Leggett & Platt's Q3 2025 Earnings Call: Contradictions Emerge in Bedding Demand, Tariff-Driven Metal Margins, Restructuring Outcomes, and Aerospace Divestiture Plans

Date of Call: October 28, 2025

Financials Results

• Revenue: $1.0B (Q3), down 6% YOY
• EPS: $0.91 reported EPS (Q3); $0.29 adjusted EPS, down $0.03 YOY
• Operating Margin: Adjusted EBIT margin expected 6.4% to 6.6% (guidance); Q3 EBIT $171M; Q3 adjusted EBIT $73M

Guidance:

• FY sales expected $4.0B to $4.1B, down 6%–9% vs 2024
• FY reported EPS $1.52 to $1.72; adjusted EPS $1.00 to $1.10
• Adjusted EBIT margin expected 6.4%–6.6%
• Cash from operations expected ~ $300M
• FY CapEx $60M–$70M (below normal this year); CapEx expected to normalize thereafter
• Continue using excess cash to reduce net debt while considering small M&A and share repurchases

Business Commentary:

• Revenue and Sales:
• Leggett & Platt reported sales of approximately $1 billion for Q3 2025, down 6% year-over-year.

• The decline was primarily due to soft demand in residential end markets, divestiture of the Aerospace business, and restructuring efforts.

• Cost Management and Restructuring Benefits:

• The company exceeded the expectations of its restructuring plan, achieving significant EBIT benefits and cost reductions.

• This was attributed to the execution of the restructuring plan, including operational improvements and a leaner manufacturing footprint.

• Balance Sheet Strengthening:

• Leggett & Platt reduced its debt by $296 million in Q3, bringing the total debt reduction for the year-to-date to $367 million.

• This was driven by debt repayment using proceeds from the Aerospace business sale and operating cash flow.

• Segment Performance:

• Bedding product sales decreased 10% year-over-year but improved 3% sequentially, influenced by volatility in consumer confidence and tariffs.
• Specialized product sales declined 7%, with the Aerospace divestiture being a significant factor, while Furniture, Flooring, and Textile products remained flat year-over-year.

Sentiment Analysis:

Overall Tone: Positive

• Management reaffirmed midpoint of full-year sales and adjusted EPS, completed Aerospace divestiture, reduced debt by $296M in Q3 to $1.5B and cut commercial paper to zero, reported increased operating cash flow (+$30M vs prior year) and said restructuring is meeting/exceeding targets with $60–70M annualized EBIT benefit — emphasizing execution and balance-sheet strengthening.

Q&A:

• Question from Susan Maklari (Goldman Sachs): Can you parse how the cost actions and restructuring are flowing through margins and what upside remains?
  Response: Restructuring nearly complete and meeting/exceeding targets; expect $60–70M annualized EBIT benefit (~$60M realized in 2025, up to $10M next year), sales attrition reduced to ~$60M (from initial ~$100M) and real estate proceeds target $70–80M (>$43M realized).

• Question from Susan Maklari (Goldman Sachs): Can you discuss Bedding demand—you saw month-to-month improvement; what's driving that despite macro headwinds?
  Response: Bedding is stabilizing with sequential improvement but units remain down low-single-digits Y/Y; recovery is uneven across channels and promotions, and housing, tariffs and consumer confidence remain constraints.

• Question from Susan Maklari (Goldman Sachs): How should we think about CapEx in 2026, growth investments and potential resumption of shareholder returns?
  Response: Normalized CapEx likely ~ $100M in 2026; priority is debt reduction while funding organic growth and opportunistic small acquisitions; share repurchases under consideration with no set timetable.

• Question from Susan Maklari (Goldman Sachs): Can you walk through segment margin expectations for the year?
  Response: Bedding margins up ~200 bps YoY; Specialized margins up ~50 bps YoY; Furniture, Flooring & Textiles margins down ~150 bps YoY.

• Question from Alexia Morgan (Piper Sandler): Home Furniture showed sequential improvement (volumes -5% in Q3 vs -12% in Q2). Is this a signal of broader improvement?
  Response: Q3 reflects normalization after April tariffs; volumes still down low- to mid-single-digits, but new Vietnam factory (started shipping) will improve tariff position and help customers.

• Question from Alexia Morgan (Piper Sandler): Are you seeing divergence across price points in Furniture performance?
  Response: Yes — higher-price points remain relatively stable week-to-week; lower-price tiers continue to face significant pressure.

• Question from Alexia Morgan (Piper Sandler): Steel rod volumes inflected negative (~-20% Q3). What drove that?
  Response: Drop driven by elimination of prior-year semi-finished 'billet' sales this year; trade rod volumes/mix actually trended toward higher-carbon rods, which benefited profitability.

• Question from Robert Griffin (Raymond James): With restructuring largely complete, where do you see organic growth opportunities?
  Response: Largest long-term opportunity is private-label finished bedding and product innovation across home and work furniture, plus near-shoring wins—momentum expected to benefit 2026+.

• Question from Robert Griffin (Raymond James): Remind us of leverage targets and capital-allocation priorities; what M&A might you pursue?
  Response: Target net-debt/EBITDA ~2.0x; priority is reducing net debt while considering small, strategic bolt-on textile acquisitions and potential share repurchases.

• Question from Keith Hughes (Truist): U.S. spring was only down a point or two—will bedding start tracking industry more closely?
  Response: U.S. spring is trending with the domestic mattress market; we are gaining content share (Comfort Core) and saw semi-finished business grow >20% Y/Y, supporting margins.

