禮恩派 (LEG) 2013 Q3 法說會逐字稿

Greetings, and welcome to the Leggett & Platt third quarter 2013 conference call. 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 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, Incorporated. Thank you, sir. You may begin.

Good morning, and thank you for taking part in Leggett & Platt's third quarter conference call. With me today are the following, Dave Haffner, our Board Chair and CEO; Karl Glassman, who is President and Chief Operating Officer; Matt Flanigan, our Executive VP and CFO; and Susan McCoy, our Staff VP of Investor Relations. In addition, Joe Downes, who is Senior Vice President of the Company and President of the Industrial Materials segment, is joining us this morning to participate in Q&A. As we mentioned earlier this year, we plan to periodically include each of the segment presidents in these calls.

The agenda for our call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Matt Flanigan will discuss financial details and address our outlook for the remainder of 2013. Karl Glassman will provide segment highlights, and finally, the group will answer any questions that 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. We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information along with segment details. 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. As we reported yesterday, third quarter earnings were $0.49 per share, versus $0.45 per share in the third quarter of 2012. Current quarter results include a $9 million, or $0.06 per share, benefit from an acquisition purchased at a negotiated price less than the total accounting fair value of its net assets. Excluding this unusual item, earnings per share decreased to $0.43, primarily due to lower sales.

Same location sales decreased 3% during the quarter from a combination of factors including -- one, the non-recurrence as expected of the large JCPenney store fixtures programs that were concentrated in the third quarter last year; two, lower trade sales from our rod mill; and three, weak demand in commercial vehicle products. These declines were partially offset by continued strength in global automotive demand and growth in carpet underlay. Excluding the unusual acquisition related benefit, EBIT and EBIT margins decreased in the third quarter primarily from lower sales.

In late July, we acquired another aerospace tubing business with annual revenues of approximately $40 million, adding to the business unit that was formed in early 2012. This French-based acquisition expands our portfolio of tubing products to include small diameter, high-pressure seamless tubing. This tubing is used in hydraulic, fuel, engine instrumentation, and air conditioning systems, and is complementary to the large diameter, low-pressure welded tubing produced by Western Pneumatic Tube which was the initial platform acquisition we made last year. We have identified meaningful cross-selling opportunities across our four aerospace businesses, as well as opportunities to improve the performance of this recently acquired operation.

With this acquisition, and the smaller UK-based business we acquired in the second quarter, our aerospace products business unit now has an annual revenue run rate of approximately $120 million. The development of this new business platform aligns very well with our strategic emphasis on improving the overall margin mix of our businesses, by entering attractive markets where we can develop or extend a strong, sustainable competitive advantage.

In conjunction with our priority on critically reviewing our businesses for strategic value, we are continuing to explore possible alternatives for our commercial vehicle products business, one of which is the potential divestiture of that business. 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&P500 over the long-term which we believe will require an average TSR of 12% to 15% per year. For the three-year period that will end on December 31, 2013, we have so far generated TSR of 15% per year on average, which currently places us at the midpoint of the S&P500 companies.

I'll now turn the call over to Matt Flanigan, who will discuss some additional financial details along with our outlook for the remainder of the year. Matt?

Thanks, Dave, and good morning, everyone. Operating cash flow grew to $116 million during the third quarter, an increase of 22% over the same quarter last year. Working capital contributed $21 million to operating cash in the quarter, and consistent with our normal seasonal patterns, should be a significant source of cash in the fourth quarter as well. Optimizing returns on capital employed continues to be a major focus for our operations. We ended the third quarter with working capital at 12.3% of annualized sales, which is well below our 15% target. For the full year, we expect to generate over $350 million of operating cash, again comfortably exceeding the amount required to fund capital expenditures and dividends.

In August, we increased the quarterly dividend by 3.4% to $0.30 per share, and 2013 therefore marks our 42nd consecutive annual dividend increase at a compound annual growth rate of 13%. At yesterday's closing price of $29.67, the current yield is 4% on our stock, which is one of the highest among all of the S&P500 dividend aristocrats. During calendar 2013, dividends should require about $125 million of cash, which is lower than a typical year since the dividend normally paid in January of 2013 was accelerated into December last year in anticipations of higher individual tax rates.

