禮恩派 (LEG) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Leggett & Platt First Quarter 2004 Earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded on Thursday, April 22, 2004.

I would now like to turn the conference over to Mr. Dave DeSonier. Please go ahead, sir.

Good morning and thank you for taking part in our conference call. I’m Dave DeSonier, the VP of Investor Relations.

Joining me this morning are Felix Wright, Leggett’s Chairman and CEO, Dave Haffner who is our President and COO, Karl Glassman, the EVP and also Head of the Residential Furnishing segment, Matt Flanigan who is our CFO, Bob Griffin who is President of our Fixture & Display group, and Susan McCoy who is Director of Investor Relations.

The agenda for the call this morning is as follows. Felix will start with a brief summary of the major statements we made in the press release yesterday and then will add some additional insight into our results. Dave Haffner will give an update on the Fixture & Display tactical plan and discuss the market trends we’re seeing in our businesses, along with factors impacting our earnings and margins and then Felix will discuss our outlook for the second quarter and the full year. Finally, the group will try to answer any questions you might have.

This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded, or broadcast without our express permission. A replay is available from the IR portion of Leggett’s web site. In addition, I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially from such forward-looking statements due to a number of risks and uncertainties and the Company undertakes no obligation to update or revise these forward-looking statements. For a summary of these risk factors and additional information concerning forward-looking statements, please refer to yesterday’s press release and the section in our 10-K entitled, “Forward-looking Statements”.

I’ll now turn the call over to Felix Wright.

Thank you, Dave. Good morning and thank you for taking time to participate in our first quarter conference call.

We’re very pleased with our first quarter results. As we announced yesterday, earnings for the quarter were $0.32 per share, a 28% increase over last year and one penny above guidance. This earnings growth was driven primarily by record quarterly sales of $1.19b. Ongoing impact from a weaker US dollar partially offset the sales-related gains.

Same location sales increased 8.5% in the quarter due to three major factors. Volume gains and inflation added about 3% each and the changes in currency rates added about 2%. Again this quarter, all five segments recorded same location sales growth. Demand continues to strengthen in many of our businesses and we’ll discuss those trends further in our segment comments. Margins increased in the quarter versus the first quarter of 2003, primarily due to higher sales volume and improved overhead recovery.

The most difficult challenge we faced during the first quarter was the rapid increases in steel prices. First quarter market prices for rod and rolled steel averaged $150 to $280 per ton higher than in the first quarter of 2003. This represents at least a 50% increase and in some cases, nearly doubling of last year’s prices. We expect our second quarter steel costs to increase further, with rod costs likely averaging at least $100 per ton higher than in the first quarter.

Throughout the first quarter, we implemented price increases to pass along these higher costs. Most customers understand that we are unable to absorb increases of this magnitude and have accepted the pass through of these cost increases, as many of our customers are implementing their own price increases to pass these higher costs along to their customers.

The Fixture & Display tactical plan has been in place for six months. Improving performance of these businesses remains a primary focus and we’re making important progress. Dave Haffner will comment further on the steps we’ve taken in his remarks later in this call.

Other highlights for the quarter -- we completed three acquisitions that should add about $33m to annual revenues. Two of these companies produce automotive seating components and should add about $32m to revenues in our specialized products segment. A small Russian innerspring operation should add about $1m to Residential Furnishings.

Working capital was 19.1% of sales, in line with our target. Accounts receivable levels increased due to higher sales. We ended the quarter with $429m of cash on hand and net debt to Cap of 23.3%. We generated $81m in cash from operations and our first quarter dividend increased 7.7% over first quarter of 2003, reflecting our 33rd consecutive annual increase.

And with those brief comments, I’m going to turn the call over to Dave Haffner.

Thank you, Felix and good morning, everyone. My comments will discuss our recent performance, including some of the major factors impacting our EBIT and EBIT margins and trends in our various businesses.

But first I’d like to comment on progress we’ve made under the Fixture & Display tactical plan. This tactical plan has been in process for six months and we have made significant progress. I’ve joined Bob Griffin and other senior management of the business group to conduct detailed operating reviews of the largest 40% of the Fixture & Display locations, which contribute over half of the group’s trade sales.

We have initiated over $10m in annual savings from reduced head count. We’re requiring cost reductions from all significant vendors. We’re closely scrutinizing capacity utilization and scheduling optimization and we’re making critical management changes within the respective profit centers where necessary.

These gains are partially masked by a variety of offsetting factors, including weak market demand, raw material cost increases, plant closures and restructuring costs, and extreme price competition. We continue to believe in the long-term attractiveness of this business and expect to eventually deliver double-digit EBIT margins on a consistent basis.

