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Leggett & Platt, Inc. (NYSE:LEG)

Q2 2008 Earnings Call

July 18, 2008 9:00 am ET

Executives

Dave DeSonier – VP of Strategy &IR

Dave Haffner – President & CEO

Karl Glassman – COO

Matt Flanigan – CFO

Susan McCoy – Director of IR

Analysts

John Baugh - Stifel Nicolaus

Mark Rupe - Longbow Research

Budd Bugatch - Raymond James

Joel Havard - Hilliard Lyons

Keith Hughes - SunTrust Robinson Humphrey

Laura Champine - Morgan Keegan

Unidentified Analyst

Michael Smith – Kansas City Capital Associates

Analyst – George Weiss Associates

Operator

Welcome to the Leggett & Platt second quarter earnings conference call. (Operator Instructions)

I would now like to turn the conference over to David DeSonier; please go ahead.

Dave DeSonier

Good morning and thank you for taking part in Leggett & Platt's second quarter conference call. I am Dave DeSonier, the Vice President of Strategy and Investor Relations. Joining me this morning are the following: Dave Haffner, our CEO and President; Karl Glassman, our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our Director of Investor Relations.

The agenda for the call this morning is as follows. Dave Haffner will start with a summary of the major statements we made in yesterday's press release. Karl Glassman will discuss trends in our various markets. Dave will then address our outlook for 2008. And finally, the group will answer any questions 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.

In addition, 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.

Dave Haffner

Good morning and thank you for participating in our call. Yesterday we reported second quarter earnings per share of $0.27, including $0.02 per share of earnings from discontinued operations. Earnings from continuing operations were $0.25 per share and included $0.01 of restructuring related costs and $0.02 for a non-recurring tax charge versus second quarter of 2007, earnings from continuing operations decreased slightly primarily due to soft demand in several markets.

Sales from continuing operations decreased nearly 1% versus second quarter of 2007. Soft market demand and our decision to exit some specific sales volume with unacceptable margins were mostly offset by market share gains and inflation related price increases. These market share gains are notable. There are very good successes in the midst of a challenging demand environment.

Karl will discuss these activities in his comments in a few minutes. We are successfully recovering higher steel costs. For some of the steel commodities that we purchase, costs have more then doubled since 2007. We have initiated and continue to implement price increases to pass along the higher costs. The magnitude of our selling price increases varies by product line depending on steel content but in our major residential and industrial businesses, announced selling price increases to date have totaled approximately 45% to 90%.

We typically experience a lag in recovery of higher costs and with rapid and significant cost increases over the past few months, our margins have been impacted. As costs potentially plateau later this year, and our price increases catch up with cost increases, we should see enhanced profitability during the second half of the year.

Our vertical integration specifically into the melt furnace and rod mill at our Sterling operation give us a significant competitive advantage in this market. As we announced on Wednesday, we are very pleased to report the completion of the aluminum divestiture. This transaction generated approximately $300 million of after-tax cash proceeds or about three-quarters of the $400 million we originally expected from all the divestitures combined.

We continue to make progress on the other six smaller divestitures and remain committed to the disposition of all of these businesses during 2008. As previously discussed we plan to use the majority of the divestiture proceeds to repurchase our stock. Earlier this year The Board approved the repurchase of up to 20 million shares in 2008 for this purpose. This authorization is in addition to the standing approval to repurchase 10 million shares each year.

Second quarter results for the commercial segment are disappointing. The store fixtures unit is working diligently to meet our required expectations for improved performance in an extremely difficult retail and inflation environment. We are aiming for perfected returns in this business unit of at least cost of capital levels by the fourth quarter of 2008. The third quarter is the seasonally strongest quarter for the store fixtures business and it will be critical in our evaluation progress made for the return target.

Our financial profile remains very strong. We generated $73 million of cash from operations during the second quarter and expect approximately $400 million of operating cash for the full year. Working capital should be a modest source of cash by year-end with much of this contribution occurring in the fourth quarter as the result of the expected seasonal reduction in inventories and receivables. Our balance sheet remains in excellent condition. We ended the quarter with net debt of approximately 32% of net capital, which is near the low end of our long-term targeted range of 30% to 40%.

