Welcome to the Leggett & Platt First Quarter 2015 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, David DeSonier Senior Vice President Strategy and Investor Relations. Thank you, sir, you may begin.

Good morning and thank you for taking part in Leggett & Platt's first quarter conference call. I'm Dave DeSonier and with me today are the following; Dave Haffner, our Board Chair and CEO; Karl Glassman, who is President and Chief Operating Officer; Matt Flanigan, our Executive VP and CFO and Susan McCoy, our VP of Investor Relations. The agenda for our 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 provide segment highlights; Matt Flanigan will discuss financial details and address our outlook for 201; and finally, the group will answer any questions that you have. Jack Crusa, who is Senior Vice President of the company and President of the Specialized Products and Industrial Materials Segments, is also joining us this morning to participate in the Q&A. 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. We posted to the IR portion of the website a set of PowerPoint slides that contain summary financial information, along with segment details. Those slides supplement the information on this call, including non-GAAP reconciliation. 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'll now turn the call over to Dave Haffner.

Good morning and thank you for participating in our call. Yesterday, we reported record first quarter results from continuing operations and are very pleased to have maintained the strong performance with which we ended 2014. Sales increased 10% in the first quarter from a combination of strong unit volume growth and acquisitions. Currency translation impacts and raw material-related price decreases offset a portion of these gains. We continued to benefit from the shift in bedding to Comfort Core springs, new adjustable bed programs that ramped up last year and ongoing content gains and new program awards in automotive. Importantly, nearly all of our businesses experienced volume growth in the first quarter. Earnings per share from continuing operations were also a first quarter record at $0.50 per share, up 32% from the $0.38 per share we earned in the first quarter of 2014. Earnings benefited from strong unit volume growth, pricing discipline and operational improvements in certain businesses, partially offset by a $6-million impairment charge associated with our industrial steel tubing operation. EBIT increased 30% and EBIT margin improved to 11.6%, up 180 basis points over first quarter last year. We completed one acquisition during the first quarter which is a European private label manufacturer of high-end upholstered furniture for office, commercial and other settings. This business is complementary to our existing North American private label operation and allows us to support our work furniture customers as they expand globally. We assess our overall performance by comparing our total shareholder return to that of peer companies on rolling three-year basis. Our target is to achieve TSR in the top one-third of the S&P 500 over the long term which we believe will require an average TSR of 12% to 15% per year. For the three-year period that will end on December…

Thank you, Dave and good morning. Most of our businesses continue to perform extremely well during the first quarter and all four segments posted volume growth. In the residential furnishings segment, first quarter total sales increased 18%. Same location sales increased 10% from strong unit volume growth, partially offset by currency translation impacts. Excluding acquisitions, U.S. spring component dollar sales increased 14%. Innerspring unit volume grew 15%, with Comfort Core up 66% during the quarter. Box spring unit volume increased 8%. Sales decreased 3% in international spring, with strong volume growth of 11% more than offset by currency translation impacts. Excluding acquisitions, furniture component sales increased 4% in the first quarter, sales in our seating and sofa sleeper businesses grew 2% and motion hardware unit volume increased 14%. Sales also increased in fabric converting, geo components and carpet cushion. First quarter segment EBIT increased, with the benefit from higher sales and pricing discipline partially offset by the non-reoccurrence of last year's $4 million building gain. EBIT margin in the quarter also reflected the impact of higher adjustable bed pass-through sales and acquired innerspring facilities, both of which have lower than segment average margins. In the commercial product segment, first quarter total sales increased 21%, including the work furniture acquisition that Dave mentioned earlier. Same location sales increased 17%, primarily from continued strong demand in adjustable bed. Unit volume in that business increased 87% during the first quarter. Fashion bed sales grew 7%. Work furniture, same location sales were essentially flat, with 3% volume growth offset by currency translation impact. EBIT and EBIT margin increased modestly in the first quarter due to higher sales. We're rapidly expanding production capacity in our adjustable bed business to support continued strong demand in that category. Work furniture margins improved slightly versus the prior year, but continue to be well below target levels due to underutilized capacity and poor performance in our Chinese joint venture operation. In the industrial materials segment, first quarter sales increased 6%, primarily from higher unit volume within our drawn wire operations, driven by strong bedding demand, partially offset by steel-related price decreases. EBIT was flat and EBIT margin decreased slightly, with the benefit from higher unit volume offset by a $6-million impairment charge related to the steel tubing business. In the specialized product segment, first quarter sales grew 6%. Automotive sales increased 8%, with very strong volume growth of approximately 15%, partially offset by currency translation impact. Modest volume growth in aerospace was more than offset by currency translation for a slight sales decrease in the quarter. Machinery sales were up 5% and CVP sales declined slightly. The segment's EBIT and EBIT margin grew primarily due to higher volume and operational improvements in several parts of the segment, including aerospace, where we continue to benefit from integration of the European operations that we acquired in 2013. I'll now turn the call over to Matt Flanigan, who will discuss some of the additional financial details, along with our outlook for 2015.

