Q1 2025 Leggett & Platt Inc Earnings Call
Greetings and welcome to the Leggett <unk> Platt first quarter 2025 web cast an earnings conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone to keep.
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Cassie Branscum: A reminder, this conference is being recorded its now my pleasure to introduce your host Cassie Branscum VP of Investor Relations. Thank you Ms. <unk> you may begin.
Cassie Branscum: Good morning, and welcome to Leggett and Platt first quarter 2025 earnings call with me on the call today are Karl Glassman, CEO, then burn CFO Tyson Hegel President at the bedding product segment, and Sam Smith, President of the specialized products and furniture flooring and textile products segment.
Cassie Branscum: The agenda for our call. This morning is as follows Karl will provide an update on our strategic priorities and outline our current exposure to and plans to address tariffs.
Cassie Branscum: Then we'll cover our first quarter operating results demand trend additional financial details and provide an update to our 2025 guidance and the group will answer any questions you have.
Cassie Branscum: This conference call is being recorded for like an implant and is copyrighted material. This call may not be transcribed recorded or broadcast without our express permission a replay will be available on the Investor Relations section of our website, we posted to the IR section of our website Yesterdays press release and a set of <unk>.
Cassie Branscum: Slides that contain summary financial information along with segment details a tariff overview and restructuring update.
Cassie Branscum: These documents supplement the information we discuss on this call, including non-GAAP reconciliations.
Cassie Branscum: 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 obligations to update or revise these statements.
Cassie Branscum: 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.
Good morning, and thank you for joining our call today, we are pleased to report better than anticipated first quarter earnings. Our earnings improvement is a testament to the excellent execution of our restructuring plan and operational efficiency improvement initiatives as well as disciplined cost management.
Cassie Branscum: <unk> in the first quarter, we made further progress on our restructuring plan embedding, we divested a small U S machinery business, helping us to further narrow our product focus in flooring products, we launched phase two of our consolidation efforts finally, we continue to make.
Cassie Branscum: Significant strides on our restructuring initiatives within hydraulic cylinders.
Cassie Branscum: We expect restructuring activity to be substantially complete by year end.
Cassie Branscum: We are also continuing to make progress on our strategic business review, we recently signed an agreement to sell our aerospace business and expect to receive after tax cash proceeds of approximately $240 million.
Cassie Branscum: This transaction is expected to close this year and represents a step towards a more focused portfolio.
Cassie Branscum: While our experienced management team remains focused on our strategic priorities. They are also diligently working to guide our business through a complex and fluid tariff environment.
Cassie Branscum: Before I walk through the most significant potential tariff impacts I would like to provide some context on the supply side prior to recently implemented tariffs our U S businesses sourced approximately $400 million annually from trade and intercompany suppliers located in foreign countries.
Cassie Branscum: Including approximately $100 million from China.
Cassie Branscum: On the sales side the majority of our trade revenues are produced in the geography of consumption approximately 60% of our trade revenues are produced and consumed in the U S. While another 8% of revenues produced abroad are consumed in the U S with 5% currently exempt under USF.
Cassie Branscum: MCA.
Cassie Branscum: Tariffs present positive and negative impacts across our businesses, but in aggregate are likely a net positive for us power.
Cassie Branscum: However, we remain concerned that wide ranging tariffs will drive inflation hurt consumer confidence and pressure consumer demand.
Cassie Branscum: Across our businesses, our teams are engaging with our customers and suppliers as well as taking action to mitigate tariff impact by sourcing and less impacted geographies shifting production, where we have a global footprint and passing on price increases when necessary we are.
Cassie Branscum: We're also actively pursuing opportunities to capture demand where interest for domestically produced products has increased although such opportunities may be limited as low cost foreign competitors implement measures to minimize market share loss global reciprocal tariffs could benefit us.
Cassie Branscum: Mattress production. These tariffs are another avenue to help level, the playing field versus low priced import mattresses that have flooded the market for years amid difficult enforcement of anti dumping measures.
Cassie Branscum: Additionally, steel tariffs have the potential to benefit domestic inner spring producers.
Cassie Branscum: Within our bedding segment steel tariffs are currently leading to expanded metal margins and higher demand for our steel rod and drawn wire operations.
Cassie Branscum: As a leading U S. Innerspring manufacturer, we are well positioned to quickly support customers looking to shift from imported to domestic product.