Now, turning to the individual segments, in Residential Furnishings total sales increased 13.8%, with same locations growing 10.2%. Demand improved across most business units, with bedding components posting the strongest year-over-year growth. Inflation and currency factors also contributed to the sale increase.

EBIT and EBIT margins increased for the quarter due to higher sales, improved overhead recovery as a result of higher production levels and benefits from prior period plant consolidations. These gains were modestly offset by the impact of a weaker US dollar.

This quarter’s improvements continue the trend that began developing in the last half of 2003. As we head into the second quarter, we expect these gains to continue. However, we will continue to be challenged by rising steel costs.

In Commercial Fixturing & Components, total sales grew 18.8%, almost entirely from acquisitions. EBIT increased slightly for the quarter. As I mentioned earlier, we are making good progress with the tactical plan, but the benefits are being offset by other factors including weak market demand, some delays in implementing raw material price increases and plant closure and restructuring costs.

We expect overall demand for Fixture & Displays in 2004 to be up slightly from 2003 levels. Although many retailers have budgeted for remodeling and new store expansions this year, as we’ve seen in the past three years they have been reluctant to start those programs.

Our Aluminum Products segment posted a 5.7% sales growth for the quarter, entirely from higher same location sales. EBIT increased as well, with sales-related gains partially offset by a changing product mix. This solid first quarter performance follows two years of steady improvement by this business unit in sales, margins, and returns. Margins improved versus first quarter of 2003 and are on track to reach our 10% target for the year.

In Industrial Materials, total sales increased 16.6%, entirely due to higher same location sales. Inflation contributed to the improvement, but demand was also much stronger than last year, particularly in our wire drawing operations.

EBIT improved significantly from last year, due to two major factors. The first was stronger demand that led to better overhead absorption at our mills. The second was improved performance at our Sterling rod mill. That operation was in the startup phase in the first quarter of last year and it was incurring losses. This year the facility is operating profitably and in line with our plans.

This quarter’s improvement was driven in large part by stronger demand from our own bedding operations, as well as many trade customers. Our second quarter outlook for these markets remains favorable. Rising steel costs will remain the largest issue for the next few months. Second quarter costs, on average, will be higher than first quarter and these costs must be passed through.

Specialized Product sales increased 14.8% on same location growth of 10.9%. EBIT increased slightly, with sales-related gains almost entirely offset by higher raw material costs and the effect of currency rates.

Demand for automotive seating components has been strong for the past two years and is expected to be favorable again in 2004. In addition, we’re seeing significant new order volume in our machinery operations, indicating a return of capital spending by manufacturers.

And with those comments, I’ll turn the call back to Felix.

Thank you, Dave.

Our outlook for the full year has improved, primarily due to higher sales growth expectations from the pass-through of higher raw material costs. We now expect organic growth to be in the 5% to 9% for the year. With this higher sales growth, we’ve increased the low end of our full year EPS range by $0.05 to $1.20. Our full year range is now $1.20 to $1.35 per share.

Steel prices are continuing to rise and our earnings guidance assumes that these increases will be recovered. We’re also assuming that the Fixture & Display group’s performance continues to improve. For the second quarter, we expect sales to be flat to $50m higher than the first quarter. Versus the second quarter of ’03, this represents about a 9% increase in organic sales.

Based on these sales assumptions, we expect earnings in the $0.31 to $0.36 per share for the second quarter. In each of the past two quarters, EPS has included a $0.01 benefit from the realization of foreign tax credit carry-forwards. For the remainder of 2004, we expect an approximate effective tax rate of 34.5% as the carry-forwards continue to benefit earnings.

So, with those comments we’re going to turn the call back to Dave DeSonier and try to answer any questions that you all may have. Dave?

That concludes our prepared remarks. We appreciate your attention and we’ll be glad to answer any questions you have. As is our typical policy, in order to allow everyone an opportunity to participate, we request that you ask your single best question and then voluntarily yield and if you have additional question, please reenter the queue and we’ll try to answer them all.

Kristin, we’re ready for the Q&A.

Thank you, sir. (Operator Instructions.) One moment, please, for our first question. Our first question comes from Margaret Whelan. Please state your company name followed by your question.

It’s Margaret Whelan from UBS.

Hi Margaret.

Hi Margaret.

Good morning. I’m so proud of you guys. You’re doing a great job.

Thank you.

Let me ask a longwinded one and only question. In terms of the timing, could you detail maybe the pattern throughout the quarter in each of the business units, the timing on the price increases, because you said in the second quarter your costs will be higher? So, how much of that will definitely be offset, you know, the magnitude of the price increases, what is sticking? And given the fact that you’re doing so well, I’m wondering why the guidance wasn’t a little higher. That’s my question.

