禮恩派 (LEG) 2006 Q3 法說會逐字稿

Good morning. My name is Amitris and I will be your conference operator today. At this time I would like to welcome everyone to the Leggett & Platt third-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Mr. DeSonier, you may begin your conference.

Good morning and thank you for taking part in Leggett & Platt's third-quarter conference call. I'm Dave DeSonier, the Vice President of Investor Relations. And with me today are the following -- Dave Haffner, who is our CEO and President; Karl Glassman; the Chief Operating Officer; Felix Wright, who is Leggett's Chairman of the Board; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations.

The agenda for the call this morning is as follows -- Dave Haffner will start with a summary of the major statements we made in yesterday's press release and then will add some further comments regarding major strategic initiatives; Karl Glassman will discuss trends in our various markets; Dave will then address our outlook for the fourth quarter and full year; and finally, the group will answer any questions you 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 statements. I'll now turn the call over to Dave Haffner.

Thank you, Dave. Good morning and thank you for participating in our call. As announced yesterday, we set record sales in the third quarter and tied last quarter's EPS record. Organic sales growth resulted primarily from inflation with unit volumes down slightly. Acquisition-related gains were partially offset by declines from restructuring and divestiture activity.

In our businesses supplying the North American bedding and automotive markets volume has been weak for most of the year and has recently softened further than we previously expected. In contrast, our residential furniture components and foam products and fiber businesses continue to perform very well. Restructuring that we announced in September last year is essentially complete and we are realizing the expected benefits. In a few cases we are still ramping up volume that has moved to remaining facilities, so we should continue seeing modest improvements in the coming quarters.

We are currently evaluating several acquisitions that offer very good long-term potential for the Company, but few of those deals are likely to come to fruition by the end of this year. In October we anniversary several of the larger acquisitions that were completed last year. As a result acquisition-related sales growth will be lower in the fourth quarter. Our long-term acquisition growth target is 5%. We will achieve this level in 2006 and believe in certain years we will do better.

Looking forward it is reasonable to expect that we could experience an increasing average size of our deals. Historically the average annual revenue of an acquisition has been approximately $20 million. We may see that average size move to approximately $40 million. We have always been disciplined in our deal valuation and will certainly continue to be good stewards of our acquisition capital. As we pursue larger targets and experience increased competition for those targets, our EBIT multiples may edge up somewhat when clear synergies can be comfortably quantified and quickly captured.

We continue to generate strong cash flow. As planned, excess cash after funding growth and dividends was used to repurchase shares. We bought back 2.1 million shares during the quarter. The balance sheet is in excellent shape; we ended the quarter with net debt at 28.7% of net capital. Our target for working capital is approximately 19% of annualized sales, but this amount will vary from quarter-to-quarter with the seasonality of our businesses. We ended the quarter at about 20% due to softening of demand in certain markets. In the majority of our businesses working capital is generally at expected levels.

Now looking longer-term. In our September 6th press release we discussed our updated growth targets and three initiatives that will help us accomplish those targets. The first initiative is a renewed concentration on innovation and product development. Earlier this month, we held a two-day technology forum that brought together 50 of our product development and engineering leaders from around the world. The objective was to reinforce the commitment to product development, share successes, discuss challenges, and consider the road that lies ahead. The outcome of this session has been extremely positive and we have already seen improved collaboration among our businesses in combining technologies for future product development.

The second initiative is the addition of business development personnel in each segment. We have begun the interview process for these critical positions and expect to have them filled by year-end.

The third initiative is the addition of a corporate function with responsibility to uncover opportunities in growing markets that Leggett does not yet serve or that do not yet exist; investigate current and potential customers' unmet needs; and provide insight and trend analysis regarding markets, customers and consumers. We are finalizing the job description and will soon begin that executive search. And with those comments I'll turn the call over to Karl Glassman who will discuss the segments in more detail.