Cassie Branscum: In some cases. This may also present, an opportunity for us to provide a semi finished product, which improves manufacturing efficiencies and total product cost for our OEM partners.
Cassie Branscum: The most significant tariff exposure and bedding is within our adjustable bed business.
Cassie Branscum: Where we produce adjustable bases, both domestically and in Mexico in Mexico. The steel content of our basis is currently subject to a 25% tariff in the U S global reciprocal tariffs impact all imported components with electronics from China, representing our largest.
Cassie Branscum: In contrast, most of our competitors are importers, who manufacturer basis, primarily in southeast Asia. These importers are currently only subject to a 25% tariff on the steel content of their adjustable basis.
Cassie Branscum: As a result, our domestic production is now significantly disadvantaged in comparison to important competitors.
Speaker Change: To offset this disadvantaged where heavily leaning into our Mexican operations, which still provides our customers with the advantages of a north American footprint.
Speaker Change: Within specialized products, our automotive business will likely have the largest indirect tariff exposure.
Speaker Change: The North American auto industry is highly integrated across borders and implementation of tariffs on auto components on may 3rd is expected to be very disruptive throughout the supply chain. The majority of our North American production is in Canada, and Mexico, but our products.
Speaker Change: Our U S MCA compliant and therefore currently exempt from tariffs on these countries implementation of global auto parts tariffs will have very little direct impact on us, but will likely cause tier ones and Oems to shift production and sourcing.
Speaker Change: Trigger pricing negotiations in the supply chain and disrupt demand.
Speaker Change: And furniture flooring, and <unk> products tariffs impact our businesses to varying degrees.
Speaker Change: Home furniture, our Chinese operations, primarily sell components to Asian customers, who export finished furniture to the U S. Our Chinese customers have slowed production significantly and are ramping up southeast Asian factories. Additionally, we sell components to us.
Speaker Change: Customers and have some intercompany supply from our Chinese operation, we are moving some sourcing of our commodity products to other countries and taking advantage of our U S operations, where we can we're also in the early stages of setting up production in another low cost country.
Speaker Change: And we will be on par in the second half of the year with our competitors who have low cost facilities.
Speaker Change: Finally, our textiles business would have faced the largest direct tariff exposure in this segment, we have proactively been sourcing outside of China, we are well positioned to serve customers that may face supply disruption from their existing vendors.
Speaker Change: Our other businesses, including aerospace had minimal impact from the various tariffs in effect today.
Speaker Change: Now more than ever we are committed to our strategic priorities of strengthening our balance sheet, improving profitability and operational efficiency and positioning the company for long term growth.
Speaker Change: Our sharp focus in these key areas has enabled us to perform well and challenged end markets and gives us confidence in our ability to weather current macro uncertainties and dynamic trade policies.
Ben: I will now turn the call over to Ben.
Ben: Thank you Carl and good morning, everyone first quarter sales were $1 billion down 7% versus the first quarter of 2024, resulting from continued weak demand in residential end markets soft demand in automotive and hydraulic cylinders the expected exit of the specialty phone customer and restructuring related sales attrition.
Ben: These declines were partially offset by strength in trade rod and wire sales Geo components and aerospace along with modest volume improvement in fabric converting compared to first quarter 2024 sales in our bedding products segment decreased 13% sales and specialized products declined 5%.
Ben: Sales in furniture flooring and textile products were down 1%.
Ben: Embedding products strong trade rod sales and steady trade wire sales are partially offsetting continued demand softness in mattresses and adjustable bases U S. Mattress production was down low double digits in the first quarter, while total mattress consumption was down high single to low double digits as imports gained share versus.
Ben: A year ago.
Ben: We now expect the market to be down mid single digits in 2025 with domestic production down mid to high single digits.
Ben: As anticipated automotive sales were down versus first quarter of 2024, however sales in the quarter were above our expectations as our team continues to execute against the challenging industry backdrop.
Ben: Our geo components business had better than expected growth in the civil construction sector, even with some unfavorable weather disruption early in the first quarter, we expect demand strength in civil construction as we move into the normal seasonal selling periods.
