UPDATED: Leggett to slash portfolio to improve shareholder returns

The Carthage-based diversified manufacturer says shareholder returns have suffered over the past few years, and its new objectives are aimed at correcting that.

“These are tough decisions we don’t make lightly because they affect many of our employee-partners,” CEO and President David S. Haffner said in a company news release. “However, these actions are required to bring about a stronger, better-performing and more focused Leggett & Platt.”

Perhaps Leggett's largest divestiture will be its aluminum products segment, which does not have any plants in southwest Missouri, and six additional business units, all in 2008. Those eliminations are expected to generate about $400 million in after-tax proceeds. The closures of other underperforming plants are estimated to reduce revenue by about $200 million.

Other business units that have “opportunities to improve” may be trimming expenses, introducing new products, improving productivity, adopting more disciplined pricing, reducing working capital or consolidating assets, according to the release. Units that fail to reach minimum goals will be moved to Leggett’s “fix” or “divest” categories.

Meanwhile, Leggett’s store fixtures unit will prune about $100 million, or 20 percent, of its least profitable revenue and close four unnamed facilities.

Haffner said via e-mail that there is "essentially no disposition impact" on the company's southwest Missouri facilities.

To achieve its goal of total shareholder return of 12 percent to 15 percent over the long term, Leggett in 2008 will introduce shareholder-return-based performance incentives for senior executives. The company also will modify its business unit bonus calculations to include a return on assets element.

Overall, the divestitures, along with reduced capital spending, fewer acquisitions and improved returns in each business unit, are expected to double Leggett’s free cash flow for the next four years compared to 2003–2006. As a result, Leggett’s board of directors has authorized a 39 percent increase to the dividend, moving the annual rate to $1 per share from the current 72 cents. The new 25-cent quarterly dividend will be paid in January to shareholders of record as of Dec. 14.

As a result of the changes – which should reduce revenue by about $1.2 billion – 2010 revenue is expected to be $4.3 billion, according to the release. Restructuring-related charges are anticipated to be between $150 million and $300 million, mostly noncash.

Growth during the next two years is expected to be minimal, as the company’s focus will be on better managing its current asset base, according to the release. Long-term growth goals include 4 percent to 5 percent growth in growing, core and new business units.

An investor presentation was held this morning to discuss its latest strategies. The webcast can be accessed by replay at the company’s Web site, www.leggett.com, under “Investor Relations.”[[In-content Ad]]