禮恩派 (LEG) 2006 Q1 法說會逐字稿

Good morning. My name is Terry, and I will be your conference operator today. At this time I would like to welcome everyone to the first-quarter 2006 earnings conference call. (OPERATOR INSTRUCTIONS). Thank you. Mr. DeSonier, you may begin your conference.

Good morning and thank you for taking part in Leggett & Platt's first-quarter conference call. I'm David DeSonier, the Vice President of Investor Relations. With me this morning are the following -- Felix Wright, who is Leggett's Chairman and Chief Executive Officer; Dave Haffner, our President and Chief Operating Officer; Karl Glassman, who is Executive Vice President and Head of the Residential Furnishings segment; Matt Flanigan, our CFO, Jack Crusa, who is Senior Vice President and Head of the Specialized Products segment, and Susan McCoy, who is Director of Investor Relations.

The agenda for our call this morning is as follows. Felix will start with a summary of the major statements we made in yesterday's press release, and then we will add some further comments regarding issues we have dealt with and what we see going forward. Dave Haffner will update you on our restructuring progress and also discuss major trends in our various markets and key strategic points. Felix will then address our outlook for the second quarter and full-year 2006. 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 website.

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 due to a number of risks and uncertainties, and the Company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled "Forward-looking Statement."

I will now turn the call over to Felix Wright.

Thank you, Dave, and thank you all for joining us this morning. We are pleased with our first-quarter results and are making progress on a number of fronts. As we mentioned yesterday in our press release, we set a new record for quarterly sales. Earnings per share were at the upper end of our guidance. The startup of our new diecasting facility in Auburn, Alabama is on schedule. We generated strong cash flow from operations during the quarter, up 63% over the first quarter of last year. Working capital was better than our target in the first quarter, reflecting an ongoing emphasis on working capital management. We continue to use our cash to fund internal growth, make acquisitions, buy our stock and pay dividends to our shareholders. Our first-quarter dividend was 7% higher than a year ago. We ended the quarter with net debt to net cap at 27%, but following our early April acquisition, leverages moved up to about 28%.

There have been many moving parts impacting our business over the past several quarters, including weak demand in some of our markets, inflation and raw material costs and much higher energy costs. We are not able to influence some of these factors, but we are making progress on many of the things that we can control.

One of the issues we have dealt with for the past few months is the restructuring. We are very pleased with our progress we have made on our restructuring plan and are completing this activity more quickly than originally expected. By getting the restructuring behind us and in some cases eliminating chronically underperforming locations, we have freed up more time for our operators to focus on growing the business but continuing to perform well.

Growth remains a top priority both internal and acquisition. Our acquisition growth has improved in the last few quarters. Late last year we completed two large acquisitions that significantly expanded our presence in the Commercial Vehicle and geo components markets. Both markets offer very good opportunities for future growth.

In early April we completed another acquisition that was relatively sizable for us. This Company is a producer of carpet underlay with annual revenues of $47 million. We continue to see new opportunities, but currently most are undergoing initial review.

We continue to monitor external factors. With oil prices hovering around $70 a barrel, higher energy costs may impact consumer demand for our products. As consumers pay more for fuel and utilities, they have less disposable income available to purchase product that contains some of our components. Consumer confidence is an important driver in our business. Levels have been relatively good in recent periods, but with the likelihood of rising energy costs and more political instability in the Mideast, consumer confidence levels may be impacted. Even though interest rates continue to move up, they are still at relatively low historical levels, and we believe they will not significantly impact our business. Higher rates may eventually impact housing starts and sales of existing homes, but only about 30% of our volume in Residential is tied to this activity. Consumer confidence, which impacts the rate of replacement purchases, has a greater impact on our volume.

We also see a global imbalance in the price of basic commodities as an issue. We believe that there are times when foreign governments choose to subsidize materials such as steel and chemicals, creating an unfair competitive landscape for manufacturers who use those materials. We address that competitive challenge when advantageous by moving into countries where those advantages exist.

