue to be strong as we go into 2023. Great. Thank you all. Thank you.

Thank you. Our next question has come from the line of Susan McElhory with Goldman Sachs. Please proceed with your questions. Thank you. My first question is on input costs. We've touched a bit on this across the questions, but can you give us a sense of what you're actually seeing in the various inputs, maybe outside especially of the metal margins, and how you're thinking about the puts and takes there for 2015?

I think it remains, you know, I think for the large part, commodity costs are remained at elevated levels, are generally, you know, neutralizing or starting to come down a little bit, but we just don't see huge, huge declines. But Ty's anything different you'd see in chemicals or anything? You know, mostly the same is what you just said, Mitch. And we know it's talking.

quite a little bit about metal margins, but part of the reason why that's been difficult to predict is because our conversion costs, not just the scrap input costs, but the cost of everything else that goes to converting that into rods, energy costs, the consumables, refractories and electrodes, everything else, those have increased significantly as well. So when all of those input items that even go into our overall cost...

drains around certain types of chemicals and just overall capacity in the market to produce, still makes it difficult to see exactly where those will land, but it's been relatively stable. Yeah, okay, thanks. And Steve, I think that holds up pretty much across specialized, that we don't see a lot of change there. Maybe in foreign textiles it can be a little bit more dynamic, but anything that...

haven't seen that turn into reality at this point. Okay, and then I want more, which is on the cash flow side of things. Can you talk about the ability to generate cash this year, even when we think about the EPS guy that you have put out there?

And maybe just, you know, any commentary on some of the uses of that cash. You did several small acquisitions in 2022. How is that pipeline coming together and perhaps how you think about the opportunities there or other uses of the money? Yeah, sure. That's a great question, Susan.

Jeff, I'll turn in first and then ask you to come in on the uses. But Susan, I feel really confident about our cash flow generation. You saw us this year, and I think even though we see in a lot of our businesses volume levels low, I think we feel a little bit more stability as we talked about with inflation and things like that. So the teams have done an incredible job managing our working capital.

In particular, even as the pandemic hit and the first part of the crisis hit, just improving our receivables management, and we continue to maintain that in a really, really good spot. We talked about how we worked through the second half of the year, particularly the fourth quarter, to bring down inventory levels to align with the slower demand. Taking a lot of time out of the rod mill was painful from a market.

The other thing you probably noticed is that our payables were down significantly as we ended the year, not surprising, as we're taking down inventory, we're buying less. So I think from a working capital standpoint, we're in a very good position to manage that. While we wish we had more volume, they'll continue to drive cash through the company. Jeff mentioned our capex, we expect it to be pretty consistent with...

with where we were in 2022. So I don't think we have any big plans for acquisitions at this time or share repurchases. Continue to focus on funding the dividend.

Jeff, let me turn it over to you. Anything that I missed? Thanks, Mitch, and good morning, Susan. Just a couple of comments I would make. You know, Susan, as you look at the company's history of operating cash flow and the ability to have that operating cash flow exceed our CapEx spend as well as our dividend support, you know, we have been able to exceed that 33 out of the...

We feel reasonably comfortable there with the 100 million that we're guiding towards. In terms of our acquisitions, you know, we spent 83 million in 2022 on acquisitions. You can expect that number to be lower in 2023. And we spent 60 million in 2022 on share repurchases. And you can definitely expect that number to be lower in 2023 as well. So as we discussed in the...

this time, I would now like to turn the floor back over to Susan McCoy for any closing comments.

Thank you for joining us today. We'll speak to you again on May 2nd after we report first quarter results. If you have questions, please contact us using the information in yesterday's press release. Thank you. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.

Thank you for your participation and enjoy the rest of your day.