禮恩派 (LEG) 2012 Q3 法說會逐字稿

Greetings and welcome to the Leggett & Platt third-quarter 2012 earnings. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David DeSonier, Senior Vice President, Strategy and Investor Relations for Leggett & Platt, Inc. Thank you, Mr. DeSonier, you may begin.

Good morning and thank you for taking part in Leggett & Platt's third-quarter conference call. With me this morning are the following -- Dave Haffner, our CEO and President; Karl Glassman who is our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our staff VP of Investor Relations.

The agenda for the called this morning is as follows -- Dave Haffner will start with a summary of the major statements we made in yesterday's press release; Karl Glassman will provide operating highlights; Dave will then address our outlook for the remainder of the year; and finally, the group will answer any questions you have.

This call 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.

We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information. Those slides supplement the information we discuss on this call including non-GAAP reconciliations.

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 will now turn the call over to Dave Haffner.

Good morning and thank you for participating in our call. Before I start my formal comments I want to let everyone know that our thoughts and prayers go out to all of our friends and indeed all of the folks that are being affected by this horrific storm, Sandy. We are especially sensitive to the trauma that such weather-related events can cause and we hope the best for the many people dealing with this horrific storm. So now I will commence my formal comments.

We are very pleased with our third-quarter results. As we reported yesterday, earnings per share from continuing operations were a record $0.45 during the quarter compared to earnings of $0.31 per share in the third quarter last year. Third-quarter same location sales increased 3% over the third quarter of 2011.

Unit volumes increased 7% but were partially offset by lower trade sales from our rod mill and changes in currency rates. Sales grew in several of our major businesses including store fixtures, automotive, US Spring, furniture components, adjustable bed, carpet underlay and commercial vehicle products.

As expected, we realized significant earnings leverage on the higher sales during the quarter. EBIT increased and EBIT margins improved both year over year and sequentially to 10.7%. Earnings benefited from higher unit volumes, lower raw material costs in some of our operations and cost improvements associated with restructuring activities.

In addition, the Western Pneumatic Tube acquisition that we completed in January continues to exceed our expectations for strong operating performance and contributed to the earnings and margin improvement during the quarter.

Optimizing returns continues to be a major focus for our operations. We ended the quarter with working capital at 13.2% of annualized sales, well below our 15% target. We generated $95 million of cash from operations during the quarter.

For the full year we expect operating cash of more than $350 million which will once again comfortably exceed the amount required to fund capital expenditures and dividends. Capital expenditures should be approximately $80 million this year and dividends should require about $160 million.

In anticipation of long-term debt maturing next April, during the quarter we took advantage of the current attractive interest rate environment and issued $300 million of 10-year notes. With the proceeds we reduced our use of commercial paper during the quarter and ended with nearly $600 million available under the existing commercial paper program.

Our financial base remains very strong. We ended September with net debt at 33% of net capital, which is comfortably within our long-term targeted range of 30% to 40%. In August we increased the quarterly dividend by a penny to $0.29 per share. 2012 marks the 41st consecutive annual dividend increase for the Company, a record we plan to extend.

At Friday's closing price of $25.40, the current dividend yield is 4.6%. Leggett possesses the highest dividend yield among all of the S&P 500's dividend aristocrats that have over 30 consecutive annual dividend increases.

Given the cash outlay earlier in the year to acquire Western Pneumatic Tube, our share repurchases have been at levels well below those of recent years. During the third quarter we purchased 600,000 shares of our stock bringing our year-to-date total to 1 million shares.

Consistent with our stated priorities for uses of excess cash flow, we will prudently buy back our stock subject to the outlook for the economy, our level of cash generation and other potential opportunities to strategically grow the Company. We have a standing authorization from the Board to repurchase up to 10 million shares each year but have established no specific repurchase commitment or timetable.

We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling three-year basis. Our target is to achieve TSR in the top one-third of the S&P 500 over the long-term, which we believe will require an average TSR of 12% to 15% per year.

For the three-year period that begin January 1, 2010, we have so far generated TSR of 14% per year on average, which places us in the upper half of the S&P 500 companies over that same time period. With those comments I will turn the call over to Karl Glassman who will provide some operating highlights.

Thank you, Dave, good morning. In my comments I will discuss a few segment highlights. You will find segment details in yesterday's press release and in the slide presentation on our website.