Our focus for many years has been on efficient low-cost manufacturing and product development. These disciplines continue to serve us well. We look for ways to drive down costs through purchasing initiatives, continuous improvement, lean manufacturing and better asset utilization. In addition, we have been moving with our customers into new global markets so that we can continue to supply those customers. This has also allowed us to participate in those growing local markets.

We feel like Leggett is very well-positioned in a global economy. We expect to set sales and earnings records this year and are optimistic about our long-term future.

With that, I'm going to turn it over to Dave Haffner, our Chief Operating Officer.

Thank you, Felix, and good morning, everyone. In my comments I will discuss market trends and key strategic points for each segment and then some major companywide initiatives we are working on. But first, I will update you regarding our restructuring activities.

Those restructuring activities continue to progress well ahead of our original schedule. During the first quarter, we incurred $11 million of costs associated with the restructuring and expect to incur about $9 million in the second quarter. We should be substantially complete with these activities by midyear. Once completed, we expect an ongoing EBIT benefit from the restructuring of about 30 to $35 million. This benefit is derived from a reduction in the number of employees, elimination of fixed costs associated with closed facilities, and improved overhead absorption from increased volume at the remaining facilities. We realized modest benefits in the first quarter and expect greater benefits in the second quarter and last half of the year as we complete the consolidations and ramp up production of the approximate $300 million of volume that was transferred from the closed facilities.

Now for some comments on the specific segments. In Residential Furnishings demand trends were mixed. Bedding volume was soft in the first quarter, but we saw continued growth in upholstered furniture components. In addition, significant inflation in chemical costs over the past year led to much higher sales in our home operations. Residential segment margins declined 40 basis points in the first quarter versus the prior year. Excluding restructuring charges, margins in the quarter would have improved 30 basis points.

Cost of many key raw materials used to produce finished bedding and upholstered furniture have increased dramatically over the past two years. This has forced our customers to make changes in the design of some of their products. Across the Company, we have stepped up our research and development efforts. We are working with customers on their new component designs and are often the developer for those new components. We expanded our Geo Components business again this quarter. The acquisition we completed in March gives us a well-established West Coast presence in this highly fragmented Geo Components market.

Over in Commercial Fixturing and Components, our office furniture business continued to perform well, posting solid growth in the first quarter. Although still below peak levels, market demand has steadily improved since late 2003. This business faces challenges from increasing foreign competition, but we are very well-positioned with product development, quality and efficient semiautomated operations.

Volume in our Fixture and Display group declined slightly versus the first quarter of last year. Improving the performance of this business and moving back toward our margin targets remains one of our top priorities. Segment margins are still at unexpectedly low levels, but we expect to accomplish gains through our current restructuring efforts, which include a significant reduction in the underutilized capacity in this business. Long-term we strongly believe our Fixture and Display business represents a good strategic opportunity for the Company. We are well-positioned with a broad base of customers and see opportunities to grow our business in new markets. Although our near-term focus is on completing the restructuring and accomplishing margin improvements, we continue to consider attractive opportunities for growth in this business.

Our Aluminum Products segment performed well in the first quarter. We posted solid growth in sales and improved margins 80 basis points over the first quarter of 2005, even with the temporary dilution associated with the Auburn startup. Higher sales resulted from a combination of inflation and volume growth. Aluminum and zinc costs increased significantly during the quarter, but the pricing arrangements we have with our customers allow for a timely pass-through of these higher costs.

The startup of our new diecast facility in Auburn, Alabama is on track. The building is complete, and the equipment installation is on schedule. We expect this facility to be approaching targeted margin and return levels by the end of the year.

In the Industrial Materials segment, sales declined in the quarter as a result of lower volume and selling prices. Volume in our wire and tubing operations decreased, reflecting softness in the bedding and automotive industries. We expect 2006 sales to continue to be impacted by deflation, resulting from the lower steel costs experienced in the second half of 2005.

When we forecasted the year, we expected lower margins in this segment. For the past two years, margins have been above our long-range targeted levels, mainly due to a higher scrap to rod market spread. In the first quarter, the spread was lower than a year ago, and this impacted our margins as anticipated. First-quarter margins were also impacted by lower sales and startup costs related to the automated billet welding system and other equipment at our steel rod mill.

