David DeSonier - Senior Vice President of Strategy and Investor Relations Karl Glassman - President, Chief Executive Officer and Managing Director Matthew Flanigan - Chief Financial Officer Perry Davis - Senior Vice President and President, Residential Furnishings Mitchell Dolloff - Executive Vice President, President, Specialized Products and Furniture Products Susan McCoy - Vice President of Investor Relations.

Robert Griffin - Raymond James & Associates Daniel Moore - CJS Securities, Inc. John Baugh - Stifel, Nicolaus & Co., Inc. Keith Hughes - SunTrust Robinson Humphrey.

Greetings, and welcome to the Leggett & Platt Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Mr.

Dave DeSonier, Senior VP of Strategy and Investor Relations. Thank you, Mr. DeSonier, you may begin..

Karl Glassman, who is President and CEO; Matt Flanigan, our Executive VP and CFO; and Susan McCoy, our VP of Investor Relations. Perry Davis and Mitch Dolloff both Executive VP’s of the Company are joining us today to participate in Q&A they have each been past participants on these calls and they will now both join us regularly.

Also with us today is Wendy Watson who joined our IR department at the start of the year and will be working directly with Susan as Director of Investor Relations. Wendy brings a lot of background with work in M&A, business transaction support trade law, government relations, and treasury and banking support.

She has been with Leggett for 19 years and has worked with our operations for the past five years in a business development role supporting strategy and growth process development. We are excited to have Wendy as the newest member of our IR team. The agenda for our call this morning is as follows.

Karl will start with a summary of the major statements we made in yesterday’s press release and provide segment highlights. Matt will discuss financial details and address our outlook for 2017. And finally, the Group will answer any questions that you have. This conference call is being recorded for Leggett & Platt and is copyrighted material.

This call may not be transcribed, recorded or broadcasted without our expressed permission. A replay is available from the IR portion of our website. We posted to the IR portion of the website, yesterday’s press release and a set of PowerPoint slides that contains summary financial information, along with segment details.

Those documents supplement the information we discuss on this call, including non-GAAP reconciliations.

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 Karl Glassman..

U.S. Spring component dollar sales decreased 4%. Innersprings units decreased 5%, and boxspring unit volume was down 7%. Comfort core units decreased 6% during the quarter. International spring sales increased 3%.

Home furniture component sales were down slightly with sales in the seating of sofa sleeper business down 2% and motion hardware unit volume down 1%.

Segment EBIT increased during the quarter as a result of lower foam litigation expense, excluding these charges EBIT decreased primarily from lower unit volume, partially offset by continued pricing discipline. Adjusted EBIT margin improved slightly in part due to the lower adjustable bed pass-through sales.

For the full-year, total sales in the segment decreased 6%. Unit volume was down 3%, about half of which resulted from lower pass-through sales of adjustable beds. Commodity deflation and currency impacts also reduced sales by 3%. U.S. innerspring units were down 6% and comfort core units were up 4% for the year.

Full-year segment EBIT increased as a result of a $7 million benefit from a litigation settlement and lower foam litigation expense, excluding these items EBIT for the year decreased slightly with lower unit volume largely offset by pricing discipline.

Adjusted EBIT margin improved 50 basis points to 10.7% in part due to lower adjustable bed pass-through sales. In the Commercial Products segment, fourth quarter same location sales were flat. Adjustable bed units grew 4% and work furniture sales were up slightly, but these increases were offset by lower sales and fashion bed.

Segment EBIT increased and EBIT margin improved primarily from a favorable sales mix and a $1 million gain from a building sale. For the full-year, total sales in the segment grew 1%.

Adjustable bed units were up slightly for the year, the segments full-year EBIT increased and EBIT margin improved 150 basis points to 8.3% primarily from operational improvements, gains from building sales of $3 million and a favorable sales mix.

In the Industrial Materials segment, fourth quarter same location sales were down 4% from steel related price decreases that had occurred before the recent spike in steel cost. Unit volume was essentially flat in the quarter. Total sales also decreased as a result of divestitures.

The segment EBIT increased significantly in the quarter due to a $16 million gain from the sale of a wire products business and a non-reoccurrence from a $3 million loss from last year's divestiture of the steel tubing business.