That was a longwinded question. Margaret, I’m going to take a stab at a little bit of it. As far as the continuing horrific - if that’s the proper word - escalation of steel, it’s really market and demand and availability driven at this point. And that’s what we’ve been dealing with almost for the last 60 or 90 days. We’re still dealing with a little bit of that as we go into this quarter.

We have continued to try to react and work with our customers as best that we can in trying to give them as much notice, at the same time still trying to pass through these increases as quick as we’re taking them. The majority of the steel that we’re buying we’re buying on no greater than 30-day increments and some of it is obviously just surcharges that we pay at whatever the time of shipment.

But having said all that, we continue in early April to have pass throughs of material cost in both the Residential and the Industrial and also some of the Commercial Fixturing parts of the business as we go. We are analyzing the continuing increases that we’re getting currently and have notified our customers that they’ll be advised, during this quarter, as to when those increases will be passed through.

But we anticipate being able to pass those through with not a lot of delay. When you start blending the inventories and as quick as every 30 days that we’ve had this increase and every 30 to 60 days that we have been trying to change these pricing structures and etc. So there may be somewhat of a delay, but perhaps you may see some of that within our guidance, it is not a big portion of it.

It’s just a small portion, but there is something there that would have had to put some conservatism on the guidance, but not a lot. And obviously we’re still wanting to see the consumer continuing to move forward and keep the sales momentum up to where that it is. If we can do that and drive the productivity through the assets, that’s our biggest opportunity to have a return and to get better earnings within the Company.

Would you --?

So, Dave and -- go ahead, Margaret. I’m sorry.

Would you just then talk about the trend within the quarter and into April in each of the business units?

Okay, Karl, do you want to take this?

Yes. Margaret, this is Karl. In the Residential side of things, we announced the first increase at the beginning of this escalation that had an effective date in November of last year and announced a number of increases. It’s somewhat product-dependent and type of raw material dependent as to timing. It’s not just a steel issue, as an example. Lumber is impacted and a lot of other products, as are polyester-based products.

But the increases have continued to be announced. The next increase schedule that we have in line is effective May 3rd. Our customers have all been advised of that increase and we basically are telling them that we’ll be back to them as quick as we possibly can but to count on those prices for that 30-day period and no more than that 30-day period.

Okay. Okay, I got it. Thank you very much.

You’re welcome.

Thank you. Our next question comes from Mr. Budd Bugatch. Please state your company name followed by your question.

Budd?

I don’t think he’s there, Kristin.

Our next question comes from Mr. Keith Hughes. Please state your company name followed by your question.

Keith Hughes, Robinson Humphrey.

Hi Keith.

Hi. How are you all doing?

Fine.

My question is for Dave in Commercial. In your commentary it sounds like you’re making some progress. What would be the earliest that we would see some meaningful margin improvement from this 3, 2.5% number that we’ve been seeing for a while now?

I expect next quarter, Keith.

Sorry?

I expect next quarter, depending upon your definition of meaningful. We’ve identified about $20m worth of annualized savings. Some of the masking that we saw this quarter, which included a couple million dollars worth of shutdown and consolidation costs and other onetime things, are not going to reoccur. So, again, depending upon your definition of meaningful, I think it’ll be next quarter.

Okay.

I do believe that it’ll be probably 2005, the back end of 2005 when we’re going to see those higher watermark percentages. As you know, the back end of the year tends to be better.

Right. So, overall for ’05, if you had a good market for these products would double-digit be achievable in ’05?

For ’05?

(multiple speakers) margins?

For all of ’05?

Right.

It would be the challenge, Keith, but --

Or maybe the better way to say it is the run rate toward the end of the (multiple speakers)?

Oh yes, absolutely.

Yes.

That answers it. Thank you.

You’re welcome.

Thank you. Our next question comes from Mr. Budd Bugatch. Please state your company name followed by your question.

Raymond James. Can you hear me now?

We thought you fell asleep, Budd.

No, no, I couldn’t figure out how to work this phone. So, anyway, good morning and congratulations on a good quarter.

Thank you.

My question does go to steel and the LIFO impact and what we should see as the visibility in that.

If I calculated it right, LIFO at least from an accounting perspective, looks like it had a drag of about $0.06 a share on this quarter and you’ve kind of indicated that if nothing changes that would be the balance of the year in each quarter. Which you’ve offset, I guess, with price increases. I’m trying to see how much of the impact of the cost increases you have been able to offset and I know it’s not just steel, it’s other raw materials, as Karl was saying earlier.

