禮恩派 (LEG) 2019 Q1 法說會逐字稿

Greetings, and welcome to the Leggett & Platt First Quarter 2019 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Wendy Watson, Director of Investor Relations. Thank you. Ms. Watson, you may begin.

Good morning, and thank you for taking part in Leggett & Platt's first quarter conference call. I'm Wendy Watson, Director of Investor Relations.

With me today are Karl Glassman, President and CEO; Matt Flanigan, Executive Vice President and CFO; Mitch Dolloff, EVP, Chief Operating Officer and President of the Furniture Products and Specialized Products segment; Perry Davis, EVP and President of the Residential Products and Industrial Products segment; Susan McCoy, Senior Vice President of Investor Relations; and Cassie Branscum, Manager of IR.

The agenda for our call this morning is as follows: Karl Glassman will start with a summary of the major statements we made in yesterday's press release; Matt will discuss financial details and address our outlook for 2019; and finally, the group will answer any questions that you have.

This conference call is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our expressed permission. A replay is available from the IR portion of Leggett's website.

We posted to the Investor Relations portion of the website, yesterday's press release and a set of PowerPoint slides that contain summary financial information along with segment details. Those documents 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 and 10-Q entitled forward-looking statements.

I'll now turn the call over to Karl.

Good morning, and thank you for participating in our first quarter call.

As we reported yesterday, first quarter sales increased 12% to $1.16 billion. Growth from ECS and other smaller acquisitions of 13% was slightly offset by a 1% decline in organic sales. Volume was down 3%. Market share and content gains led to growth in U.S. Spring of 7%, but this was more than offset by our decision to exit the Fashion Bed business, softer demand in Automotive and volume we chose to exit in our Home Furniture business.

Raw material-related selling price increases added 4% to organic sales but were partially offset by currency impact of 2%.

First quarter earnings per share were $0.45. This included $6 million of restructuring-related charges and $1 million of ECS transaction cost that amount to a $0.04 per share reduction in earnings. Excluding these items, adjusted first quarter earnings were $0.49 per share, down $0.08 from $0.57 in the first quarter last year.

Earnings benefited from improved metal margins in our Steel Rod business and the ECS acquisition, even after $14 million of purchase accounting charges. However, these increases were more than offset by declines in Automotive, Fashion Bed, Flooring Products and Adjustable Bed, as well as higher interest expense and a higher effective tax rate.

We remain excited about the ECS acquisition and the opportunities it brings. Demand for their proprietary specialty foams and downstream products is strong, even while the U.S. Bedding industry continues to be impacted by unfavorably priced Chinese mattresses that are the subject of a pending antidumping matter. Since filing the dumping case with the U.S. International Trade Commission and Department of Commerce in September 2018, we have seen a notable increase in imported mattresses from China, which has impacted ECS's sales growth. We expect a preliminary decision on the dumping allegations by the Department of Commerce in late May.

If duties are imposed, we expect our Bedding businesses along with the entire U.S. Bedding industry to benefit.

As previously discussed, we conducted an in-depth analysis of our Home Furniture and Fashion Bed businesses and initiated restructuring activity in the fourth quarter of last year.

We are exiting low-margin business, reducing operating cost and eliminating excess capacity in Home Furniture. These activities should be substantially complete by the end of the second quarter.

In late March, we announced the closure of Fashion Bed, and expect to be out of that business by the end of the third quarter.

We expect full year restructuring-related charges of $17 million, $12 million of which is noncash.

As a reminder, from last quarter's conference call, the quarterly slide decks we post to the Investor Relations website no longer contain unit growth rates of innerspring and boxspring pieces within our Residential Products segment.

Because of content gains, including strong growth of our Comfort Core innersprings and other higher dollar value units, dollar growth and unit growth have become increasingly disconnected.

I'll now turn the call over to Matt.

Thank you, Karl, and good morning, everyone. Reflecting normal seasonality, cash from operations was $31 million in the first quarter, a decrease of $13 million versus the first quarter last year, primarily due to increased working capital. A decrease in accounts payable due to the timing of payments and inventory purchases, along with wind-down activity at restructured locations, led to the increase in working capital investment. We ended the quarter with adjusted working capital as a percentage of sales at 13.4%. That percentage should come back down as 2019 progresses.