We declared a second quarter dividend of $0.25 per share representing a 39% increase over last year’s second quarter dividend. The current dividend yield is approximately 5.9% based on a $17.00 stock price. This year marks the 37th consecutive annual dividend increase for Leggett at an average compound growth rate of over 15% and we also purchased 2.7 million shares during the quarter.

We expect to generate significant cash as we complete the remaining divestitures, improve returns, and reduce spending on capital expenditure and acquisitions and we intend to return much of this cash to shareholders. In the near-term we will need about $300 million annually to cover capital expenditures and dividends and expect annual cash from operations to routinely exceed these requirements. Given our strong consistent cash flow even during soft economic cycles we expect to easily meet these priorities.

And with those comments I’ll turn the call over to Karl Glassman who will discuss the segments in more detail.

Karl Glassman

Thank you Dave and good morning. In my comments I’ll address results related to continuing operations. As a reminder the businesses we plan to divest are reflected in the financial statements as discontinued operations so their results are not included in this discussion.

In the residential furnishing segment same location sales decreased 1% in the second quarter. Market share gains and inflation related price increases largely offset the weak end markets experience in many parts of the segment. Second quarter EBIT and EBIT margins increased versus the prior year despite lower sales. This increase primarily reflects benefits from the market share gains, pricing discipline and operating improvements resulting from past restructuring activities.

In our US bedding components operations we have benefitted from significant market share gains this year. We have seen a distinct decline in the imports of low priced inner springs since the Department of Commerce initiated in January the anti-dumping investigations on inner spring imports from China, South Africa and Vietnam. In February the International Trade Commission issued an affirmative preliminary injury determination and on July 31st we expect the Department of Commerce to announce the preliminary duty rate.

As a result of those declining imports we have regained market share and have been able to pass through a portion of the higher raw material costs. As we mentioned last quarter we de-verticalized a strong regional bedding manufacturer that had previously produced its own inner springs. We began ramping up volume in the mid first quarter. Although the overall bedding industry is very weak this year, lower to middle price points are performing better then premium price points as consumers are being more value conscious when purchasing mattresses.

In this mix shift inner spring mattresses are regaining share from premium priced non-inner spring products. This trend is also contributing to our strong bedding volume this year. In addition to these market share gains our new patented Verti-Coil inner spring continues to be in very high demand. This is a better value product for our bedding customers with higher earnings contribution for Leggett. We are rapidly converting equipment in an effort to meet growing demand for this product.

Our bedding operations are not the only ones benefiting from market share gains this year. In our furniture components businesses we entered into an agreement with Berkline, a major manufacturer of upholstered furniture to develop and produce the recliner mechanisms that they had previously manufactured for themselves. This volume began ramping up in May and is helping to offset weak demand in residential furniture.

In commercial fixturing and components same location sales declined 16% in the second quarter primarily from reduced capital spending by retailers and our decision in the store fixtures business to walk away from sales with unacceptable margins. EBIT and EBIT margins also decreased versus the prior year primarily reflecting the lower sales. As Dave stated earlier, we are not pleased with second quarter in store fixtures business unit and are taking aggressive actions to meet our targets. Since late 2007 when we announced our plans to improve this business unit’s returns we have reduced manufacturing capacity by 27%, cut group business unit administrative costs by approximately $2 million, reduced the business unit’s total workforce by approximately 20%, pruned $90 million of unprofitable sales, implemented a much more disciplined unit-wide pricing policy, and installed standardized operating systems across the business unit.

Despite all these activities we are not showing the progress we expect and further actions are forthcoming. To reiterate what Dave said earlier, third quarter performance is critical in our evaluation of progress.

In industrial materials same location sales grew 27% in the quarter primarily from the pass through of higher steel costs but also from increased sales of steel billets and greater demand for wire by our US bedding operations. These improvements were partially offset by continued softness in automotive and other end markets. EBIT and EBIT margins increased versus second quarter 2007 primarily due to higher sales including billet sales, and operating improvements at several locations.

In specialized products, same location sales increased 1% in the second quarter. Growth in European and Asian automotive as well as machinery was offset by lower volume in North American automotive and the fleet portion of commercial vehicle products. EBIT and EBIT margins were lower then in the second quarter of last year primarily due to sales reductions in certain markets and higher steel costs with limited recovery.