Thank you, Dave. Good morning. In the Residential Furnishings segment several factors lead to higher earnings in margins in the third quarter. Our upholstered furniture components, foam products and fiber businesses continue to perform very well. In upholstered furniture components the overall market was soft in the third quarter, but our business -- businesses continued to post unit growth as a result of a broad customer base, a strong international presence and a growing use of motion features within upholstered furniture. Other factors that contributed to the earnings increase include benefits from restructuring, gains from the sale of two buildings, and non-recurrence of last year's restructuring and worker's comp charges.

North American bedding demand continued to be weak and softened further late in the quarter. We saw the normal seasonal increase in volume, but year-over-year sales decline. Last year beginning in September and continuing through most of the fourth quarter, low-end unit volume benefited significantly from hurricane-related purchases. As a result, we will face very difficult comps for the next few months.

In addition, to lower bedding market demand this year, we have reacted to price competition and de-contenting by our customers and have been very aggressive in protecting market share. Product development will play a key role in improving margins of the bedding components business. New product designs for both inner springs and box springs have been introduced and are being well accepted in the market. The 7 inch Bonnell that we discussed on earlier conference calls is just one example and is currently in production. These new products provide our customers a compelling cost advantage and cannot be easily duplicated by our competitors.

In Commercial Fixturing and Components retailer demand for fixtures and displays declined versus the third quarter of last year and volume in office furniture components and plastics eased in recent months but is still positive for the year. The full-year margin in the commercial segment should increase about 250 basis points versus 2005, but we are still not where we intend to be. We are realizing the expected restructuring benefits, but volume remains soft and we are addressing a few remaining performance issues.

At our September investor day we discussed a project that is currently underway called Wood Plant of the Future. This project is a significant equipment and technology upgrade for the wood facilities within the fixtures and displays group. Once completed, this upgrade should enhance the margins of these facilities which represent approximately 30% of the fixtures and displays group volume. Margin improvement should result from reduced labor, reduced working capital and increased capacity at these facilities. In addition, this project will provide significant manufacturing flexibility and increase our speed to market which is a critical factor in winning additional business at higher margins.

In the Aluminum Products segment earnings and margins improved versus third quarter of 2005 reflecting operational progress over the past year. We realize these gains despite startup costs associated with our Auburn diecast facility and the margin compression from the pass-through of raw material cost increases. Sales increased during the quarter from a combination of inflation and higher volumes driven by the startup of our Auburn facility and strength in the motorcycle, appliance and telecom markets. These improvements were partially offset by the declines in small engine, outdoor grills and lighting.

Small engine sales were weak during the third quarter in part due to the absence of significant weather events that drive generator sales. This trend is expected to persist through the end of the year and into 2007. This market softness is affecting our Auburn operation. We are refining our cost structure to the extent practical and are also pursuing other business in this facility. Last year we mentioned a new program that we were awarded by Black & Decker for some components they had previously manufactured for themselves. We are on track with this program and these volumes are expected to ramp up during the fourth quarter.

In Industrial Materials sales declined in the quarter primarily from continued weakness in the U.S. bedding and automotive markets. These sales declines impacted segment earnings during the quarter. 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 unusual market conditions that resulted in unsustainably high margins for our rod production. The global steel market has changed and rod margins have narrowed. In addition, wire prices are lower in certain other countries and this impacts pricing of components made in those countries. In response we are working with our customers to help them stay competitive in the global market.

In Specialized Products organic sales declined slightly versus the third quarter last year. In automotive strength in Asia and Europe have helped offset market weakness in North America, particularly in larger vehicles that contain more seats with higher end features. Machinery volume remains fairly stable in comparison to last year. In our commercial vehicle products business demand for fleet van interiors is strong, but we are experiencing some market softness for commercial truck equipment caused in part by production cuts by the OEMs and associated shortages of commercial truck chassis.

Although segment margins have improved versus third quarter last year, they are still well below our targeted levels in part due to lower volume in North American automotive and portions of our commercial vehicle businesses as well as the continued weakness of the U. S. dollar to the Canadian dollar. In our September 6th press release we announced our revised margin targets for the Company as a whole and for each segment. For the segments, EBIT margin targets are 10% for residential and aluminum, 12% for commercial, and 9% for industrial and specialized.