Thank you, Karl and good morning, everyone. Consistent with our normal seasonality and our internal forecast, operating cash flow in the first quarter was $32 million. Cash flow increased $52 million versus the first quarter of last year, due to higher earnings and a smaller increase in working capital, primarily in accounts receivable. Adjusted working capital as a percentage of sales was 10.1% at the end of the first quarter. Excluding the litigation accruals that we recorded in 2014 which are included in current liabilities, working capital was a more seasonally normal 12.3% of annualized sales. In February, we declared a quarterly dividend of $0.31 per share and extended our record of consecutive, annual dividend increases to 44 years at a compound annual growth rate of 13%. At yesterday's closing price of $42.47 per share, the current yield is 2.9%, one of the highest dividend yields among the 52 companies that comprise the S&P 500 dividend aristocrats. We repurchased 1.5 million shares of our stock in the first quarter at an average price of $44.53 and issued 1.5 million shares, largely for employee benefit plans and option exercises. Our financial base remains very strong and this gives us considerable flexibility when making capital and investment decisions. We ended the quarter with net debt to net capital at 35.3%, comfortably within our long-standing targeted range of 30% to 40%. For the full-year 2015, we again expect strong unit volume growth which should lead to another year of record earnings per share from continuing operations. As we announced yesterday, we're raising the low end of our prior guidance and now anticipate 2015 earnings from continuing operations of $1.95 to $2.10 per share. Our expectation for sales is unchanged at $3.9 billion to $4.1 billion. This range represents a 3% to 8% increase…

Thank you, Matt. It truly was an exceptional quarter and a great start to what we believe will be a very noteworthy year. Now, because we know that many of our employees, themselves shareholders, listen diligently to these conference calls, I want to sincerely thank them for their continued efforts. This shoutout is for you and the commitment to with which you go about executing your respective duties. All of you are very important elements in the makeup of this global enterprise. Thank you all very, very much. I'll now turn the call back over to David DeSonier.

That concludes our prepared remarks. We thank you for your attention and we will be glad to answer your questions. In order to allow everyone an opportunity to participate, we request that you ask one question and then yield to the next participant. If you have additional questions, you are welcome to reenter the queue and we will answer those questions as well. Jesse, we're ready to begin the Q&A.

[Operator Instructions]. Our first question is coming from the line of Budd Bugatch with Raymond James. Please proceed with your question.

This is Bobby filling in for Budd. Thank you for taking my questions and congratulations on another strong quarter. First off, on the innerspring unit growth of 15%, can you please give us a little sense of how that trended during the quarter and maybe what you guys are seeing so far in that business unit quarter to date here in the second quarter?

What I'm going to give you is organic growth only and it's on a same number of sales day basis, okay. So it's as pure as the driven snow. January units were up 21%; February units were up 25%; March units up 3%. The interesting thing is through the first three weeks, again organic-only same number of days of sales units are up 19%. So what we're experiencing is the producer's start of their line conversions as they position their floors for Memorial Day.