Excluding these unusual items, fourth quarter adjusted EBIT and adjusted EBIT margin decreased largely due to recent steel cost inflation that had not yet been recovered through selling price increases. For the full-year, total sales in the segment decreased 25% from a combination of divestitures, steel related price decreases and lower unit volume.

The segment's full-year EBIT increased due to the divestiture gain and the non-reoccurrence of a prior year impairment charge and divestiture loss. Excluding these unusual items, EBIT was down slightly with the impact from lower sales largely offset by operational improvements.

Adjusted EBIT margin increased 290 basis points to10.1% in part from the divestiture of lower margin businesses. In the specialized product segment, fourth quarter same location sales increased 4% with continued strength in automotive, partially offset by currency impact and lower volume in machinery and aerospace.

Excluding currency changes, automotive sales grew 15%, machinery sales decreased 23%, and aerospace same location sales were down 9% in the quarter. The segment's EBIT grew and EBIT margin improved primarily from higher unit volume and currency impact.

Full-year, total sales in the segment grew 6% with a 9% volume increase and a small acquisition, partially offset by divestitures and currency impact. Strong performance in our automotive business drove the majority of the sales growth. Excluding currency changes, automotive sales increased 13% for the full-year.

The segment's full-year EBIT benefited from $11 million divestiture gain, partially offset by a $4 million goodwill impairment charge. Excluding these unusual items, EBIT grew and EBIT margin improved primarily from higher sales and currency impact. I'll now turn the call over to Matt..

Thanks, Karl and good morning everyone. In 2016, we generated very strong operating cash flow of $553 million, which included $25 million of after-tax litigation settlement proceeds. Operating cash flow continues to benefit from a sharp focus on working capital management.

We ended the year with adjusted working capital as a percentage of annualized sales at 9.4%. In November, we declared a quarterly dividend of $0.34 per share, which represented $0.02 per share or 6% increase versus the fourth quarter of 2015.

Our target range for dividend payout is 50% to 60% of net earnings and we have been within that range in each of the past two years. Looking forward, we would expect future dividend growth to approximate earnings growth.

At yesterday's closing price of $47.19, the current dividend yield is 2.9%, which is one of the highest yields among the 51 companies that comprise the S&P 500’s dividend aristocrats. We repurchased 400,000 shares of our stock in the fourth quarter at an average price of $47.10.

For the full-year, we repurchased 4.5 million shares at an average price of $46.52 and issued 2.4 million shares primarily for employee benefit plans and stock option exercises. Our financial base remains very strong, and this gives us considerable flexibility when making capital and investment decisions.

During the year, we expanded the capacity under our revolver and commercial paper program from $600 million to $750 million and extended the term by two years to 2021.

We ended 2016 with over $550 million available under the commercial paper program and our net debt and net capital ratio was at 34%, comfortably within our longstanding targeted range of 30% to 40%. We also monitored debt-to-EBITDA and then in 2016 with debt at 1.6 times our trailing 12 months adjusted EBITDA.

We assess our overall performance by comparing our total shareholder return to that of peer companies on a 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 11% to 14% per year.

For the three-year period that ended on December 31, 2016, we generated compound annual TSR of 20% per year and that performance placed us within the top 11% of the S&P 500. As Karl mentioned earlier, we believe the macro environment should support modest growth in our end markets over the next few years.

Even more importantly, we expect to grow organically at a faster pace than our markets as a result of content gains and new program awards.

As we enter 2017 with renewed inflation, we also expect sales to increase from the pass through of higher commodity costs, although, there will be a lag in timing which typically occurs when we adjust our own selling prices. With this collective backdrop for 2017, we are forecasting another year of strong performance.

Sales from continuing operations are expected to be $3.95 billion to $4.05 billion, or up 5% to 8% versus 2016. We expect mid single-digit unit volume growth from strength in Automotive, Bedding, Adjustable Bed, Work Furniture, and Geo Components.

The sales impact from divestitures completed during 2016 should be largely offset by small acquisitions and as just mentioned raw material related price increases should also add to sales growth. We expect 2017 earnings per share of $2.55 to $2.75.