Ben: First quarter, EBIT was $63 million and adjusted EBIT was $67 million up $3 million versus first quarter 2024, adjusted EBIT, primarily due to restructuring benefit operational efficiency improvements and disciplined cost management, partially offset by lower volume and metal margin compression.
Ben: First quarter earnings per share was 22.
On an adjusted basis first quarter EPS was <unk> 24.
Ben: A 4% increase from first quarter 2024, adjusted EPS of <unk> 23.
Ben: Restructuring plan cost during the quarter were $6 million comprised of $5 million in cash costs and $1 million and noncash costs.
Ben: We realized $14 million in incremental EBIT benefit and had $14 million in sales attrition related to the restructuring plan in the first quarter.
Ben: The plan continues to make solid progress in our previously shared estimates for 2025 and full implementation restructuring plan EBIT benefit cost sales attrition and real estate sales remain the same.
Ben: First quarter operating cash flow was $7 million, an increase of $13 million versus first quarter 2024. This increase was primarily driven by a smaller use of working capital. We ended the quarter with adjusted working capital as a percentage of annualized sales of 15% a decrease of 30 basis points versus first quarter 2020.
Ben: Four we.
Ben: We ended first quarter with total debt of $1 9 billion, including $440 million of commercial paper outstanding as of March 31, total liquidity was $817 million comprised of $413 million of cash on hand, and $404 million in capacity remaining under our revolving credit facility.
Ben: Net debt to trailing 12 month adjusted EBITDA increased slightly to 377 times at quarter end. This uptick was anticipated due to normal seasonality of working capital investments, we expect to reduce leverage later this year and are still targeting a long term leverage ratio of two times.
Ben: As a reminder, this will be our first full year at a lower quarterly dividend cash previously allocated for the dividend along with proceeds from real estate sales and divestitures will primarily be used in our deleveraging efforts as we prioritize debt reduction and funding organic growth in the near term following the anticipated <unk>.
Ben: <unk> of our aerospace business and deleveraging later this year, we may adjust our near term capital allocation priorities, including share repurchases, particularly if our share price remains depressed.
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: Moving onto guidance, our February guidance contemplated a more conservative demand outlook across our businesses and industry forecast projected at that time. Consequently, we are maintaining our sales and adjusted earnings guidance, but have modified our underlying assumptions, we now expect lower volume in our domestic.
Ben: <unk> bedding business due to softer U S. Mattress production offset primarily by increased U S rod and wire pricing due to steel related tariff benefits.
Ben: 2025 sales are still expected to be 4.0 to $4 $3 billion or down 2% to 9% versus 2024.
Ben: Volume is now expected to be down low to high single digits versus prior guidance of down low to mid single digits with volume at the midpoint and bedding products down low double digits versus prior guidance of down mid single digits specialized products down mid single digits, and furniture flooring and textile products down low single digits.
Ben: Inflation net of currency impact is expected to be flat to a low single digit increase the sales versus prior guidance of a low single digit reduction in sales 2025 earnings per share are expected to be 85 to $1 26, including approximately 16% to 22 per share.
Ben: A negative impact from restructuring costs and $7 22 per share gain from sales of real estate.
Ben: Full year adjusted earnings per share are expected to be $1 to $1 20, the midpoint reflects increased restructuring benefit operational efficiency improvements and metal margin expansion, partially offset by lower volume.
Ben: 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, while we do not anticipate a benefit from working capital. This year. We will continue to have a sharp focus on cash flow generation.
Carl: With that I'll turn the call back over to Carl for final remarks.
Carl: <unk> been even in a dynamic environment, we continue to make solid progress on our key initiatives as always I am immensely proud of the work our employees are doing and im confident in our ability to navigate macroeconomic uncertainties and demand volatility we remain committed to do.
Carl: Livery and long term shareholder value.
Carl: Operator, we're now ready to begin Q&A.
Speaker Change: Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad.
Carl: Confirmation tone will indicate your line is in the question queue.
Carl: You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.
Speaker Change: Our first questions come from the line of Susan Macquarie with Goldman Sachs. Please proceed with your questions.
Susan Macquarie: Thank you good morning, everyone and congrats on a good quarter.
Speaker Change: Thank you Susan.
Speaker Change: I wanted to start with the restructuring Carl it's good to hear and to see how all those benefits are coming through to the business. Despite the operating environment that you're facing today as you look out can you talk a bit about how we should think about those benefits that you currently expect for this year to actually roll through to the business is there the potential.
