Can Leggett (LEG) Surprise This Earnings Season? - Analyst Blog

Leggett & Platt Inc. LEG is set to report first-quarter 2014 results on Apr 25. Last quarter, the company posted an earnings surprise of 6.1%. Let us see how things are developing for this announcement.

Growth Factors in the Past Quarter

Leggett reported better-than-expected fourth-quarter 2013 results with sales and earnings of $896.8 million and 35 cents per share, respectively, which was above the year-ago comparable quarter figure as well as the Zacks Consensus Estimate. The year-over-year top-line improvement was largely attributable to a 3% increase in unit volume and 2% benefit from acquisitions.

Moreover, improved bottom-line results were primarily driven by increased sales, leverage operating expenses, lower interest payment and a decline in outstanding number of shares. These positives were partly offset by higher steel costs. Buoyed by better-than-expected quarterly performance, Leggett is expecting an increase in sales, earnings before interest and tax (EBIT) margin and operating earnings per share EPS in 2014.

A well-diversified customer base, pricing power and solid research and development (R&D) capabilities facilitate Leggett to keep itself afloat in the soft economic environment. We commend the company's consistent endeavors to keep itself on the growth trajectory through acquisitions, which will help to increase the top and bottom lines as well.

Earnings Whispers?

Our proven model does not conclusively show that Leggett is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here as you will see below.

Zacks ESP: ESP for Leggett is 0.00% since the Most Accurate Estimate stands at 38 cents, which is in line with the Zacks Consensus Estimate.

Zacks Rank #3 (Hold): Leggett's Zacks Rank #3 (Hold) has little effect on the predictive power of ESP because the Zacks Rank #3, when combined with a 0.00% ESP, makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into an earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Leggett is not the only firm we are looking up to this earnings season. Our model shows that the following stocks have the right combination to post an earnings beat:

• The Walt Disney Co. DIS with an Earnings ESP of +2.08% and a Zacks Rank #2 (Buy)
• Church & Dwight Co. Inc. CHD with an Earnings ESP of +1.37% and a Zacks Rank #3 (Hold)