Bridging from our 2016 adjusted EPS of $2.49, we therefore expect earnings to grow from between 2% to 10%. This guidance assumes that the benefit from higher unit volume will be partially offset by the pricing lag, we typically experienced in recovering increased raw material costs.

We expect the largest impact from the pricing lag to occur during the first quarter. We also anticipate our higher effective full-year tax rate of approximately 26% this year. Of course, this tax rate estimate is assuming that current laws do not change in 2017.

Based upon this guidance, we currently expect a full-year EBIT margin between 12.8% and 13.5%. Operating cash flow should exceed $450 million in 2017 with working capital increases attributable to sales growth and inflation expected to be a use of cash.

Dividend should require about $185 million of cash and capital expenditures should approximate $150 million for the year. As has been our practice, after funding capital expenditures and dividends remaining cash flow will be prioritized toward competitively advantaged acquisitions.

Potential acquisitions must meet stringent, strategic and financial criteria. Should no acquisitions come to provision and if excess cash flow is available, we have a standing authorization from the Board to repurchase up to 10 million shares each year. No specific repurchase commitment or timetable has been established.

However, we currently expect to repurchase between 3 million to 4 million shares in 2017 and issue approximately 2 million shares primarily for employee benefit plans. With those cause, I'll now turn the call back over to Dave 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 on the call, we request that you ask only 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. Michele, we are ready to begin the Q&A..

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Budd Bugatch with Raymond James. Please proceed with your question..

Hi guys. This is Bobby, filling in for Budd. I appreciate everyone taking my questions..

Hi, Bobby..

Just real quickly I was hoping to get a little bit more color on the volume guide of mid-single-digits assumed in the sales guidance and maybe just kind of what your assumptions are that kind of give you confidence of unit volume accelerating here.

And is there any timing that you guys expect for kind of the accelerations, is it more backend weighted or are you seeing stuff already that gives you that confidence early on in the quarter?.

Good morning, Bobby. This is Karl. I’ll deal with kind of the high level and then Susan will take a swing at quarterizing it for you. The way that we build our forecast up is we use a baseline of GDP, so then we adjust by product category.

So as an example, we’re pretty confident using the IHS forecast, the global auto build in the major markets is going to be 1.7% in 2017. So that's the spark for auto. We have in U.S. spring as an example. We have an expectation that units will grow 2%.

Then we go back and look at each one of the markets around the world have a greater expectation for growth based on market drivers in the bedding industry as an example in Asia and in Europe, so that becomes baseline. Then we have a high degree of confidence of content gains.

In automotive, we continue to believe based on awarded programs that will grow at a 1,000 basis points greater than global build, so call it 12% forecast there. And in U.S.

spring, as you saw in Las Vegas, we're very confident with the advent of the Quantum Edge and the proliferation of that product, just as examples, in the comfort layer of micro coils, adjustable bed, significant market share gains and then also a market that's growing greater than GDP.

So we boil that altogether knowing that our new product innovations in each one of our disparate markets and feel really comfortable from a unit perspective of that call it 5%.

Susan?.

Yes. Bobby, so to take that a step further and think about by quarter and then our total sales guidance, I would – obviously, we've talked about mid single-digit unit volume growth and think of unit volume growth strengthening as the year progresses, some of those new programs and products ramp up.

Inflation is the other part of our forecast for sales and I would also allow for inflation increasing particularly in the second quarter, third quarter, and this is the impact on sales of course, based on recent commodity trends and then to kind of complete the view on all-in sales completed divestitures and small acquisitions that we know about right now would effectively offset in the year.

Now you usually go on to ask about a sort of segment level assumption around that midpoint sales growth, so I’ll offer that up to with the comment around residential being, call it mid single-digit commercial much stronger than that more like mid-teens and again the growth that we've gotten adjustables that also in work furniture will contribute to that.

Industrial would be flat. We do have some carry on impact from divestitures that have been completed in 2016, but we would expect that to be offset by steel inflation and some higher volume, and then specialized, as it's been doing, likely growing high single-digit.

So when you blend all that together, you get back to that midpoint, call it 6.5% to 7% all-in sales growth for the full-year..