Speaker Change: For some upside over time as you think about where volumes may come in and some of these other dynamics that are starting to come through that could perhaps have implications for production and demand across the businesses.
Speaker Change: Susan Thank you for the compliment our teams have done a terrific job on restructuring and as I've said in the past it was a heavy lift.
Never more important than the headwinds that the industry faces today. So when we look back at the first quarter, It's really a testament to our People's diligence hard work and forecasting of the need to do the restructuring plan. So the reduction restructuring benefits will continue to roll through the year.
Speaker Change: The upside.
Speaker Change: My goodness.
Speaker Change: Some point there is going to meet demand recovery in the markets that we serve every one of the markets.
Speaker Change: Especially the residential facing markets furniture, and bedding I should say home furniture and bedding have been under pressure now probably this was our third year of depression at some point there is going to be volume recovery and the dropdown benefit of that as a result of the restructuring is going to be significant.
Speaker Change: Teams will be rewarded shareholders will be rewarded we can see that first quarter was proof of that capability, but.
Speaker Change: Casting in terms of the timing of the roll through.
Speaker Change: Would you quantify it.
Speaker Change: Yes.
Speaker Change: Yes, so for the first quarter, we had about $14 million.
Speaker Change: EBIT benefit so if you annualize that fit on a run rate we're closer to 55% to 60 that we stated for 2025 and then as we move through the year kind of towards the end of the year, while we start layering on a bit more of that then we will fully realized into 2026.
Susan Macquarie: Yes, Susan.
Susan Macquarie: Hey, this is Ben too I would just add on we are continuing to make good progress on our real estate sales as well we didn't have any in the first quarter that were related to a restructuring, but we did have another property outside of that that we closed but we have already closed one related to restructuring in Q2 and have.
Susan Macquarie: Two more under contract to close here in the second quarter. So.
Susan Macquarie: Really good progress there and I would say in our costs are staying in line.
Susan Macquarie: As we move through this process and then the other thing I would say is.
Susan Macquarie: The benefits that we have articulated our things that are within our control those are cost outs.
Susan Macquarie: Carlos point when volumes do improve I think there is some upside there as we think about incremental margins on that volume that we know will come at some point. So like Karl said the teams are doing a great job in continuing to execute really really well.
Speaker Change: Yeah. Okay. Thank you all for that color and then maybe following up one of the questions that we've been getting around the tariffs and the trade situations is the potential that theres been some pull forward I guess can you talk a bit about just the state of the consumer or did you see any pull forward in Darren how are you thinking about channel inventories, especially.
Susan Macquarie: As it does relate to the bedding business.
Speaker Change: Excuse me great question intuitively.
Speaker Change: I expected that we were seeing some pull forward and when we've looked back and tried to quantify it we can't identify it so.
Speaker Change: I think our customers may have sold some product out of inventory.
Speaker Change: In anticipation of tariffs, but from a channel refill, we didn't see any significant pull forward at all.
Speaker Change: Okay, that's good to hear.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Add onto that just really quickly.
Speaker Change: After the election, we did see that.
Speaker Change: This ramp up but that was after some really slow periods, but I think the other thing that we have to keep in our minds, especially for our business is imported.
Speaker Change: Components and finished mattresses that have also come in in the fourth quarter and the first quarter likely some of those ahead of the tariffs and so that's another factor that we have to consider just with market estimates for consumption and how those inventories theyre kind of now on hand in the U S will flow through to the rest of the year.
Speaker Change: Yeah. Okay. Thank you for the color Tyson and then maybe shifting to aerospace and the specialized segment can you give us any.
Speaker Change: Ideas are any kind of guide on how we should think about what that segment could look like post that divestiture should it goes through as expected.
Speaker Change: Just any idea on the profile of what that will look like.
Ben: Hi, Susan yes. Thanks for the question this is Ben.
Speaker Change: No.
Speaker Change: I've said I think we've said this before but we're not going to give a specific guidance on the segment itself until after the sale closes. However, during the first quarter, our aerospace business did meet the held for sale criteria from an accounting perspective, so youll see in our upcoming 10-Q, some additional disclosures around that that probably will help you with that.
