Q4 2024 Leggett & Platt Inc Earnings Call
Speaker Change: Greetings and welcome to the Liggett and Platt fourth quarter 2024 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation.
Speaker Change: The conference call is being recorded for Leggett <unk> Platt and is copyrighted material. This call may not be transcribed recorded or broadcast without our express permission.
Speaker Change: A replay will be available on the Investor Relations section.
Speaker Change: Right.
Speaker Change: We posted to the IR section of our website yesterday's press release and a set of slides that contain summary financial information along with segment details and a restructuring update those documents supplement the information we discuss on this call including non-GAAP reconciliations.
Speaker Change: 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.
Speaker Change: 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 and subsequent 10-Q entitled risk factors and forward looking statements I'll now turn the call over to Carl.
Carl: Good morning, and thank you for joining our call today first I would like to congratulate Sam Smith, who has been promoted to president of the specialized products segment. Sam has been instrumental in driving operational efficiency and improvement projects and specialized products since mid 2024.
Carl: Sure and is already well versed in each of these businesses. Additionally, he will continue in his role as executive Vice President and president of furniture flooring and textile products.
Carl: 2024 was a year of significant change for our company and I am deeply grateful for the hard work and dedication of our employees, who continue to show resiliency and the drive to improve even in a daunting macro environment.
Carl: Last January we announced a restructuring plan that primarily focused on our bedding products segment with smaller actions and home furniture and flooring products.
Carl: We later expanded the plan to include restructuring activity in hydraulic cylinders and improvements in our general and administrative cost structure throughout the year. Our teams did an excellent job advancing the plan and consistently driving results that met or exceeded our expectations. We.
Carl: Realized a total of $22 million of EBIT benefit, including $3 million from G&A actions, we initiated in the fourth quarter and exceeded our expectation of $10 million to $15 million.
Carl: We incurred $48 million of restructuring costs within our expected range of $40 million to $50 million.
Carl: We had $15 million of sales attrition in line with our latest expectations and well below our initial estimate of $40 million.
Carl: We realized $20 million of cash proceeds and restructuring and related real estate sales in line with our latest expectations, but above our initial estimate of zero to $10 million.
Carl: We reduced our betting footprint by 14 locations, we successfully consolidated our U S innerspring manufacturing facilities with zero customer interruptions, we closed one facility in home furniture and shifted production to other locations. We closed one facility in flooring products.
Carl: And substantially completed phase one of restructuring activity in that business.
Carl: And we made solid progress on our restructuring initiatives and hydraulic cylinders.
Carl: As expected restructuring activities will continue throughout 2025.
Carl: Embedding all inner spring restructuring is complete but we continue to work through other initiatives primarily in specialty foam.
Carl: And flooring products, we are finalizing phase one of restructuring activity and still expect the facility consolidations of phase two will be completed by year end and hydraulic cylinders manufacturing efficiency improvement activities are expected to be fully implemented by year end.
Carl: Despite demand challenges and the extensive effort required to execute a complex restructuring plan product innovation remains a core strength and deep focus we have healthy product pipelines across our businesses I'd like to recognize our teams on a.
Carl: Few areas of outstanding product development and sales growth from last year embedding products. We saw continued OEM adoption of our semi finished products, including Combi core eco base and our recently launched pre foam encased comfort core unit, reflecting the.
Carl: The value of these products provide our customers. We also partnered with multiple leading mattress Oems as they incorporated innerspring and specialty foam technologies and innovative product line refreshes, our home furniture team continued to see success with their focused partnership and innovation.
Carl: <unk>, which focuses on new product introductions with trendsetting customers.
Carl: In flooring products, our team partnered with the make a wish foundation to launch branded carpet cushion products that will be sold through the end of 2025, a portion of these product sales will be used to support the organization and its missions.
Carl: Finally, our geo components business generated robust project pipeline growth.
Carl: Year over year, and our fabric converting business achieved modest growth in markets, including filtration building products and hospitality, which helped to partially offset weakness in core residential markets.
Carl: Looking at the year ahead, we expect our demand to remain under pressure as existing home sales remain near multi decade lows and consumers face ongoing affordability issues and further uncertainty about inflation in the long term, we believe sustained improvement in these macro.
Carl: Drivers will eventually lead to a multiyear recovery for our residential businesses, which have been most impacted by these factors in recent years.
Carl: Turning to market trends and demand expectations. The U S. Mattress market was likely down low single digits in 2024 with domestic production down mid single digits in consumption of imported mattresses up low single digits in the last few years.
Carl: The mattress market has become increasingly bifurcated high volume cheap imports have dominated online sales and pressure to opening and mid tier price points for traditional domestic Oems in 2025, we expect market volume will be flat with domestic production down.
Carl: Low to mid single digits as a result of continued import pressure.
Carl: Demand in our bedding products segment is expected to be down mid single digits at the midpoint of our guidance. This year, primarily from restructuring and related sales attrition lapping the exit of a specialty foam customer and lower volume in adjustable bed.
Carl: The industry forecast for global automotive production assumes major markets will be down low single digits in 2025.