We continue to expect our full year operating cash flow to approximate $550 million. In February, we declared a $0.38 per share quarterly dividend and extended our record of consecutive annual increases to 48 years.

We fully expect to continue increasing the dividend as we repay debt associated with the ECS acquisition.

At Friday's closing price of $42.01, our current yield is 3.6%, which is one of the highest yields among the 57 companies that comprise the S&P 500 Dividend Aristocrats.

In keeping with our deleveraging plans, we repurchased only 300,000 shares of our stock at an average price of $42.38. These were primarily shares surrendered by employees for option exercises. We issued 1 million shares during the quarter, primarily for employee benefit plans and stock option exercises.

After completing the ECS acquisition in January, we ended the quarter with debt at 3.6x, our trailing 12-month pro forma adjusted EBITDA. We are committed to maintaining a strong investment-grade credit rating and expect to deleverage to a target ratio of debt-to-trailing 12-month's EBITDA of approximately 2.5x by the end of 2020.

We will do this by temporarily limiting share repurchases, reducing other acquisition spending and using our operating cash flow to repay debt.

In addition, we expect to bring back roughly $170 million of offshore cash in 2019.

We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling 3-year basis. Our target is to achieve TSR in the top 1/3 of the S&P 500 over the long term, which we believe will require an average TSR of 11% to 14% per year.

We strongly believe our disciplined growth strategy, portfolio management and prudent use of capital will support achievement of this top third goal over time.

Our guidance for 2019 is unchanged. Full year sales are expected to be $4.95 billion to $5.1 billion, or up 16% to 19% over last year. ECS should add approximately $650 million to sales, commencing from the January 16 acquisition date, and we continue to expect annualized sales of approximately $675 million.

In addition, organic sales growth is expected to be flat to up 3%, reflecting sales growth in automotive, U.S. Spring, Aerospace, Hydraulic Cylinders and Work Furniture, largely offset by our exit from Fashion Bed and planned declines in Home Furniture.

Full year earnings per share are expected to be $2.35 to $2.55, including approximately $0.10 per share of restructuring-related costs. Therefore, adjusted EPS is expected to be $2.45 to $2.65, reflecting slightly higher organic sales and moderating steel inflation, partially offset by higher tax rate.

The ECS acquisition is expected to be neutral to EPS this year. EPS guidance assumes a full year effective tax rate of 24% versus 20% in 2018. This higher rate reflects the non-recurrence of valuation allowance releases we benefited from in 2018, a smaller expected stock compensation benefit in 2019, the impact of TCJA executive compensation limits and cash implications from higher interest expense due to the financing of the ECS transaction.

We expect full year depreciation and amortization of $210 million, net interest expense of approximately $95 million and fully diluted shares of $136 million.

Based upon this guidance framework, our full year adjusted EBIT margin should be 10.8% to 11.2%.

As previously mentioned, full year cash from operations should approximate $550 million, capital expenditures should be approximately $195 million for the year, and dividends should require $205 million of cash. Our dividend payout ratio for 2019 is anticipated to be above our target of approximately 50% of adjusted earnings.

Our long-term priorities for use of cash remain: one, organic growth involving capital expenditures and working capital investments; two, dividends; three, strategic acquisitions; and four, share repurchases.

As previously stated, we are prioritizing debt repayment after organic growth of dividends and as a result are temporarily limiting share repurchases and reducing acquisition spending.

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

That concludes our prepared remarks. We thank you for your attention and will be glad to answer your questions.

In order to allow everyone an opportunity to participate, we request that you ask only one question and then yield to the next participant.

If you have additional questions, you're welcome to re-enter the queue and we will answer those questions as well.

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

(Operator Instructions) Our first question comes from the line of Peter Keith with Piper Jaffray. Our next question comes from the line of Susan Maklari with Crédit Suisse.