Residential and aluminum should reach their targets sooner than the other segments, but we believe all the targets are attainable within 24 months. The key drivers to reaching the targets are higher throughput through existing assets, developing new products with higher margins, capturing the benefit from our past restructuring activity, and ongoing efforts through purchasing and continuous improvement initiatives. With those comments I'll turn the call back over to Dave.

Thank you, Karl. We provided our fourth quarter and updated our full-year guidance in yesterday's press release. For the full year we should see total sales growth of 4% to 5% which is slightly below our previous estimate in part due to further softening of demand in North American bedding and automotive. Same location sales should increase by about 1%. Acquisitions will add about 5% to annual sales growth, but will be partially offset by a decline in revenue from restructuring activity.

Full-year earnings per share are now expected to be $1.55 to $1.65 versus our previous estimate of $1.55 to $1.75 per share. Reduction results primarily from lower expected sales growth and less than expected margin improvement in the commercial and specialized segments. This full-year earnings estimate includes several nonrecurring items. Restructuring-related expenses totaled approximately $0.09 for the year. These costs should be offset by nonrecurring items including tax benefits, gains from building sales and expected recovery of Canadian lumber duties that would collectively add about $0.14 to full-year EPS.

Fourth quarter is a seasonally lower sales quarter and we anticipate sales to be 50 to $100 million less than in the third quarter. In addition, we expect about $0.02 per share in restructuring-related costs in the fourth quarter and we may benefit by up to $0.07 per share from nonrecurring items including gains from asset sales and recovery of Canadian lumber duties. Based on these assumptions, we expect earnings per share of between $0.32 and $0.42 in the fourth quarter with the nonrecurring items required to achieve the upper end of the guidance range.

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 approximately $180 million for CapEx. Dividends will require about $120 million. We should spend about $250 million in 2006 for acquisitions and share repurchases combined. Cash used for acquisitions will depend on timing of the opportunities. Share repurchases will be lower than in 2005 in part because we do not anticipate as large an increase in our leverage. And with those comments I'll turn the call back to Dave DeSonier.

That concludes our prepared remarks. We thank you for your attention and we will be glad to try 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 stay here as long as you need us to. Amitris, we are ready to begin the Q&A.

(OPERATOR INSTRUCTIONS). Budd Bugatch, Raymond James.

Are you there, Budd?

I don't think that one is working.

Shawn Harrison, Longbow Research.

Hi, Good morning. Just looking at the decline in earnings expected for the December quarter -- it doesn't seem to be -- the sales forecast doesn't seem to be weaker. I'm just wondering where the decline sequentially in margins is going to come from and how much maybe we should expect out of kind of the two businesses that seem to be the issue, the Commercial Fixturing and components and the specialized. Because it just doesn't seem that you're getting the recovery there at this point in time that you expected.

Well, versus fourth quarter we expect sales to be -- or versus third quarter, sorry -- we expect sales to decline 50 to $100 million. That's -- primarily the decline sequentially is going to be sales driven.

Sales driven and maybe then flattish margins in specialized and kind of down margins in commercial because it's a sort slower seasonal period, something like that?

Typically you'd see with sales declines lower margins in commercial and I don't know if specialized has that much seasonally in fourth quarter.

No, but that forecast reflects continued slowing in the North American auto industry, Shawn.

Okay. Within commercial though, what is maybe your outlook for 2007 given that you're probably seeing some orders for the market at this point in time?

Shawn, it's difficult to be specific on that business and we run the risk of being terribly repetitive in what we're saying. We have not completed our budgets. We certainly have had a lot of very positive customer interaction. The target volume will start to take place -- during that time frame we have some very attractive programs with a large Nike rollout. There are a lot of positive things, but we temper that optimism by our continual -- continued underperformance. So while we feel good about things from the topline perspective, we certainly expect that we'll continue to see bottom-line performance as we experienced this year.

Is the bottom-line performance solely volume at this point in time getting throughput for their facilities or is there something I'm missing?