Carl: Volatility related to the growth of Chinese EV manufacturers and multinational OEM market share challenges will likely continue to impact the industry.
Carl: Delays in EV programs in Europe, and changing expectation for internal combustion engines to EV program transitions and North America add an additional layer of uncertainty to OEM demand.
Carl: Our specialized products segment demand is expected to be down mid single digits at the midpoint of guidance. This year and automotive, we expect lower volume year over year as industry softness is further compounded by our customer mix and product trade downs related to consumer.
Carl: Portability issues. Additionally.
Carl: Annual revenue from new programs awarded in recent years is below the revenue levels of older programs being phased out hydraulic cylinders is expected to continue to experience weak demand headwinds in automotive and hydraulic cylinders should be partially offset by continued grow.
Carl: <unk> and aerospace and our furniture flooring and textbooks product segments, we expect demand to be down low single digits at the midpoint of guidance in 2025, we anticipate that our residential businesses. In this segment will continue to face soft demand, but demand in our textbook.
Carl: Business will be stable.
Carl: Yeah.
Carl: As we plan to navigate another year of demand pressure, we continue to prioritize balance sheet strength operational efficiency and margin improvement and changes that position the company for profitable long term growth Act.
Carl: Activities to support these initiatives include continuing our portfolio review work, including the exploration of a sale of our aerospace business.
Carl: Driving strong cash flow and using cash from real estate sales and any divestitures to accelerate debt reduction.
Carl: Pursuing operational improvement and automation activities across our businesses.
Carl: Cultivating strong customer relationships and driving product innovation to solve customer and consumer needs and proactively identifying risks and mitigation plans related to tariff threats. We are encouraged by the significant progress that we made in 2024 and are confident.
Ben: And the ability of our teams to continue driving progress in 2025 and beyond I'll now turn the call over to Ben.
Ben: Thank you Carl and good morning, everyone fourth quarter sales were $1 $1 billion down 5% versus the fourth quarter of 2023, resulting from continued weak demand in residential end markets. The expected exit of specialty film customer and soft demand in our automotive and hydraulic cylinders strength in trade rod and wire.
Ben: <unk> and aerospace along with modest volume improvement in textiles, partially offset demand declines.
Ben: Compared to fourth quarter 2023 sales in our building products segment decreased 6% sales in specialized products declined 5% in sales in furniture flooring and textile products were down 4%.
Ben: Fourth quarter, EBIT was $44 million and adjusted EBIT was $56 million down $10 million versus fourth quarter 2023, primarily due to metal margin compression lower volume and other smaller items, partially offset by lower amortization expense operational efficiency improvements and restructuring benefit.
Ben: Fourth quarter earnings per share was <unk> 10.
Ben: On an adjusted basis fourth quarter EPS was <unk> 21.
Ben: The 19% decrease from fourth quarter 2023, adjusted EPS of <unk> 26.
Ben: For the full year 2024 sales decreased 7% to $4 $4 billion, primarily from continued weak demand in residential end markets. The expected exit of a specialty phone customer demand softening in automotive in hydraulic cylinders in the second half of the year and raw material related selling price decreases.
Ben: These declines were partially offset by stronger trade rod sales and improved demand in aerospace.
Ben: EBIT decreased $340 million, primarily from $676 million in goodwill impairment charges, adjusted EBIT decreased $67 million to $267 million, primarily from lower volume and unfavorable sales mix raw material related pricing adjustments metal margin compression.
Ben: <unk> and other higher expense items, such as bad debt and medical partially offset by lower amortization expense operational efficiency improvements and restructuring benefits.
Ben: Full year EPS was a loss of $3 73 and.
Ben: And adjusted EPS was $1 five.
Ben: 24% decrease from 2023, adjusted EPS of $1 39.
Ben: In 2020 for operating cash flow was $306 million, a decrease of $191 million versus 2023.
Ben: This decrease was primarily driven by lower earnings and less benefit from working capital.
Ben: We ended the year with adjusted working capital as a percentage of annualized sales of 13.0% a decrease of 90 basis points versus 2023.
Ben: We reduced total debt by $126 million in 2024 to $1 9 billion, including $368 million of commercial paper outstanding.
Ben: As planned we repaid $300 million of notes that matured in November with our commercial paper program.
Ben: Net debt to trailing 12 month adjusted EBITDA decreased to 376 times at year end as of December 31, total liquidity was $793 million comprised of $350 million of cash on hand, and $443 million in capacity remaining under our revolving credit facility.
Ben: In 2025, we expect to continue moving towards our long term leverage target of two times, but anticipate an uptick in leverage earlier in the year due to lower earnings and normal seasonality of working capital investments. As a reminder, this will be our first full year at a lower quarterly dividend cash previously allocated for the <unk>.
Ben: Dividend along with proceeds from real estate sales and any potential divestitures, we will continue to be used to accelerate our deleveraging efforts as we prioritize debt reduction and funding organic growth in the near term.
Ben: However, our long term priorities for use of cash remain consistent funding organic growth funding strategic acquisitions, and returning cash to shareholders through dividends and share repurchases.