Okay. And was the comparison for March last year something notable in there to cause it to decelerate from February to March?

Yes, you'll remember that from an ISPA reported perspective, January and February units last year were negative, slightly flat. We saw a spike because of the weather-related issues, so the comps became more difficult in March. The comps for April actually aren't particularly easy, so we're really heartened by this 19%. Again, it's only three weeks, but it's feeling pretty darn good.

And then lastly, Karl in your comments you called out adding capacity to the adjustable base business. Can you maybe give a sense or a little bit additional color on how that expansion's going and maybe what time frame until the capacity is added all the way?

Yes, we historically have produced adjustable beds almost exclusively in North America and in a large facility in Georgetown, Kentucky that has been well exceeding its theoretic maximum capacity for quite some time. So what we did is we greenfielded a facility in the first quarter in Juarez, Mexico that's adjacent to our current automotive facility. Derisking the start-up of that operation, the automotive people have operated a very nice, very successful facility for a number of years. So they're managing the production of that product and then shipping it across the border to El Paso where the adjustable bed folks take possession. So the facility is in production. It's ahead of its pro forma. We also have started a relatively small facility here in Joplin; it's more associated with initial production of new product runs. So it's allowing us to run all of our R&D launches into a production environment before we put them into the two larger manufacturing facilities which historically we've had to do that in Georgetown. So we feel good. It's pressured margins a little bit in the first quarter, but with the significant growth of adjustables which we expect to continue, that it was a prudent move and probably a little bit past due.

Thank you. Our next question is coming from the line of Josh Borstein with Longbow Research. Please proceed with your question.

Just on the $6 million impairment charge in the industrial segment for steel tubing, could you go over that a little bit?

Yes, I think I'll start. Matt you might want to comment, too. But Josh, good morning, this is Dave. What we effectively did was took a look at the fair value of that business and went through very normal accounting protocol and determined that there was a significant portion of that $6 million associated with standard goodwill impairment. What it also does, Josh, is more closely aligns the value on our books to the likely proceeds that we will get from disposition of that business. Matt, can you --

Yes, Josh a little specificity. The goodwill piece of the $6 million number was about $4 million of it and you will find it in our held for sale on our balance sheet as you see it reported.

Okay. So excluding that, margins in that business would have been around 12.5%. Is that the right way to think about the run rate for the business in terms of margins?

Josh, your percentage looks a little different than ours because you're calculating that just on the external sales and not on the total sales. I think we still believe there's some room for the margins there to improve.

Okay. So adjusting for that, what's a better margin run rate to look at for that business? Or what would this quarter have looked like excluding that?

It'd be around 7%s as we look at it. And for the full year with everything that's going on, something in that ballpark would probably be a reasonable place to think about its margins.

And then, Susan, just given the new reporting structure, can you give us the guidance at the midpoint, what the guidance implies for each segment?

Yes, for margins for residential, I would think something in the 9 to 10 range. For commercial and industrial both, probably in that 6 to 7 range and for specialized, somewhere in the mid-teens. Relative to sales growth and again, this is on segments total sales for residential, mid-single-digit order of magnitude growth. Commercial pipings, industrial, down low single digit, but remember there's some commodity impact that's happening there and then in specialized mid to high single digits. As you would have noticed going through the slides, both residential and specialized have some currency headwinds and who knows what's going to happen between now and the end of the year, but we would expect those likely to continue.

And then just one more if I could. Just Karl on scrap costs and wire rod pricing and the spread between the two, could you give us an update there, please.

Sure, Josh. Scrap deflated every month through the first quarter. Into April, we saw about a $7-a-ton decrease which is the least decrease of the previous months. We think that we're nearing bottom. It's hard to know. At current scrap prices it gets to the point where it's just not profitable for folks to collect scrap, but scrap is, as you know, correlated to iron ore prices and iron ore is under pressure. So it will be interesting. We're pretty confident that we're near bottom. The -- because of the normal lag that we've spoken to, both on an inflationary and a deflationary cycle, we've said in an inflationary environment, expect a 60-day lag and deflationary environment, expect about a 90-day lag. The spreads in the first quarter were actually better than they were in the fourth quarter of last year, but those spreads or metal margin will compress a little bit in the second quarter. Now, as we transfer product into the rest of the segment from a rod to wire perspective and then into components, we would expect some expansion of those margins because of the lag at that level. So it gets complicated. Long answer, but we think we're near bottom in scrap pricing pressures.