We expect capital expenditures in 2013 to be approximately $85 million. Our depreciation and amortization expense this year should total around $120 million. With current capacity utilization rates still relatively low, our need to invest in additional productive capacity is limited. We continue to make investments for maintenance, efficiency improvement, and growth in businesses and product lines where sales are strong. As volumes improve, we expect capital expenditure levels to increase, but longer term, they will likely remain at or below total depreciation and amortization expense.

As a reminder, our incentive plans emphasize returns on capital which includes net fixed assets and working capital. This emphasis we believe, helps ensure that we are efficiently utilizing our asset base and investing capital dollars where the highest return potential exists. Returns should continue to improve as we expand EBIT margins, while controlling invested capital in this way.

In other uses of cash, we repurchased 1.1 million shares of our stock in the third quarter. Year to date through September, we've repurchased 3.9 million shares and issued 3.1 million. Approximately two-thirds of the issued shares were employee stock option exercises early in the year, in response to higher stock prices. Consistent with our stated priorities for the use of excess cash flow, we will prudently buy back our stock, bearing in mind our level of cash generation, other potential opportunities to strategically grow the Company, and the overall outlook for the general economy. 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. As of today, we have approximately 6 million shares still available under this year's authorization.

We recognize that our financial base remains very strong, and this gives us considerable flexibility when making investment decisions. We ended the quarter with net debt-to-net capital of 27.9%, which is well below the conservative end of our long-term targeted range of 30% to 40%. As we stated in yesterday's press release, we now expect full-year sales of approximately $3.75 billion, which is 1% growth versus 2012. Our prior guidance range was $3.75 billion to $3.85 billion.

Given this expected level of sales, we anticipate 2013 earnings of $1.61 to $1.66 per share, including $0.05 per share from discontinued operations, and $0.06 per share from the third quarter unusual acquisition related benefit that Dave mentioned earlier. Adjusting for those, earnings from continuing operations are expected to be between $1.50 and $1.55 per share. This implies a fourth quarter EPS guidance range of $0.31 to $0.36 on sales of approximately $900 million. Our prior range for full year continuing operations was $1.50 to $1.65 per share. And as a reminder, we earned $1.47 of adjusted EPS from continuing operations in 2012.

Now, I'll turn the call over to Karl, who will provide some additional segment comments.

Thank you, Matt, and good morning. In the residential furnishings segment, same location sales increased 6% in the third quarter from higher unit volumes in certain product categories and raw material related price increases in carpet underlay. In our US spring business, sales decreased 2% in the quarter. Innerspring unit volumes decreased 4%, however growth in the Comfort Core innerspring category continued, with those higher priced and higher-margin units up 12% during the quarter. Our box spring volume was also strong with units up 8%. Sales grew 4% in international spring primarily from market share gains in Europe.

In furniture components, sales increased 4% in the third quarter. Volume in our seating and sofa sleeper businesses grew 5%, and motion hardware unit volume was essentially flat. Adjustable bed units were down 10% in the quarter. In carpet underlay, sales grew primarily from price increases implemented to recover higher raw material costs. Third quarter EBIT and EBIT margins increased in the segment, primarily from higher sales.

In the commercial fixturing and components segment, same location sales decreased 20% in the third quarter. As expected, store fixtures sales decreased significantly due to the non-recurrence of the major JCPenney programs that were concentrated in the third quarter last year. In office furniture components, volume was up slightly during the quarter, roughly tracking the overall market for office seating. Segment EBIT and EBIT margins decreased versus the third quarter of 2012, due to the lower sales.

In the industrial materials segment, third quarter same location sales decreased 10% with about half of that decline from lower trade sales at our rod mill and the balance from steel related price deflation and lower unit volumes. The decrease in trade sales of steel rod during the quarter was offset by an increase in inter-company rod sales, and the rod mill continues to run at 100% capacity utilization. As we've stated in past quarters, a change in the mix of rod sales from trade to inter-company is generally positive to earnings, since that change tends to also shift the production mix to higher value, high carbon rods. EBIT and EBIT margins for this segment decreased during the quarter, primarily due to the lower sales and reduced metal margins.