Ben: As Carl mentioned earlier, we made significant progress on our restructuring plan last year, our current expectations for our restructuring plan financial impacts are as follows. This year, we expect restructuring cost of approximately $30 million to $40 million versus our prior estimate of $25 million to $35 million.
Ben: Total restructuring costs are now expected to range from $80 million to $90 million versus our prior estimate of $65 million to $85 million. All costs are still expected to be incurred by the end of 2025.
Ben: We expect incremental EBIT benefit of approximately $35 million to $40 million in 2025 with improvements each quarter and an additional $5 million to $10 million of benefit in 2026.
Ben: We now expect annualized EBIT benefit of 60% to $70 million. Once all initiatives are fully implemented in late 2025 compared to our prior estimate of $50 million to $60 million of benefit.
Ben: The increase in both cost and benefit is related to our restructuring activities in hydraulic cylinders and G&A initiatives.
Ben: We anticipate approximately $45 million in incremental restructuring related sales attrition in 2025 with an additional $20 million in 2026 total annual sales attrition related to the plan is still expected to be approximately $80 million.
Ben: Finally, we expect to generate $15 million to $40 million in cash proceeds from the sale of real estate associated with the plan. This year with the balance in 2026 versus our prior expectation of sales being substantially complete by the end of 2025 due to the timing of lifting properties.
Ben: Total restructuring and related real estate proceeds are still expected to be between 60 and $80 million.
Ben: 2025 sales are expected to be 4.0 to $4 3 billion.
Ben: We're down 2% to 9% versus 2024.
Ben: <unk> is expected to be down low to mid single digits with volume at the midpoint down mid single digits and bedding products down mid single digits and specialized products and down low single digits.
Ben: Furniture flooring and textile products.
Ben: Deflation and currency combined are expected to reduce sales low single digits.
Ben: 2025 earnings per share are expected to be 83 to $1 24, including approximately 16 to 22 per share of negative impact from restructuring costs and 5% to 20 <unk> per share gain from the sale of real estate.
Ben: Full year adjusted earnings per share are expected to be one dollar to $1 20, the midpoint reflects increased restructuring benefit and operational efficiency improvements, partially offset by lower volume.
Ben: We expect normal seasonality in our 2025 results with lower sales and earnings in the first and fourth quarters.
Based upon this guidance framework, our 2025 full year adjusted EBIT margin range is expected to be six 4% to six 8%.
Ben: Cash from operations is expected to be $275 million to $325 million in 2025 with first quarter, representing the low point of the year due to typical seasonal factors.
Ben: While we do not anticipate a benefit from working capital. This year, we will continue to have a sharp focus on cash flow generation.
Ben: Our current guidance for 2025 does not include any net tariff impact our teams continue to analyze multiple tariff scenarios are qualifying alternative suppliers and are evaluating potential geographic shifts in production or.
Ben: Our most significant direct tariff exposure at this time includes adjustable bed production in Mexico, and textiles purchases from China.
Ben: Indirectly, our automotive home furniture and work furniture customers faced the most significant tariff impacts from importing our products or from selling their foreign produced products containing our foreign produced components into the U S.
Ben: While the duration and extent and magnitude of tariffs remains uncertain. Our teams are working hard to ensure we minimize risks and capitalize on opportunities.
Ben: With that I'll turn the call back over to Carl for final remarks. Thank you Ben Although we anticipate demand challenges in 2025, I am optimistic about the progress we expect to make on our key initiatives. This year to our employees again. Thank you for all that you're doing each day to drive.
Ben: Our company forward to our investors customers and other external stakeholders. Thank you for your patience and support as we execute these initiatives I am confident that the actions that we're taking will improve profitability and create long term shareholder value.
Ben: Operator, we are now ready to begin Q&A.
Ben: Thank you, we'll now be conducting a question and answer session.
Ben: It can be placed in the question queue. Please press star one on your telephone keypad.
Ben: A confirmation tone will indicate your line is in the question queue.
Ben: You May press star two if you'd like to remove your question from the Q1 moment. Please while we poll for questions.
Speaker Change: Our first question is coming from Susan Mcclary from Goldman Sachs. Your line is now live.
Susan Mcclary: Thank you good morning, everyone.
Speaker Change: Morning, Susan.
Speaker Change: Morning.
Speaker Change: Good morning, I wanted to start on the <unk> side of things and in your comments you mentioned the next between imports relative to U S. Production can you talk a bit more about that bifurcation in the body market with the higher end relative to the mid and lower price points and what that perhaps.
Speaker Change: Could mean for the market and for <unk> as we can start to perhaps either the return of demand on things moving off the trough.
Susan Mcclary: Yeah Susan.
Susan Mcclary: Happy to try to answer that I don't think that the investment community understands the magnitude of the imported inner springs that are primarily being sold on the marketplaces. So call it Amazon wafer those folks.
Susan Mcclary: At the end of the year it was approaching.
Susan Mcclary: Near 50% of units. So it's significant so there's this kind of low end.
Susan Mcclary: Some would call it a throwaway mattress.
Susan Mcclary: And then there's not much in the middle and then there was a step up in price. So if you stop with the low end at the high end or the low end would be about $250 at Queen and then there is a gap to about $495. A quaint and then you get to mid price points and then it starts to it.