Okay, I appreciate that. Susan, you did read my mind. That was going to be my follow-up, but I do have one other one. On the timing of the pricing increases, can you help us maybe understand if there's a timing difference between the segments? I realize bedding might be a little bit later, more towards April, and wire could be a little sooner.

Is there anything else we need to keep in mind as we try to model out 1Q?.

Actually you characterized it accurately, Bobby. Wire closer to raw material the earlier, so we've announced rod and wire increases and have implemented them already based on the scrap moves that we saw in November. The only outlier to what you said is that steel prices have inflated earlier and to a greater degree in China.

So as an example in our furniture hardware facilities in China, we're implementing price increases that are significant in 9% to 11% range depending on product category that go into effect next Monday, when the Chinese are back from New Year and embedding as you said, starts to roll through domestic bedding would roll through really early second quarter..

I appreciate all the detail. Best of luck in 2017..

Thank you, Bobby..

Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question..

Thank you and good morning..

Good morning, Dan..

Hi, Dan..

I just wanted to follow up a little on those price increases. Obviously you gave us good detail in terms of the timing. It's still early, but how are those being received thus far and obviously you sound very confident about your ability, as you usually do, to push those through.

I just wanted to get a sense of that?.

Dan, this is Perry Davis.

As we look at recent history, through the latter part of the year fourth quarter and going into the first quarter of this year, we've seen pretty significant movement on scrap up somewhere in the neighborhood of $110 and that ramp-up really did accelerated at the end of the year, so as we move forward that scrapped in terms to rod into wire in the following months.

We anticipate that we will have early second quarter price increases reflected from that movement. Now bear in mind, some of our contracts that we have in the bedding group, at least our formulaic and are delayed by about 90 days. We talk about that regularly. So, we'll begin to see those movements as we get into the early part of the second quarter..

Very good.

CapEx ticking up a bit in 2017, just talk about where the incremental spend is going and do you expect it to remain at those levels looking out beyond this year?.

Yes. Dan, this is Karl. The CapEx ticking up is really good news for us. It's a tribute to organic growth, it goes back to those awarded automotive programs, additional investment in adjustable bed as we gain market share. Significant investment in U.S.

bedding as this Quantum Edge and Microcoils rollout products all introduced in Las Vegas being extremely well received. In investment in Europe, where our bedding operations continue to gain share in premium products, so that capital is the best money that we can spend and feel really good about that $150 million forecast.

If there's a bias, it could be slightly higher, but it will all be steeped in every one of those programs having excellent returns for our shareholders. In the out years, I would assume $150 million. At this point, I don't have any better data..

Got it. Appreciate the color. Thanks very much..

Welcome..

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

Good morning and thanks for taking my questions. I guess this is directed at either Perry or Karl. There was a small announcement in the bedding trade yesterday that changed some things and was curious.

I know Serta is a big customer and it seems like they're going to gain from this, but you were very excited about your placements with Sealy and I guess my question is for Leggett, how do you see that playing out and does Serta Simmons bedding have enough capacity to take on all the extra business? I'm just curious how you see that yin and the yang..

John, Perry and I talked about this last night and I thought he should answer the questions and he thought I should answer the questions, and he is bigger than I am, so I guess, I'll take a swing at it and Perry will interject at any time that we wants that.

You are right sort of appears to be the primary beneficiary and mattress firms announcement they specifically cited an exclusively launch of the I-series product line, which has a lot of our product in it.

And iComfort, which to us it’s a foam product; there are some hybrid iComfort that are good for us, we'll get all of the foundation's related to those products. As regards capacity that's really a Serta Simmons question that there is capacity in the market. There is always the ability to flagships.

I was told yesterday that the majority of the Serta facilities are running single shift. They can ramp those to a second shift. The majority of the Simmons facilities are running two shifts, but there is capacity from our perspective has Simmons historically gets busier we've always been the beneficiary of the overflow in the demand.

We also expect Mattress Firm to continue to heavyweight their private label programs. We’re in exclusive supply agreements with those two vendors. And to go back though, we are – we continue to be very enthused about the Sealy introduction of Quantum Edge.

We think that we know that that product was extremely well received at retail and we expect significant demand there as well. What I think is most notable about the announcements and the decisions, and I'm not going to get into why the decisions are made.

