Leggett & Platt (NYSE: LEG) posted 2007 total revenues of $4.3 billion. The company manufactures components for residential and commercial furniture and automobile seats. In response to decreased profitability of some of its businesses, Leggett & Platt began a restructuring plan that involves selling of its Aluminum Products segment and several other businesses by the end of 2008. Leggett & Platt instituted this plan to try and raise its 2007 operating margin of only 4% (the lowest in 3 years) back to an acceptable level.
In addition to challenges associated with restructuring, Leggett & Platt faced slowed growth in consumer spending on furniture, which was only 2.9% in 2007 and is expected to fall to 0.4% in 2008. As a result of this, revenue to Leggett & Platt's Residential Furnishings decreased 8% in 2007. Also, Leggett & Platt was forced to deal with the rising cost of cold rolled steel coil, which increased almost 15% in 2007. The increase in steel prices was partially responsible for the decrease in Leggett & Platt's operating margin from 9% in 2006 to 4% in 2007. Additionally, a decrease in the number of supermarkets from 43,686 in 2005 to 34,967 in 2007 resulted in decreased demand for the company's retail fixtures. This resulted in a 6% decrease in Leggett & Platt's Commercial Fixturing & Components segment between 2005 and 2007. Leggett & Platt competes with companies like Genuine Parts Company (GPC) and CompX International (CIX) as well as smaller private companies and Asian manufacturers.
In 2007, Leggett & Platt introduced a new plan to sell its least profitable businesses and focus on developing its more profitable one. The new plan was introduced in response to concerns about the company's operating margins which shrank from nearly 9% in 2006 to 4% in 2007. As a part of their new business plan, Leggett & Platt finished the sale of its Aluminum Products segment to Kenner & Co. in July 2008. Leggett & Platt plans to sell the rest of its underperforming business segments by the end of 2008.
|Commerical Fixturing & Components||820||851||870|
During 2007, consumer spending on furniture grew only 2.9%. In 2008 consumer spending on furniture is expected to grow only 0.4%. As a result of slowing demand for furniture revenue to Leggett & Platt's Residential Furnishings decreased 8% from $2,502 million in 2006 to $2,295 million in 2007. In general, when spending on furniture decreases, furniture manufacturers decrease production and order less of Leggett & Platt's furniture components. This results in decreased revenue for the company's Residential Furnishings segment. On the other hand, when spending on furniture increases, so does Leggett & Platt's Residential Furnishings revenue.
Because it is difficult for Leggett & Platt to pass increases in the cost of raw materials on to customers as price increases, rises in the cost of raw materials often hurt Leggett & Platt's profitability. Between January 2007 and December 2007 the price of hot rolled steel coil rose from $549 per metric tonne to $630 per metric tonne. During the same period the price of hot rolled steel plate rose from $747 per metric tonne to $837 per metric tonne. Partially as a result of the increasing price of steel, Leggett and Platt's operating margin decreased from nearly 9% in 2006 to 4% in 2007.
In 2005, there were 43,686 supermarkets in operation in the United States. According to the Food Marketing Institute, the number of supermarkets in the U.S. fell to 34,967 in 2007. As a result of the decrease in the number of supermarkets, Leggett & Platt's Commercial Fixturing & Components decreased from $870 million in 2005 to $820 million in 2007. In general, when the number of supermarkets decreases, there is less demand for shelves and other products produced by Leggett & Platt's Commercial Fixturing & Components segment. This results in decreased revenues for Commercial Fixturing & Components. On the other hand, when more supermarkets are built, there is more demand for the segment's products resulting in increased revenues.
Leggett & Platt and Key Competitors 2007 ($ in millions)
|Company||Total Revenues||Net Income||Net Profit Margin|
|Leggett & Platt||4,306||(11)||-0.3%|
|Genuine Parts Company (GPC)||10,843||506||4.7%|
|CompX International (CIX)||178||9||5.1%|