• Question from Keith Hughes (Truist): For adjustable and specialty foam, when do you lap the customer-related headwind and return to industry-like performance?
  Response: Declines driven by two large customer-specific actions (including Mattress Firm private-label changes); resolution will take through next year to fully lap; it's a customer headwind, not structural share loss.

• Question from Keith Hughes (Truist): Which retail channels are showing sequential improvement and which are still struggling?
  Response: Strength in lower-end online e-commerce and activity in big-box and Mattress Firm brick-and-mortar; channel performance remains inconsistent.

• Question from Keith Hughes (Truist): Textiles showed growth but potential price pressure—how do you see that evolving?
  Response: Traditional furniture/bedding textiles face price pressure; growth is coming from GEO/engineered materials (geotextiles, automotive, filtration and U.S. civil construction).

• Question from Susan Maklari (Goldman Sachs): On textiles M&A—what's your approach and what would deals look like?
  Response: Likely small bolt-on acquisitions to add geography/capabilities and generate quick purchasing and operational synergies; focus on converting raw materials and JIT service to customers.

• Question from Susan Maklari (Goldman Sachs): How should we think about price/mix benefits from Bedding innovation even if macro remains tough?
  Response: About half of EBIT improvement stems from cost reductions; the other half from margin enhancement via higher-content products, specialty foam and trade-rod mix—supporting improved price/mix despite weak volumes.

Contradiction Point 1

Bedding Demand Stability and Recovery

It involves differing perspectives on the stability and recovery of bedding demand, impacting expectations for the company's product sales and financial performance.

What was the demand environment like in Bedding during the quarter? - Susan Maklari (Goldman Sachs Group, Inc., Research Division)

2025Q3: Demand more stable than recovering, but sequential improvement noted. Month-to-month stability, despite ongoing macroeconomic challenges. - Karl Glassman(President, CEO & Chairman)

Did bedding demand improve in Q2, and why is guidance lower despite consumer optimism? - Peter Jacob Keith (Piper Sandler)

2025Q2: The first quarter and the second quarter of this year were very similar, just a little bit below the prior year. - Karl G. Glassman(CEO)

Contradiction Point 2

Impact of Tariffs on Metal Margins

It involves the sustainability of improved metal margins due to tariffs, which affects the company's profitability and cost management strategies.

Where are the most opportunities for organic growth in a supportive macro environment? - Alessandra Jimenez (Raymond James & Associates, Inc., Research Division)

2025Q3: Metal margins have improved significantly year-to-date as the 232 tariffs have become more impactful with every passing quarter. - J. Hagale(Executive VP & President of Bedding Products)

Can you relate the consumption estimate to U.S. volume and explain discrepancies? What is the current status of metal margins and tariffs? - Robert Kenneth Griffin (Raymond James)

2025Q2: Metal margins remained solid during the quarter. Our exposure to the Chinese metal market remains low and is expected to continue to decrease as the year progresses. - J. Tyson Hagale(President, Bedding Products)

Contradiction Point 3

Restructuring and Cost Savings

It involves differing expectations regarding the benefits and execution of restructuring and cost-saving initiatives, which directly impact financial performance and investor expectations.

How are cost actions and restructuring progressing, and what upside is expected in future quarters? - Susan Maklari (Goldman Sachs Group, Inc., Research Division)

2025Q3: Meet or exceed initial expectations with no customer disruptions. EBIT benefit of $60 million to $70 million annually. Sales attrition reduced from $100 million to $60 million. Real estate proceeds of $70 million to $80 million. Incremental volume margin expected at 25% to 35%. - Benjamin Burns(CFO)

Can you discuss the increase in restructuring EBITDA benefits and potential for further upside? - Susan Maklari (Goldman Sachs)

2024Q4: The increase in restructuring EBIT benefits is due to flawless execution and heavy lifting by teams. There's potential upside as more efficient assets could increase overhead contribution. However, volume is currently needed to realize these benefits. - Karl Glassman(CEO)

Contradiction Point 4

Bedding Segment Performance and Mix

It highlights differing perspectives on the bedding segment's performance and the mix between domestic and imported products, which are crucial for assessing market competitiveness and strategic positioning.

Can you discuss the demand environment in Bedding and its performance during the quarter? - Susan Maklari (Goldman Sachs Group, Inc., Research Division)

2025Q3: Demand more stable than recovering, but sequential improvement noted. Month-to-month stability, despite ongoing macroeconomic challenges. - Karl Glassman(CEO)

How are imports impacting US production in the bedding market, and what implications does this have as demand recovers? - Susan Maklari (Goldman Sachs)

2024Q4: The bedding market is bifurcated, with low-end imported innersprings dominating. Imports are nearly 50% of units, impacting mid- and lower-price points. The high-end segment remains less affected. As the market recovers, there's optimism for mid and higher price points as consumers prioritize quality over affordability. - Karl Glassman(CEO)

Contradiction Point 5

Specialized Segment Performance and Aerospace Divestiture

It pertains to the financial performance and strategic direction of the specialized segment, particularly concerning the divestiture of the aerospace business, which has implications for financial forecasts and capital allocation.

What will the specialized segment look like after the aerospace divestiture? - Susan Maklari (Goldman Sachs Group, Inc., Research Division)

2025Q3: We cannot provide specific guidance until the sale closes. First quarter '25 sales were $53 million, and EBIT was $7 million. As this business is held for sale, we will update guidance after the sale closes. - Ben Burns(CFO)

How should we assess the benefits and potential upside from the restructuring as volume recovers? - Susan Maklari (Goldman Sachs Group, Inc., Research Division)

2025Q1: As the specialized products segment continues to gain traction, we remain excited about the potential for growth in this high-value, high-return segment, particularly as we focus on the critical role Leggett products play in our customers' success. - Karl Glassman(CEO)