That's none of our business, but what Tempur Sealy has said, and Mattress Firm has said, and SSB Serta Simmons have said is we are going to jointly or individually, but from an industry perspective have a significant impact by increased consumer faced advertising spend.

Frankly, Select Comfort has been on their own investing it a lot of ad dollars over the last couple years. Mattress Firm certainly participates in advertising, but with elections last year, you just didn't see a lot of ad spend. You will see significant ad spend by all of those players that historically is really good for the bedding industry.

It's what the industry's has been lacking the last few years. While we use that baseline of 2% unit growth, I would probably bias it up based on these announcements because of that investment and consumer awareness. So we'll see all sorts out, I think it will be good for the consumer.

Perry, do you have anything?.

I would just add that in the area of adjustable beds and maybe Mitch could add some color to this. But we do anticipate that our position as the market is shifted over the last couple of years from an OEM model to a direct to retail model.

We expect also there that we should enjoy some additional pick ups in adjustable beds as relates to Mattress Firm..

Okay. And just maybe the follow-up, I don't know if I heard or if I did, I didn't understand that or missed it.

What were units of innersprings in calendar 2016 in terms of a percent change?.

So John, for the year on a per day basis 2016 versus 2015 units were down 5% with regards to the fourth quarter, basically they were down 5% they are also, so 5% for the year..

And that’s a springs comment that doesn't have this pass-through of adjustables or does?.

That is just innerspring shipments..

In just the [U.S.].

Okay. So I guess that the point is we do have at least to your 2% or bias upwards.

That's quite a steep decline, so we have nothing else, a very easy comparison?.

That’s a fair statement. Yes, 2016 had a very, very difficult comparison to an abnormally strong 2015. We're reversing that this year. We're 2017 frankly is up against a pretty easy 2016..

Thank you and good luck..

Thanks, John..

Thank you. [Operator Instructions] Our next question comes from the line of Keith Hughes with SunTrust Robinson Humphrey. Please proceed with your question..

Thank you. Within Specialized, we had aerospace and machinery down.

You talked a little bit about it before, but can you just give us more detail what's going on there and will that those turn positive here near-term in the New Year?.

Keith, I’ll tell you what Mitch has got the best story in the room to tell on automotive and you ask them about the two negatives, but go ahead, Mitch..

Well, you just brought the numbers down guys..

Okay on aerospace, I think a couple factors at play. Mainly we had some really aggressive pricing in our North American Tube operations I think cost as some market share. We've adjusted our pricing to be more competitive as appropriate there and we think that we stabilized.

We also have experience some year-over-year declines in the space business that we have in that area and that business isn't inherently less steady. So it tends to come and go year-to-year. So I do think that we'll see some positive impact in 2017 in the aerospace business.

Our operations in Europe and our two forming operation continue to perform really well. So it's more an issue of getting our pricing correct in this North American Tube market.

On the machinery side, the first half of the year was really strong and it started to slow down in the second half and that some of our major bedding customers curtailed their capital spending. That's really the driver there. It's really it tale of two halves of the year..

Okay, and the adjustables within Specialty, up 4%, I know you've done a lot of introductions, a lot of focus on that for you selling directly to retailers as opposed to going through just the OEMs.

So I guess my question is within that number are you seeing strong new account growth, strong existing growth? How does it breakdown?.

Okay, it’s great question. I’ll kind of tag along to what Perry mentioned earlier. So I think there's really three factors impacting our growth there. The first as you said, sales to our bedding OEMs are down as we ship to direct retail strategy, that's not a surprise, and so that shows up due to bedding numbers.

Sales to our existing retailers are up as the market continues to grow, and then finally we're gaining shares. We ramp up programs with new retail customers, so really all of those factors are helping at this point..

And just final issue on that, are you seeing faster growth at the lower price points in adjustables?.

I think that we continue to see pressure on price points for sure. I think we look at it as a higher more feature driven segment as well as a large more price conscious segment and we're playing with both of those..

Okay, thank you. End of Q&A.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mr. DeSonier for closing remarks..

Thank you. We appreciate your participation. We don't have anything else to add. So we will talk to you again next quarter..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..