My first question is just, now that you have actually closed ECS and had some time with it this quarter. Can you just talk to was there anything in there that has surprised you, how the integration is going? And it seems like things are on track in terms of the guidance that Matt talked to in the sales line. But just talk to us generally about how it's going, especially with the impact that it's seeing from imports maybe?

Sure, Susan. This is Perry Davis. I'll address that. I just sat in a -- an integration meeting at the end of last week, which we have on a regular cadence, and I can tell you that the level of engagement between the Leggett folks and the ECS people is extremely good. We're tracking a lot of different work streams that range from sales and marketing all the way to IT integration and a lot of the back-office functions, and it's going very smoothly. We had some great people working on that, tracking that, facilitating that and we're quite pleased. We sensed prior to the acquisition, the cooperative spirit of those people at ECS, and I'm happy to report that our expectations there have been realized and they're working together quite well.

I'll just add to that from a business perspective. The surprise is that we knew at the time of the acquisition that we were starting to see some chemical deflation so it's pressured selling prices a little bit but certainly not profitability and margins are enhanced as a percentage. So not a big surprise because TDI had increased significantly and now is coming back. So we're seeing deflation but it's -- for -- like I said, from profitability standpoint, it's not at all negative. The surprise probably has been the point that you started to make and that's the significant surge of dumped products in advance of the ruling that we expect will take place by statutory rules, the end of May, so there is a 90-day look back from a retro duty perspective. So we knew the product that had come into the country before the end of February was in effect duty-free but the significant surge of imports, 17% -- 71% in December, 63% in January, 56% in February, has surprised us, so it's dampened not only ECS' volume, certainly the whole U.S. industries volume. So it's impacted the conventional players in the U.S. as well. We expect that we'll start to get some relief. We -- the challenge is there's a lot of inventory in this country, it's being peeled off but it will take a while to all sort through. So we're certainly optimistic about the duties and the duty rates. We are really pleased that we've made the ECS acquisition. There is a lot of conversation, Perry's been involved with Chris Chrisafides, who runs ECS and the rest of the ECS team and our historic Bedding group, about new programs of onshoring and reshoring. Part of U.S. Spring's growth has been the growth of hybrids and boxed and in conventional platforms. So things are going really, really well. But those were kind of the 2 surprises.

Okay. That's helpful, Karl. And then just following up more broadly, I guess, as we look across your end markets, you've talked to weakness in autos obviously globally. I know carpet underlay had some pressures this quarter. And I guess we've kind of heard that coming out of the fourth quarter, it seems like the year started off a little slow but then has kind of improved as we move through closer into the spring. Can you talk to what you've seen in Bedding and housing markets and those kinds of things. And how you're thinking about demand coming through as we look out?

So, Susan, this is Perry again. In Bedding, I can tell you that as we progress through the quarter, it got stronger and stronger. Relatively good sales promotion and activity around Presidents' Day. But again, the impact of the imports, it's hard to gauge because we perceive that there's so much of that in the system. But I can tell you as the quarter went along, the cadence got quicker and more robust. We actually saw in one of the other business units that's been affected as you've mentioned in carpet or in our Flooring Products group, we did see some headwinds at the start of the year. Some of that obviously construction-related and weather-impacted but as we've gone along now and we've entered into the second quarter, we've seen our business volumes there recover, and we're bullish on that business as we go forward. Now we're beginning to see some raw material relief there also.

Okay. All right. That's helpful. And what about just thinking in terms of some of your more industrial end markets, I know hydraulics had a really good quarter. But can you just talk to what you've been seeing on that side in general?

Sure, Susan. This is Mitch. Let me start with Auto. As you probably recall that the vehicle production forecast has declined consistently since the middle of last year. In fact, vehicles are down almost about 2.8 million vehicles since the December forecast with over 2 million of those units coming out of the first half of the year. So we're looking at a forecast for the market that shows continued softness in the first half of the year with production down year-over-year, about 5%, and then the forecast improves in the back half of the year with production increasing year-over-year 3% to 4%, and that's pretty much -- that's reflective of the trends that we see as well. Remember that so we're facing pretty tough comps with the first half of last year being pretty strong and then falling off in the back half. So we'll expect to see a reverse of that this year. In PHC, in the Hydraulic Cylinders market, yes, last year was very strong. I think year to growth in material handling was up nearly 15%. Q1 was actually a little bit softer, down about 3%. We don't have good industry forecast there so -- unit pressure remained strong but we'll keep an eye out for that. Aerospace bills remain strong so we're in good shape there as well.