In the specialized products segment, same location sales increased slightly in the third quarter. Automotive sales increased 9%, with continued strong growth in Asia and North America, partially offset by lower demand in Europe. In commercial vehicle products, sales were down 30% in the third quarter. Largely customers pulled volume forward into the second quarter and curtailed capital spending in the third quarter on near-term macro concerns. This segment's EBIT and EBIT margins decreased slightly in the quarter, as continued strength in automotive was offset by weak performance in CVP from lower sales and operating inefficiencies at a recently consolidated facility.

With those comments, I'll turn the call back over to Dave Haffner.

We began 2013 with expectations for stronger demand in many of our end markets. While those improvements have been slow to occur in certain areas, we are generally encouraged by the positive direction several of our businesses are headed. We continue to be very optimistic about the growth potential in our automotive business for the next several years. Industry forecasts project 4% global production growth in 2014 with all major geographies positive versus 2013.

With content gains, we expect to outperform this industry growth rate. We are also encouraged by the longer-term view for the office furniture industry and expect improving growth rates in our business in 2014. Customer backlogs in aerospace support industry demand strength in that business for several years. Our adjustable bed business has recently gained significant market share, that we will start to see the benefit from in 2014. With consumer confidence in housing generally on the upward track, our residential furniture components and bedding businesses are poised to benefit as demand in those end markets improves.

With those comments, I'll now turn the call back over to Dave DeSonier.

That concludes our prepared remarks. We appreciate 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 voluntary yield to the next participant. If you have additional questions, please reenter the queue, and we will answer all the questions you have. Christine, we are ready to begin the Q&A.

(Operator Instructions)

Josh Borstein, Longbow Research.

Good morning, everyone. Thanks for taking my questions here. On the adjustable foundations, I know I had read at the recent High Point Market, you introduced a new foundation that I guess comes in at a more affordable price point, perhaps due to some less functionality versus your other foundations. Is that some of the benefits that you had just mentioned in 2014 you expect to see?

Yes, Josh, this is Karl. Good morning. Yes, that's part of it. We're continually introducing new product lines, but more specifically, Dave's commentary related to specific to customer gains that will incorporate some of the new technology that we introduced at the High Point Market that you'll see again in the hands of specific customers at the Las Vegas Market in January.

Okay. Then the decline in the quarter, the 10%, was that more of the same, just the promotional behavior from some of your competitors? Or was it just lower demand?

Josh, that was part of it. Part of it was that we were up against a very difficult comp. The third quarter of 2012 was really strong. Also, about a third of that back slide was related to a credit issue with a specific customer, an e-commerce customer. That situation has since been resolved. I will say the loss lessened as the quarter progressed, so we believe that the fourth quarter performance, we certainly won't see that rate of decline. As I said, we're very enthusiastic about the pickup that we'll see in the first quarter of next year.

Okay, thanks. I wanted to ask you about the cadence. My impression was originally that had slowed down through the quarter, but it sounds like it actually had picked up. Is that correct?

It became less bad, yes.

Okay. A last one on the adjustables, the loss that did occur from the slower demand, was it your sense that it came equally from the bedding manufacturer that you supply? Or was it a mix between them and some of the retailers that you supply?

It was a mix of the two, certainly, Josh.

Daniel Moore, CJS Securities.

Good morning. Based on the guidance as we look out to Q4 and not seen immediate improvement in the near-term, if demand doesn't pick up as you elaborated or might expect early in '14, do you have levers or room to further improve efficiency and reduce costs?

Dan, this is Dave. There are always some levers, yes. It's difficult to take a particular freestanding plant off-line, especially if that plant has some unique manufacturing capabilities. Obviously, we've reduced the productive capacity a few years ago to what we thought was prudent, but the answer is yes, there are always ways. The operators -- and I can let Karl comment on this if he is the will -- are always looking for ways to manufacture the products at a lower demand level in the most efficient way. And, there's also fixed costs, of course, that if for some reason, we were to see additional pullback that we would have to reduce some fixed costs. Karl?

I would certainly agree with that, Dan. If business stays flat going forward, we'll continue to do our analysis of facilities as we always do. Our operating team really deserves a lot of credit for the margins that we've seen, the improvement in margins that we've seen in what has really been a flat demand year. If you see that continue, expect that our margins will improve. We'll continue to be tactical around each one of the activities and work each one of those levers. It's interesting. In a flat demand environment, our capacity utilization actually is decreasing because we're becoming incrementally more efficient at every turn.