Over in Specialized Products, we experienced first-quarter same location sales declines primarily in automotive and machinery. Declines in automotive reflect softness in the North American industry, particularly in larger vehicles that contain more seats with higher end features. Lower machinery volume reflects reduced spending by our own operations and bedding manufacturers in response to the past year's soft volume. Our machinery backlog has improved, and we expect volumes to increase in the coming quarters.

Lower segment margins in the quarter primarily reflect volume declines and the impact from last year's acquisition. In late 2005 we completed the fourth-largest acquisition in our history with the purchase of America's Body Company, a Commercial Vehicle [updating] business. ABC, as we call it, has annual sales of approximately $150 million and is expected to be slightly accretive to earnings in this first year. We generally expect acquisitions to be earnings neutral in the first year, so ABC should outperform our typical expectations. The integration of ABC is going well, and the business is meeting our expectations. However, the level of sales in this business will be modestly dilutive to segment margins. For the segment we are expecting improved margins in the coming quarters and should end the year with margins above those reported last year.

Before I turn the call back to Felix, I would like to share some of the major companywide initiatives that we have been working on. I discussed many of these last quarter, but I believe they are important enough to mention again. One very important initiative deals with the way we conceive and develop new products. This has been a critical part of our history. We are exploring ways to expedite these innovations efforts throughout the Corporation in close conjunction with existing or prospective customers to ensure a stream of new ideas and products.

As a part of this strategic emphasis, we're strengthening our development staff and planning a new technology facility here in Carthage. Many of you know that we pride ourselves on our commitment to continuous improvement in lean manufacturing. While we've done a good job in the past, we're stepping up our priority on manufacturing optimization by adding technical engineering staff that will assist every segment in finding more and better ways to increase plan efficiencies and reduce costs.

We have also investigated ways to streamline our M&A process of defining targets, screening for probability of success, developing enterprise valuations and soliciting ultimate senior management approval. With acquisitions being such an important part of our growth, we think this continuous improvement approach to the M&A process will help us with the increasing demand for more and bigger deals.

Our corporate purchasing efforts continue to bear fruit as we roll out an enterprise purchasing system that significantly enhances our ability to leverage our spend on goods and services both from domestic and foreign suppliers. With ever increasing cost pressure associated with utilities and energy, we are continuing to explore ways to mitigate these costs, not only in our gas hedging initiatives but also in consumption-oriented projects. We're finding some excellent capital investments that are yielding very good ROIs, and every operating group has and will benefit.

And with those comments, I will now pass the call back to Felix.

Thank you, Dave. We remain optimistic about 2006 and expect to post record sales and earnings. The three main factors influencing earnings growth for the full year should be the level of cost improvements attained from our restructuring efforts, sales growth, and our ability to recover potential raw material cost increases.

For planning purposes, we are assuming 2006 sales growth of about 5%. Same location sales growth is expected to be about 2% with unit volume and market share gains partially offset by changes in product mix and some isolated price deflation. Acquisitions should contribute about 5% to sales growth, but will be partially offset by $90 million or 2% expected sales reduction from our restructuring activity.

In 2006 we expect EBIT margin improvement in four of our five segments. The gains should come primarily from operational improvements and lower restructuring costs, which as you know is about $20 million in '06 and about 55 million in '05. The restructuring activity is eventually expected to add $0.10 to $0.12 per share to annual earnings, and we expect at least half of that benefit to be realized in 2006. We expect to combine sales growth and margin improvements to result in full-year 2006 earnings of 1.50 to 1.75 per share.

For the second quarter, we expect a sequential sales increase of up to $50 million, which would be about 7% sales growth versus second quarter of '05. Restructuring-related costs in the second quarter should be approximately $0.03 per share. Based on these assumptions, we expect second-quarter earnings of $0.39 to $0.44 per share.

