Based on this sales forecast, the company anticipates earnings of $.42-$.47 per share for the third quarter.
All of Leggett's reporting segments employ the first-in, first-out (FIFO) inventory method. Last year, segment EBIT margins benefited from the FIFO method's requirements for handling rising commodity costs. This year, the same FIFO accounting method, combined with recent reductions in steel costs, is resulting in lower segment margins in comparison to last year.
At the corporate level, Leggett uses the last-in, first-out (LIFO) method for determining the cost of approximately half of the company's inventories. A consolidated adjustment (i.e. not within the segments) is made to convert the appropriate operations to the LIFO inventory method. Commodity price decreases (e.g. steel) have resulted in estimated LIFO income for the full year 2005 of approximately $40 million. This compares to a LIFO expense of $77 million in 2004.
For comparison, over the five prior years (1999-2003), the largest annual LIFO expense was just over $4 million. The company's policy is to allocate estimated full year LIFO income or expense proportionally to each quarter.
Accordingly, earnings for the second quarter reflect LIFO income of $20 million; in contrast, there was a LIFO expense of $24 million in 2Q 2004. The company currently anticipates LIFO income of $10 million in both the third and f their th quarters; however, the actual amount of income will fluctuate with commodity prices and inventory levels.
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