Third-quarter same location sales in the Residential Furnishings segment increased 2% with 4% unit volume growth partially offset by changes in currency rates. In our US Spring business sales were up 5%, innerspring unit volumes grew 5% and boxspring units increased 3%.

Growth of Comfort Core, which is our pocketed coil product offering, continues to significantly outpace the other innerspring categories and was up 34% in the third quarter. This is being driven by higher growth rates in the premium portion of the mattress market along with strong market reception of hybrid mattresses.

European Spring sales were down 10% reflecting a 4% decrease in unit volume and changes in currency rates. Sales were also down in the other parts of international spring and these volume declines continue to pressure segment margins.

Furniture group sales increased 4% with flat unit volumes in our motion hardware business augmented by continued solid performance in our seating components and sofa sleeper businesses. Again this quarter we have significant growth in adjustable beds with unit shipments up 21%.

We also had meaningful sales growth in carpet underlay. Performance is improving in carpet underlay, but growth in this business is dilutive to overall segment margins since it has inherently lower EBIT margins than other parts of the segment.

EBIT and EBIT margins in the segment increased versus the third quarter last year primarily reflecting higher unit volumes and lower raw material costs in certain businesses. In the Commercial Fixturing and component segment same location sales increased 21% in the third quarter, fixture and display sales increased significantly as anticipated primarily from strong sales activity with JCP, or J.C. Penney to us older folks.

Sales in the office furniture components were down slightly during the quarter, which we believe is roughly in line with the overall market for office seating. We were pleased to see significant earnings and margins improvement in the segment during the quarter, EBIT and EBIT margins increased to the highest level in several years primarily benefiting from the increased sales and cost improvements that have been implemented in recent years.

The seasonality of our store fixtures business this year is expected to be consistent with the historical pattern in which fourth-quarter sales, EBIT and margins are significantly lower than third quarter. Retailers generally plan the majority of their remodeling and new store activities so that it is complete ahead of the holiday season. This results in lower volume levels within the store fixtures industry during the fourth quarter.

In the Industrial Materials segment third-quarter same location sales decreased 8%. Lower trade sales from our rod mill more than offset 2% unit volume growth in other parts of the segment. The decrease in trade sales of steel rod during the quarter was largely offset by an increase in intercompany rod sales. So total rod production in the quarter was roughly flat with the prior year.

The rod mill continues to run at 100% capacity utilization. Despite the negative sales headlines they create, lower trade sales of the rod mill are not negative to earnings if production levels are stable and we are consuming the rod in our own wire mills. EBIT and EBIT margins for the segment increased in the quarter primarily due to lower raw material cost in certain businesses, earnings from the Western Pneumatic Tube acquisition and cost savings from plant consolidations.

As Dave mentioned earlier, we continue to be very pleased with the performance of the Western Pneumatic Tube acquisition. The business is on track to comfortably exceed our initial first year forecast and, as previously stated, should produce full year 2012 margins greater than the Company average.

In the Specialized Products segment third-quarter same location sales increased 2% with 5% unit volume growth partially offset by changes in currency rates. Unit volumes increased in both automotive and commercial vehicle products during the quarter, these improvements were partially offset by lower machinery sales.

The increase in automotive sales reflects strong growth in both North America and Asia, but sales decreases in Europe from changes in currency rates and lower volume. EBIT and EBIT margins increased during the quarter primarily from higher sales. With those comments I will turn the call back over to Dave.

Thank you, Karl. As we announced yesterday, we again increased our full-year guidance to reflect solid operating performance and improving margins. We now expect full-year 2012 earnings of between $1.45 and $1.52 per share. This is up from our previous $1.35 to $1.50 per share estimate on sales of $3.7 billion to $3.75 billion.

This full-year guidance implies fourth-quarter earnings of $0.25 to 0.32 per share on sales of approximately $830 million to $880 million. The expected decrease in both sales and EPS versus the third quarter reflects the seasonality that Karl mentioned related to our store fixtures business and also the normal seasonal decline we typically experience in both the Residential Furnishings and Industrial Materials segments. With those comments I will now turn the call back over to David 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 for everyone to have an opportunity to participate we again 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 be happy to try to answer all the questions you have. We are ready to begin the Q&A.

(Operator Instructions). John Baugh, Stifel Nicolaus.