Susan Mcclary: Expand from there they are perceived by the customers to different purchases, but tie.
Susan Mcclary: And to the degree that I haven't already muddied this up.
Susan Mcclary: Sure thing.
Speaker Change: Morning, Susan It's an interesting question for sure, especially as it relates to the potential implications for the recovery and the imported finished mattresses is not really a dynamic that we've dealt with in past recoveries.
Speaker Change: If you think about just the time period that we've been in this the slowdown in the bedding market.
Speaker Change: It's a deferral purchase but there is some level of.
Speaker Change: Of replacement that is necessary and I think with other inflationary pressures.
Speaker Change: And just distraction with consumers theres been some level of probably move towards some of the more like Carl said disposable type purchases will get me through for awhile. So.
Speaker Change: So it'll be interesting to see how it plays out but I think one way we look at it is as the market does recover that youll see consumers want to get back into buying a quality product with more comfort and longer term.
Speaker Change: Spectation for the cycle of replacement, so gives us a little bit more optimism for recovery moving back towards mid and higher price points.
Speaker Change: Okay. That's great color. Thank you and then maybe moving onto restructuring, it's really nice to see you increasing the expectations for the EBIT benefit from all the work that's going on there can you, perhaps talk a little bit more about what's driving that and I guess in the spirit of no. Good deed goes unpunished.
Speaker Change: Do you think we could continue to see some upside to those benefits coming through.
Speaker Change: Susan is a good question and first off I've got to stop and thank our teams the restructuring activities.
Speaker Change: Were and continue to be a very very heavy lift in.
Speaker Change: To your point I mean, the execution has been sometimes painful, but it's been flawless and our people have been at it for a long time more than a year now and have done just such terrific work.
Speaker Change: Theoretically theres some upside.
Speaker Change: When we think of contribution margins long term, we historically have said, 25% to 35% across all our businesses in U S. Spring as an example, as we shrunk our manufacturing footprint. If we can run more volume through these now more efficient assets the over.
Speaker Change: Ahead contribution should be on the high end of that so we're optimistic but at this point, we just need volume.
Speaker Change: Okay. Okay. That's helpful and then maybe one for Bang.
Speaker Change: Dan can you just walk us through how youre thinking about the margins for this segment as we look to 2025 and you mentioned in your commentary a bit about first quarter or fourth quarter, how we should be thinking about those those sees that seasonality flowing through and you also talked a bit about first quarter.
Dan: Average relative to the full year can you just walk us through all of that Yeah sure thing Susan Good morning, and thanks for the question first let me start with the mid points for volume and margin expectations for this segment. So for betting and we would expect volumes to be down mid single digits, but despite.
Dan: That we would expect margins to be up about 150 basis points.
Dan: Specialized product side, we would expect volumes to be down around mid single digits and again. Despite that we will expect that margins will remain flat and then on the furniture flooring and textile side.
Dan: <unk> volumes to be down low single digits and would expect margins to be down about 50 basis points there.
Dan: As it relates to the quarters.
Dan: We expect the typical seasonality for our business that we've seen historically, so we will expect Q1 and Q4 to be lower from a sales and earnings perspective, as compared to Q2 and Q3.
Dan: I would also say in Q1.
Dan: Addition to that normal seasonality. We also have some other things that may impact earnings. So one we've got some higher stock comp expense that we would expect as we have our normal incentive plans come through.
Dan: Got a high number of folks who are retirement eligible and when that happens the awards vest immediately so we recognize a higher level of expense in the first quarter also expect to see some bad weather impacting Q1, and possibly some pull forward from Q4 into Q4 ahead of.
Dan: Some potential tariffs so all of that obviously impacts.
Dan: The bottom line and then as it relates to cash.
Dan: Cash flow Susan all of those things would impact that as well and we also have some higher.
Dan: Cash needs in the first quarter related to our incentive payments that come through in the first quarter and then as I mentioned before our <unk> and <unk> is really our higher sales quarters, but as we go through Q1, we'd expect to see a little bit higher level of investment in inventories as well.
Dan: Prepare for those higher sales quarters.
Dan: All of that will impact cash flow.
Dan: And then like you said that also has an impact on our leverage where we would expect to see maybe a little bit of uptick in leverage here early part of the year, but have high confidence in our continuing ability to drive leverage down over the course of the year.
Speaker Change: Okay. Thank you all for that color I'll get back into queue.
Speaker Change: Thank you. Your next question is coming from Bobby Griffin from Raymond James Your line is now live.
Bobby Griffin: Good morning, Thanks for taking my questions good morning.
Speaker Change: Bobby.
Speaker Change: I guess I'll call them to start on boarding a lot of progress made on the restructuring so I think.
Speaker Change: <unk> reduced the footprint by about 14 locations can you maybe talk how the new footprint works with in line with like the Sterling steel facility and where that is.
Speaker Change: <unk> the standpoint of kind of that whole value page. So that we know of leg it being fully integrated and I know that often needs to be used to kind of make the cash flow works. So maybe just talk about where we are in that journey and how these new the new footprint in manufacturing is going to work with all of that.