Our next question comes from the line of Peter Keith with Piper Jaffray.

I'm here, sorry about that. I've had finger on the mute button this morning. I did have a question, just follow-up to Mitch, so interesting on the Auto forecast down 5%, but then pretty sharp inflection in the back half of the year. I guess up 3% to 4% would seem to run above historical demand figures. That seems a little overly optimistic. I guess, do you -- what do you think on that forecast would be driving that sharp acceleration in the back half?

Well, I think you have a lot of uncertainty that have been negatively impacting the back half of last year and into the first half of this year, particularly the trade disputes impacting North America, China and the European Union, I think are impacting consumer confidence. Certainly retaliatory tariffs in China have reduced demand for inputs there. The continued steel and aluminum tariffs are raising transaction prices in the U.S. slowing sales and those are really coming through lower incentives that the consumer's having to absorb. And then we also had the WLTP emissions testing backlog last year, and I think it's starting to work itself out but people expect we'll be in better position in the second half of the year. And then I think finally, there's some expectation that there'll be tax incentives in China that will help boost demand in the second half of 2019. So I think that part of the year-over-year negative reflection in the first half is that it was really strong in '18, and we see it softer in '19 and yes, the reverse scenario, so I don't think that production rates that are forecast in the back half are unrealistic.

Okay. That's helpful. And then I actually wanted to pivot the next question back to Karl around ECS, and I certainly agree with the acceleration of Chinese imports but my impression was that the imports are trying to get ahead of potential duties so that they would have inventory in place to last potentially through Q2. Not as a demand accelerant and we haven't seen much pricing change on import pricing at least that we see online. So I guess the core of my question is, why would the acceleration of imports be impacting overall demand trends as it relates to ECS?

I think it's a continuation of the low-cost product being sold in the country and the surge that exists in that inventory. So it's the growth that really started in 2016, and the acceleration of that growth continues to pressure the entry price points in the U.S, which the first quarter is heavily sensitive to that seasonality. So there's a continuation of a loss of business to imports. So Peter, I fundamentally agree with your point that it's just -- it's an acceleration, the inventory is a bigger issue from a go-forward perspective that we expect will be melted off probably sometime by the end -- middle, the end of the third quarter as it will be interesting to see what the import statistics for March look like but short answer is, it's a continued pressure on the entry price points in the U.S. And from our perspective, and from an ECS perspective, there had been a lot of conversation and continues to be a lot of conversation of the domestic players moving to U.S. sourcing, some of them are reshoring, a good part of them are onshoring for the first time and as that inventory continues to grow, the start of those ECS programs gets pushed out. So there is a backward forecast at ECS that we think is appropriate and there'll also be an impact, a kind of knock-on benefit to our conventional U.S. Spring business and as I said in the prepared comments, to the U.S. Bedding industry as a whole.

Okay. I do agree with that onshoring comment. Just lastly on the residential segment. So the margins continued to trend down. I'd thought by this point with ECS and stabilization in steel that the margin there would be flat to up. Could you give us a little color on that specific segment?

Well, remember, ECS pressures EBIT margins in that segment. I wish we could report EBITDA margins but that's the issue.

Our next question comes from the line of Keith Hughes with SunTrust Robinson Humphrey.

My question is on the furniture segment. How much of -- the businesses that you're exiting, how much of the 5% decline does that represent?

I think most of it, if not -- yes, most of it, for sure, the significant declines in that Fashion Bed business, I think it was down 30%, and Home Furniture down 12%. There's a little bit of a decline in Adjustable Bed as well. But most of the bulk of it is from Home Furniture and Fashion Bed.

Should be getting out of those because they're not very profitable, so I was surprised that the EBIT was down so much on that decline. What's going on with that?