I want to ask on sofas and sleepers, is there a share gain story there or a year-over-year comparison story or a lift in that business?

John, this is Karl, there is a -- really a shift that is in place from Asian manufacturing to US assembly of finished furniture products. Our position, our market position is stronger in North America than it is with the lower end more commodity type products that are sold in Asia.

So in our seating and distribution business, which is a part of home furnishings, we are significantly being impacted in those categories -- sofa sleepers, sinuous wire, [welt cord] -- all of those ancillary products to upholstered furniture assembly in the US. I don't think that there is as a significant market uplift in the sale of sofa sleepers to the end consumer.

And, Karl, has this just sort of developed -- when did this develop and what would be say going forward the next few quarters the year-over-year comparison if this trend stays in place?

The trend has been growing for the last few quarters. We would expect, all things being equal, that it will continue to accelerate based on all of the cost inflation drivers that you are well aware of in Asia. So we expect the trend to continue. But again, it has been growing over the last few quarters.

Okay. And then on US innerspring, I assume there was some level of sequential deceleration as the quarter went on. I think you gave us some hints early to the quarter last conference call. I am just curious, first of all, do I have that right?

And secondly, is this all related to the election cycle or how do you sort of see the fourth quarter playing out in US innerspring? And of course I know you've got the Comfort coil story going on there. So intertwine all of that with your thoughts. Thank you.

John, what we saw, as you'll remember from the second quarter call, is that July sales were up 7%, that they softened in August with sales up only 1% and then re-strengthened in September with unit sales up 6% for the total quarterly sales of 5% growth. So, I know that that contradicts with the ISPA numbers; our sales trends are our sales trends.

So the Labor Day holiday was very, very strong, though September numbers continued into October with October units up 2% to 3%. Again, as you commented, we are seeing a significantly stronger mix of higher end products that -- it's interesting to us that when we look year on year from an innerspring unit perspective, promotional innersprings, which are Bonnell's and VertiCoil's, kind of the low end, only grew about 1.5% in units; the higher end or what we call premium innerspring, Comfort Core, being part of that, grew 13%.

So there was a 230 basis point shift in premium from promotional. We expect that trend will continue. Not all Comfort Core is a part of hybrid, but there is certainly a mix shift and those premium price points, which we define premium at retail of between at $1,000 and $2,000 at Queen, is certainly growing.

Great, I will yield to others, thank you.

Budd Bugatch, Raymond James.

Congratulations on the quarter, for sure. Karl, I want to just explore a little bit further, you were starting to talk about the open coil versus the Comfort Core and what you were seeing there in terms of unit growth. Is that a trend -- you say that trend is going to continue? And Leggett has historically, I thought, had a much favored position in kind of open coil and it was the most profitable part of your business. Am I mistaken on that? And how do you think about that going forward?

You are not mistaken in that we have a large position in that market. It is profitable business for us, it significantly contributes through our value chain through the wire mills back up to the sterling rod mill. But the higher end product, the proprietary product, the continuous wires, the pocketed coil products all have a significantly higher average unit selling price and equal to or greater margin percentages.

So that secular change to premium product is good for us. I don't want for a second to -- any listener to think that the promotional category is not important, it is very, very important. So keeping with the Harry Cornell mantra, but we want it all. And we feel really good about where we are positioned in US Spring.

And, Budd, this is Dave. We are continuing to aggressively expand our productive capacity in pocketed coils through acquisition of equipment from our Spuhl subsidiary in anticipation of that continued uplift in premium.

And I will just take one follow-up. You do a great job on slide 11 of -- on the guidance from the walk from last year to this year. And you channelize this a little bit with that in the segment slides. Is there any way we can get for either third quarter or sequentially or year over year kind of same kind of walk?

You had such a significant incremental margin this quarter that it needs I think a little bit further exclamation as to what were some of the other items that might have raised that over the normal 30% contribution margin.

We did -- we did obviously realize a very nice contribution margin on the revenues that we experienced in the third quarter. We fought some about benefiting in the quarter versus last year from low raw material cost in some of our businesses that we have not quantified externally what the benefit of those impacts were.

We have benefit year over year also from the restructuring savings, we talked about that early this year. We quantified that for a full year anticipating $15 million to $20 million of incremental EBIT and we are getting that benefit.

(Multiple speakers) prorated by quarter, Susan? Is it about a fourth for this third quarter?