Speaker Change: Yes.
Speaker Change: You don't mind will you take that and kind of unravel it and included in that Tyson. If you don't mind comment on the.
Speaker Change: The terror.
Speaker Change: Potential tariff impact on steel.
Speaker Change: The probable positive impact it has on the steel mill, but then the reciprocal negative on sure theoretically to products.
Speaker Change: Unwind all that if you don't mind sure thing good morning, Bobby.
Speaker Change: Definitely are a lot of moving pieces there but.
Speaker Change: Youre right, obviously, we need to run Sterling as full as possible just given the fixed cost nature of the mill.
Speaker Change: A similar trend to what we've talked about in some of our past calls and conversations.
Speaker Change: We do right now and would expect in the future to need more trade rod to continue running a full but we've been doing a good job with that of late and still have really strong focus on the right outlets and pricing discipline to continue to make sure they're running that as profitably as we can but as it relates to the foot.
Speaker Change: And as you mentioned.
Speaker Change: Now we have in our inner spring business for larger inner spring plants.
There is still the same historic locations that we've had but there is still well positioned from a geographic standpoint, our wire mills are in the same locations.
Speaker Change: And probably the other difference you would see is just our distribution of consolidating into some larger distribution facilities, but remaining.
Speaker Change: Really in a good spot to service our customers and do it on the right timeframe.
Speaker Change: Going back to a couple of other things that Carla also referenced in terms of contribution margin back to back to if you think about spring with.
Speaker Change: With the restructuring efforts that 25% to 35% historic range is still still a good range for us.
Speaker Change: But like I mentioned with us looking at more trade rod and wire applications to keep those mills running full those would be some different mixes than we've seen historically, so that'd be something just also to factor in.
Speaker Change: And then finally with the tariff impacts it's certainly something that we're watching closely but just to think about it is probably a positive development for steel pricing in the U S and that would apply to sterling as well.
Speaker Change: But from so far at least what we've seen with tariff conversations that doesn't cover downstream applications. So you have to think about what that could potentially due to the competitiveness or at least price gap between U S steel and foreign steel liked.
Speaker Change: It likely would create an increasing gap and probably putting more pressure on global pricing for downstream products things like inner springs, and other products as well, it's not just limited to the inner spring market. So it is something that we watch closely that would definitely be an offset to any positivity that we would get from pricing of the steel mill. So that's why I apologize but.
Speaker Change: A lot going on there.
Speaker Change: No that's helpful and maybe just to follow up on the contribution margin aspect.
Speaker Change: If you are having to rely more on trade sales and maybe what we're historically used to what this business does that bring you closer to the 25% versus 35, and I guess that I guess that could change theoretically just depending on what the spread is.
Speaker Change: Rod.
Speaker Change: And scrap I guess right.
Bobby Griffin: Yes, I think thats right, Bobby I mean, theres definitely some some variables that would impact that but spring, yes definitely on the higher end, but.
Bobby Griffin: Trade Rod would bring and wire would bring that down closer into the lower end of the range I think that's a safe assumption, but lots of variables at play there.
Bobby Griffin: And then I guess, maybe sticking with the bedding side of the industry.
Bobby Griffin: Carl maybe you can we can we unpack kind of I think you mentioned mid single digit decline for the domestic side.
Bobby Griffin: I guess you guys you guys spring volumes for the year were down 11, but there is a customer you know some some sales restructuring and they're probably worth a point or so so can we maybe just unpack a little bit of the delta there and kind of where that journey will go for 2025 on basically the spread between what you think leg its U S spring volumes.
Bobby Griffin: Can do and what we look at as domestic manufacturing.
Bobby Griffin: Sumption or whatnot.
Bobby Griffin: Bobby Theres a lot of puts and takes so we.
Bobby Griffin: With a call of flat units that we are regaining some previously lost share from the inner spring side, we haven't fully anniversaried the loss of the phone customer that won't happen until the end of the first quarter.
Bobby Griffin: The mix of wire, Rod and billet sales and all of that also impact.
Bobby Griffin: As you roll the whole segment up.
Bobby Griffin: So.
<unk>.
Bobby Griffin: It really is a situation where we just need more volume any orders are good order at this point.
Bobby Griffin: But.
Bobby Griffin: I'm confident that we're well positioned in the efforts that the teams have gone through.
Bobby Griffin: We're just all dressed up and ready to go when we need some volume.
Speaker Change: Carl if I could jump in on that just to add a little bit more for Bobby.
Speaker Change: If you looked at the 2024 volume numbers and specific to spring I think Thats, what you were referencing also but.
Speaker Change: We've talked about this before but our comfort core volumes tend to have and continue to track kind of where the domestic manufacturing market has been.
We've seen the gap really develop has been an open coil.
Speaker Change: And I think that.
Speaker Change: Attributing that to a lot of what we talked about earlier with the imported finished mattresses really taking a large bite.
Speaker Change: Really kind of owning the lower end of the mattress market in the U S and that's a lot of the application for open coil.
