Leggett & Platt | 2017 Annual Report

Delivering
Long-Term Growth

Introduction

Our primary long-term financial goal is to be in the top third of the S&P 500 for Total Shareholder Return. To achieve that goal, we need to increase our sales annually by 6-9% on average. We recognize that this is no small task as many of the markets we serve only grow 2-3% a year. We have grown above that GDP rate over time by gaining share, increasing the content we provide our customers, expanding the markets we serve, innovating new products, and acquiring complementary businesses. The foundation for meeting our long-term growth goal is in place:

  1. Recent growth sources generating notably above GDP rates can be sustained for at least the next few years.
  2. We are using a systematic growth process to identify more opportunities in our current markets.
  3. We are actively evaluating opportunities for longer-term growth in new markets.

On the next few pages we discuss how each of these three approaches contributes to our future growth.

1 Please refer to Non-GAAP Reconciliations page.

Targeting 8% total annual revenue growth through 2020.
In Automotive, we expect our growth to continue outpacing global industry growth by approximately 10%. If the industry grows 2%, our sales in Automotive should grow 12%. How are we able to do this? Consumers are seeking more comfort and powered features in the seats and other parts of new vehicles. These features often utilize Leggett products.
With 2017 sales in our Automotive business approaching $800 million, double-digit growth in this business adds 2-3% to Leggett’s overall sales.
With 2017 sales in our Automotive business approaching $800 million, double-digit growth in this business adds 2-3% to Leggett’s overall sales.
Quantum® Edge should continue rapid growth, more than doubling this past year and now present in over 30% of ComfortCore® innersprings. With these content gains and the benefit from higher-value products, growth in our global Bedding business should be approximately double GDP over the next three years.
Quantum® Edge should continue rapid growth, more than doubling this past year and now present in over 30% of ComfortCore® innersprings. With these content gains and the benefit from higher-value products, growth in our global Bedding business should be approximately double GDP over the next three years.

In Bedding, we are adding more value to the mattresses our customers produce. The transition to ComfortCore® (pocketed innersprings) continues, and we are adding Quantum® Edge perimeter springs to an increasing share of those innerspring cores. Growth is also occurring from use of our microcoils in place of foam in top layers of mattresses. How does this impact our sales? When these features are adopted by our customers, they increase the value of our components in a mattress from around $30 for a basic innerspring to well over $100.

In addition to supplying components, we are now producing select lines of private-label finished mattresses, representing higher value in Leggett-supplied products and more growth opportunities as these programs expand.

The desire for comfort and adjustability are consumer trends that have also supported growth in our Adjustable Bed business. With consumer awareness for adjustable beds increasing and affordability improving, we expect this business to continue delivering significant growth.

In addition to these growth sources, we will also continue acquiring bolt-on operations in some of our other businesses. Acquisitions have added approximately 2% to our sales growth in recent years.

While this activity should contribute to near-term growth, we are primarily engaging in the process to ensure that we have attractive opportunities for the next three to five years and beyond.

The outstanding organic growth success in our Automotive business over the past several years stems from this type of process. By expanding the strategy from one focused primarily on seat comfort (a $1 billion market) to also include the growing opportunity for powered features that utilize our motors, actuators, and cables, we increased our market potential to $10 billion and identified a runway for significant long-term growth.

We are utilizing this growth identification process in several of our other businesses. Work Furniture and Aerospace together represent approximately $400 million of our sales. In these two businesses, we have identified addressable markets that total over $6 billion globally. By better understanding our competitive strengths, customer needs, and market trends, we have expanded our potential in these two industries to provide opportunities for long-term growth.

We define our Work Furniture market as private-label finished seating and global seating components.

Workspaces are evolving. Growth of flexible, collaborative workspaces supports private-label demand. Outsourcing production to Leggett enables our customers to focus on brand and design.

Value-added components complement our private-label strategy. Our customers seek engineering, product development, and full chair component solutions.

We define our Work Furniture market as private-label finished seating and global seating components.

Workspaces are evolving. Growth of flexible, collaborative workspaces supports private-label demand. Outsourcing production to Leggett enables our customers to focus on brand and design.

Value-added components complement our private-label strategy. Our customers seek engineering, product development, and full chair component solutions.

In Aerospace, our global market focus is fluid conveyance systems for commercial, defense, and space aircraft.

We are targeting growth from expanding our tube fabrication and assembly capability, and increasing our product portfolio.

In Aerospace, our global market focus is fluid conveyance systems for commercial, defense, and space aircraft.

We are targeting growth from expanding our tube fabrication and assembly capability, and increasing our product portfolio.

Growth Identification Process:
  • Analyze our current markets and define attractive spaces for growth.
  • Identify specific opportunities within these spaces and prioritize them based on potential for value creation.
  • Determine action plans, including organic and acquisition initiatives.
What do we mean by our Styles of Competition?
They are the fundamental traits of our current businesses, or where and how we compete.
What do we mean by our Styles of Competition?
They are the fundamental traits of our current businesses, or where and how we compete.
Styles of Competition:
  • Framework to define and measure “fit” based on fundamentals of where and how we currently compete.
  • Lens used to identify, screen, and pursue opportunities across more diverse and faster-growing markets.
  • Our predominant style is Critical Components – representing ~60% of sales and the majority of recent sales growth.

We recognize the need to enter new, faster-growing markets to achieve long-term growth. Styles of Competition will focus our efforts to find opportunities in markets where we do not currently participate, but where we would have a sustainable competitive advantage. We have identified specific industries that share the core characteristics of our most profitable businesses, and we have allocated resources to investigate opportunities for growth in those markets. We will likely enter new markets through carefully selected acquisitions, building the platform and creating a position from which we should continue to grow.

Growth prospects in our current businesses should enable us to achieve our 6-9% growth target for the next several years. Our Styles of Competition efforts help extend profitable growth well into the future.

Critical Components:

Where we compete:

  1. Product: components essential to end-product’s functionality but making up less than 25% of its cost.
  2. Industry structure: mostly smaller, private companies serving a few large customers.
  3. Economics: light manufacturing (not asset-intensive) and product mix that generate attractive returns.

How we compete:

  1. Long-term customer relationships centering on co-designed products for improved functionality.
  2. Flexible manufacturing processes allowing for custom specifications with long production runs.
  3. Continuous improvement increasing profitability throughout the life of the project.

Critical Components:

Where we compete:

  1. Product: components essential to end-product’s functionality but making up less than 25% of its cost.
  2. Industry structure: mostly smaller, private companies serving a few large customers.
  3. Economics: light manufacturing (not asset-intensive) and product mix that generate attractive returns.

How we compete:

  1. Long-term customer relationships centering on co-designed products for improved functionality.
  2. Flexible manufacturing processes allowing for custom specifications with long production runs.
  3. Continuous improvement increasing profitability throughout the life of the project.