Leggett & Platt Inc. may well bid farewell to the Fortune 500 next year, but that's the least of the Carthage-based manufacturer's concerns right now.
Maximizing shareholder return remains the company's top goal, even in the face of economic adversity.
"It's been flattering ever since we've been on that list, and we're proud to be on it," said David Haffner, president and CEO of publicly traded Leggett & Platt (NYSE: LEG), which dropped 37 spots to No. 493 on the 2009 Fortune 500 list. "But that pride takes second place behind shareholder return and shareholder value."
Leggett is slogging through one of the worst sales slumps in its 126-year history. First-quarter 2009 revenues were down 27 percent to $718 million from $998 million a year ago, and Leggett's 2008 revenue of $4.7 billion was down 11 percent compared to 2007. Deep personnel cuts have reduced the company's global work force by some 10,000 employees to about 19,400. The culprit: depressed housing and automotive markets that have significantly reduced demand for some of Leggett's largest and most ubiquitous product lines.
Leggett & Platt designs and produces a variety of engineered components for residential and office furniture, new cars and bedding. But demand for furniture and automotive components, in particular, began a precipitous decline last year, the effects of which are still being felt today.
"We're still in a hunkered-down mode, as I think most manufacturing firms are," Haffner said. "And it wouldn't be reasonable to assume that Leggett is going to turn back into ... a growth company for another couple of years."
By all accounts, it looks as though southwest Missouri's only homegrown Fortune 500 company won't make the prestigious list in 2010, which would put an end to its 12-year run. Leggett cracked the Fortune list in 1985, dropped off in 1995 and returned in 1998. In the 22 years the company has appeared, it peaked at No. 275 in 1994 - the year before Fortune changed its ranking practices.
Stock analyst Michael Smith said Leggett remains a viable corporation with plenty of cash from well-timed divestitures set into motion prior to the recession. Last year, the company sold off five units, including its aluminum products division, for more than $400 million. Two smaller units - coated fabrics and storage products - are still on the auction block.
"They have a nice balance sheet right now that gives them the ability to weather the storm," said Smith, a partner with Kansas City Capital Associates. "I'd say they've done a hell of a job. Give them an 'A.'"
Leggett shares traded last week at just under $15 and have ranged between $10 and $24 over the last year.
Back-to-back blows
When Richard T. Fisher took the reins of Leggett's board of directors in May 2008, the global economic storm was brewing on the horizon. But by fall, the tempest had reached full intensity, and many U.S. manufacturers were right in its path.
Leggett responded with a range of cost-cutting measures that began with scaled-back production before resorting to a series of layoffs and plant closures later in the year. In November, Leggett cut 40 positions at its corporate headquarters and another 60 workers at two production facilities in Carthage.
"A lot of those consolidations and closings were painful, but they just had to be done," said board chairman Fisher, an investment banker with Oppenheimer & Co. in St. Louis. "It was a very delicate balance to try to downsize our production capacity without impinging on our ability to deliver the goods."
Susan McCoy, Leggett's director of investor relations, said the company's furniture components business, which accounts for about two-thirds of annual revenues, was hit hard by back-to-back blows: the housing bust and shaky consumer confidence.
"We make products that go into what are typically larger-ticket consumer purchases - mattresses and furniture, specifically," she said. "Those are the types of purchases that consumers have the ability to defer if they have concerns about their financial state."
Leggett's automotive division also is reeling from steep reductions in North American light-vehicle production, which dropped to about 12.3 million units last year from more than 16 million units each year between 2003 and 2005. McCoy said domestic automakers are expected to produce as few as 8 million cars this year, but Haffner is confident the auto industry will rebound.
"It's not going to be 8 million units a year forever," he said.
Leggett manufactures lumbar support systems for car seats as well as wire grids that encase seat cushioning. The sale of automotive components accounts for about 10 percent of the company's annual revenues, but the division's revenues plummeted 40 percent in 2008, said Jack Crusa, president of Leggett's specialized products segment.
"This is the most drastic drop in business that we've ever seen," he said.
With Chrysler in bankruptcy and talk of General Motors following suit, Crusa doesn't expect the situation to improve much this year, but he's optimistic the worst is behind.
Leggett's automotive division went through three rounds of cuts in October, December and February. Altogether, more than 1,400 hourly and salaried employees lost their jobs, and the company closed a plant in White House, Tenn., Crusa said.
Highlighting the positives
Despite Leggett's unprecedented slide in revenues, the company managed to gain market share in the U.S. bedding components sector in 2008.
In late 2007, Leggett filed a lawsuit that alleged foreign competitors in China, South Africa and Vietnam were selling uncovered innersprings to U.S. bedding manufacturers at below cost, a practice known as dumping. Investigations launched by the International Trade Commission and U.S. Department of Commerce resulted in significant tariffs on imported innersprings, which exhibited a distinct decline last year.
David Perry, executive editor of Furniture Today magazine, said in an e-mail that Leggett has seized the opportunity.
"The company is emphasizing product innovation in the innerspring arena with a number of new products, and is doing some cutting-edge marketing to support its innerspring products, and other related sleep products and accessories," wrote Perry, who has covered the company since December 2001.
The store fixtures side of Leggett's business, which accounts for about 10 percent of annual revenues, is another bright point, McCoy said. The company's commercial clients include value-oriented retailers such as Wal-Mart, T.J. Maxx, Marshall's and dollar-store chains feeding off the increased trend of consumer belt-tightening.
And in terms of shareholder return, Leggett outperformed all but 49 companies in the S&P 500 last year, Haffner said.
Potential acquisitions are another upside for Leggett during the economic downturn, said board chairman Fisher, but he doesn't necessarily see the company reclaiming a spot on the Fortune 500 list. And he's OK with that.
"With the divestitures that we made in '08 and early '09, we took a lot of sales out of the total," he said. "So we're going to have to rebuild that through internal growth, innovation and possible acquisitions.
"The prestige of being in the Fortune 500 is certainly something we've enjoyed, but I don't think that helped us add a dollar's worth of sales or profitability."[[In-content Ad]]