Speaker Change: It's more of just that addressable part of the market moving to an imported finished mattress and then grids, which is the consumer preference and any kind of moving away from that product category. That's influencing a lot in kind of the tracks away from what our volume number is showing versus kind of market expectations and for the most part moving there Karl covered it well, but kind of continuation.
Speaker Change: <unk> of comfort core tracking at or above and then kind of some of the similar dynamics with open coil and grids, but probably reaching more of a bottom at some point this year.
And then it looks like if I back out the one customer, especially foam it looks like that business from a sales and volume standpoint.
Speaker Change: Probably outperformed the industry if I'm just using the rough it's the numbers to try to.
Speaker Change: Guess at what the industry did for 24, even in the quarter is that fair and is there is there some green shoots that you're seeing there ex the one customer loss.
Speaker Change: I don't know if we probably don't turn it green shoots Bobby but we've talked about it it's really important for us to diversify our customer base and we've been leaning heavily on that.
Speaker Change: Some progress there and that's helping offset the loss of that customer and then some other retail bankruptcies.
Speaker Change: So some mix we have been selling more specialty foam components and also even some specialty chemicals and that helps as well, but those factors are helping us offset some of the loss of the customer.
Speaker Change: Okay very good I appreciate your time, sorry for spending so much time on just one segment, but this has all been helpful and best of luck here to start the year.
Speaker Change: Thank you Bobby.
Speaker Change: Thank you. Your next question is coming from Keith Hughes with <unk> Securities. Your line is not a lot.
Speaker Change: Thank you. This is building on Bobby's question, a little bit and the 2025 guide the Delta and betting the delta between the flat industry in your negative five we've talked about the loss of the customer.
Speaker Change: Large phone customer.
Speaker Change: Sales restructuring, but you had said something about adjustable beds, Carl and that's what I wanted to dig into what's what's going on there.
Speaker Change: There is somewhat of a <unk>.
Speaker Change: <unk> mix issue.
Speaker Change: Promotional and is selling at a faster rate than the higher end.
Speaker Change: In 2024, we were actually positive on units and negative on dollars. So.
Speaker Change: Mix as much as anything.
Speaker Change: So if you think that mix that negative mix is going to continue is that what you're saying.
Speaker Change: Based on all of the Metro macroeconomic factors that we look at.
Speaker Change: Yes.
Speaker Change: We're concerned about demand I know that people are optimistic, but and some maybe a little critical and thinking that our guidance was conservative we don't think so.
Speaker Change: It's based on macroeconomic call related to the really to the state of the consumer.
Speaker Change: Theyre not company issues I want to make sure the dilution or understands that.
Speaker Change: Theyre not company issues. They are things that we look at like consumer confidence weakening inflation reigniting interest rates leveling out the 10 year rate, increasing household affordability issues and low housing turnover and uncertainty around government policy. So you take that all together and we don't see.
Speaker Change: Anything that would make 2025 significantly better than 2024 from a macro perspective I think our teams are doing a really good job of managing what we can control, but the external pieces, we can't control.
Speaker Change: Well I mean, just based on that guide four youre going to be underperforming the bedding industry. I mean, that's what you are saying for those very specific reasons I mean, that's part of the issue going on here correct.
Speaker Change: Some of it is as we've detailed Keith a lot of it's mix.
Speaker Change: If we look at it from a U S spring perspective, then.
Speaker Change: I don't think we underperformed the industry at all.
Speaker Change: But when you look at it in aggregate as a segment I think thats correct, but Tyson yes.
Speaker Change: Just to walk us through what Keith said.
Speaker Change: Sales attrition from some restructuring activity for most of our restructuring activity is definitely impactful in that that's an offset to the market.
Speaker Change: Lapping the customer exit and specialty foam and then also what I'd talked about before just some of the product headwinds with open coil and grids, but not so much related to kind of where we've been with.
Speaker Change: Comfort core and some of the other products and then also being offset by some of our semi finished product growth, but those would be the major factors in the delta between our expectations on the market and our bedding segment sales.
Speaker Change: Okay, and I'm still confused on adjustable bed because in.
Speaker Change: The slides it talks about volume in the fourth quarter being at 12 and sales being up 12% for the full year. You had said something about some positive units what are we referring to there.
Speaker Change: Yes, Keith really it is the way we calculate that it is just a higher mix of lower average unit selling price basis more so than actual units.
Speaker Change: Okay. Thank you.
Speaker Change: Welcome.
Peter Keith: Thank you and next question is coming from Peter Keith from Piper Sandler Your line is now live.
Peter Keith: Hey, Thanks, Good morning, everyone and good to see a lot of you at Las Vegas market, a few weeks ago.
Peter Keith: Was hoping you could maybe just talk about your sense of the industry trend for bedding and furniture over the last three months, let's say since the election, because it felt like the tone at Las Vegas market was generally one of maybe some cautious optimism.
Peter Keith: A lot of industry players felt like trends were getting better.
Peter Keith: In recent months and yet Youre your volume trends.
Peter Keith: Q4 were pretty consistent with Q3, and then you are kind of guiding for the same trend in 2025.
Peter Keith: Maybe just provide some feedback on what you heard at market, where do you think the industry is doing and put that context into your Q4 results and outlook.