As we have stated in the past, profitable growth, both organic and acquisition, will continue to be our top priority for the use of cash. We also plan to continue increasing our dividend and use excess cash to repurchase shares. Our use of cash in 2006 will be consistent with these priorities. We expect to spend about 165 million for CapEx. Dividends will require about 120 million. We currently expect to spend about 250 million in 2006 for a combination of acquisitions and share repurchases. Cash used for acquisitions will vary depending on the timing of opportunities. Share repurchases should be lower than in 2005 in part because we do not anticipate as large an increase in our leverage.

And with those comments, I am going to turn the call back to David DeSonier.

That concludes our prepared remarks. We thank you for your attention, and we will be glad to answer your questions. In order to allow everyone an opportunity to participate, we request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please reenter the queue, and we will answer all the questions you may have.

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

(OPERATOR INSTRUCTIONS). Margaret Whelan.

I'm trying to get a sense for -- well, first [some of] the sales growth this year is pricing power, is inflation, and if you can give us either the percent or a dollar number? How do we compare that to the inflation on the cost side?

My guess would be for the year you're probably talking flat to 1% inflation.

On your sales line?

Yes.

Okay.

It is a very modest margin.

And the costs seem to be a lot higher than that, though?

Yes. You know, we continue to drive the costs out of the model. We're certainly not getting it from the inflation side. Obviously with energy and then we have now turned around and having some things that are driving the costs back up from the steel side and all those things, some of those are certainly going to have to be passed through the things. But there sure had not been much inflation that has been in our pricing. We have been getting most of it from the cost side.

Is there an opportunity for you to go back to your customers now and point out the fact that all these costs are higher than you expected? (multiple speakers)

In certain parts of the business, obviously as we continue to have some escalation in some of those big raw materials such is steel, it looks like the chemicals have fairly well flattened themselves out for the time being. But obviously we've got the energy costs, etc. Some of those larger steel deals, yes, we will have to go back to the marketplace and try to recover those. But there is a lot of these others that, what I'm going to call creeping costs, whether it be energy, whether it be those kind of things, etc., that we are going to have to get a lot of it out of the cost side, and we are not going to be able to get some of it out of the marketplace.

Are you able to just negotiate shorter contracts with your customers so that if these costs -- they persist kind of at this level or they keep going up, can you go back and renegotiate pricing?

The answer to that would be yes in most of those instances. There are some of them, as you know, in the Aluminum part of the business that we have a lot of our customers that buy their own materials, and we just run them through our businesses. The majority of the Residential businesses, those are on shorter term contracts that we have the ability to go in if there is major material increases and pass that through.

This is Dave Haffner. Over in Fixture and Display, we have also done more indexed pricing with certain customers to keep us from getting caught, if you will, in that lag.

Okay. Good. So an indexed pricing will be like a freight charge or something?

Well, if a particular raw material index is up, then we will have the opportunity to make a pricing adjustment based upon the raw material content.

Okay. The second question I had was just about the rate of increase, I guess and the kind of -- well, I guess more like taking costs out of your business and then the increase in imports moving overseas, how that is going?

Karl or Dave, do you want to --?

Say it one more time, please?

I know that you're doing a really good job of managing the costs internally, and I'm just trying to get a sense for with energy prices being so high and you're moving capacity overseas, are you rethinking that or you are accelerating it, or you are leaving it the way it is?

Margaret's question is the amount of our productivity or production that we are moving overseas, is it staying the same, is it increasing, etc.? Margaret, I will take a shot at it.

But it is not an increasing amount. Obviously you take certain parts of the business and you know what we're doing in the upholstered furniture side, and a third plant over there is coming onstream, etc. But that is primarily because of our customers that are moving things over there, so obviously we are moving over there to take care of those customer deals.

But is there -- we already making parts for some of our machinery. That is not increasing to any big degree at this point. We still from the Aluminum side of the business you're going to see us with some presence there. But it's not an overwhelming deal, and we've got a lot of customers that are moving over there. That is primarily in our Mexican operations. That is also from the appliance industry.

So as far as any huge movement in the next 12 and 24 months that we see going forward of having to move capacity out of this country into a foreign country because of some of this energy or materials, it is not a big wholesale movement. There will obviously be some, but don't expect us to have to come in here and shut down a lot of factories in a lot of these manufacturing areas and move that over to other countries.