Yes and Budd, this is Felix. Budd, what we’re going to do, obviously we’ve done a tremendous amount of work on the thing and the end of September is when our index for the LIFO is and so obviously it’s extremely tough for us to come up with an absolute accurate analysis.

But our best analysis that we’ve got right now is what we stated in our press release, that we’ve got a $70m estimate and we ratably, across the quarters, try to apply that, hence the $17.5m charge in the first quarter. But Matt Flanigan, our CFO, is going to do the best job that he can in trying to explain to you exactly where we think this LIFO deal is today, so Matt?

For LIFO or -- Felix, you just told him my answer. You’ve told him everything I had to say. Budd, just a few comments relative to LIFO. Obviously it is the first time you would have seen it in our press release.

The magnitude of it has been dramatic and so a few tidbits here on the essence of the LIFO piece and certainly Karl, Dave, Felix can talk about the price recovery efforts that have been underway for quite some time now. But in essence, as you know, 50% of our inventories are basically tied to LIFO and what LIFO, of course, attempts to do is match revenue and current costs on the income statement.

So, as a result, we go through a process per GAAP that attempts to estimate what the full year impact of this dramatic increase in inflation has been in the inventories that are associated with inflation, to a great extent, in our period LIFO. And in our steel categories, rod and wire, those were all carried on a LIFO basis for Company and have been for decades now.

So, given the magnitude of the inflation that is incurred in those inventories that are carried on LIFO, has required us to look out for all of ’04, essentially, and try to give our best estimate based upon market data we have today as to what the full year impact might be. And sure enough, as we went through that arduous journey, $70m is what, as we see it here today, is our best crystal ball as to what the full year impact would be.

Now, the upshot is that that estimation we’re arriving at right now is based upon the figures we’re paying right now in the second quarter, which are even more painful than they were in the first quarter. And we’re assuming that through the rest of the year, in essence, that’s about where it will remain. We’ll probably be wrong either way. We hope we’re wrong and that they come down.

So, you will see through the second, third, and fourth quarter our continuing best estimate as to what that total LIFO expense should be for the full year and bring it back. If you take $70m -- this is our very best estimate -- and slice it in fourths -- we put $17.5m in here in the first quarter -- and again, feel that is our best estimate at this point in time.

Now we could spend a whole lot of time talking about LIFO and it’s a complicated topic. But we’ve been on it since the mid-70’s. Last time we had very significant inflation and sure enough it’s been unprecedented in those categories that are touching on those inventories.

And Budd, I think the final deal of the question that you’re trying to answer is if that equates to $0.06. We think from the FIFO earnings side of it that probably our best guess is neutral to slightly negative. It’s not actually a full $0.06 negative, but it’s neutral to slightly negative and that’s about as good an answer as we can give you, at this point.

And the reason for that is because you’ve raised the prices on that (multiple speakers)?

That’s exactly right.

Okay, but --

You’re exactly right.

But the magnitude of the draw down or the drag, at least accounting-wise in the quarter, if you book that LIFO charge in the quarter, was $0.06. You do your math. Am I correct?

Yes. That’s the $17.5m.

Right. That’s exactly right.

(multiple speakers) that’s right.

But obviously we’ve had some earnings and pass throughs that have taken some of that the other way and we think that that’s neutral to slightly negative.

Unknown Speaker Budd, there is four parts to that. There’s the revenue increase, the cost increase and then there’s the write up of the inventories for FIFO within the segment and then there’s the LIFO offset. And all those together, as Felix was saying, the total effect is roughly neutral to EBIT to slightly negative.

Understood. But just then the segments that are most impacted would be Residential, Fixture & Display and Industrial?

And then some automotive components.

But that’s the major ones. Yes.

But yeah, you hit the major ones.

You hit the major ones.

On the aluminum segments inventory, just relative to LIFO, are not on LIFO. They’re on FIFO. So that segment is pure.

All right. Thank you.

Okay.

Thank you. Our next question comes from Mr. John Baugh. Please state your company name followed by your question.

Wachovia Securities. Congratulations.

Thank you.

My question is just simply -- if I looked at, for example, the Residential Furniture segment, your EBIT performance is very good and you had, I think it was, low single-digit unit volume gain. So, the simple question is, did the price increases you get -- and there’re obviously a lot of variables that drive EBIT.

But did the prices increases that you were able to get in the March quarter offset the raw material increases? And along with that, I know that one of your customers - I believe it’s Simmons - has resisted passing along price increases and I’m wondering how resistant your big bedding customers have been to current price increases, recent as well as maybe current and/or immediate future?