As a final comment all of our segments used the FIFO method for valuing inventory. An adjustment is made at the corporate level to convert about 60% of our inventories to the LIFO method. These are primarily our domestic steel related inventories. In the second quarter we recognized a LIFO charge of $11.5 million. The increase in LIFO expense during the quarter is the result of continued increases in steel costs and our expectations for those costs to remain high through year-end.

Ultimately this impact should be offset by inflation-related benefits within the segments. With those comments I’ll turn the call back over to Dave.

Dave Haffner

Thank you Karl, as we announced in yesterday’s press release, expected earnings per share from continuing operations for the full year 2008 remain unchanged at $1.00 to $1.30, even though guidance now incorporates higher restructuring related costs of $0.10 versus the prior estimate of $0.05.

This guidance anticipates improved second half earnings as our price increases catch up with higher steel costs. It also includes expected earnings from the production and sale of steel billets as utilize a portion of the excess melt capacity at our Sterling rod mill. Guidance does not include earnings from discontinued operations, potential gains or losses from divestitures, nor additional share repurchases we expect to make with the divestiture proceeds.

Sales from continuing operations are projected to be about 2f% higher then in 2007. Inflation-related price increases and market share gains are expected to be partially offset by continued weak demand in many of our end markets and the planned elimination of approximately $100 million of unprofitable sales in the company’s store fixture business.

Our quarterly sales and earnings normally reflect moderate seasonality. The second quarter typically reflects seasonal improvement over the first quarter. And the third quarter is normally the strongest period of the year and the fourth quarter is generally the lowest seasonal period. With inflation-related price increases in 2008 fourth quarter sales are expected to show less of a seasonal decline then normally.

In recent months investors have routinely expressed concerns about the divestitures, market weakness and raw material inflation. These concerns are certainly understandable given the difficult macro environment. I conclude my comments by repeating that we are extremely pleased with the progress made in each of these three areas. We are very comfortable with our strategic direction and are absolutely committed to the continued execution of our plan. We believe our actions will reposition Leggett as a more profitable company.

Our goal is to consistently generate total shareholder return of 12% to 15% per year on average. And with those comments, I’ll now turn the call back over to Dave DeSonier.

Dave DeSonier

That concludes our prepared remarks. We thank you for your attention and we will be glad to try to answer your questions. In order to allow everyone an opportunity to participate we request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please re-enter the queue and we will answer all the questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of John Baugh - Stifel Nicolaus

John Baugh - Stifel Nicolaus

On bedding and furniture could you comment on either year-over-year or sequential, Q2 to Q1, unit trends in inner springs and mechanisms?

Karl Glassman

The inner spring business as we’ve talked about from the US perspective is a good story. Our unit shipments in the second quarter were up low double-digits. That’s on the inner spring side. Box springs were flat. In an environment where we believe the bedding industry in the United States is probably off 8% to 10%, probably closer to 10% in units. So they’re experiencing significant market share gains.

On the furniture side that’s a little more difficult for us to measure from a hardware perspective, differentiating hardware from the seating components from sleeper mechanisms, our hardware units were about flat in an industry that we think is probably off again in the 10% range. The addition of the Berkline volume is helping us. The seating side and the sleeper mechanism volumes are off greater then that.

John Baugh - Stifel Nicolaus

And then on office, any comment to there?

Karl Glassman

Office is also a good story; we picked up some market share. We had a really a strong [neacon]. From a unit perspective it’s slightly positive, again in a soft market.

John Baugh - Stifel Nicolaus

Any color on the $400 million cash target, I know you’ve got six units to go, any color for whether we’re a little ahead of the curve or behind the curve after selling aluminum?

Matt Flanigan

We feel obviously very good about the transaction. It just happened this week with aluminum. That takes us slightly over 75% of the way there and our expectations on the remaining business units albeit a very tough business environment right now to sell things, that we continue to feel $400 million is a good mark and we hope to exceed it. But we, again 75% of it is now in the till with what happened with aluminum. We feel really good about it.