Joel Havard, BB&T Capital Markets.

I will try to limit my question to one with less than seven sub-questions.

Don't get on Margaret.

Good morning, Margaret. In the Aluminum business, is any of the improvement seen in Q1 on either the revenue or the EBIT margin side a function of any contribution from Auburn? If not, what is driving that, and could you tell us kind of -- give us a better sense of where Auburn is on its startup curve?

No, there is no positive influence from Auburn. Contrarily the Auburn operation, had we not had the costs associated with Auburn, our EBIT percentage would have been modestly over 10% for the quarter.

So that said, Auburn startup costs are very close to what we anticipated them to be. We are feeling good about that project and the management of that project, so what are the things that are helping?

We have seen some product mix shift to some modestly higher margined products. Some utilization rates are higher in some of those facilities. Then also we have seen an elimination of some significant core margined products that we had last year. Said differently, we walked away from some business that in retrospect we really did not need.

Dave, it sounds like the mix and the SKU cuts kind of tie together. Where are you seeing the strongest trends in aluminum casting then? (multiple speakers) Is the flying still good, or is it still small engines?

Yes, there are several places. Appliance is really starting to build steam. I know you have heard us talk about Whirlpool, and that program is starting to gain real steam. In fact, we got some significant recognition recently from Whirlpool relative to our superior performance.

Small engine continues to be a very very important part of the business. Motorcycles, and specifically one big motorcycle manufacturer, has continued to be very good for us. Then we have actually, even though we are anticipating that grill sales will over the near and long-term decline here in the United States -- I mean grill manufacturing here in the United States -- we saw sort of a rebound in demand recently for some grills that we had not anticipated. Those thinwall castings mostly go through our Harrison, Arkansas facility. So we saw substantial improvement down in Harrison.

Good, all right. Thanks. Good luck. I will jump back in line.

Keith Hughes, SunTrust.

On the Residential division, the 3% organic growth gain, how much of that was price driven?

It was a combination of things, Keith. There is price inflation on the foam and fiber side because of resin inflation. Then there's some modest deflation in bedding and furniture because of a moderation of raw materials costs and some spec changes or mix changes in our customers as they redesign their products because of the previous deal in petrochemical-driven inflation. But, Dave DeSonier, what --? (multiple speakers) -- high in total. It moved -- pull everything together in aggregate, it looks like about 5% of it came through inflation.

5% came through inflation. So and we look at the (technical difficulty)-- bedding would have been down in units and furniture up, is that --?

That is correct.

Okay. Final question you had alluded earlier in the call to 30% of your business related to new home sales. Was that correct?

That is correct. That is pretty well our statistic, Keith, that we have used -- we felt like forever that 25 to 30% of our business may be affected by new home sales and resales, etc. in the segment now, Keith. You've just got to get that in the segment. That is the Residential Furnishings segment.

So you are talking about what percentage of your bedding business and your furniture business and things like that?

That is exactly correct. It is not 30% of Leggett's business. It is just the Residential Furnishings segment.

So you are -- if memory serves me, I don't think you are hardly in in any products that are sold in the traditional building products chain going directly to the homebuilders?

That is correct.

Todd Scholl, Raymond James.

I was wondering if you could talk a little bit about that areas that in the future you might be looking to make acquisitions? And then what types of businesses in those particular areas that you might be looking to acquire?

This is Felix. I will start and let Dave and Karl chime in. But we -- with the five segments that we are operating in today, we are always looking for ways to do acquisitions -- and most of those would be bolt-on acquisitions -- to grow those respective businesses. There is 29 business units underneath those five segments in each one of those five business units, and that is whether somebody is in foam and fiber or somebody is in carpet cushion or somebody is over in Aluminum Products or somebody is over in different facets of office contract, plastics and fixture and displays and etc.

So we feel like that all 29 of those business units are fertile ground, and we are always looking in our strategic plan as to how we can grow those businesses that way. So it is a wide field. It is both domestic, and it is international. You are going to see as we go forward in all of those business units that there is going to be opportunities that we are going to bring forth. We are going to have acquisitions we are going to make within those different businesses to grow those businesses.