Peter Keith: Yes, Peter Thank you.
Peter Keith: If you look at the residential markets in aggregate, so bedding and home furniture, we would say October was extremely soft.
Peter Keith: November strength, and certainly post election, moving into Black Friday and December was actually abnormally strong. So we saw that same trend that you alluded to we do have some concern that there was a pull forward of demand related to theoretical.
Peter Keith: <unk> tariffs, we don't yet know that.
Peter Keith: Think that there was optimism in Las Vegas.
Peter Keith: Because new product refreshes.
Peter Keith: People being back together retailers are optimistic by nature, but I think all of those things together certainly we agree there was positive momentum we're concerned about all of those macro drivers that I spoke to.
Peter Keith: We'll see what happens we think that vetting as an example, we will continue to be strong around promotional periods.
Peter Keith: So we'll see what happens this weekend as an example, with President's day, but there are significant troughs between those holidays and we don't expect that we will do anything but continue because of the.
The challenging health of the consumer.
Peter Keith: Okay fair enough.
Peter Keith: I wanted to circle back on the on the tariff issue.
Peter Keith: And maybe this is it's always just trying to understand your industrial.
Peter Keith: Rod and wire business, better, but I was thinking with.
Peter Keith: With tariffs that your scrap.
Peter Keith: Prices are going to hold flat. So the slip youre buying is hold it steady and then prices in rod and wire will go up so.
Peter Keith: In theory shouldn't your metal margin expand in in 2025, which which in turn could help overall EBIT margins.
Peter Keith: Yes.
Peter Keith: The answer is yes, thats what happened with round one of tariffs. The problem became then it's basic economics supply and demand. So the U S. Steel prices go up U S. Steel's not competitive there is a lack of demand then for European.
Peter Keith: In steel.
Peter Keith: <unk> administration attach downstream products.
Peter Keith: Those downstream products based on an input of lower domestic steel prices, so call it Europe or China. It doesn't matter those components flow into the United States and then offset the benefit that we get at the steel mills, So youll see it not only in our bedding products, but youll see it in home furniture work furniture.
The country will see it across everything related to metal inputs, you've got to manage the downstream or you've only got one half of the equation, but we do agree the steel mill in itself. If we were only a pure play U S steel manufacturer, we would be saying these tariffs.
Are really well placed because it's.
Peter Keith: Essence protectionism, but that's not the way the world works.
Peter Keith: Okay.
Peter Keith: Maybe just to distill that down so.
It could be a margin benefit, but but volume headwinds as a result of the tariffs.
Peter Keith: Thank you very simplistic okay.
Peter Keith: Yes.
Speaker Change: And then lastly on the import issue with embedding. This we are very well aware of of imports.
Speaker Change: You guys have been pretty vocal about the issues around.
Speaker Change: Palm bed in the box products coming in.
Speaker Change: And this is something that I feel like this is the first time youre talking about big headwinds with open coil inner spring finished mattresses.
Speaker Change: Is this a new dynamic that has emerged in recent months or quarters and anti dumping duties that are on <unk>.
Speaker Change: A number of countries that does that have any impact on the on the finished innerspring beds or is that just on on filling beds.
Speaker Change: Peter No. We don't think its a new diet dynamic maybe it's a different way to characterize it for you, but no I mean, they definitely they imported finished mattresses are most impactful at the low end, whether its volume or inner spring import.
Speaker Change: And yes, the coverage is pretty wide on countries now, but we have seen new countries sprouting up and being part of the import list now.
Speaker Change: And so whether it's a foam mattress or imported innerspring mattress. They both are basically priced at the extreme low end of the market and Thats, where we think it is having the biggest impact on the open coil products. So that in the conversion of open coil to comfort core which is also a long term trend.
Speaker Change: Okay very good thanks, so much.
Peter: Thanks Peter.
Speaker Change: The next question is a follow up from Susan Mcclary from Goldman Sachs. Your line is now live.
Susan Mcclary: Thank you.
Susan Mcclary: I wanted to shift the conversation and talk a bit about specialized in your comments you mentioned some of the different dynamics in there with the headwinds in auto and hydraulics relative to some growth in aerospace can you just talk more about how that is building to that segment forecast and how we should be thinking about it.
Susan Mcclary: Trends that are emerging in those businesses.
Susan Mcclary: Yes, Thanks, Susan I'm sure Sam was worried that he wasn't going to get any questions. So Sam.
Europe.
Speaker Change: Okay. Thanks, Karl Thank you Susan So I'll start off with the aerospace you know our volumes there were up year over year, and 24, and we anticipate that to continue.
Susan Mcclary: And the thing going forward.
Susan Mcclary: Don.
Susan Mcclary: Hydraulics.
Speaker Change: Carl mentioned earlier that some of the problems, we face and are really not leggett specific problems, there theyre industry problems or macro problems and thats really whats happening in hydraulics and.
Speaker Change: In 'twenty, one and 'twenty two we saw a really really substantial run up in cylinder demand.
Speaker Change: Forklift demand and articulated dump truck demand all of that.
Speaker Change: And what.