Speaker Change: Question, a little bit so you'll see that first quarter 'twenty five sales were $53 million and EBIT was $7 million down that $7 million does not include corporate overhead charges.
Speaker Change: Based on the accounting disclosure rules and.
Speaker Change: And that compares to sales of $46 million in the first quarter of 2004, and EBIT of $3 million again in the first quarter of 'twenty, four which also excludes the corporate overhead charges. So.
Speaker Change: That information will be out there, but I will note that the most recent quarter quarterly results may not be indicative of an annualized forecast for aerospace, but generally speaking there is not a lot of seasonality in that business. So that should give you a little bit of a ballpark there.
Speaker Change: Yes, Susan we've said that we expect the transaction to close by year end, when we probability adjust that I.
Speaker Change: Think it is going to be some time by the end of the third quarter, but we'll see if it's dependent on the U K and the French authorities.
Speaker Change: Given the approval both of both both have a defense industry element to it.
Speaker Change: So everything is in good shape, we're just waiting on external factors. So.
Speaker Change: As Ben said, we will update guidance based on on that forecast at the appropriate time.
Speaker Change: Yeah, Okay, that's great and then I'm going to sneak one last question, which is for Bob. Thank you can you walk us through how you're thinking about the margins for each of the segments. This year helpful. The color that you gave on the volumes and how youre thinking about that but just any updated thoughts on how what we should expect for the margins.
Speaker Change: Sure you bet, Susan so from a bedding perspective, we think up around 150 basis points for specialized we think up about 50 basis points versus flat, what we thought before and then from an <unk> perspective down about 50 basis points.
Speaker Change: Okay, perfect Alright, well I will turn it over there. Thank you all for the color and good luck with everything.
Speaker Change: Thanks, Susan.
Speaker Change: Thank you our next questions come from the line of Bobby Griffin with Raymond James. Please proceed with your questions.
Speaker Change: Good morning, Marty Thanks for taking my questions.
Speaker Change: Morning.
Speaker Change: Carl Ben just to start I want to maybe go back to the capital allocation comment.
Speaker Change: If you take aerospace add on maybe a little of the real estate that you are targeting this year and then cash flow that at the midpoint of guide back out the dividend and you get pretty close to probably what you have outstanding in commercial paper. So is it reasonable to think you could be out of commercial paper sometime in the next year.
Speaker Change: If that's the case what.
Speaker Change: What is the kind of leverage profile you would like to see in the business before you go back and maybe do some more call it shareholder friendly capital allocation on dividends or repurchases.
Speaker Change: Yes, Bobby this is Ben Thanks for the question and you're right. If you put all of those things together from our guidance you would see somewhere between 400 $450 million of cash available to reduce debt, which would be our plan.
Speaker Change: And so.
Speaker Change: In the first quarter, we had about $440 million outstanding of commercial paper. So there is a scenario, where we would be out of commercial paper and we would look at the leverage metric at that time as a reminder, our long term targets two times.
Speaker Change: Debt to EBITDA.
Speaker Change: But if we're somewhere under two five times and we're in a position where we have de levered quite quite a bit then.
Speaker Change: It will likely take a look at our capital allocation priorities and see if if it is a good value to <unk>.
Speaker Change: And share repurchases, but that would only be after the meaningful deleveraging that we talked about.
Speaker Change: Yes, very good okay.
Speaker Change: Put some more math to it.
Speaker Change: We make we talk about our covenant calculation from an IR perspective, but just from a transparency of one.
Speaker Change: You to know that our current.
Speaker Change: Covenant is four times.
Speaker Change: Steps down to three five times at the end of the third quarter.
Speaker Change: Our current <unk>.
Speaker Change: Leverage on a covenant calculation is 317 times. So we're we're in a pretty comfortable position, but to your good point.
Speaker Change: We're confident that we're going to be able to step down and be out of promotional Kate paper by the end of the year.
Speaker Change: Very good.
Speaker Change: That's good news and then maybe Ben just another way to ask the aerospace question.
Speaker Change: Do you feel like the EBITDA like the interest reduction offsets.
Speaker Change: The EBITDA loss on an EPS basis is it accretive that way you can maybe help us frame that up because youre going to take the cash pay down commercial paper and then we don't exactly know what the aerospace EBITDA is but just maybe back back into it that way.
Speaker Change: Bobby I don't think it would be a complete offset but it would the interest reduction would help a little bit but.