Well, I think that you have a couple of factors. You have some restructuring costs that are running through there. Particularly the Fashion Bed business with lower margin, and so that -- and so we are exiting that. We're not exiting the Home Furniture business. We've undertaken some significant restructuring activity really over the last several quarters there and that business has stabilized and actually performed pretty well. We still have some work to do but we saw margins improve there. So yes, negative impact from Fashion Bed, also down a little bit in Adjustable Bed.

And just finally on adjustables, can you talk about, I mean, there still seems to be all the range in the mattress industry, what -- why your business was down and what's kind of the outlook?

Yes, you're right. Our growth definitely began to slow in Q4 in Adjustable Beds and that continued in Q1 with sales down 5%, some ups and downs for sure across the different customer base. It was -- volume was negatively impacted there also by our decision to exit Fashion Bed. Fashion Bed had been a way to distribute to some smaller retailers Adjustable Beds, but it just wasn't economical for us to continue to do that given the decline in the other Fashion Bed product categories. 2018 was really volatile with really strong sales based on heavy promotional activity in the first half of the year and then a slower second half of the year. So this definitely presents challenging comps for us in 2019. I think we see, without that heavy promotional activity, we see 2019 volume probably down somewhere in the mid-single digits. So you're right that there continues to be growth in the industry at -- stronger growth at really lower entry level price points. We tend to play at little bit higher price points.

And Keith, the risk of talking about specific customers, I feel like we need to in only this business because as you know, we're heavy-weighted to Mattress Firm and the Sleep Number in our Adjustable Bed sales. So Mitch is exactly right, remember Matt Firm was incredibly aggressive from a promotional perspective in the first half of last year that with fewer stores and a change of philosophy, we expect that, that will be muted significantly. We're pleased with our Mattress Firm program. We think that the current program is healthier than the historic program. Sleep Number is doing just fine. So I just don't like to talk about specific customers but felt like we needed to here.

Thanks, Karl. I would just add on to that too. In the second half of last year, we really struggled through some inventory overhang with adjustables and I think by the end of the Q1, we've largely worked through that. So we think we'll see some improvement in the second half of the year in that as well.

Our next question comes from the line of Bobby Griffin with Raymond James Financial.

Karl, I just want to circle back on Susan's question from earlier. And maybe could you just give a little bit more color what you're either hearing from customers or seeing in some of your large business units throughout the quarter that gives you and the team the confidence around the full year sales guidance?

Yes. Bobby, this is going to take a little while but I read your quick note. I'm going to give you and everyone listening kind of a quick view of each business unit. So we'll go business unit by business unit, organized by segment. U.S. Spring, you saw 7% growth, we expect that to continue. Certainly the Bedding industry was impacted in January and February, to Perry's comments by weather. But there is an acceleration of our content gains, market share pickup, hybrids are a contributor to that. We expect dumping benefit in the -- certainly in the back half in U.S. Spring, so everything's really going well in U.S. Spring. I made the comments on ECS. We expect their back half business to significantly improve. International Spring performed well in the first quarter, we expect that to continue, there's a story by geography. Perry made a comment on flooring significantly negatively impacted in January, February. I think that's highly correlated to weather. Saw a gain in March, we expect kind of flat for the whole year there. Fabric converting highly correlated to Bedding and furniture, for the full year, we expect flat. Geo because of acquisitions, we expect 20% growth in that business and machinery is relatively small, it will be flat to slightly down because of the softness in the U.S. Bedding industry. Industrial, you saw a negative in the first quarter that was caused by our closure of a Formed Wire business that anniversary is actually next week, so it costs in the first quarter about $10 million of volume. So that negative will not repeat in the remainder of the year. Echoing some of Mitch's comments, Work Furniture, we expect mid-single digit growth for the year. Home Furniture should be flat with units down, dollars up because of the benefit of pricing actions that we're taking in the back half of last year. Mitch spoke to the impact of that FBG closure and Adjustable Beds, Auto for the year should be up mid- to high single digits. Aerospace and Hydraulic Cylinders both up in about 10% range. So we feel really good about our guidance. I will admit that the sales guidance is probably more questionable than the EPS guidance but we're -- as we sit here, end of April, we feel pretty good. We feel really good about our guidance.