Now if you go back and want to try to zero in, unfortunately we have been to the point we have not had to allocate capital. We have had plenty of capital to make profitable acquisitions as we go forward. But, as we have said all along, that from the Residential side and from the Specialized Products side and the Fixturing Components and the Aluminum, those are probably -- I'm not trying to leave out Industrial Materials, but Industrial Materials serves so much of Leggett, etc. But those other four segments probably windup and get more acquisitions in those. The Industrial side of the business we probably will do more of that from an organic side, because we have the ability to windup and put capital in those businesses and grow organic brand, etc.

But from the Residential and the Specialized and the Commercial sides of the business from an outside acquisition standpoint, that is where you're going to probably see the most fertile ground.

This is Dave Haffner. We are always looking for those companies that are just adjacent to what we do. I know you know that. And as an example in our nonferrous alloy operations, what we call the Aluminum segment, many of our customers have come to us and suggested that there are other vendors that they deal with that might be complementary for us to consider.

So you should expect to look at businesses that have significant customer overlap and really cannot -- I have got to be careful what I say here because it would be a little bit too obvious if I said much. But there are some good opportunities in the Aluminum segment, some of which have come to us as a result of discussions with our customers.

In Residential, Geo Components you have heard us talk a good bit about that. While we will continue to investigate greenfield operations, we will also look for well-run, well-managed, strong regional businesses in that area. Relative to Industrial Materials, anything that is made with wire or any wire form type product would be something that we would take a look at, primarily because of the strength of our backward integration and cost containment opportunities within that. Those are things that come to mind.

There is one other -- of this Commercial Vehicle business and this ABC that Dave alluded to when he talked about the four that we have acquired into. You hear so much negative press about the automotive industry, etc., and they obviously have got tough, tough things that they are going through. But this side of the business that we're getting involved in, about $1.5 billion business, this is upfitting and doing things wherever those basic vehicles may be made and what we're doing to them. This is a service industry primary business, etc. So we think that is another great fertile ground for us to grow into. We have already got over a $200 million -- about $.25 billion presence in currently, but there is a lot of opportunities there.

Great. I had a follow-up question, but you have actually answered it in the process of answering my original question. So I will let somebody else get on.

Shawn Harrison, Longbow Research.

I wanted to look more into kind of the organic growth profiles of a few businesses, and we will start off with the Commercial Fixtures. But if my recollection serves me correct, usually by the June timeframe, you kind of understand where demand add is in the industry. I'm wondering if you could comment on kind of the growth profile you see in that business organically this year and how it will accelerate into '07 to kind of really leverage the restructuring you have done in that business?

Okay. We are seeing -- first of all, I should say that we're confident that we have not suffered any market share loss, and contrarily we believe what we know we have gained a bit of market share. There continues to be more frequent and more in number requests for proposals. We are seeing some renewed activity in spending at some operations such as The Gap, the Sears/Kmart. We anticipate that some of the combinations of businesses have delayed certain potential orders. I'm talking about the May/Federated/Marshall Fields transactions, etc.

But we are seeing -- and I don't want to be too optimistic here -- but we are seeing more opportunities for quotations than we have seen in a long long time. You're right that by midyear we have a much better feel for it because of the timing and the seasonality of it. We are not seeing any significant pullback on any of our major customers' parts from their previous forecasted 2006 expectations.

A little bit of delay, but no significant pullback. We are anticipating significant improvement in our margins, even in the second quarter. But a lot of that comes from the elimination of fixed costs and restructuring costs. (multiple speakers)

Excuse me, Dave. How much did we lop off organically that is going to be negative before we ever get started? I think that --

$25 million (multiple speakers)

So (multiple speakers) even though we lopped off. Before we get out of the gate, we've got 25 million we threw out there.

I'm sorry. I should have mentioned that.

Okay. My second question just has to do with restructuring savings maybe to date, and then looking into the second quarter, maybe of the 30 to 35 million you're anticipating on an annualized basis, what has trickled into the model so far, and what would you expect on maybe a percentage basis to have flown through the P&L by the second quarter?