Very helpful. One quick follow-up perhaps. Maybe you could just elaborate on the acquisition in aerospace tubing. If not the purchase price, what's the margin profile look like? How does that fit in strategically with Western Pneumatic?

Yes, Dan, this is Joe Downes. The business, it should follow the same profile of the Western Pneumatic as far as earnings, or the earnings on their sales. They do open up some markets for us for some of the Western products to be sold to Airbus, which is a major customer of specialty tubes. In turn, we expect to be able to take the seamless tubing that specialty tubes produces and introduce it further to Boeing because of our entrees that we have there with Western.

Dan, this is Dave. I wish it was a larger business because that margin profile is attractive for our shareholders. We'll continue to look for ways to grow that entire unit, That seamless tubing, which is high-pressure, low volume displacement, it's a very different type tubing, but it's very complementary because it's used by the same customers base. There is a nice cross-selling synergy, if you will, to that.

Keith Hughes, SunTrust Robinson Humphrey.

This is Rohit Seth in for Keith Hughes. Karl, this question's for you. We're looking at the sales trends for US springs down 2%, international springs up 4%, furniture components up 4%. There's a divergence of trends there. Can you provide any additional color on what is driving the divergence there?

Let's go through a little bit of a walk. I think I'll get this question later anyway. If you'll give me just a second, I'll give you the US spring walk and then comment on the other markets and how it differs. The innerspring units as we reported were down 4% in the quarter. The trend by month was July down 2%, August down 4%, September down 5%. Box spring units conversely were up 8% for the quarter. Some of that was impacted by a significant growth by Simmons. In March of this year, Simmons started to take some really pretty significant share and grow their position. As you probably know, we enjoy all of Simmons' open coil business, but they self-produce their pocketed coils. We do have all of their box spring business. As they have grown, that is part of the reason our box spring volume has grown significantly. They have taken some business from some of the smaller manufacturers. Simmons is offering a better product quality, in terms of using a metal-based box spring instead of a more promotionally priced wood foundation. That's a good switch to us.

Also, what's driving box springs is around the major holidays, the three large producers, they've all engaged in free box spring promotions. That's driving some consumption. I'll also digress for just a second, and I know a question I'm going to get is how does this all compared to the ISPA statistics? ISPA is showing through August that sales of mattress units are up 1.4%, up 3% over the last three months. We expect that there will be an end-of-the-year true up. While ISPA does a really good job of aggregating the data that they're given in their monthly bedding barometers, last year or earlier this year for 2012, there was an adjustment because of the reporters taking business from the non-reporters. We expect that that will happen again for this calendar year. All that said is we believe that the industry is flat to possibly negative in units, so far this year.

Another thing that I want to say, and this tends to maybe sound a little defensive, but we're proud of this in that innersprings are certainly gaining share from alternative sleep. When ISPA launches their September numbers, they'll give the actual third quarter trend and that will be the fourth quarter in a row that innerspring's taken away from specialty. Some of that is driven by the consumption or growth of hybrid innersprings which correlates to that Comfort Core number that we gave you, with units being up 12%. The trend there was July up 6%, August of 14%, and September up 15%. October will be stronger than September. From an October trend standpoint in innerspring units, they're up 5%. Box spring units are up 12% through the first three weeks. It's a little bit odd for us in that the last two weeks of September, the trend was innerspring units were down 15%. That probably was an outlier. We picked some of that up in October. We're not really sure why that happened. We don't know if it was window dressing. We just don't know. It was an unusual activity which had a negative impact on our consolidated third quarter numbers.

As it relates to the rest of the segment, demand in Europe has been stronger than most people would expect. We're gaining share. Innerspring units actually in Europe were up 20%. We're seeing some recovery of growth in South America. On the furniture side, to the rest of your question, the trends there, the third quarter in parts was really pretty strong. We expect that. That's their seasonal strength. Today, business and furniture continues to be reasonably good. It's probably not as strong as the third quarter, but probably slightly stronger than last year. I apologize for the rambling answer, but I took advantage of your question to answer some others that I'm sure will come.

Thank you very much. Very helpful. Thanks.

Budd Bugatch, Raymond James & Associates.

I guess since Joe is there, let's concentrate on the industrial. You answered a little bit of the question on the new acquisition, and I hope, Dave, you can find more acquisitions where you purchase the assets below fair market value.