No, it's continuing to -- it's the restructuring activity that was painful but needed in the fixtures and displays business in particular and we will continue to reap those benefits as we did going forward. Now volume through the assets will help significantly.

Okay, and then just one point of clarification before I give up to the next caller. With the guidance, the $0.32 to $0.42, at the low end of that if you back out the restructuring at $0.34, that assumes no asset sales then? Is there non-recurring gains I guess?

What I would say is operationally it's $0.32 to $0.37 and then there's about $0.02 of asset sales and there's about $0.02 of restructuring costs which essentially offset.

Okay. So $0.32 to $0.37 operationally.

Yes.

Yes.

Okay, thank you.

Budd Bugatch, Raymond James.

Can you hear me?

Yes.

Just looking at the restructuring savings, you said you were on track -- I think you had said 30 to $35 million annually. Does that mean you got essentially that prorated in the quarter?

Actually, Budd, we're pleased with the restructuring savings in the third quarter. We believe that number to be north of $10 million. So we are on track. It should be at its peak in the third quarter. But yes, we're pleased with our successes with that program.

So you mean it will be less in the fourth quarter, Karl?

Yes, it should be.

Is that because of volume?

Yes.

And just as a follow-up on that, looking for then the fourth quarter which has got modestly lower guidance, you had indicated automotive and bedding -- I don't know if you indicated the order of magnitude of the reduction, but was there anything else that causes that as well -- causes the tempered guidance?

Budd, I would say an overall feeling of soft market conditions that there's almost a negative cloud that hangs over us. We also have an aluminum issue, as you're aware, with a large customer backing off -- or actually, it's more than one large customer, it's this whole -- as the industry defines large engine business being soft because of constipation in the inventory system of engines that go into generator applications and snow blowers, things of that like.

But our Auburn facility continues to ramp up. But where we had forecasted profitability in our fourth quarter, we now have moved that to the first quarter because of a slowdown particularly in [draw] from Briggs & Stratton. So that certainly is a contributor to the softness.

Yes, their inventories were eye-popping, to say the least, when they reported yesterday. So that's a worrisome issue. And how long will that persist do you think?

Well, in absolute numbers we had forecast the Auburn facility for 2007 initially at only about $50 million of volume. As you know, dedicated to Briggs. Our current forecast now Briggs-related is about 35 based on their forecast. We need to put some new volume through that facility. At that the $35 million sales the facility is certainly profitable, but not to acceptable levels. So we are out aggressively trying to find new business.

That facility was well planned in where it was placed in the geographic perspective. The Alabama and Georgia State governments have done really a good job of attracting quality manufacturers into that region. We have manufacturers coming to us as they have an awareness of that diecast facility and the sophistication that exists in that facility asking us to quote on some parts. We have been slow to do so because we were ramping up to take care of Briggs. We are now quoting those parts as we speak.

So is that $15 million delta volume a 2007 event or is it a 2008 event and beyond?

We believe it's a 2007 event and if those inventories will clear the system in 2008 on a Briggs basis we'll be back on track.

Good luck to you then.

Keith Hughes, SunTrust Robinson Humphrey.

My question was within your bedding components business. The discounting that seems to be going on in the channel, how long will that last? Is that an end of year type of thing to move units or is this something that's going to persist longer in your opinion?

Keith, I was hoping that you were going to answer that question.

I think it may last through the next year. What do you think?

We don't know. The bedding industry is significantly different this year than it was last year. Last year the two large producers -- largest producers, Sealy and Simmons, had taken a position that they had vacated some lower price points. And lesser brands, let's call them, were aggressively growing their business at those low price points. Sealy and Simmons have both taken the course this year that they're going to go after volume in a market that is soft.

So they're trying to maintain an overhead cost structure that's inherent in those businesses. So they're out after volume. I think the thing that would have to change that is a wholesale raising of the tide so to speak in the bedding industry. And at this point we can't forecast that. It's competitive, it's always been a competitive industry and it is very competitive today.

When you look at your business now do you see a substantial difference in demand trends among the high and the low end? Is one (multiple speakers) than the other?

