2020 Annual Report
Like most companies, we faced a wide variety of challenges this past year stemming from the COVID-19 pandemic. From the onset of the outbreak, our primary mission has been to keep our people safe and our facilities operating, and to manage the extreme swings in demand that we experienced during the year. An incredible group of employees came together across our corporate functions and businesses to develop highly effective protocols to manage the crisis and to serve our customers and shareholders.
To all of our employees – thank you for your dedication, ingenuity, and tenacity. We are extremely proud of all you accomplished, and we ended 2020 as a stronger company as a result of your extraordinary efforts. We are honored and proud to be on your team.
The impact began in January, directly affecting our operations in China, as well as the global supply chain. The crisis accelerated, impacting virtually all geographies by mid-March. We quickly took action to:
These efforts helped to strengthen cash flow and protect our balance sheet as we moved through the year.
By mid-second quarter, we began to see rapid recovery in businesses serving home-related markets. With consumers spending less on travel and entertainment, they began investing more in their homes. This benefited our Bedding, Home Furniture, Flooring, and Textiles businesses.
In addition, the long-term trends in the bedding market that led us to acquire ECS in early 2019 accelerated as a result of the pandemic. Consumers are increasingly buying compressed mattresses, including hybrids, online and through various retail channels. We are benefiting from this shift to an omni-channel environment.
As demand recovered in Bedding, we began to face global constraints.
We made progress on both the nonwoven fabrics and labor shortages as we moved through 2020. Chemical shortages are ongoing, and are expected to continue through at least mid-2021.
As sales recovered, we maintained most of the fixed cost reductions, adding costs only to support higher volumes and future growth opportunities. Margins benefited from this cost discipline. We ended the year with fixed cost savings of approximately $90 million.
Our financial results were heavily impacted by COVID-19 early in the year but began to recover by mid-year. We ended 2020 with fourth quarter sales, EBIT, and earning per share (EPS) positive versus fourth quarter 2019.
For the full year (versus 2019):
Cash from operations was $603 million. This strong performance reflects our priority on closely controlling all elements of working capital. We also brought back offshore cash totaling $188 million.
Uses of cash in 2020 included:
In May, we amended our revolving credit agreement to change our financial covenant to a 4.75x net debt to trailing 12-month EBITDA metric (from 3.5x total debt). This change increased availability under our revolving credit facility, which serves as back-up for our commercial paper program. We ended 2020 with full availability under the $1.2 billion credit facility.
Our markets are evolving, and we are working to ensure we capture opportunities that result from those changes.
The integrated capabilities of our Bedding business are unmatched. With the technology, manufacturing expertise, and fulfillment capability to serve the bedding market – from innerspring and specialty foam components to private label finished compressed mattresses and adjustable beds, through any retail channel that consumers buy – we are uniquely positioned for long-term growth in the $10 billion addressable market we serve.
In the automotive industry, the focus on comfort and convenience continues, supporting long-term growth in our global business. The CASE (Connected, Autonomous, Shared, Electrified) trends also remain relevant long-term and we are closely aligned with those trends. Our capabilities in reducing size, weight, and noise are important advantages in an electric vehicle where energy consumption is a crucial factor. We will invest in technology that complements our existing capabilities, allowing us to continue adding content and outperforming market growth over time.
Our long-term fundamentals have not changed. We continue to be leaders in most of our markets, focused on innovation and working closely with our customers to provide more of what they need to be successful. We will continue to invest in businesses with sustainable competitive advantages in large addressable markets with opportunities to grow and add value over time.
Consistent with that objective, on January 31, 2021, we acquired an Aerospace business located in the UK that specializes in metallic ducting systems, flexible joints, and components for military and commercial applications for $27 million. With annual sales of approximately $17 million, this acquisition expands our Aerospace product offering to include key components, such as flexible joints and bellows, that are frequently used in fluid conveyance systems.
Our primary financial goal is to achieve Total Shareholder Return, or TSR2 , that ranks in the top third of the S&P 500 over rolling 3-year periods. Our TSR was below the 11-14% target over the most recent 3-year period. Over those same years, the TSR of the S&P 500 at 14% was well above historical averages. As a result, our recent 3-year averages did not meet our topthird goal. For the 3-year period that ended on December 31, 2020, our TSR performance of 1% placed us in the bottom third of the S&P 500.
Revenue Growth Target: 6-9% annually on average over time, through a combination of growth from GDP (+2%), acquisitions (+2%), and the remainder coming from content and share gains that allow us to grow faster than our markets.
Margin Target: Long-term sustainable EBIT margins should be in the range of 11.5-12.5%, and EBITDA¹ margins should be in the range of 15.5-16.5%.
Our long-term priorities for use of cash are:
Our commitment to dividend growth has not changed. In 2020, our dividend increased for the 49th consecutive year, to an annual rate of $1.60 per share from $1.58 per share in 2019. Based on the December 31, 2020 closing share price of $44.30, the yield was 3.6%. This was one of the highest yields among the 64 companies that comprise the S&P 500 Dividend Aristocrats. With our strong cash generation, we expect to comfortably support continued dividend increases.
For the near term we are prioritizing debt repayment after funding organic growth and dividends as we continue to reduce leverage. We are making progress. We ended 2020 with net debt to trailing 12-months adjusted EBITDA1 of 2.44x.
We expect a few small bolt-on acquisitions, expanding products or capabilities that align with long-term strategies of our businesses. Large acquisitions and share repurchases are not expected while we work to reduce debt.
Our focus on balance sheet strength and commitment to investment grade debt ratings have not changed. Maintaining this discipline helps ensure access to the credit markets at favorable interest rates and enables us to withstand economic cycles and capture investment opportunities.
We are proud of the culture Leggett & Platt has sustained over many decades – a culture based on our commitment to Enhancing Lives through the betterment of people, communities, and the planet. We will continue to foster a culture of inclusion, diversity, and equity in which everyone is respected, valued, and has an equal opportunity to contribute, thrive, and advance. Our commitment is unwavering, and we are steadfast in maintaining our focus on building a workforce that represents the many customers we serve and the communities in which we operate around the world.
In 2021, we will issue our inaugural sustainability report to provide our stakeholders with a better understanding of our business practices as they relate to Environmental, Social, and Governance (ESG) factors. Going forward we will continually evaluate these business practices, set goals, and measure the impact of those goals.
We want to again thank our employees for their continued commitment to keeping each other safe and healthy while serving our customers and shareholders. Your flexibility, commitment, and endurance made all the difference as we navigated 2020. Your actions are the key to our success, and your efforts to overcome the many challenges that have developed are sincerely appreciated. Finally, we want to thank our customers and investors for your support and commitment.
Chairman and CEO
February 24, 2021
President and COO
February 24, 2021
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