Leggett & Platt (NYSE: LEG) reported Q1 EPS of $0.63, $0.08 better than the analyst estimate of $0.55. Revenue for the quarter came in at $938 million versus the consensus estimate of $960.42 million.

Outlook

With strong first quarter earnings, the company is raising EPS guidance by $.10. For 2016, EPS from continuing operations is now expected to be $2.40 to $2.60. The new accounting standard for stock-based compensation resulted in a tax-related first quarter EPS benefit of $.04, but is expected to have a much smaller impact on each of the remaining quarters of 2016. Accordingly, this guidance assumes a 27% full-year effective tax rate.

Sales guidance is unchanged at $3.9-$4.1 billion, which equates to overall growth between zero and 5%. This guidance assumes unit volume growth in the mid-to-high single digits, reflecting strong demand in many of the company's product categories and improvement in the majority of its end markets. As partial offsets to the volume growth, sales guidance includes an approximate 2% reduction from commodity deflation, and a 2% decrease from late 2015 divestitures, net of small acquisitions.

Based upon this guidance, 2016 EBIT margin should be equivalent to, or slightly above, 2015's adjusted EBIT margin of 12.9%. The benefit to margin from higher unit volume should be partially offset by non-recurrence of the 2015 pricing lag.

Discontinued operations EPS for 2016 is forecast at $.15 due to the benefit the company receives, as plaintiff, from settlement of a longstanding antitrust claim. This cash settlement should generate $25 million of after-tax income in the second quarter. The bulk of the benefit ($21 million) is associated with discontinued operations, and specifically attributable to Leggett's former Prime Foam Products business (which was sold in 2007).

Cash from operations is expected to be approximately $500 million in 2016, which includes the $25 million of antitrust settlement proceeds. Capital expenditures should be roughly $130 million, and dividend payments should approximate $175 million. The company's target for dividend payout is 50‑60% of net earnings; however, actual payout was higher for several years prior to 2015, and as a result dividend growth was modest. But with recent growth in annual earnings, the company is now within its target payout range, and has flexibility to consider future dividend growth that more closely aligns with EPS growth.

(Street sees FY EPS of $2.43 on revenue of $4.02 billion.)

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