Yes, but the answer to that is a little different than you might expect. Last year at this time we were selling significant amounts of innerspring units into the very low end that were FEMA related business that was hurricane recovery. October of last year our innerspring units were up 15% in that month. That's the reason for that comment about the difficult comps that we faced. So that very low-end business has gone away.

But in the ongoing conventional business that, yes, we believe that there is the continuation of that bifurcation; that the middle part of the market, the 799 to 999 business is soft. The large producers are rushing to fill the void at those lower price points, call it 499, 599. But on the ultra-premium side business is still reasonably good. The Kings Down's, the Select Comfort's and the Temper's are continuing to do business.

Okay, thank you.

John Baugh, Stifel Nicolaus.

The question is there was a comment about the -- on the bedding components I guess and I think you were referring to your customers perhaps sourcing product or maybe making it in-house, whatever. There was a response that you're not going to loose market share and you're responding. I was wondering if you could get a little more specific about what precisely is going on, what you are doing and whether this is a function of the cyclical weakness or some kind of secular shift to global situations?

It's more the latter, John. What had happened in -- going back in time 2004 we saw extreme inflation that was steel related at a time when Chinese manufacturers were ramping up their component capability and had the ability to use very low cost raw material. So we were in an era where for the first time we saw pretty significant amounts of Chinese innersprings specifically coming into this country. It probably peaked at a run rate of 1.8 to 2 million pieces.

I think it's notable that while listeners may think that that was a lot for Leggett, it wasn't a wholesale loss to Leggett. That our other U.S.-based competitors lost about half of that volume, but it was painful for us. We started in the fourth quarter of 2005 regaining that business and where the Chinese now look like there're at a run rate of 1.5 million and the sum total of all of that is we got more competitive. We lowered our prices. It's hurt us from margin but we need throughput through our assets that have a benefit not only in residential but in the industrial, so we are being a tougher competitor. We're out there regaining that market.

The other thing that happened is in the fourth quarter of last year we saw extreme foam inflation and we saw some despecking as the bedding manufacturers had to compete -- those retail price points are sacred. Being a bedding manufacturer is a pretty difficult task in that the ability to pass through price increases depends on merchandising product lines is a longer process than it may be for a component supplier.

So what we saw was our customers started to despeck products. Well, as they moved from proprietary products to open end commodity products that historically hasn't been a good situation for us. So we've been aggressive in product development of our proprietary products, making lower cost products that still give the bedding manufacturers the ability to differentiate ourselves all the while increasing our margins and regaining some lost market share.

Karl, you're referring in these numbers -- 1.5 million and 1.8 to 2 -- you're referring to finished innerspring mattresses coming (multiple speakers) component, right?

No, no, John. No, that whole diatribe was component related. There has been a lot of press about finished mattresses coming in from China. I'm not going to tell you it's a nonevent, but in the whole look of the world it's a nonevent. There are not many finished mattresses coming into this country. I think the U.S. bedding manufacturers have taken a position that they are the value and they also had pulled their competitive gloves off and it's truly a non-issue.

So would it be your opinion, Karl, on components that the actions you've taken have already resulted in a flattening, if you will, of imported components from China or is it still increasing?

It's dangerous, John, to look at importation on a month-to-month basis. There was a little bit of a tick up in August, but if we look -- which is the last reported month -- but if we look at the last three months the importation of Chinese units is down 16.3%.

Okay, great. Thank you.

Laura Champine, Morgan Keegan.

Could you give us -- I think you gave last quarter the unit growth or the unit decline by segment and if you could do that and strip out acquisitions that would be great.

This is Dave. I can give you -- the Company is down a little over 3% in units in aggregate and the segment data -- let me grab that and I'll email it to you or call you after the call.

Great. Thanks.

(OPERATOR INSTRUCTIONS). Shawn Harrison, Longbow Research.

Just focusing in on the bedding, I was wondering if you could give me maybe your comp expectations for the fourth quarter as well as kind of an outlook into the first half of the year. It looks like the fourth quarter is going to be down now in terms of unit volumes and maybe the first half of the year in 2007 as well.