All right. I really appreciate all of that detail. That was a lot and very helpful. And then I guess also on -- Mitch, on the comments about the decision to exit some of the Bedding -- Fashion Bed business and Furniture Products business, with that -- if I take the math and I do the math on that, was that basically a 1% drag to consolidated volumes as well? Your own decisions to exit those businesses?

Bobby, we're going to think about the math here for a second.

Probably a little bit more than that, Bobby, on an annualized basis. But not -- it's not a huge hit to the sales line.

Okay. Okay. That's helpful.

Yes. And sorry, it's a little bit tough to predict as we decided to exit Fashion Bed, we are really in a -- now liquidating that inventory so we are out of a normal kind of selling cycle, that's going really well. We're having a lot of success with that, but it's -- just starting thinking about that...

Yes. And remember, Fashion Bed was shrinking as the year progressed last year too. So...

$40 million to $50 million, this is what 1% looks like and maybe a little bit more than that but not a lot.

Yes.

Yes.

Okay. And Susan, I didn't hear you there, it's a little stronger in 2Q. Is that what you're saying? I couldn't -- the phone broke up a little bit, I'm sorry.

No. I said $40 million to $50 million is what a 1% decline looks like in the downdraft because of our exit of much of that volume. It's probably a little bit larger number than that but not a lot.

Okay. Okay. And then should I expect some similar in 2Q then and then we start to anniversary some -- and we start to lessen throughout the back half?

Well, Bobby, to be clear, the $40 million to $50 million is an annual number, not a quarter number. And second quarter, Mitch...

Yes. I think it goes the other way at least in regards to Fashion Bed, Bobby. So in 2018, trade sales and Fashion Bed were something like $170 million. As we ramp it down, I think they were a little over $30 million in the first quarter. I expect they're probably closer to $20 million in the second and third quarter, spread across there, and then probably very little if anything by the fourth quarter.

Yes. And they're sort of 1%, a little more.

Okay. I appreciate the detail. And then I guess lastly, also, is when we're modeling the ECS, does that business follow the kind of typical seasonality of the Bedding business that we're used to with the holidays causing spike and 3Q being a big quarter?

It's a little bit different, Bobby. The -- we would expect that fourth quarter volume would be a little more skewed to the busier season and the reason for that is the amount of product that's moved on good -- on...

Black Friday.

Black Friday and Cyber Monday. That is a tremendous injection of volume that happens around that time frame. We also see some product towards the end of the year in December and Christmas and things like that. So it's a little bit more skewed. Now the part of the business that's related to box beds and that type product, that probably would follow a little more seasonal -- seasonality that's traditional. But remember, it's not all that. It's things like toppers and pillows and other products that are -- lend themselves more to promotional activity around those year-end events.

Yes. Perry makes good points, it's more e-commerce-sensitive. So has more of an e-commerce cycle than a traditional brick-and-mortar cycle.

(Operator Instructions) Our next question comes from the line of Dan Moore with CJS Securities.

This is [Stefan Oskriss] calling for Dan Moore. My apologies if you addressed this in prior calls but given the new mix of ECS, can you walk us through your COGS on a consolidated basis, what percentage of like raw materials versus labor?

[Stefan], this is Susan, and we don't have that updated from our historical presentations. I don't know what the revised split is.

Yes, we're going to need a little bit more time. Remember, we only amended less than a quarter but yes, let us -- it's a good question. We need to update that schedule. Obviously, there is a chemical element that is -- while chemical input costs have always been an issue to our Flooring Products business, it's significantly larger now with ECS. So yes, good point.

And we are actually in the process of doing that update. We just don't have it done yet, it'll be soon.

Our next question comes from the line of John Baugh with Stifel.

I was wondering on content gains that you referenced in Bedding. Is there any way to quantify sort of what you're seeing year-over-year in Q1. And what do you expect to see for the entire year '19?