We are getting -- yes, probably a little bit greater impact here in the latter part of the year because those benefits are fully loaded. Some of those activities were still ongoing in the first quarter, so we probably did not have the full impact of that activity early in the year. So those just -- I know that is not the numerical bridge that you are looking for. But some of those elements we won't discuss in great detail externally.

It is nice to know that we tantalized Budd though.

Well then I will sneak in one other one because you also tantalized us on the cash flow statement with a $22 million expenditure for something of an unconsolidated entity -- an investment in an unconsolidated entity and to whatever extent that you are willing to disclose what that is about I would love to know what that was.

Budd, this is Matt. Sorry, you are going to be zero for two because we are bound by a non-disclosure agreement relative to the specifics of that opportunity. It is related to a potential acquisition and we have certainly rights that would allow us if we decide that is not something we want to further pursue then we can retreat from it without any loss of that $22 million investment.

Any idea when that will be done -- when we will know more about that?

I would -- during the next few months, but it could be a fourth-quarter item, it could be a first-quarter item or it could disappear. So we have all iterations still in play.

Okay, well, I am zero for two and the raise didn't move into the postseason this year either (laughter).

Wait a second -- I gave you a straight answer on US Spring.

(Laughter) okay. Well, one for three then. Maybe we'll make it next season.

Keith Hughes, SunTrust Robinson Humphrey.

Okay, can you hear me now?

Yes.

Okay.

You are up, Keith, do you have a question? We are having trouble with him, do you want to go to the next caller?

Mr. Hughes, your line is open. (Operator Instructions).

My question was in commercial. The J.C. Penney business that helped you out here in the third quarter, is that a one quarter hit or will that lag and -- over the next several quarters from business from that program?

Keith, the orders that we had in hand were shipped in the third quarter. We do have some releases in 1Q 2013 that are of lesser size than what we shipped in third quarter, but have a number of bids outstanding. We are very optimistic.

I very clearly want to communicate to the listeners of this call that our people did an absolutely wonderful job executing on this opportunity. The customer was very, very pleased and execution we are hopeful will put us in the lead horse position for subsequent releases. But there is nothing of any magnitude in 4Q and you will see some, potentially more -- we don't know at this point in the first quarter.

And can you just characterize the store fixtures environment outside of this J.C. Penney business you got as you entered the fourth quarter?

It's seasonally normal at this point, which means that the store fixtures business typically loses money in the fourth quarter just because of lack of demand. We're optimistic it will have some build opportunities in the latter part of the fourth quarter for first-quarter possessions. And as I said in the conference call prepared script, that it is all because of stores setting themselves before the holidays.

So we have plenty of opportunities, we continue to be, as I said, optimistic. We feel like some of the larger retailers who have not been as aggressive on the remodeling will become more aggressive. And any time one retailer changes a position in the retail environment, as J.C. Penney has done, that success sometimes allows others to become more aggressive in their remodeling plans. So, we are optimistic.

Okay. Thank you.

(Operator Instructions). David MacGregor, Longbow Research.

I wanted to get you to just talk a little bit about the acquisition you made recently in the gel foam? I realize it is small, but can you talk about where you are going longer-term or strategically with that and what the implications for 2013 might be?

David, it is very small. It is -- we acquired some IP -- a license I should say, that allows for our manufacturing and sale of a very specific family of gel foam products that we are in the early stages of manufacturing based on historical process. And with our product development capabilities we have every expectation that we will be able to expand that technology.

The product will be sold in component form as toppers, as integrated components in mattresses. We are optimistic that you may see some of that at the Las Vegas Furniture Market in January. But it is an area of specialty product that we intend to participate in. There is potential that it would be a part of hybrid mattresses, but also may be a part of full core product. So we will see how it develops.

Dave, it may also find its way eventually into such things as upholstered furniture, office seating and possibly automotive seating.

Is the plan to use this as a platform for further acquisitions? Can you just talk about how you grow or how you invest in it from here I guess?

Not necessarily for future acquisitions but more a throwing our research and development capabilities at this intellectual property and family. And as Dave said, trying to expand the capability. The product has been very successful in the healthcare field. So we will take that to residential bedding furniture and the other areas that Dave mentioned.