Speaker Change: I don't think it would get you all the way there.
Speaker Change: Okay very good that's helpful. And then maybe switching gears just on the bedding side of things.
Speaker Change: Can we talk a little bit about.
Speaker Change: You're kind of volume side Youre kind of volume performance in the first quarter on inner springs versus kind of what you called out for the domestic market as well as consumption in some of the moving parts there.
Speaker Change: The differences of kind of what you guys saw versus what you think the market did.
Typhoon: Sure Bobby this is typhoon and I'll take that one.
Speaker Change: I'll start by saying, despite all of our touch points with the market. It is really difficult right now to work through what's what's happening I can mentioned on Susan's question, even just with the consumption of imported components or finished mattresses, it's it's giving us a pretty cloudy picture at the moment.
Speaker Change: That said, we did have some underperformance versus what we called out is the U S consumption in the first quarter, but I should start with.
Speaker Change: Sales attrition really related to our restructuring and most of that being with our Mexican spring operation that we exited last year.
Speaker Change: That alone has about a 3% impact of the volume.
Speaker Change: The biggest call out that we would have in the discrepancy.
Speaker Change: Second to that we do think finished imports did gain some share at the expense of some of our customers, which obviously flows back to us as well.
Speaker Change: The other part of this the remainder of the difference is mostly volatility within our contract and non contract customer base and it is a little different explanation between the two we do have a little bit of a range with our contractual customers to just normal within the requirements of our agreements and so year over year. We did have some shifts there, but nothing that's out of.
Speaker Change: The ordinary just with market demand.
Speaker Change: What's different about our non contract customers are just going through and looking at the detail. There. We're just at such a low demand environment, we really just have lumpy activity with our customers.
Speaker Change: Certain periods. They are taking more product and then it drops off pretty significantly. So it is impacting our results kind of quarter to quarter, just seeing how those accounts are placing their orders.
Speaker Change: I think the only other thing I would point out.
Speaker Change: Just some timing differences between our business and how we would think about mattress consumption.
Speaker Change: We started the year with January and it was very very soft it was a significant drop off from December kind of post election bump things.
Speaker Change: <unk> data improved through the quarter, but still even with the improvement it wasn't enough to offset what we saw in January. So I think timing also played a part in that as well.
Speaker Change: Thank you that's helpful and then Carl maybe just one last clarification on the expanded metal margin that was a comment about what youre seeing in April since the tariffs started to take place or is that an expectation going forward.
Speaker Change: Trying to get a sense of if you're already seeing that in call. It. The first 30 days here of <unk>, yes.
Yes, the way to think about them Bobby is that year on year and metal margins declined sequentially, including in hand in April they've improved.
Speaker Change: So year on year actually metal margins are stronger in April.
Speaker Change: Obviously sequentially to improve and we have that expectation through the full year.
Speaker Change: We've said that tariffs.
Speaker Change: Tariffs are a challenge, but on average there is puts and takes but when you aggregate all of Leggett tariffs are probably a net positive.
Speaker Change: <unk> of the nature of the 232 steel and aluminum tariffs, it's most acute at.
Speaker Change: Rod and wire level, we believe those tariffs if any of the tariffs are sustainable for the term of the current administration, it's the steel tariffs.
Speaker Change: So we feel pretty good about our metal margins going forward. We also feel really good about the demand there and while Tyson made reference to the soft conditions in residential.
Speaker Change: The steel mill is sold out right now as as is the wire mill.
Speaker Change: The wire mills, I should say and the excess is going to commercial.
Speaker Change: Construction, which is very continues to be strong in the country. So we see that going a little further just to tie. This all together, we see that in our Geo components business as well, so that's really where we're seeing the net positives.
Speaker Change: Very good I appreciate the details and best of luck here in the second quarter.
Bobby: Thanks, Bobby.
Speaker Change: Best of luck to you next week too.
Speaker Change: Thank you our next questions come from the line of Keith Hughes with <unk> Securities. Please proceed with your questions.
Speaker Change: Thank you I just wanted to go back to the automotive.
Speaker Change: So.
Speaker Change: Got quite understand what youre, saying Youre shipping.
Speaker Change: <unk>.
Speaker Change: I guess, just shifting a bit Mexico, and they're coming back in the United States can you just explain it one more time.