John Baugh - Stifel Nicolaus

So is the $25 million in notes and the $25 million potential incremental to the $400 million, is that the right way to think about that?

Matt Flanigan

Yes, the $300 million is just the cash that we received on Tuesday; the other two pieces of paper are incremental and not put into that after-tax cash number.

Operator

Your next question comes from the line of Mark Rupe - Longbow Research

Mark Rupe - Longbow Research

Could you maybe help me understand the double-digit increase in the US springs business, obviously extremely solid, between the three factors that are driving that; the lower imports, the resale bedding manufacture and the mix shift, is there any way you can differentiate which one might be having more of an impact then the others?

Karl Glassman

Without question the repatriation of those, foreign inner springs is the largest driver. The other two are about equal weighted.

Mark Rupe - Longbow Research

Is there any risk of that situation changing back to the worst again, or is that--?

Karl Glassman

No we’re confident that we’re in the early stages of that shift. We have not seen all of those pieces coming back.

Mark Rupe - Longbow Research

You cited on the call that you’re getting back a portion of the raw material increase through price increases, if that’s the case is there any plans for another price increase in the US spring side?

Karl Glassman

Yes, we announced a—as a matter of fact this is almost difficult to say this, but we announced a 26% price increase some 30 days ago that’s affective to our customer base on August 4th. Though it’s staggering, it’s driven by this raw material run-up. We hope that we’re near the end of that cycle but scrap has, I know you know, jumped again in July. So we don’t know at this point. But yes another increase has been announced.

Operator

Your next question comes from the line of Budd Bugatch - Raymond James

Budd Bugatch - Raymond James

I just want to have you explain to me the implications of the end points of the earnings per share guidance and with the revenue guidance. If you go to the low point of that, it seems to contravene at least in my math, what you said about improved margins and earnings in the second half of the year. As I do my math, it tells me that Op margins have got to fall from where they were in the first half and then gross margins have to fall even more precipitously and I don’t think that’s kind of reasonable, am I wrong?

Dave DeSonier

I guess I’d start with, if you go to the low end of guidance at $1.00; that’s got $0.10 of restructuring in it so back that out and you’re at $1.10. We earned excluding restructuring about $0.50 in the first half so you’ve got to get $0.60 in the second half. Sales, who knows what sales will be, they’ll probably be little higher in the second half just because of inflation. So I don’t know that I’d calculate margins have to decline at the low end.

Budd Bugatch - Raymond James

Well they certainly don’t increase and with the price increases that you’ve announced it seems like margins have got to go up in the second half.

Dave DeSonier

I think if you look at the mid point of that range, that’s the conclusion you’d come to.

Budd Bugatch - Raymond James

I would agree with that. And just as a follow-up the cost of capital comment you made Dave regarding the commercial segment and obviously the fixture and display segment because I think office components are different from that, you recently changed the way that you disclose assets by segment and I’m trying to get some of the granularity that allow us to bring what the Op margin requirement for improvement is on that sub-segment before, if you can help us at all.

Dave Haffner

Historically we haven’t broken out that data but obviously it’s something that is under a severe microscope with myself and Karl and the segment group people. I think maybe I can help you by saying that the, and I’m talking just about the store fixtures, the asset base is in the circa $250 million range. That varies plus or minus as the year goes on and of course we are expecting to get that 9% to 10%, if you wanted to take a look at the weighted average cost of capital, on that asset base. So our targets are pretty well established.

Budd Bugatch - Raymond James

Okay so the 9% to 10% would be for no [pad] on that base, right? So something on the order of $22 million to $25 million on the around $600 million of sales of that division.

Dave Haffner

That’s correct.

Karl Glassman

No, your sales level is too high Budd. For just store fixtures you should use $400 million.

Operator

Your next question comes from the line of Joel Havard - Hilliard Lyons

Joel Havard - Hilliard Lyons

You have cash, you have credit, and apparently no one else does. What is this presenting to you in terms of opportunities to participate again a little bit more aggressively in the marketplace? And to add to that the idea that maybe there’s a chance here for you to use the balance sheet in partnership with your customers maybe a little bit more aggressively.

Dave Haffner

Did you mean relative to acquisitions?