John, it's Perry. First quarter, we used to talk about -- I was -- I thought that Comfort Core as a percent of the units that we sold likely would top out somewhere in the mid-40s as a percentage range. Well, in the first quarter this year, Comfort Core was actually at 50% of the units sold, is up about 24%, if you look year-on-year. And then the other layer on content gains is not only the shift from Open Coil to Comfort Core but the Quantum Edge part of the story, and that was 43% of all the Comfort Core that we shipped in Q1 had a Quantum Edge element to it. So what do we attribute that to? I think it's a variety of things, but there is clearly a preference in the mid buying to premium categories of Comfort Core. And also in the box bed category. We're seeing continued penetration and expect that to go even further in the future. Quantum Edge is so prevalent and becoming so prevalent in box beds because the product itself is so good. It just makes sense. Our customers see the benefits of that product and that it opens up and it has from the start, from the opening process, an enhanced edge prior to that most of the foam products and a lot of the innerspring products had no support on the edge. This product does, it's got integrity and it stays through the life of the mattress. So we're excited about that. And again, all those products as they get sold through, that's additional volume for us and it's an additional opportunities for margin and it makes a great product.

Okay. And then I assume we're actually awaiting this March China import data, number one, and we're awaiting to get a final duty, number two. And I assume you have better guesses at where those may come in than I do. But is there any way to quantify in your guidance, once all the inventory -- excess inventory that's been built ahead of these duties, what kind of an impact favorably you're expecting in your Bedding business. Is there anything in, say, the back half or I think you mentioned, middle of Q3 might see all the inventory work that. What do you expect the benefit may be?

It's hard to say, John. I can tell you this. If you think there are 7 million, 8 million mattresses, the run rate that was coming from China, some of that goes elsewhere around the world obviously. We think a lot of it gets repatriated to the U.S. and we're seeing our quote process in both amongst traditional customers and the box bed part of the business would indicate that there's a lot of that going to reshore and it's a tremendous opportunity for us and for the industry. And that's the reason for the filing. If you look at the schedule, as we know it today, around the end of May, commerce will make a preliminary determination of duties if those are favorable, there's also amongst the petitioners been filing to have some proactive element applied to those duties and that would be a 90-day look back if it's approved. We don't know for sure that it will be but it has -- we believe will put a cooling effect on all of that importation. We think it already has and if you look at a 90-day look back from the end of May, that's the end of February. So it will be interesting to see what the March numbers look like when we finally see those. But we expect the level of importation to certainly decelerate and to the degree of how quickly that happens, I don't know. But I think that the word is out. I think from all indications, we would look for a positive finding at the end of May and that begins to flow through, will there be a glut of product still sitting out there all through the second quarter, don't know, could be. It's just hard to know where those sit.

John, the other element to that is, as you know, most of the imported product today is foam. And as we have conversation with our customers, as they talk about new product lines, don't no longer have a expectation that they'll compete against the $200 queen that there is a lot of conversation about Hybrid and it goes to the conversation that Perry had a minute ago of Comfort Core and Quantum Edge. And at both the ECS level and the historic Leggett level, and again, hard to quantify. But there's an expectation that whatever percentage of those 8 million-ish units come back, a higher percentage of them will be Hybrid than are currently foam today. So we're excited mostly because of conversation with customers. You would know that Casper launched on their website a Hybrid effective 2 weeks ago. So that's new. They and other customers are talking about Hybrids where it historically had been foam. So the combination of our Comfort Core and the exclusive materials from ECS are really, really powerful.

Okay. And secondly, just a question of clarification, given your commentary about China -- of imports being clearly higher than you even thought and that being mostly foam product and impacting ECS. You are or are not changing at all your post-January forecast for revenue growth for ECS for the year.

We are not. We're optimistic that we don't have to do that.

And why would that not be the case if the imports in January, February I presume and/or December were a lot higher than you thought?

It wasn't in our original guidance. The benefit of the surge wasn't in our original guidance.

I would add too, Karl, if you look back this whole process on dumping has been delayed out about 40 days because of the government shutdown and we would not have known at that time the timing how that would affect the timing of this.

There are no further questions at this time. I would like to turn the call back over to Ms. Watson for any closing remarks.

Thank you, everyone, and we look forward to talking to you again next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.