I do, too, Budd.

I'll pile on, only if they perform in the future.

The question is, if you look at the two different margin profiles of the business coming out of Sterling and the other self-production that you do, and trade sales versus the tubing business, which has got a higher-margin profile, it looks like, if I peg it right, that the margin in the self-production side, it's somewhere between 5% at 6%. First of all, am I somewhere near right, right now? And the second question is, where does that go, for Joe, in the near term and maybe over the intermediate term?

I don't know that I have that broken down between the legacy industrial business versus the aerospace business. Remember, aerospace, it currently, with the recent acquisition, was on a $120 million revenue run rate. We won't have all those revenue obviously in place this year.

I adjusted for that, Susan.

This year's EBIT margins will be between 8% and 9% in the segment overall. I would suspect that the legacy part of that is going to be a little higher than what you backed into.

It's fair, relatively speaking, Budd, as you would expect the aerospace tubing product line is meaningfully more profitable. The contribution associated with it on a margin basis is meaningfully higher than it is of the mechanical tubing which is the legacy tubing that Susan is talking about. While we don't give the margins out, relatively speaking, it's meaningfully higher.

I understand that. It looks like the spread, at least has between the cost of scrap and rod, it's come in over the last year fairly substantially. What's the outlook for that? I guess that the other way of asking that same question.

Budd, this is Joe. Right now there is a significant overcapacity both in the US, as well as worldwide in the steel industry. It'll keep margins under pressure into the future. All of the rationalization and the benefits realized from what the steel industry did in the early 2000s, as you might expect as margins improved everybody start investing, most of the new steel mills have come in Asia. But there is an overhang of excess capacity. I do believe that will keep pressure on margins in general probably for some time in the future.

And that overcapacity, Joe, is in long product, in the rod?

I don't know that it has been identified that way. A number of the analysts that follow the industry very closely estimate right now that there's about 2.1 billion tons of production capacity in the world. It's estimated maybe 800 million to 850 million of that is in China, and the consumption rate today is about 1.5 billion. Now, normally you can think in terms of the long products being a very small portion of that.

Okay, thank you very much. Good luck on the future.

Herb Hardt, Monness, Crespi, Hardt.

In regards to the acquisition and France, most companies I talk to are trying to get out of France with significant labor problems, et cetera. I'm curious as to the vetting process, as to how you view this?

Herb, this is Joe again. I would probably echo what a lot of the other people would've echoed from other companies regarding France. But, our people did convince us that this was a good fit. It was something that was a natural extension of what we were already doing, and having the welded tubing here, this extended us into seamless. We spent quite a bit of time on the due diligence of these businesses, and a lot of that we spent on the HR aspect of it. They do have a good relationship with their union there. After doing our due diligence, we felt it was the proper thing to do. Now we're expanded into France. I will tell you and it was kind of interesting, and this was something we learned, that it took the French government approval of this acquisition, because specialty tubes does a small amount of business with the defense industry in France. We were delayed with the closing by about six weeks. We finally closed it July 31, and they immediately were taking three weeks' vacation in the month of August. That's quite of an adjustment for us in the third quarter. They have nine weeks' worth of ownership and expenses and only five weeks worth of sales that was just the poor timing that we couldn't overcome.

This is Dave. As you might expect, we use different discount rates when we establish enterprise valuations based upon the territory of the operation and many other variables. The discount rate that we used certainly was one of the reasons that we're able to purchase those assets at the level we purchased them.

Yes, Herb, this is Matt. I would just add one other comment that last year, when we bought Western which we again continue to feel really good about, it has exceeded our expectations. It was something in the neighborhood almost of $190 million investment, as you recall. This investment in France starting out of the gate is less than $15 million of cash investment.

(Operator Instructions)

Dillard Watt, Stifel Nicolaus.

I just wanted to see if you might be able to elaborate a little bit on any of the commentary on possible divestiture in CVP, and what else might you be thinking. The fact that results have been a little more difficult, is that making things a little bit harder in terms of finding a buyer? Any kind of color you can give would be great.

Dillard, I'll start, and then if Karl wants to comment, he's certainly welcome. We have been negotiating with one particular entity. There was a broader array of interest to begin with, but we've limited our discussion and negotiation with one particular entity to this point. We haven't decided finally whether we're going to sell this. We're still in that negotiation, so it's important to send that signal out there.