Joel Havard - Hilliard Lyons

I mean both, is there in this market where no one else is buying, maybe some people are scared, opportunities for you—I know you want to be more aggressive on the share repurchase front, but is this environment special and again with the balance sheet strength the ability to use that strength to sort of pursue share gains etc. with your existing customers.

Dave Haffner

I want to make sure I answer this in a way that everyone understands. We are not changing our strategic plan. However those businesses are parts of our corporation that have been classified as grow; we will continue to look for ways to grow them either through acquisition or [Greenfielding] or business combinations. And yes, we’re looking at certain businesses that would make sense through properly priced acquisition for those grow parts of our business.

With regard to Matt sitting on that big pile of cash, his plan is to use the majority of what we’ve just gotten in for share repurchase.

Matt Flanigan

I would add that based upon our range of guidance for the rest of the year as you well know, at $17.00 a share, the return on buying back our own shares right now is in the 10% range pre-tax and if you do the math after-tax factor in the dividend that we now pay which is a $1.00 obviously that return on an after-tax cash basis to use the cash in that manner is something close to 12%. So in keeping with our strategic plan we’ve got a very good place to put that cash which is right in keeping with what we have pledged from the divestiture proceeds primarily and get it back to our shareholders in that fashion.

I’d just add, relative to the acquisition front, there is not a lot of things at all in the acquisition pipeline, just to make sure no one is taking away anything that seems to imply that we’ve got a number of acquisition candidates lined up. That is not the case.

Joel Havard - Hilliard Lyons

I wasn’t trying to stir that up, I just wanted some clarification. Maybe the more subtle point was is there a chance here for you to be more aggressive say in how you handle receivables? Is there any appetite for that on the company’s part to allow you to make stronger inroads in what is still obviously a challenging series of end markets for you?

Dave Haffner

Well we really haven’t considered ourselves a bank as such in that regard, but there are ways I think that we can continue to enjoy additional market share gains that are assisted by this very difficult environment that we’re in and that has to do with talking to our customers that do produce a certain portion of their own components and see if there isn’t a better way to improve return on their assets at the same time we increase the capacity utilization of our equipment, like we’ve done so many times before. The tough environment makes that a little bit more of an open minded discussion then it is when the creek is very high.

Karl Glassman

With that de-verticalization opportunity as we have ramped up our innovation activities that we much more frequently are showing customers in a number of our business areas new concepts that further stimulate the thought that Dave was making a reference to.

Operator

Your next question comes from the line of Keith Hughes - SunTrust Robinson Humphrey

Keith Hughes - SunTrust Robinson Humphrey

We have two buckets of share repurchase, is the goal to get both of those completed by the end of this calendar year?

Matt Flanigan

Obviously we’ll—we’ve got the 20 million incremental authorization that The Board approved back in March ready to go. We now have a 75% of the proceeds that that was somewhat earmarked for in our accounts today to be put to work. Will we use all 20 million and will we use up all 10 of the ongoing authorization that rolls every year? To our answer is we don’t know but we’re certainly going to be heading down that path and you will see a lot of this activity unfold in the next three, four, or five months.

Relative to your models how you factor that in it’ll certainly be a function of how many additional divestiture cash proceeds we’re able to bring into the house, which we expect to complete all those this year as you know. How much that will ultimately bring after-tax and we’ll bear in mind the share price that’s out there as we buy that stock back.

Dave DeSonier

If you need a number for modeling, you know we bought six so far and I’d say round numbers model another 20. Partly that depends upon the price, how far our cash goes but if you added another 20 I think you’ll be in the ballpark.

Keith Hughes - SunTrust Robinson Humphrey

What was the ending share count for the second quarter?

Dave DeSonier

Outstanding was 164.3 million at the end of the second quarter.

Keith Hughes - SunTrust Robinson Humphrey

You’ve won two de-verticalization which you’ve talked about several times before, why did you win those? I know you’ve been after de-verticalization a lot of customers for a long time. What changed for you to get that business?