Okay. Just if I could have one other question just in the fixture and display business. Talk about the office side of that business. And I think you had indicated it was down. You felt it was maybe in line with what was happening overall in that space. Is there any prospect there over the next four, five, six quarters for share growth or new programs or are you really just kind of at the mercy of what happens in the category?

The business, as we said, was slightly off. Office -- the whole office industry is up against some very, very difficult comps with the industry growing at 20% last year. Those comps lessened a little bit in the fourth quarter. So from an industry perspective things will get less difficult from a year-on-year comparison perspective.

But the answer to your question is, yes, that we are always developing new products. We are very well placed with the large office manufacturers and listeners will know that is primarily almost exclusively in the chair part of office components.

New programs, new rollouts we feel really good, but our market shares are reasonably sized. We really need recovery in the industry for us to see significant growth. I will add onto that, we have seen some growth in Europe off a very small base and are positioned in Asia. Europe and Asia have been weaker than North America in recent quarters.

Thanks very much. Good luck.

Budd Bugatch, Raymond James.

A couple of quarters ago you talked about some loss of market share to a Chinese competitor. I thought you might have regained that, but could you go over where that situation is today?

Budd, on bedding or on furniture (multiple speakers)?

On furniture componentry -- pardon me, Karl.

Sure. From a furniture hardware standpoint that there has certainly been pricing pressure that the steel prices in China deflated at a quicker rate than they did in the US, they have re-inflated it in China.

So there have been some pressures that I really think started about this time last year, really the second quarter of 2011 where we were trying to pass through some pretty significant steel-based raw material inflation and our customers started to down spec a little bit. Some of them have been caught from a quality perspective.

So we feel really pretty good about where we are in that market. The hardware mechanism sales in September were up 5%, whereas we said they were flat for the quarter. So there was an improving trend. Furniture sales are a little better now than they had been as is the typical season, as you well know. There is a continued shift to powered motion, we are a large participant in that category. So we feel like we are very well-positioned, Budd.

Okay. And I think you had also talked a little bit about carpet underlayment and how are you feeling about that business today with housing improving? Revenues look like they are improving, but what about margin and how does that -- what is the outlook for that?

Budd, as you said, the demand is significantly improved, that continues into the October time frame. It is correlated to not only new construction but consumer confidence. As housing prices have bottomed it started to recovery. As you know better than I, there is a tendency to remodel and with that comes new carpeting. So we are seeing that uplift.

We are also seeing some share gains. That business is a good business for us in that we believe we are the largest producer of carpeted underlay in North America, we are confident of that. And as I said in the prepared statements, the margins of that business, while certainly positive and more acceptable in the third quarter than they had been previously are below the segment and therefore the corporate average.

So, we are appreciative of every square yard we receive. We are starting to see a little bit better mix shift in that we are seeing an uplift in hospitality, which allows for the sale of better goods with inherently greater margins.

Incremental dollar in that segment, does it give you the 30% contribution margin that you get corporate -- overall or is it still going to be -- if we continue to see revenue gains is it still going to be at a lower incremental margin?

It is at the lower end of that 25% to 30% range. But it still again is good business for us.

Okay. And my last question just to kind of go back to an old issue is the LIFO issue that you have. What is the outlook for this year? Is there any -- early look into next year? And remind people if you could how that flows through the overall corporate income statement because it shows up at corporate, but where does it show up in the divisionals?

Good question. We did have some greater LIFO benefit in the third quarter that there is assumed by that that there was FIFO expense at the segment level. So the margins would be pressured primarily in residential and industrial as we consolidate LIFO/FIFO match, maybe not exactly perfectly dollar for dollar on a quarter basis, but theoretically -- here we have got a spring salesman talking about accounting theory -- but they match over a longer term. It is a very difficult for us to forecast LIFO/FIFO moves into 2013, we are not there yet.

Budd, this is Matt. And I would just add, as you know, having looked at that number specifically routinely our LIFO reserve over the last several years has been anywhere between $70 million to $90 million, it moves up or down based upon costs and prices, et cetera.

As everyone one listening to the call knows, basically our LIFO reserve and the impacts there directly correlate hopefully to good pricing discipline and decision making on our end to deal with whether costs are running up or running down and to do so prudently. So we will continue to have that overall mindset in place as we account for and deal with LIFO.