In the second quarter, we're guessing it might be about $0.01. In the first quarter, it was very small. Most of that is going to be in the second half of the year, and for the full year, we think it will be about half of the eventual benefit that we will see.

What we don't capture, in the restructuring process, there is the benefit of eliminating obviously the overhead and the associated costs. But, as you move this $300 million of manufacturing capacity into existing facilities, there is a time of absorption that it takes a while to just move that capacity and allow those facilities to run well.

So I agree with David DeSonier. The benefit to the first quarter was minimal, very minimal, but then there was some offset, some negative at some of those other facilities. Give us a couple of months, a couple of quarters, and we will be able to rightsize the business and get the real benefit of those consolidations.

Is there a headwind that you're able to quantify with those transfer costs right now? Is it 50 basis points? Is it less than that? You know, is there a quantifiable headwind that I can look at?

It is tough to quantify. It is location, location, location. (multiple speakers)

It really varies by facility.

Is it eliminating the restructuring savings right now, some of it even?

Yes. In the first quarter, I think it certainly eliminated it.

Laura Champine, Morgan Keegan.

I wanted to make sure that an interpretation of a previous question is right and then add some follow-on. I think in response to Keith, you mentioned that on a same location basis in the Residential segment, installation accounted for about 5% growth. The way I'm looking at that, that would apply that units in Residential were down 2%. Is that the right way to view that, and could we get the rest of the segments what their unit growth was on a same location basis?

Also, you said the total business was up 1% on a same location sales basis. What was the total business -- what was the unit change for the total business in Q1?

We can run you through all that and be glad to do it, but I think it would be better if I just send it to you in an e-mail. That is a lot of numbers. But we have got it. I will send it to you.

And then could we talk about what the unit change was in the quarter in the bedding segment?

From a domestic perspective, what we saw in the quarter was flat year-on-year comp in January and February, March being a little bit more challenging. Aggregate and you're off low single digits. In the bedding industry from a month-to-month, there's ebbs and flows. We are positive in the first two weeks of April.

In Q1 the total Q1 domestic units were off in the low single digits?

That is correct.

Is that equivalent to what you think the industry did on a unit basis? If I could get one number, Dave, it is the number for what same location units were in the quarter on a year-over-year basis.

For the Company?

For the total Company.

It was essentially flat. I mean just slightly negative, but not even enough that it would round to 1%.

And then the follow-up on Karl's answer.

Yes, I do think that is indicative of the industry. I think the industry had a good January, February -- good meaning no loss -- and March was a challenge.

Dohyun Cha, [McKay Shields].

I was wondering if I could ask a little bit more about the Commercial Fixtures business. I'm just trying to understand the timeframe in which you think you will achieve that 12% or so margins that you are targeting? You know, and at one point do you say enough is enough and you go to Plan B? And if you can kind of describe what your levers are in that business.

We expect that we will be able to reach those targeted margins within the next 24 months or so. We said enough is enough prior to this restructuring and believe we are comfortable that the changes that we have made recently and just now finishing up that portion of the restructuring is going to properly rightsize that business.

Now our forecast in the second quarter and subsequent quarters of the year are significantly better as a result of all those positives that come along with that restructuring. If for some reason we would see a significant additional decline in demand for products produced by those facilities, we would enact further contraction.

But, at this point, we don't anticipate that. We think that we are in pretty good shape relative to what our customers are telling us their demand is. Each and every one of the profit centers that is not already at a double-digit EBIT percentage has a defined project and series of activities associated with that project to walk their way into at least a 10% margin. Of course, that will not average what we anticipate that particular group will be able to provide companywide.

It continues to have a very, very high priority within the Company, within the segment within the group. Time will tell, but we really do believe that we have made the right major hard decisions this last go around.

I think another thing that will add to exactly what Dave is saying, that with the acquisition that we made in Asia late last year, we feel like that will set the stage. You blend that in with the 24 months that Dave is talking about here, that will be enable us to enhance what we're going to be doing going forward as far as margin improvements and etc.

Is that a raw material assumption or a decline assumption in that timeframe target?