Okay. So some compression in 2Q, but then expansion you're saying in 3Q, 4Q.

That's what we would expect.

Thank you. The next question is coming from the line of Keith Hughes with SunTrust. Please proceed with your question.

Yes, another question on industrial. You discussed the higher unit volume, 11% in the numbers. Is that all owing to the strength you're seeing in bedding or are there other drivers to that number?

It's primarily bedding-related. There's some strength in some adjacent markets, but it's primarily bedding.

Automotive is one example of a much, much smaller positive impact.

Thank you. Our next question is coming from the line of Dan Moore with CJS Securities. Please proceed with your question.

This is Robert Magic filling in for Dan Moore. In residential furnishings, 10% growth in same location sales was exceptionally strong. What were the key drivers there and remind us was weather a factor last year?

Every business unit in residential grew, as we stated, there was significant growth in our bedding components, significant growth in home furniture. We saw growth in our carpet cushion businesses, in our industrial fabrics and geo. So that's all of it. There was pretty significant growth across the segment and we expect that to continue.

And operating cash flow improved significantly year over year this quarter. Do you see upside to your full-year $350 million estimate?

Robert, this is Matt. You may notice that at the beginning of the year we said cash flow would be approximately $350 million for the full year. We've now modified that just a bit to express it as that we fully expect it to exceed $350 million. Working capital continues to be the number that is most difficult to pin down. As you know, we feel really good about our earnings outlook and D&A is pretty readily discernible. So, yes, I think we feel really good about $350 million-plus as the right metric to bear in mind as we sit here today.

Thank you. Our next question is coming from the line of John Baugh with Stifel. Please proceed with your question.

These growth rates are so good, I'm not sure I'm following the same company I have for the last 25 years. I had two unrelated questions. One, if you could help me with the math on a pure flow-through EBIT margin, excluding acquisition, revenue, et cetera, how that looked in the quarter. And secondly, if you could give us some thoughts around the acquisition, size, profit margins, how it fits in, synergy opportunities, et cetera. Thank you.

John, I'll take a shot at the first question and when you have time and for others that are listening, in the slide deck we posted to the website, there's a sales and EBIT bridge for the quarter that we include and it's on slide number 4. But basically what that shows you is it breaks down the sales change, is that there was about $73 million of incremental sales in the quarter that was related to volume gain. That was offset by currency and raw materials, so that our same location sales change was a little bit less than that. EBIT increased by a fairly notable amount on that volume improvement. We do think that we're hitting our long-term expressed 25% to 35% incremental margin on that -- on the volume that we're getting. And in addition, there's some other things that are helping EBIT in the quarter, as we've mentioned, including some pricing discipline operational improvements in some important areas. And all of that collectively is helping our aggregate flow-through EBIT benefit.

And then John, as it relates to the acquisition, I assume that you mean the transaction related to the three Sealy component plants last July. What's happening there is the volumes are very good. And from an EBIT perspective, what we're experiencing is exactly what we told you at the time of the acquisition in that it's barely accretive, that it's going to take us some time to get some more efficient, more productive manufacturing capacity in place. It's taken us a little longer than we expected because the volumes are greater than we expected. The macro market is just pretty darn strong, so we feel good about the progress. We will get some uplift as Sealy is just now starting to ship their new product line. So every time there's a product launch and we're able to replace the older, less efficient product with newer, more efficiently produced product, it will help us incrementally. So we continue to be very optimistic. We've internalized, really 30 days after the acquisition, those additional wire tons which have been beneficial to industrial, things are going well.

Actually, that was my third question and I appreciate you answering that. I was actually asking about the European private label business you just bought.