John, this is Karl. The most significant contributing factor to the positive improvement in Residential was volume. It wasn’t price inflation. It was volume. Volume price inflation and currency all played a role, but the throughput through the assets was of significant help to us. In the first quarter of last year and actually in the second quarter of last year, we were idling. That certainly wasn’t the case in the first quarter of this year. We were running product really full bore, some weeks wishing there was eight days to schedule and actually that still is the case. Business is very, very good.

So, if throughput through the assets was the key contributor, we have systematically and unilaterally passed on our raw material increases to every one of our furniture and bedding customers. The bedding customers, in aggregate, are in a difficult position in that not only are they dealing with unprecedented raw material increases, but they’re also dealing with the California flammability issues.

So all that rolled together, each bedding manufacturer has to make a different decision. Some have developed a new line that meets the flammability standard that’s in the market today. Some of them are waiting later in the year. Some of them are going through different remerchandising strategies based on that standard, but we have passed through the raw material increases to our bedding customers.

So, Karl, just to be clear, obviously volume was a driver. Did volume offset what would’ve otherwise been a slight or maybe material squeeze in profitability from the mix between pricing and raw materials going up? Or was that essentially at neutral and volume just drove the gain?

Essentially neutral and volume driving the gains.

Great. Thank you.

You’re welcome.

Our next question comes from Laura Champine. Please state your company name followed by your question.

Good morning, Morgan Keegan.

Hi Laura.

I have a question about the operating margins for Commercial. Can you break out what the impact of currency was and in that segment, is your pricing power different than the other segments of your business and are pricing trends substantially different in Commercial than what you’re seeing in other segments?

Dave, do you want to take that, please?

Yeah. For all of commercial, currency had an impact of $2.7m. That was not just Fixture & Display. That was for all of Commercial.

The pricing power.

Bob, do you want to comment on pricing power in Fixture & Display?

In terms of--?

Laura, if I understood your question, that -- do we have any more or less pricing power in the Commercial Fixturing part of the business. And I think that yes, that we do have somewhat of a pricing power in there that we’re able to get the raw materials through. Sometimes it’s a little bit of a tougher business because the things that we’re bidding on, etc., are much longer or further out than we have in other parts of our business. So, therefore, we make commitments to customers based on store refurbishings or store openings or real estate availability or whatever it is, so it does get a little bit more complicated than it is in some of our other businesses.

But because of the magnitude of some of the steel, and etc., we have had to take the attitude that there’s some of that business that we either have to either pass through on a surcharge or some other basis these material increases. Or we have to not be able to perform under the contract, etc., and there’s a lot of that that we’ve been able to do.

Yes. Laura, this is Bob Griffin. I understand your question better. A good portion of this is custom, so it’s bid on a week-to-week, month-to-month basis, so clearly we take the scale into account there. Those projects that have been already accepted though, we really have been unwavering in our pricing action.

Unfortunately, some of our competitors have tended to be a lot smaller than us and we believe not as well educated on what’s going on in the marketplace and they will go in there and price product really at a loss for them in this marketplace. I think that’s to their peril and there have been a couple of customers on projects we’ve walked away from.

Are you seeing inflation in the commercial fixturing industry or are you seeing actual price pressure in the industry at large, not necessarily your own pricing?

Can I address it?

Okay.

We are seeing inflation, but there’s pricing pressure even in that inflationary environment. Everybody is having to deal with the higher raw material costs. There’s also a substantial amount of unused productive capacity, albeit some of those competitors are failing, so it’s really both. We are seeing inflation in pricing, but we also see pretty stiff competition from those people that are still in the mix.

And Laura I might mention -- this is Dave Haffner. To that point, relative to some of the accounts that just don’t contribute adequate gross margin, that’s a part of the specific detail that we go through in the tactical plan, the gross profit margin analysis, by account, by product. And as Bob said, we’ve had to walk away from some business because it simply didn’t make sense for us.

Okay. Thank you.

Thank you. Our next question comes from Linda Bannister. Please state your company name followed by your question.

Linda?

Good morning. Can you hear me now?

Yes.

Hi Linda.

Okay. Congratulations on a good quarter.

Thank you.

I’m from Edward Jones. My question is kind of a follow-up to Laura’s question. If you’re seeing some pricing pressure in the Fixtures business, is it safe to assume that volume on a year-over-year basis is still down for this specific segment?

This is Bob Griffin. I’ll answer that. No. That’s not the case. We still think that we’re going to see modest growth this year in Fixture & Displays. We believe that as the balance of the year continues here and if it continues strong on the retail side, which it has so far, there may be even some upside to that.

