Leggett & Platt: A Cash Generation Machine Priced At A Discount

Investment Thesis - Leggett & Platt has experienced a significant decline in share price, dropping over 80% in the past three years, reaching levels not seen since 2009, following a cut in its historically consistent dividend [3][4] - The company faces declining revenue and margins due to reduced consumer demand linked to slowing home sales, with projected annual revenue falling from $5.1 billion in 2022 to approximately $4.5 billion in 2024 [6][11] - Despite these challenges, the current share price presents a potential buying opportunity for long-term investors [3] Financial Performance - The company's operating margins have compressed, with a 7% decline in sales volume reported in 2023 [8][9] - Management anticipates earnings of about $1 per share in 2024, a significant drop from the $2-$3 per share range seen from 2015 to 2022 [11] - Interest expenses are expected to rise due to a $300 million senior note maturing in November, with a projected increase from $88 million in 2023 to $120 million thereafter [9][11] Industry Context - The decline in home purchases has adversely affected the home furnishings industry, impacting Leggett & Platt's sales [6][10] - Competitors in the mattress manufacturing sector, such as Sleep Number and Purple Innovation, have also reported revenue declines, indicating broader industry challenges [9][10] - Tempur Sealy International has managed to maintain stable sales, highlighting the competitive pressures faced by Leggett & Platt, which primarily sells to businesses rather than directly to consumers [10] Future Outlook - The company is focusing on restructuring efforts to simplify operations and improve margins, with expectations of a revenue decline settling around $4.4 billion in 2024 [11][12] - Positive cash generation of $200 million is anticipated in 2024, despite the challenging environment, with potential for recovery as the housing market improves [11][12] - Insiders have shown confidence in the company's recovery by purchasing over $750,000 in shares recently, suggesting belief in a turnaround [14]