To your point, yes, when a business fails to meet expectations, it's harder to negotiate price than if it went the other way. That's obviously a benefit that we would have if the business was outperforming, as opposed to underperforming. However, saying that, we continue to seriously consider the divestiture, and we will do so only at a level that we feel is in the best interest of our shareholders. Other parts of our portfolio, we continue to look at them. Karl and the operators look at them very critically every year. Anytime we see an underperforming part of our business, we will give serious consideration to changing its position in the portfolio, if need be. Karl, anything?

The only thing I would add, Dillard, I think it's important to remember on CVP that the second quarter sales were abnormally strong. That business is a cyclical business. The third quarter was really indicative, as we've said, of a pull forward into the second, that we continue to enjoy very strong customer relationships. That business is a solid business going forward. It's just a challenge from a cyclicality perspective.

Got it. That does it for me. Thank you.

Josh Borstein, Longbow Research.

Just a quick follow-up on the CVP. It was down 30%. You mentioned a fleet operator that pulled back due to macro concerns. Was that in your estimation due to the government shutdown? Has that fleet operator since resumed spending?

Josh, I don't know. It wasn't a specific operator. It was a macro industry issue, and why they pulled back, I can't tell you. Their forecasts across the board show some continued weakness in the fourth quarter with some recovery in the first. We just don't know. It's a good question.

Okay, and then, Karl, I know you gave us a lot of detail on the spring business, and I appreciate that. I just want to go over some numbers, just to make sure I had them right. For the US spring, July, August, and September was down 2%, down 4%, down 5% in September, but the last two weeks of September, you mentioned were down 15%. Is that correct?

That's correct.

And then October was up 5%?

Yes, so far, yes, and that's obviously through three shipping weeks.

Okay. Did you also break out the Comfort Core as well?

Yes, I did. It was up 6%, up 14%, and up 15%. Based on the October shipments to date, I would expect that we'll be at that September 15% growth rate. The Comfort Core placements continue to grow pretty significantly.

Okay, so it sounds like the way the spring business played out was a little differently from the way the adjustable foundations played out over the quarter. Is that fair to say?

Absolutely.

Okay.

We're not really sure on that. The last few weeks of September falling off like that, that is really an outlier over any of our historic analysis. It was unexpected. We don't know if it was in consumer driven, demand weakness, or if it was just customers optimizing inventory because they did recover pretty strongly in those first couple weeks of October, as I said.

You didn't see that same drop-off in the last two weeks in the adjustable business though?

No, we didn't.

Okay. Just lastly, if you try to factor out the popularity in hybrid mattresses, is the comment you made that innerspring is taking share from specialty, if you factor out hybrids, do you think that comment is still true?

I haven't analyzed it at that level, Josh. This is speculation which is a little dangerous. I believe that it probably is because there is growth around some of the promotional price points. It seems like, in the early days of the economic recovery, there was really strong demand at the ultra-premium price points. Ultra-premium we define as above $2,000 in queen. There's weakness around all those price points now, it feels like. Even the hybrid strength is in the $1,200 to $1,500 range, but it feels like that there is some more promotional sub-$1,000 strength this year than there had been previously. It's difficult to rationalize all those mix shifts, but we're reasonably comfortable with the promotional price points.

That's very helpful. Thank you.

Daniel Moore, CJS Securities.

Turning to the balance sheet, you've been running below your net leverage target levels for a quarter or two now. Absent further or larger acquisition opportunities, would you look to accelerate share repurchases? Or do you see more of these smaller tuck-ins in the intermediate horizon?

Hi, Dan. This is Matt. I think right now, and Dave and Karl can both comment on the pipeline from an M&A perspective, but it appears that it's relatively low right now. Yes, in keeping with our priorities of cash, I think you should anticipate that, as we generate the excess cash flow that we've been predicting, $350 million of total operating cash for 2013, and frankly there's a bias even from that number, I believe it is up right now. I think you would see us buy more stock here as we look forward than we have in last quarter or two, based upon our predicted uses for that cash otherwise, which right now are relatively modest, as best we can tell.

Very good, thank you.

Mr. DeSonier, we have no further questions at this time. I would now like to turn the floor back over to you for closing comments.

We'll just quickly say thank you for listening, and we'll talk to you again next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.