Leggett & Platt: Lower Sales And Worsening Margins Are Bad News For This “Dividend King” (NYSE: LEG)
Overview
Leggett & Platt (LEG), a reputable manufacturer of engineered components for furniture, bedding, and automotive industries, faces concerning challenges that threaten its stability and jeopardize its long-standing status as a “Dividend King.” This article analyzes the company’s financial performance, analyst ratings, and market sentiment to provide insights into its current trajectory.
Consensus Rating
According to MarketBeat, LEG currently holds an average rating of “Hold” from analysts, with a price target of $19.33. Two analysts have assigned a “Sell” rating, while the remaining two have issued “Hold” recommendations.
Financial Performance
Leggett & Platt’s financial performance has been underwhelming in recent quarters. During its Q4 2022 earnings call, the company reported a 6.7% year-over-year decline in revenue, falling short of analyst expectations. This downturn was primarily attributed to lower sales in its bedding and furniture segments.
Moreover, the company’s gross margins have been shrinking, reflecting higher input costs and supply chain disruptions. In Q4 2022, LEG’s gross margin fell by 1.1% year-over-year to 22.3%. This decline, coupled with lower sales, contributed to a 34.2% drop in net income compared to the same period last year.
Analyst Perspectives
Analysts have expressed concerns about LEG’s declining sales and margins. Truist Financial lowered its price target from $18.00 to $16.00, citing the company’s challenging operating environment. TheStreet downgraded LEG from a “C” rating to a “D+” rating, highlighting its weak financials and uncertain outlook.
Market Sentiment
The market has reacted negatively to LEG’s recent performance, with the stock price declining significantly in the past year. As of April 10, 2023, LEG stock trades around $17.80, close to its 52-week low of $17.75.
Dividend Concerns
LEG has maintained a strong dividend track record, earning the distinction of a “Dividend King” with over 50 consecutive years of dividend increases. However, the company’s recent financial struggles have raised concerns about its ability to sustain its dividend payments.
In 2022, LEG’s dividend payout ratio reached a concerning -184%, indicating that it is paying out more dividends than it earns in profits. This unsustainable situation could force the company to reduce or suspend its dividend in the future, significantly impacting income-oriented investors.
Conclusion
Leggett & Platt faces an uncertain future due to declining sales, worsening margins, and a challenging operating environment. Analysts have cautiously issued “Hold” and “Sell” ratings, reflecting their concerns about the company’s financial trajectory and the sustainability of its dividend payments. The market’s negative reaction, coupled with the potential for dividend cuts, suggests that investors should proceed with caution when considering LEG stock.
Priyanka 
Mehek