So, Matt, the specific LIFO charge shows up at the corporate level or the credit shows up at the corporate level, but can you -- to Karl's point, does it match pretty closely with what happens at the divisional level so really the overall impact is a wash corporate wise?

Yes, in general that is fair to say. Certainly from an overall year standpoint sometimes the timing isn't quite perfect in any given quarter. But, yes, what you said over the course of a 12-month period that is absolutely GAAP's intent and it tends to be ours as well, of course.

So the way to think about it, Budd (multiple speakers).

What is your thought about the third quarter? How did it match in the third quarter?

Budd, to the best -- it's difficult to say -- penny to penny it is, but it matches. If you see LIFO benefit over a year assume that that really equal number is FIFO expense at the segment level again, pressuring margins again primarily in residential and industrial. So it might not be penny for penny, but it is pretty darn close.

Those numbers -- I know you know this, Budd, but those numbers are a function of the indices that we use for those specific LIFO pools as well as the amount of inventory that we anticipate at the end of a period. So it can vary based upon the inventories that we have too.

And, Budd, I would just add one final thought and that is relative to the third-quarter margin performance, which we feel good about, certainly room for more improvement, it -- in the third quarter that margin was not uniquely benefited by some LIFO activity that occurred in the quarter, if that is the essence of your question as well.

All right, thank you very much.

John Baugh, Stifel Nicolaus.

Yes, two quick follow-ups. One, could you quantify the rod scrap spread maybe in the third quarter, year-to-date and then an outlook for the fourth quarter? And then a second follow-up, discuss international spring volume. I recall you had a customer benefit I think in the UK, I can't recall when that happened. But have you anniversaried that and sort of what is in particular the European outlook for innersprings? Thank you.

John, from a scrap perspective we saw scrap prices deflate in the third quarter, roughly in a $35 range. We have seen scrap again retreat somewhat in the October time frame with an expectation that scrap will inflate to an equal or greater rate in November. So steel is volatile, it has been particularly volatile since about the April time frame this year. So we will see what happens.

As regards the international spring, that we have not anniversaried that transaction in the UK, that was the deverticalization of a customer that took place in January, we continue to benefit from that. As I said in the prepared comments, European spring units were down 4%. Actually dollars in Europe are positive in the October time frame.

So it is a challenging environment. We are the largest producer of innersprings in Europe. We were negatively impacted in the third quarter as we were in the second by mix, we will see what the fourth quarter brings. I will remind listeners that we tend to be heavy weighted to Northern Europe, don't have a position in Southern Europe.

The other thing that's impacting us though in international spring has been a softness in Brazil, South America in particular but more specifically very specifically Brazil. And at the monetary policies by the Brazilian government were changed in the early part of the second quarter, so we are seeing some soft demand there as well.

Karl, I'm sorry, is there a way to quantify that scrap steel spread in the third quarter or year to date in terms of its impact?

We don't talk spread, John. We generally at the rawest level, being rod, will end up moving some pricing around to adjust to moves in the market both up or down. But the spread isn't something that we discuss.

Has it been favorable year-to-date, kind of neutral? I know it has been volatile.

It certainly isn't a negative for us.

Thank you.

David MacGregor, Longbow Research.

Just a follow-up. First of all, just while we are on the bedding. Can you update us on the proportion of North American versus European business in spring?

Oh boy, it is probably four times larger in the US roughly.

Yes, David, international -- US international spring is about two-thirds US and one-third international. And of international spring Europe is by far the largest subset.

Okay, thanks. And then within specialty business the machinery business was down. And I guess I would just like to get you to comment on what is going on within that business. Is there a secular trend there that we should be thinking about and what is the thought heading forward over the next four, five, six quarters?

David, it's -- I don't believe it's a secular trend as much as we were up against a really difficult comp in the third quarter of last year. Remember our machinery businesses are very much heavy weighted to bedding demand and it's a global business. So the weakness in Europe and in South America has been negative year on year comp to us. Again, October machinery sales are up.

So it's a backlog issue. The backlog is not as strong as it was this time last year, but there really has not been anything that has changed other than softer international demand.

Okay, great, thank you.

Mr. DeSonier, there are no further questions at this time. I would like to turn the floor back over to your management for closing remarks.

We appreciate your attention and think our year-end call will be on February 5. We will talk to you then. Thank you.

This concludes today's teleconference. You may now disconnect your lines at this time. Thank you for your participation.