Karl Glassman

On the inner spring side I think that it was a combination of things. Innovation probably led that. The lack of availability of raw material was another issue. They were fighting trying to just find available wire at a reasonable price. But more importantly it was innovation, it was Verti-Coil that tipped that and then I think also that our approach from a marketing perspective that we have different conversations with our customers today then we have in the past where we used to be a developer of components, now we help them go-to-market. That particular bedding manufacturer is piggybacked on some of our marketing capabilities. So it’s a good story.

In Berkline’s case it was a need to reinvigorate their product offering. They have a somewhat unique mechanism that has its own features and benefits that were kind of a core competency to them so they needed to refresh that. So they maintained their exclusive functionality and features, overlaid that with some new product development and they were better able to use our manufacturing capability and in today’s world, frankly, a small guy can’t buy material as well as a large guy can. So it’s all those factors but at the end of the day, it comes down to creditability and innovation capability.

Operator

Your next question comes from the line of Laura Champine - Morgan Keegan

Laura Champine - Morgan Keegan

I notice that your language around the commercial fixturing division seems to get a little more threatening and you mentioned that Q3 will be important and that in Q4 you expect to earn your cost of capital. I know that the title of the category commercial fixturing is in its fixed or divest, at what point do you hit a decision trigger on whether or not to hold onto the commercial fixturing division?

Dave Haffner

Before the end of the year, right towards the end of the year we should be at that decision point and relative to the tone of my comments it was written for external and internal listeners.

Laura Champine - Morgan Keegan

Is there a scenario where you would potentially jettison the whole division or do you think—I know you’ve been sort of trimming here and there, do you think the whole division is under review or is it just pieces?

Dave Haffner

Well the entire unit of store fixtures is under review and apologize for semantics here but you aren’t asking about the whole segment are you?

Laura Champine - Morgan Keegan

That was the question, is the whole segment under review or is it--?

Dave Haffner

No, no just the store fixtures unit and would we consider jettisoning more then the store fixtures unit? At this point no. You may recall that storage products which is another piece of that operating group is in fact being divested, which would leave, if for some reason store fixtures were sold, it would leave us with our point of purchase business. Office is not on the table for consideration at all.

Operator

Your next question is a follow-up from the line of Budd Bugatch - Raymond James

Budd Bugatch - Raymond James

I hope Matt would lead us a little bit through the LIFO charge accounting and how that’s likely to pass through for the rest of the year. I know there was an after the quarter determination I think for that charge. Does it recur in the next couple of quarters and how does that pass through the financials? We seen it a couple of years ago and hope you’d refresh us again.

Matt Flanigan

In general as you know, LIFO, the intent is to try to align the most current costs on the income statement and as a result when you’re in an inflationary period like we’re obviously in right now, at a corporate level we report a LIFO expense to make that adjustment and how do we get to that number and in the second quarter for our continuing operations it was $11.5 million. We make our best estimate for the full year level of inventories at the end of the year, compared to the prior year’s ending inventories, and then what we anticipate happening up or down and in this environment up in terms of inflation as to what those various prices in the pools of LIFO inventory that we have and we have about eight of them, the biggest of course being steel, rod and wire. And based upon how high that index is going up we slice that into four pieces and try to allocate that every quarter.

So in general the $11.5 million that you see here in the second quarter is reflective of something around $30 million for a full year prediction. And as you go through the year you catch up to your latest estimate as to what you see by the end of the year in terms of pricing and inventory levels. So that being said as we sit here today it would be fair to assume we would have at least another $10 million or $11 million charge in the third quarter and a $10 million or $11 million charge in the fourth quarter.

But I’d quickly confirm for you that we will update our best prediction as what that is and it could go up or down as we get into the third quarter and then on into the fourth quarter.

Budd Bugatch - Raymond James

And so where we’ll see the benefit or them, and I hate to use that work, but where we will see the offset to the charge is in the divisions through pricing through each of the quarters and yet there’s a gap now between what your costs are and what you’re charging, right because you’ve got to take another price increase affective August the 4th at least in one sub-segment.

Matt Flanigan

That is exactly right.

Operator

Your next question comes from the line of Unidentified Analyst

Unidentified Analyst

You talked about an industry decline of 8% to 10% in the bedding inner spring business, could you just talk about what’s implied in your guidance for the second half of the year at the industry level?