Yes, let me take a stab at that and Karl might want to flesh it out a little bit. But I think you know, John, the first quarter only had about, I think, $4 million or so worth of revenue and for the full year that's closer to $47 million or $48 million pro forma. And the margins there, the pro forma margin is higher than what we have experienced recently in the segment, but certainly below our overall corporate target.

Thank you. The next question is coming from the line of Herb Hardt with Monness. Please proceed with your question.

I have a couple questions. One is I'm just wondering what the earnings would have been had you done that $50-million share buyback.

I knew that question was coming, Matt.

I ask Matt that question often, Herb.

I'm not suggesting you do it now, but way back then.

Yes.

I see very -- in fact, no restructuring charges which would imply you're in pretty good shape across the board. First of all, is that true? And secondly, with the European private label business, will there be some charges?

Yes, we're in very good shape, quite honestly. A lot of the heavy lifting has already been done. The operating men and women have done a yeoman's job, I think, Herb, of having to deal with a lot of those restructuring costs. It doesn't mean that we won't periodically have the odd amount that we'll call out, but the significant, vast majority of restructuring costs have already been done. And Karl, do you want to comment on the European aspect of that?

No, there won't be any charges related to the European acquisition at all.

[Operator Instructions]. Our next question is coming from the line of Allen Zwickler with First Manhattan. Please proceed with your question.

I remember when it used to be just us talking and then John and Budd would maybe throw in a question to say they were there but it was just us. But anyway, I certainly also wish you had bought back stock when the stock was a couple of dollars a share, but that's all right. Anyway, one quick question and then a little longer. One is, it certainly looks like you must be gaining some market share in the U.S. and so I just wondered whether that was a function of pricing. And the second question, just moreover is capacity, because what you've mentioned a couple times on the call and back a few years ago, you certainly took down the CapEx because you were -- at that [indiscernible] you had more capacity than you needed. Where are you now if we were playing baseball in a nine-inning game?

Before Karl addresses market share and capacity, I do think it's prudent to thank you for what has really been decades of following our company and knowing our company, so thank you for that. Now Karl, do you want to take market share?

Yes. Allen, yes, we're picking up market share in the United States and every geography in the world that we participate. It is not predicated on price; it's predicated on product development and innovation. That's part of the reason for our margin expansion. So, yes, I appreciate the fact that you're noticing that we're picking up share, but I assure you it's not on price. As it relates to capacity that we used to speak in terms of $400 million of available capacity. That shrunk significantly. We're, as we said, out of capacity from an adjustable perspective. We're adding capacity from an automotive perspective every day. We're nearing full capacity on most of our innerspring categories in the United States. Ballpark, we're probably within the $200 million area of available capacity, but it's very specific to businesses.

Thank you. Our next question is a follow-up coming from the line of Josh Borstein with Longbow Research. Please proceed with your question.

Yes, on the work furniture volumes there up 3%, that was a little below what I was assuming, just given the strong big win numbers and some of the numbers reported by the office furniture companies. Anything noteworthy there?

Josh, it's disappointing to us as well. That business, as you know, is inherently choppy from a quarter-to-quarter basis. We believe -- the big win numbers for the year forecasted industry to grow at 5%; we believe that we'll grow greater than that rate, excluding the acquisition. It was just a little bit softer in the first quarter. We continue to gain share with new programs. The first quarter, in my opinion, was a bit of an outlier.

And just a question on the slide deck under the residential key points, you mentioned that EBIT was impacted from higher adjustable bed pass-through sales. Is that just referring to floor display models going out to the retailers?

No, Josh. What happens is the product is produced in the commercial segment and then it is shipped to the residential segment for certain customers, primarily bedding manufacturers. There's two large manufacturers that are customers. We ship those products just in time. So the residential guys are really on the fulfillment end, so they have very little incremental margin. They're just handling the product, so the sales are recorded in the residential and the profitability is in commercial.

I see, okay. So that's why that was listed in the residential slide instead of the commercial slide?

Exactly.

That is correct. The bucket that the sales were reported in.