Speaker Change: Got it.
Sam Smith: Sam do you want to clear up auto tariffs.
Sam Smith: Sure Carl and thanks for the question Keith.
Speaker Change: No.
Speaker Change: I'll just kind of go back to what Carl walked through a little bit earlier.
Carl: Our automotive business is really a region for region business. So.
Carl: Does that differently almost everything that we make in Asia goes into cars that are made in Asia and the same is true with what we make in Europe and in what way.
Carl: Here in North America, It just stays inside the region.
Carl: Now, what we make in our Canadian and Mexican branches or U S. MCA compliant.
Carl: And as long as U S. MCA remains intact everything we study tells us that we're good at.
Carl: Because our products HTS codes are outside the scope of the auto tariffs that were announced for early may.
Carl: If that changes.
Carl: U S MCA standpoint in my statement, we change a bit too so.
Carl: So from a direct standpoint, I don't think the <unk>.
Carl: The impacts are big at all the biggest impact we could face is indirect.
Carl: If tariffs drive price inflation, then we could see fewer cars being made and sold in North America.
Carl: And.
Carl: The IHS Markit forecast.
Carl: In April actually showed that that would happen, but quite honestly outside of.
Carl: A couple of factories being idled in April and that was really from an inventory standpoint, no problem OEM factories.
Carl: Our edr signals from the Oems and the tier ones remain largely intact for the next several months. So we're not really fill in anything youre seeing anything at this point Keith is that helpful.
Carl: So that explains most of the circle.
Carl: Mattress industry local call.
Carl: With the tariff we have in place today.
Carl: Again, the change what do you think's going to happen to the kind of sub $500 Baptist market is that even a doable price point anymore or is that just going to kind of rise.
Carl: Higher floor.
Speaker Change: Keith it's hard to forecast when you add in what happens with reciprocal tariffs at some point too, but Tyson how would you.
Carl: Yes.
Carl: Difficult to also keep because we've got the impact of what's been happening with the online mattress and where consumers are buying those but just in the short term we have seen despite the rest of the market struggles that the lowest and still being supported by online marketplaces and the imported finished mattresses, but.
Carl: It is really difficult to estimate what's going to happen. We just don't have much visibility of what the reciprocal tariffs might be that.
Carl: Carl had his opening comments, that's probably the biggest factor in leveling the playing field for imported mismatches that are really are.
Carl: Taking most of a lot of this year and that sub $500 category Keith.
Carl: Keith I'll add we are happy that the administration put in the de minimus tariffs on imports as well because there were a significant number of mattresses coming into the country that were not terrible under the $800 threshold.
Carl: That is very helpful to the industry.
Carl: And it doesn't look like the industry.
Carl: Quarters are.
Carl: When shipped a lot of units coming down.
Speaker Change: Is that correct or at least that's what the government numbers.
Speaker Change: I'm, sorry, Keith read a little bit hard time hearing you. It sounded like you said that quite.
Speaker Change: Quite a bit of finished mattresses were shipped and ahead of tariffs is that correct no. It doesn't it doesn't look like much more so than the whole.
Speaker Change: Materials space on the important numbers over time.
Speaker Change: Yes.
Speaker Change: Yes, well from looking at late last year, we did see quite a bit of a ramp up that was greater than what we thought the consumption would be so even leading into the end of 2024, we felt like some of that built up and it did drop off in the first quarter, we're kind of looking at some longer time periods.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Thanks, Keith Thank you.
Thank you as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Our next questions come from the line of Peter Keith with Piper Sandler. Please proceed with your questions.
Peter Keith: Hey, Thanks, good morning, everyone. Thanks for taking the questions.
Peter Keith: Wanted to just keep focus a bit on bedding, just would that volume guidance reduction.
Peter Keith: If I understand correctly it sounds like January started slow didn't get any better.
Peter Keith: Do you see enough from an end market demand in recent months I think a lot of people are curious if anything changed post liberation day in April.
Peter Keith: Has it gotten worse or you're just taking the trend from the last couple of months and kind of carrying it forward for rest of year to make your forecast.
Peter I'll jump in on that one for us and like I said it may be a little different with our timing what you may hear from others, but January was a very very soft month and it did improve through the quarter.