No, what we have done is assume that whatever raw material does -- and the primary raw materials is steel -- is that we will be able to maintain our revised contribution margins by making adjustments in prices and/or [BA/BE] activities within the operations.

(OPERATOR INSTRUCTIONS). Keith Hughes, SunTrust.

Just one quick follow-up. You have $0.07 of charges for the first half. Will we see any more charges in the second half of '06?

We do not expect any.

Barbara Allen, Avondale Partners.

I wondered if you could give us a little bit more color on the bedding situation, because it looked like by the end of last year we were starting to see some signs of life? What is your assessment of that marketplace?

Like I said, it ebbs and flows. There is a general malaise, I guess is the best way to describe it. When I talk to the large and small bedding manufactures in the U.S., they are unsure. They are not overly negative or positive. Collectively the industry forecasted flat units for 2006, and I would say at this point that is still their forecast.

They are dealing with a number of issues, this fourth-quarter absorption of foam run-up. That forced them very quickly to remerchandise their lines. Now that they are trying to get through that, get the floor samples in place, dealing with the new federal flammability standard that goes into effect July of 2007, so they have a lot of moving parts that they are trying to absorb. But flat units is probably still a good forecast for the year.

And those changes that the customers are having to make because of other cost considerations are really helping drive or fuel our product development efforts.

To give you a specific example, there are great opportunities in that a standard [Banel] innerspring, which a Banel innerspring is the one that you have in your mind's eye. It is the round headed, not on both sides, kind of the low-end commodity innerspring. That product historically has been 5.25 inches tall. We are in the process today -- I mean literally today -- of launching that product at 7 inches of height, which is that product development? It is material optimization.

What we have we believe an exclusive ability to do is raise the height of that product, maintain the structure integrity in terms of sway -- usually when you get taller in an innerspring, you end up with sway -- or you have to increase the material content. We found a way to optimize that.

And what happens is, with the foam inflation that has taken place, every inch of height in a finished mattress has about $8.00 of cost to a bedding manufacturer. So by us raising that height 1.75 inch, we're saving that manufacturer 12 to $13 in a queen, which will be a good thing for us.

We have got to rollout that new program. Again, we think we would have exclusivity. So our product development does not always just take place at the high end of product. It is in that tonnage area of Banel.

So there are good things happening, and this refocus of R&D product development is very important to us. It truly is our history, and that investment is in the process of showing some dividends.

Let me make sure I understand. You are launching you said today?

Yes, we're out --

The 7 inch coil versus the standard 5 inch, but you're able to do it without increasing the costs to your customer?

There is a very marginal increase of cost to the customer. So if they save that $12 in cost on the foam, it is going to cost them $2.50 to $3.00 more for that innerspring. So it is a win-win situation for all parties.

It is a net 8 to $10 savings for them.

Wow. It sounds good. Thanks very much.

Shawn Harrison, Longbow Research.

Hopefully an easy one. I was just wondering the spread between scrap and rod, what was it this quarter, what are you benchmarking for the second quarter, and what was it in the fourth quarter?

The spread that we have been looking at has been relatively stable. You'll have a four-week period, it will be a slight movement one way and at four-week period another slight movement. Then we windup and we change our blend of our scraps to try to maximize what there is available out there in the marketplace. So I don't think that there has been any movement, has there, Dave?

Very little. Now compared to last year and going back to my commentary, we have seen that spread decline.

Versus first quarter?

Versus first quarter of last year.

Which has affected the margins in the segment. (multiple speakers).

But from a sequential perspective, there has been very little movement.

What are you -- I guess, what would be kind of a good number to use on a year-over-year basis for the full year in terms of filing the spread in terms of a decline 2005 versus 2006?

For the whole year or just for the quarter?

Just for the whole year. Maybe if you have the quarter number too, that would be helpful.

I don't know what to suggest you use for the full year. On the chance you figure it out (multiple speakers). And then 20 or $25 roughly on the quarter number.

At this time, there are no further questions. Sir, are there any closing remarks?

We appreciate your attention and your time, and we will talk to you again in another quarter. Thanks.

This concludes today's first-quarter 2006 earnings call. You may now disconnect.