Looking out to 2005, if this spend continues -- obviously we came off a good Christmas and a good first quarter at retail. If the spend continues, we expect that we’ll see some significant rebound in 2005.

Is it new retailers that are spending or are you getting more spend from existing clients that you have?

It’s really a combination of both. We have a pretty wide cross section of retail already. We are though, nonetheless, picking up a number of new retailers here, some quite large and some new upstarts, if you will, over the past five to seven years.

But where we’re really beginning to see a lot of activity is in the soft goods side of the business, the fashion side of the business. That’s where we’ve seen, at least as far as I’ve been in, extraordinary declines in activity in that part of the business. They’re now refurbishing their brands. They have to and we’re just seeing a lot of strength there. So, I would expect to see, continue to see just big recovery in that segment.

Thank you.

Our next question comes from David MacGregor. Please state your company name followed by your question.

Actually it’s Shawn Harrison (ph) for David this morning, Longbow Research. Just getting back to the Fixture & Displays, I just want to get a few numbers correct. It is $10m in savings to date and $20m in incremental savings going forward and the cost has only been a few million to day.

I was wondering what, I guess, the restructuring costs would be going forward and secondly, still on Commercial Fixture & Displays, the utilization in that segment currently and where could we get to at the end of the year given the restructuring actions taken? Thank you.

Shawn, this is Dave Haffner. Let me correct you on the savings, the annualized savings. The $10m was just on personnel or head count-related reductions. In total, we’ve identified about $20m of annualized savings as a result of this tactical plan. So the $10m just personnel-related, $20m in total, which takes into account all the other items that we’ve been able to do. We’re not done. There’s still plenty of improvement to be had.

If you want to just cut it in four gross pieces, that would say, well, about $5m per quarter, why aren’t we seeing $5m improvement for the quarter? And it’s because of these other temporary masked offsets that we’ve got. As an example, we had approximately $2m worth of shutdown and consolidation costs this past quarter. So as I was trying to answer Keith’s question earlier, we do anticipate we’re going to see some significant improvement in margin in this third quarter on a year-over-year basis and it’s because we’ll have the effect of these annualized savings. And we will not have as many ongoing, onetime costs.

One of the questions that might be out there is, well, what about consolidation costs going forward, do you have other shutdowns or consolidations? The answer is yes we’ve got some potentials there, but they’re not going to be big costs. For the next year or so we think that it might be in the $2.5m range to effect any of the additional shutdowns or consolidations that we’ve got.

I’ll answer the production capacity utilization question real quickly and then Bob, if you want to have any other comments for Shawn.

But Fixture & Displays, in the first quarter of ’04, if you mix everything together - that’s storage products, store fixtures, van (ph) conversions, etc. - we were operating at 68.0% capacity utilization. That’s up from 63.6% in the fourth quarter of ’03 if you want a reference point. Bob, do you have any other answer for Shawn?

Yeah. As the year progresses (this is a seasonal business) that capacity utilization will increase significantly. And we are, in Q1 that we just experienced, as well as we will continue in Q2, with some consolidation, a fair amount of those related still to the RHC transaction which provides us lots of opportunity. So, again, we will be taking more capacity, if you will, off line and that utilization, so from year-over-year it should increase significantly and you should see it in the profit side of the business also, Shawn

Thank you. Our next question comes from Dan Stolper. Please state your company name followed by your question.

Dan Stolper with Wachovia in Kansas City. I’m curious to hear a comment on sort of how the international side of the business is doing. In particular I’m interested in how you might be doing in the China area.

Dan, this is Felix and I’ll take a first shot at it and then we’ll let Karl talk about it. I’ll take a little bit of the China.

We’ve got eight facilities in China as we speak. We’ve got a little over 2,000 employees in China currently. We’re primarily servicing parts for some of our machinery, parts for some of our automotive operations, parts for some of our home furnishings components such as upholstery and etc., and then parts for some of the bedding industry is what we’re doing. The majority of the products are staying in China and being used in China. Some of them are coming back here in finished of some upholstered furniture, but as I say, the majority of them are staying there.

We will, probably, as we’ve stated before, within the next 12-18 months have some presence in Asia in our aluminum segment. That’s something that we have been telling everybody in the market for probably 12 months now, but there are some components in our aluminum part of the business that do have some labor intensity that we probably need to make those in an Asian country and we’ll be doing that.

We’re very pleased with the operations that we have set up. We are pleased with their performance. We’ve got an awfully good infrastructure set up there. We’ve got a corporate office that we have established there and etc. that’s functioning and functioning well. We’re using Chinese nationalists to run that business for us and feel very comfortable in operating there. But I’m going to let Karl give you a little bit more international flavor in some of the other Residential businesses.