Karl Glassman

We would say a maintain of that level. We don’t expect it to get better or worse. The comps get easier as the year grows on but we don’t see—in all of our planning that we don’t expect any macroeconomic recovery actually through the remainder of this year or any of next. So about the same.

Unidentified Analyst

Just looking at some third party industry stats, I guess it was my impression that things got a little worse toward the end of the quarter and I guess some people have been expecting the summer months to be even worse then April and May which I think was a concern on the street. So are you saying that’s not the case?

Karl Glassman

No I’m saying that what I said 8% to 10% and then kind of hedged my bet and said no closer to 10%. I do think that the summer is going to continue to be a challenge but there are some manufacturers that are gaining share and what you see from a public announcement perspective isn’t a good measure of the industry nor are the industry statistics. So I don’t expect things to get significantly worse.

Operator

Your next question comes from the line of Michael Smith – Kansas City Capital Associates

Michael Smith – Kansas City Capital Associates

Going back the anti-dumping activity that’s impacting you from China and South Africa and Vietnam, when did that start and what is exactly supposed to happen on 7/31?

Karl Glassman

The product started to come into the United States if that was the first of the questions in 2004, when there was a significant disparity between raw material cost in the United States and China, and also illegal activities in our opinion in China, of support that now the ITC and DOC have started to support those activities. So the progression, it started in 2004 with the rapid run-up of raw material costs in the United States and China lagging that and got progressively worse through the end of last year.

We filed December 31 actually, and the DOC ruling that will from a statutory standpoint will come out on July 31 really is an affirmation of yes, that we agree that there is dumping and then giving us preliminary duties as to what that rate would be going forward. The final determination back at the ITC level will be some time late December, early January.

The interesting challenge is once the duties are identified in terms of amount an importer of record would have to post bond for those duties. It changes the playing field pretty significantly. We’ve have not seen them, to my earlier comment, we do not believe we’ve seen the full benefit of those pieces being repatriated.

Operator

Your next question comes from the line of Analyst – George Weiss Associates

Analyst – George Weiss Associates

Could you just confirm that year-to-date you have raised prices 45% to 90% and that we really have seen no more then a quarter or even less of those prices come through and you are actually raising prices in springs another 26%?

Karl Glassman

It varies by product category, by steel and wire content. So in some of the businesses we—steel and wire have their own timing differentials that are separate from one another so it’s not safe to say that we’ve only recovered 25%. In some businesses we’ve recovered more of the total increases then others. But I can confirm that in the bedding side of things that there is a 26% price increase out on the street. We will get that increase. And to date our manufacture customers have incurred about 20% so this 26% is layering on top of that 20%.

Analyst – George Weiss Associates

And if I understood you correctly, the $11.5 million charge during the Q2 which will continue is essentially the reflection of the costs exceeding prices which is what you’re trying to catch up, so in essence your costs are including all of the raw materials costs and the prices have not yet come in. So when you are commenting that at some point if the prices in steel were to stop going up you should have a pretty significant catch up. Is that right?

Dave Haffner

Well we will experience higher margins as a result of that, but I’m trying to mix that LIFO charge right back to steel material costs is a little bit challenging I think.

Analyst – George Weiss Associates

Here is where I’m going with this, in November of last year you have outlined an 11% margin goal for the total company, by 2010. This is July of 2008, yes we’re still a year and a half plus away from it, but clearly your residential furniture and your industrial materials [inaudible] significant progress [inaudible] are you still sticking to your 11% margin goal and is there anything that you can help us as it relates to your updates?

Dave Haffner

The answer is yes, we’re still sticking to that goal. We believe that we will achieve that goal. There are several enablers that cause us or give us that comfort. Part of it is steeped in eliminating some crappy business, excuse my language that tends to drag those margins down. Part of it has to do with the new products that Karl mentioned. Part of it has to do with cost containment and procurement initiatives and there’s just a number of things, each one with its own detailed project booklet if you will that cause us to believe that that’s a reasonable goal and we’re not at this point, feeling we need to change that at all.

Operator

At this time there are no further questions in the queue, you may continue.

Dave DeSonier

We’ll just thank you and we’ll talk to you again in one quarter.

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Source: Leggett & Platt, Inc. F2Q08 Earnings Call Transcript
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