No, Shawn, I would say the fourth quarter -- and this is a rough expectation. I would think that our innerspring units domestically should be down 7 to 10%. Going into the first quarter of next year the whole hurricane replacement is a nonevent and I think we should have an internal expectation that we would see flat to maybe slight growth.

Those are all versus the prior year?

Versus the prior year, not sequentially.

What were bedding units up in the fourth quarter for Leggett last year? Was it in the low teens or something like that?

Oh, no. For the whole quarter it was 3.9%.

So it was only October that was up a large amount?

Correct.

And then just -- there was a comment made earlier in the call in regards to acquisitions, probably won't close in the fourth quarter but maybe the first quarter next year, the first half. What end markets are still looking best for acquisitions right now? Is there anything that's changed from the analyst day or is it still kind of focusing in on expanding in the residential areas?

Shawn, this is Dave Haffner. Nothing has really changed from what we said in New York. Some that are likely to come to fruition in early '07 are in our Aluminum Products group; another one in our new geo products group. I guess another peripheral one that could be considered somewhere between our Aluminum Products group and Specialized Products group. So we don't have any major contraction or lack of potential in any of those segments. There is some brewing in each one of them.

Okay. And then just -- I just want to focus one last time in on the Specialized Products business. As we look out beyond the December quarter into '07, what is it going to take to get toward that 9% EBIT margin goal? Is it solely your recovery in North American automotive or is there something I'm missing?

This is Dave. Certainly the automotive -- a buoyancy in the North American automotive demand would go a long way towards that. We also are ramping up our efficiencies within CVP which is now a relatively large piece of that Specialized Products segment. And we anticipate we'll continue to see improvement there which will reflect what our expectation was when we made that major acquisition of ABC.

With regard to the other major piece of it which is machinery, machinery is relatively steady and has been pretty good. So North American automotive and continued as expected ramp up and improvement of CVP will allow us to get to that target. Those are my comments. Karl, do you want to add anything to it?

No, I think that's dead on.

And within CVP, part of the issue is just not having enough truck bodies right now to meet the demand, so you're not running at the type of utilization rates you'd like to?

Yes, that's a piece of it. We can whine if we want about not having -- you wonder, well if automotive is down why aren't there enough truck chassis. We don't control the assembly plants of course, but we see that as a very, very short-term problem. One other thing I might mention is that within CVP, too, we're also expanding in some additional territories. We've got a new plant that's being commissioned in the near future down in Texas and we're looking at some other parts of the country which will also help us get to that targeted EBIT level.

All right. Thank you.

Budd Bugatch, Raymond James.

Can you update us a little bit on what's going on in your overseas operation and any change in those character? And I had one other follow-up.

Budd, I'm glad you asked the question. We've been so negative with domestic bedding that our international bedding units actually were up during the quarter and they represent about 40 -- right at 40% of our pieces. Now those pieces have a lower average unit selling price. They tend to be smaller in physical size, but we're seeing improvement in our international bedding operations with growth in South America and continued growth in China and Australia.

Our furniture hardware facilities in China are performing extremely well. The automotive facilities in China and the little JV start-up in India is performing well. The Mexican aluminum operations are performing well. So there's -- our international answer actually is a better story than the domestic at this point.

Okay. And in your target margins you've given yourself a leeway of 24 months to get there. Given what we're seeing now would your feeling be that that's more back-end loaded toward those goals or is there any change to that from analyst day?

Budd, in aggregate no, there's not a change. The only place that gives me a little bit of pause is I may have been a little over exuberant in the timing of aluminum. That we thought that aluminum would be -- that that 10% margin goal would be attained a little earlier. The Auburn situation may have pushed that out just a little bit, but we still -- that collective number in 24 months, we still feel very good about.

And when will the wood plants and commercial fixtures be delivering the kind of margins you think they should?

That's starting to take place now. That new facility is coming online. They're right on schedule, maybe a week or so ahead of schedule. It really was always planned to be a fourth-quarter event and we're on schedule.