Thank you.

Dan, China is much like the US is challenged from a raw material increase standpoint. The steel increases that we’ve experienced, we actually first experienced in China and then it’s circling the globe, as a matter of fact, impacting Europe most aggressively right now.

So we’ve dealt with those raw material increases. We successfully passed them through to our customer base. As Felix said, the vast majority of that Chinese production capacity stays in China. So, as long as the Chinese GDP continues to grow, the middle class continues to grow, that we continue to be very optimistic that those businesses will grow. They’re certainly profitable and we’re happy with them.

The interesting thing that’s happened in the last six months or so has been a move from some of our Australian businesses to the Chinese businesses. And what I mean is we’ve been pretty successful at deverticalizing some of our Australian bedding manufacturers who are dealing with those cost increases themselves and supplying them with products that are made in China.

We see that opportunity for Australia and the rest of that Asia Pacific region to continues to accelerate. Whereas it started as just a Chinese strategy, it’s now truly become an Asia Pacific strategy.

Okay. Thanks very much.

Our next question comes from Aaron Braun (ph). Please state your company name followed by your question.

Good morning, Willow Creek Capital. I got on a little bit late, so if you went through this I apologize. But I was hoping to get some insight into the organic growth estimate and specifically does the organic growth address the price increases that you have initiated or are we looking at unit growth only or some combination thereof?

Are you talking about the 5% to 9% for the year?

Yes. That is correct.

It does incorporate some inflation. Our prior estimate was 3% to 8% and that didn’t have any inflation, really. So we boosted it a little bit to reflect some expected inflation and then, in the first quarter, we had roughly 3% of the sales growth due to inflation.

Okay, so to look at it a different way, in the equation price times volume equaling growth, really the increases come from the P not the V?

Well, I wouldn’t agree with that. I’d say in the first quarter, out of the 8.5%, you had 3% was inflation, 2% was currency, the largest portion was volume and then going forward, currency should not be an issue because it anniversaries in the second quarter. So most of that 5% to 9% that’s out there for the year will be volume. There will a piece that’s inflation, but the largest part should be volume.

Okay. What I thought you’d said a minute ago was that the prior guidance did not include any price increases, so this the delta between the old guidance and the new guidance was the price increases.

The prior guidance of 5% to 8% did not include any inflation.

Okay. Thank you for the clarification.

Okay.

Thank you. (Operator Instruction) Our next question is a follow-up question from Mr. Shawn Harrison. Please go ahead with your question, sir.

Yes. Understanding that you do have I guess an agreement with the electricity companies to receive lower rates at your steel mill plant on the weekends, is there an opportunity to run the shop maybe seven days a week, then sell that billet an at incremental profit? Given where pricing is in the market currently?

Well, Shawn, you’re trying to put us into the steel business. This is Felix. Anyway, you know there is always temptations in life in a lot of things that you do and etc.

Our posture at this point is and I can tell you, currently, we’re running at three days, we’re running about three and a half or four and we’re doing that and we’re running some extra billets. But we’re not selling those billets. We’re having those billets converted for us into rod, because availability is so absolute tight in this marketplace today that you can’t get them.

But as far as us branching out and taking the temptation, which we think probably is more temporary than long-term, turning that on to a seven day a week mill and running billets and getting into the steel business, we’re resisting that temptation. It’s still a vertical play and that’s the way that we’re going to keep it right now.

Shawn this is Dave Haffner just to add to what Felix said. You might appreciate the fact that we have done all of those sensitivity analyses, and based upon volume and incremental cost per kilowatt-hour. And at this point, like Felix said, we think it makes sense to take advantage of our relative low-cost electricity and overhead and unused rolling capacity is one of the places. But we don’t have any intention of selling billets long-term into the market.

All right. Thank you very much.

Our next question comes from Mr. Allen Zwickler (ph). Please state your company name followed by your question.

You aren’t getting away that easy.

Hey, Allen, we wondered where you were.

Well, I was on eight other conference calls, so you guys make nine. But -- and I may have missed this and I apologize and you’ll cut me off and I’ll read the transcript. But what’s the acquisition pipeline look like and were you in the market during the quarter to repurchase the shares?

Allen we -- how many shares did we lay (ph) in the quarter?

Well, if I remember right, we bought about 800,000. I mean, that basically replaced what we issued, not quite replaced all that was issued.