Speaker Change: That set us up for was a kind of a high water mark from a volume standpoint in 'twenty three.
Speaker Change: So when we hit 24, those backlogs that are developed over those couple of years, we're pretty much gone and demand coming from the downstream customers.
Speaker Change: The Oems really dropped off so that demand turnaround rapidly for the Oems it turnaround rapidly for us and really got worse throughout the year now.
Speaker Change: <unk> before the end of the year.
Speaker Change: We saw our orders stabilize.
Speaker Change: So far this year Theres still stable.
Speaker Change: Feedback from the Oems is that we're really in a flatter demand environment now instead of a falling demand environment, but I think is going to take a little bit more time to see how that holds up.
Speaker Change: If you think about it from a comp perspective.
Speaker Change: We started the year all stronger we ended the year.
Speaker Change: At a lower volume rate. So that's why we're kind of anticipating continued volume reduction there and then I'll skip over to automotive.
Speaker Change: And core.
Speaker Change: <unk> referred to customer mix, he talked about the growth of the Chinese EV manufacturers and the challenges multinationals or face and so.
Speaker Change: I'd like to just unpack that a little bit in terms of what.
Speaker Change: The overall major market production look like in 'twenty, three versus 24, and I think that'll help you about may.
Speaker Change: Major market I mean cars that are produced in North America, Europe, excluding Russia, because we don't sell into Russia.
Speaker Change: Cars that are produced in China, Japan, and Korea and that encompasses all of the major multinationals and all the Chinese players. So in 'twenty for the total major market production dropped $1 1 million units or about one 5% versus 23, so I want to throw a lot of numbers at you, but I'll summarize it.
Speaker Change: And if we step down and look at what happened by region.
Speaker Change: Every region, except for China shrank last year, and China's production was up about 800000 units or about 3%.
Speaker Change: And if you step down another level and look at the mix inside China.
Speaker Change: Chinese Oems were up by about $2 8 million units and the multinationals were down by about $2 million.
Speaker Change: And the Chinese Oems were really driven by those EV manufacturers. So to summarize all of that the major market production was down by $1 1 million the Chinese really driven by the EV manufacturers were up $2 8 million.
Speaker Change: So what that means is everybody else in the world was down by about 4 million units or 7%.
Speaker Change: All of that comes from market data that we follow.
Speaker Change: We saw this year the strongest in the second half of 2024.
Speaker Change: And we anticipate what we saw in the second half of 2024 follows through to 2025 and the struggles that the multinationals.
Speaker Change: Have faced in our face and have been well publicized and their situations really.
Speaker Change: Directly impact us.
Speaker Change: And let me go ahead and answer to this question, yes, we do have content with the.
Speaker Change: New Chinese EV players, but our content.
Speaker Change: Levels with the multinationals and with our JV partners in China is higher than our content with Chinese EV players.
Speaker Change: And part of that market shift that Carl mentioned, it I mentioned it a little bit early is the shift from ice to EV and thats been very impactful in China that shift as fast it.
Speaker Change: It was pronounced and it had really strong government support from the manufacturers all the way down the consumer level and the rest of the world, It's kind of a stop and start and that's led program delays as the Oems kind of tap the brakes on launches of EV vehicles.
Carl: And also just affordability continues to be an issue as Carl mentioned and Thats led to some product trade downs are a little <unk> hopefully that gives you a little bit better insight to them.
The market there.
Speaker Change: Yeah No. That's that's incredibly helpful. Sam. Thank you for that and then maybe one last question, which is just when you step back and you think about the health of the consumer overall coming into this year and is it different macro trends that we have going on out there and the potential that we could see some more inflation this year.
Speaker Change: Cross your consumer focused businesses, how are you thinking about the pricing.
Speaker Change: The city and their ability or their willingness to.
Speaker Change: To handle some of this pressure that could come through and what that could imply for demand across these various end markets.
Susan Mcclary: Susan that's what you alluded to is our biggest concern that.
Speaker Change: With.
Speaker Change: What we believe to be relative poor health of the consumer.
Speaker Change: Have a concern that it could get worse.
Speaker Change: We'll see as the year unfolds.
Speaker Change: Our businesses are call it our asset basis, so volume sensitive debt.
That's you hit on our concern that.
Speaker Change: We need volume.
Speaker Change: Most of the products that we sell not every but most of them are very much deferral.
Speaker Change: Some of them in their own are correlated to housing demand. So it's it's a challenge.
Speaker Change: <unk> confidence is important to us and you've seen consumer confidence dropped as interest rates.
Speaker Change: Flattened and Inflations reignited so.
Speaker Change: It's a concern.
Speaker Change: We will just continue to manage everything that we can internally.
Speaker Change: Yeah, Okay. I appreciate all that well now that everyone's Donaldson speaking time, I think I'll wrap it up there, but thank you all for the comments and good luck with everything.
Speaker Change: Thanks for giving everybody issuances.
Speaker Change: Thank you. Thank you all thank you we've reached end of our question and answer session I would like to turn the floor back over for any further or closing comments.
Speaker Change: Thank you for joining us and your interest in Leggett, and Platt and everybody have a great weekend.
Speaker Change: Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.