Okay. All right, thank you again.

Joel Havard, BB&T Capital Market.

This is kind of a Matt and Haffner question. I'll let you all tag team this as you wish. Looking at business kind of into '07, we're through the restructuring. If we assume kind of a modest positive '07 total market outlook, do you think you guys can hold working capital kind of here in the 20% range -- 20% of sales that is? Or as you go after new customers and you're kind of revamping some of these product lines, does that necessitate an uptick from there?

Joel, let me make a comment first. There's really no reason to believe that we should not be able to get back to our approximate 19%. I know as we add or we know as we add certain businesses that are a little bit more inventory intensive that biases it, but quite honestly we won't be satisfied at 20%. We think we can do 19%.

But don't look for the glory days of the 16% anytime soon again, right?

No, that's correct, Joel. But it doesn't mean -- we have certain parts of our business of course that do very much better than that. But with over 300 profit centers I think it would be prudent from a cash flow modeling perspective to assume that approximate 19%. Matt, do you want to add to it?

Yes, and I'd just add, Joel, as you well know, in any given quarter as you look at our working capital numbers you've typically got some noise of some sort that's taking place. For example, there's been a lot of inflation compared to a year ago quarter-over-quarter that is a little bit hard to peg through. But on average for sure we're very dedicated to that 19% working capital target and hope to beat it from time to time for sure.

Good. And a follow-up to that if you don't mind. And this is, Matt, more specific to you. The budget process Haffner was referencing earlier, kind of a $250 million if I caught it right between acquisition and repurchase -- assuming some of these opportunities that are out there that you all referenced a minute ago, are you inclined to sort of spend at that -- if we annualize that $250 million are you inclined to spend on repurchases at that rate until an acquisition arrives or are you more likely to hold fire and see what happens?

No, I think you pretty much hit it at the first part there in that as those acquisitions don't come to fruition or get pushed out as the Company continues to generate very strong consistent cash flow, we'll get it back to our shareholders in the form of share repurchases. But sure enough, we'll pull those in as it looks like we're getting close to closing some of our transactions.

Got it. Thank you very much. Good luck, guys.

Allen Zwickler, First Manhattan.

Hi, Good day. A couple questions. When you speak about the Chinese competition, is that on the low-end or the high-end? I'm a little confused.

On components it generally is on the low-end, Alan. It's the commodity side of the business.

And that's where you're matching price as you say it?

Yes.

Okay. And what percentage of your bedding sales would you say does that represent? Is it in units in terms of actual mattresses?

In innerspring pieces it's about 70% is what we would call generic commodity products -- the 30% of proprietary product made and patented and controlled by us.

Okay. And so last year you said that that number was higher? I mean I'm just a little confused. You said last year you had an abnormal year. Whether it was Katrina or whatever you sold more low-end. So --.

Yes.

The 70 represents where you are now or where you were then?

Represents a normalized -- that's where we are now. The 70% is normalized.

So last year it would've been higher?

That's correct.

Okay. And my second question is -- when you talk about the U.S. auto business, what extent are you let's say Big 3 versus transplants in terms of selling components?

I'd say we're probably 60% to 65% Big 3 and 35% to 40% transplant. And I must say that we're enjoying more and more opportunities with the transplants. Don't want to say that we don't enjoy business with all of them, but to a certain extent the type of car that's sold really doesn't affect Leggett too much, Allen, because our components just go into a different chassis.

Okay. And if I could sneak one more in, when you talk about the Briggs & Stratton's or the motorcycles, whatever, it sounds to me like it isn't as if they went and bought it from somebody else, they just didn't buy it from you. Is that the implication of what you were trying to say?

That's correct.

That's correct.

Because in effect you are their pretty much principal supplier in those businesses?

Yes.

That's correct, yes.

Okay, great. Thank you very much.

At this time there are no further questions. Gentlemen, please continue with your conference or any closing remarks.

We'll just say thank you and look forward to speaking to you again in another quarter.

Thank you for participating in today's teleconference. You may now all disconnect.