(multiple speakers) quite all of them. But then, as far as the acquisition, your first part of the acquisition pipeline, about $33m in revenues is what we acquired in the first quarter and that acquisition pipeline, Allen, is about the way that we reported last quarter. Don’t expect us to be up into the ranges of where that we would’ve normally run. We’re running at about that 50% rate and you know we still anticipate that we’re somewhere in that $200m revenue range gain in ’04 and I think that’s about where you’ll see us for ’04.

And just generally now, the competitive environment, again going to your basic business, both domestically and internationally. Are there any opportunities? Are there any, “bigger companies” out there that are relenting, given the steel, etc., etc.? Besides that there’re always companies for sale, I mean, are you seeing some bigger companies? And in the same vein, are you seeing companies that were doing it themselves starting to ask more questions?

I think when you catch the environment, obviously, in steel or other something that’s at this magnitude of inflation, we’re going to have some of those, Allen.

Sometimes it takes a little creative time for some of those models maybe not to work quite as well as the other. I think we’ll continue to see some of those. How big that they may be I don’t know. Obviously we’ve had some other steel companies that have taken some bankruptcy and are going to be coming out at some auctions that, as we speak, it appears.

And then I think, as Bob Griffin alluded to, we’ve got some Fixture & Display competitors that their models are not working. And I think the way that they’re pricing their products in this horrific inflationary period we’re in with steel, their models are sure not going to work as they get down into late this year and early next year. I think we’ll probably see some further opportunities and we’ll just look at them as we go along.

Thank you, gents, and great quarter.

Thanks, Allen.

Thank you. Our next question is a follow-up question from Margaret Whelan. Please state your company name followed by your question.

You know I had a similar question, just in terms of the uses of cash over the next 12 months and three years. Do you expect your business to mix and your asset base to change dramatically to use a lot more factories in Asia?

(multiple speakers) factories in Asia --

I wouldn’t say it would change dramatically, Margaret.

This is Dave Haffner. I feel certain we will have some additional activities and sites in Asia over the next 36 months. But as far as the amount of cash that we’ll utilize in those activities or new sites, it’ll be a relatively small percentage of the total.

And Margaret, this is Matt, I’d just add relative to the cash we have on the balance sheet now. As you recall, we prefunded some debt issuances in ’03 in anticipation of $350m maturing in February in ’05 and still have that roughly earmarked to be in a strong position to refinance at Asia (ph) by writing a check. Or just having access to the market in ’05 as well, so.

Since you bought Sterling, it’s really been a coup. Do you see any opportunities like that now, Matt, in the pipeline?

(multiple speakers) to answer that, Margaret.

If we saw those we would have done them.

Margaret, obviously our antenna is up, on a number of opportunities that perhaps may come along, obviously, I wish we could find. But we’re not smart enough to know that the market is going to be what it was going to be and that was going to an absolute necessity. Because I can assure you right now, if that one hadn’t have been done I’m not sure we would have had enough raw material to run this business today. But anyway, that’s been a great one.

But yes, I think that there will be some others that may pop up from time to time that may be somewhat like that and we, as I stated earlier, whether it’s the steel business -- and we don’t have any interest in getting into the steel business. But we sure have an interest in doing some vertical plays that might put us in a much longer-term position that these assets are going to stay in this country a lot longer than they’re going to go to some other Asian country.

Got it. All right. Thank you very much.

Thanks.

Thanks. I’ll see you tomorrow. Bye.

Okay.

Our next question is a follow-up question from Budd Bugatch. Please go ahead with your question.

Yes, let me try one other question. I know your comps and your internal growth in the Residential segment and I believe you said bedding was the strongest piece of that. Could you maybe quantify that a little more and also, tell us how it’s gone so far into the second quarter?

Budd, from a bedding standpoint, units were up in the first quarter between 5% and 10%. It was an excellent quarter. It continues to be strong and the third period was actually the strongest month of the quarter. Business is good. The furniture numbers mirror that. We’re pleased, as you know, that there is normally a seasonal slowdown in both bedding and furniture about this time of year and it is happening, but it is certainly happening at a greater rate than it has in previous times. Business is darn good.

Business remains good?

Yes.

Okay. Thanks, Karl.

You’re welcome.

Thank you. Management, at this time we have no further questions. Please continue with any further remarks that you would like to make.

We’ll just say thank you and we’ll shut it down and see you next quarter. Talk to you later.

Ladies and gentlemen, this concludes the Leggett & Platt First Quarter 2004 Earnings conference call. If you’d like to listen to a replay of today’s conference, please dial 303-590-3000 and use the access code of 574863. Once again, if you would like to listen to a replay of today’s conference, please dial 303-590-3000 and use the access code of 574863. We thank you for your participation. You may now disconnect. Thank you for using ACT Teleconferencing.