Okay. And then just the Comfort Core is now as a percentage of your total innerspring, what's it look like today?

The end of the first quarter it was 26%. I believe it will be pretty significantly higher than that at the end of the second quarter, because as I said, the manufactures are just now shipping their new product launches that are very heavy weighted to Comfort Core, though we expect continued outside growth.

Thank you. Our next question is a follow-up coming from the line of Keith Hughes with SunTrust. Please proceed with your question.

Switching back to commercial now with the new reporting structure, can you give us an idea of the rank order of those three businesses, just in terms of size of the unit?

Boy, if we look in terms of total sales, adjustable would now be the largest. Work furniture would be next and consumer products or fashion beds, if we want to call it that, is the smallest.

Karl, what's your view now of adjustables and their penetration rate in the mattress industry? Is there any way to get a good number on that?

Keith, no and it's a heavily debated number. The penetration at premium price points is very high. I think that there's some large manufacturers at certain price points that are probably at a 50% attach rate; when we move into the promotional price point, there's almost no attach rate. So aggregate everything together, we're probably in a 10% area, but that's a heavily debated number. It just depends on what sector or segment of the market that you look at. I'm absolutely convinced we will see outsized growth being double digit once we normalize. You know that we'll annualize our program wins at the end of this second quarter, but even past that I expect double-digit growth.

And it's still coming at the high end. Is that your projection?

Not exclusively, but primarily.

Thank you. Our next question is a follow-up coming from the line of John Baugh with Stifel. Please proceed with your question.

So maybe, Dave, you could walk us through the European private label business you bought, tell us the acquisition criteria that I know you employ and how that's layered on this business. And then what the plan is, what you bring to the table. Is it revenue growth opportunities, is it margin, both etcetera? Thank you.

Yes. Excuse me, John. As Matt mentioned in his commentary, our acquisition criteria are significantly more stringent than they've ever been in the past and so we're looking at a lot of businesses that we decide to pass on for various reasons, strategic or otherwise. But this particular acquisition being a private label manufacturer is one that I and Karl and Matt and many of us in the company have been strong proponents of, especially due to the fact that our current North American private label business does so well, performs a very, very good service for some of our key customers and makes a very fair return for our shareholders. Many of our North American customers have an interest in expanding globally and so it was either a matter of acquisition or greenfielding another business similar to our genesis business here in the United States. And then synergistically, some of [indiscernible] customers and other European customers of ours are interested in growing their market here in North America and doing so through private label initiatives and asked us to consider that. So it was very fortuitous of -- the individual that -- and his sister that were the owners of this business are very young people, very energetic and enthusiastic and we believe we've got an outstanding group of people associated with this acquisition. But it passed all of the screens that we use for strategic and financial return on invested capital, et cetera and simultaneously met two of those long-term strategic goals, both here in North America and in other parts of the world associated with private label growth.

The only thing that I would add, Dave, is that being Polish-based, it's in an area and a region of Poland that is low cost, high quality. We're very, very comfortable, as are our European customers, with the quality standards out of that facility. And as you know that there is a lot of global move of European manufacturers in North America and vice versa. So that consistency, as Dave said, between the two markets is important. We're very, very comfortable putting our name on the Trio Line building, very proud to do so.

And any sense of what the revenue growth rate has been for this business and what that might go to? Or is it a margin expansion story more so than a revenue growth story? Thank you.

John, it's combination of those. The past revenue growth as a percentage has been almost ex-- it's extraordinary. It's good. On the other hand, as it gets bigger, I know you've heard me say this before, the bigger you get, the harder it is to continue to compound. But we're expecting substantial growth, substantial top line and simultaneously, there are some synergies here as well as some new business that is going to be priced a little bit differently than what we've done in the past which will also enhance the margins. So I know that's sort of a mealy mouthed answer to your question, but it's really a combination of continued meaningful growth rate and relatively straightforward margin enhancement.

Thank you. There are no additional questions at this time. I would like to turn the floor back over to management for any additional concluding comments.

We'll just say thank you for your attention and we'll talk to you again next quarter.