Peter Keith: But really more to the levels that we've kind of seen more on average through the fourth quarter.
Peter Keith: April kind of post Liberation day.
Peter Keith: It's been more of the same it didn't it did not for us drop off back to another level. It just kind of been a continuation of what we saw in February and March.
Peter Keith: So we'll see I think we've seen some of our customers like I mentioned that are hesitant to make big inventory bets and I just want to see what what comes with the tariffs and the consumer activity, but for US it's been relatively stable over the last couple of months.
Speaker Change: Okay. Thanks for that and then I guess what was interesting to me was the drop in bedding volume that's affecting your forecast and then no change in the FMT outlook, and specifically with home furniture, it seems to be kind of holding steady any thought as to why.
Peter Keith: Mattress volumes have weekend.
Peter Keith: <unk> furniture, which seems to be holding steady with the original view.
Speaker Change: No I'd say home furniture and flooring, our view has backed off because of the tariff impact, but that's been offset by some continued growth in textiles.
Speaker Change: Both on the Geo components side, and then on the fabric converting side more from a die and finished perspective that our residential impact so our call on the residential industries.
Speaker Change: <unk> of the challenges that the consumer has though it's a little bit of a forecast of demand destruction.
Speaker Change: <unk> is out there.
Speaker Change: Affect bedding and furniture.
Speaker Change: Home furniture and flooring the other side I should call as work furniture actually is performing pretty well or gaining some share we feel good about that business.
Speaker Change: So I would put work furniture and work furniture and textiles in the plus category.
Speaker Change: Recently at home furniture, and flooring in the negative category.
Speaker Change: Okay.
Speaker Change: Context.
Speaker Change: And then.
Speaker Change: Lastly for me just just thinking about tariffs.
Speaker Change: The commodity.
Speaker Change: Dynamic.
Speaker Change: So steel prices up soon your rod and wire prices will be up will that flow through to.
Speaker Change: Price increases for spring, so should we see some sales benefit.
Speaker Change: From spring from prices.
Speaker Change: And then separately.
Speaker Change: Does seem like with lower oil prices chemical costs are coming down a lot.
Speaker Change: I'm curious how that might impact the margins in specialty film do you or your contract pricing on film or do you will you hold price and sell.
Speaker Change: All of them, even as input costs from chemicals to come down.
Peter Keith: I'll jump back in on that one Peter So I would separate the steel comment into the trade rod and wire versus the spring and what we've talked about what's been shared with the guidance.
Peter Keith: The increased demand for trade rod and wire in the metal margin expansion and is helping offset the weakness we're seeing in our residential markets.
Peter Keith: And that's really what we're already seeing just even at the end of the first quarter.
Peter Keith: And that's separate from what flows through to our U S spring business, we do have.
As part of our guidance increases some in the second quarter and some through the back half of the year, but.
Peter Keith: Through our contractual business those are based off of different drivers and different timing.
Peter Keith: Then for non contract business, it's based off of actual when the price increases hit and market activity. So we do have some flow through to the back half of the year, but as it relates to guidance that offset is largely coming from trade rod and wire.
Speaker Change: And then a question around chemicals.
Speaker Change: <unk> seen some ups and downs from the chemical suppliers.
Speaker Change: Some related to what you called out but also just some of the normal industry shutdowns and other cost increases that they've experienced fit with the soft demand environment. Some of those have not that not step. So at this point our assumption around chemical cost is relatively flat to last year.
Speaker Change: Okay, Alright, very good and then I guess, maybe in a lot of it and then one last question.
Speaker Change: Congrats on the.
Divesting.
Speaker Change: The aerospace business.
Speaker Change: As it relates to the business review of of your other segments and business lines is there a business review that still ongoing or do you feel like that review has largely been completed at this point.
Peter Keith: Peter It's ongoing it will continue to look at every business to see if we're the rightful owner and what's our position in the market our market knowledge and our effectiveness from product development and pricing. So it will continue.
Speaker Change: It is continuing.
Peter Keith: Okay very good thanks, so much.
Speaker Change: Thank you.
Speaker Change: Thank you there are no further questions at this time I would now I'd like to turn the floor back over to Cassie Branscum for closing comments.
Speaker Change: Thank you for joining us and your interest in Leggett and Platt and have a great day.
Speaker Change: Thank you. This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: [music].