Last update on 2024-06-07

Leggett & Platt (LEG) - Piotroski F-Score Analysis for Year 2023 (Final Score: 3/9)

Explore the 2023 Piotroski F-Score analysis of Leggett & Platt (LEG) with a final score of 3 out of 9, highlighting key financial metrics and areas of improvement.

Short Analysis - Piotroski Score: 3

We're running Leggett & Platt (LEG) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score evaluates the strength of a company's financial situation based on 9 criteria in profitability, liquidity, and operational efficiency, rated between 0 to 9. Leggett & Platt (LEG) has a low Piotroski F-Score of 3, indicating financial weakness. In 2023, the company faced a negative net income of -$136.8 million, reduced ROA, increasing leverage, and a decreased Current Ratio, signaling challenges in profitability, financial health, and operational efficiency. However, the company showed a positive cash flow and better operating cash flow compared to net income, which are some positive signs amidst the overall weak performance.

Insights for Value Investors Seeking Stable Income

Given its low Piotroski F-Score of 3, Leggett & Platt may not be the best choice for investment currently due to financial instability and inefficiencies. Although it has positive cash flow, the significant challenges in profitability and increasing debt levels suggest uncertainty. Investors might want to look for companies with higher scores and better financial health and operational efficiency.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Leggett & Platt (LEG)

Company has a positive net income?

Checking the Net Income criterion in the Piotroski Analysis involves determining whether the company has achieved a positive net income in the most recent fiscal year.

In the case of Leggett & Platt (LEG), the net income for 2023 amounts to -$136.8 million. This represents a negative net income. Historically, Leggett & Platt has demonstrated both positive and negative net income figures, with notable fluctuations shown over the past 20 years. For instance, the company experienced a negative net income as recently as 2007, reporting -$11.2 million, while also demonstrating robust positive income, like $385.8 million in 2016. The negative result in 2023 suggests a challenging financial period for the company, warranting a score of 0 for this criterion in the Piotroski Analysis.

Company has a positive cash flow?

Cash Flow from Operations (CFO) indicates the amount of cash a company generates from its normal business operations. Positive CFO is crucial as it shows the business's ability to generate sufficient cash to maintain and grow its operations.

For Leggett & Platt (LEG), the CFO in 2023 is positive, amounting to $497.2 million. This is validated against a historical perspective, showing a consistent capability of positive cash flow over the past 20 years, with few exceptions. Notably, the CFO in 2021 was $271.3 million but rebounded to $441.4 million in 2022 and further increased in 2023, reflecting a strong recovery. Thus, Leggett & Platt earns 1 point for positive CFO, signifying robust operational health.

Return on Assets (ROA) are growing?

Change in Return on Assets (ROA) signifies the firm's profitability relative to its total assets over time, crucial for assessing management efficiency.

Leggett & Platt's ROA declined significantly from 0.059 in 2022 to -0.0279 in 2023. This represents a drastic fall, indicating weaker efficiency in utilizing assets to generate profits. Compared to the industry median, which has consistently hovered around 0.3496 in 2023, Leggett & Platt's performance is concerning. Given this declining trend, in the context of the Piotroski F-Score, this criterion receives 0 points.

Operating Cashflow are higher than Netincome?

Operating Cash Flow should be higher than Net Income to ensure that the company generates sufficient cash from its operations. It indicates efficient earnings quality and the ability to sustain operations.

For the year 2023, Leggett & Platt's operating cash flow stood at $497.2 million, whereas the net income was recorded a negative $136.8 million. This indicates that the company is indeed generating more cash from its operations than its net income suggests, which is a positive sign of earnings quality. This disparity often reflects non-cash adjustments such as depreciation, which don't affect the cash flow directly but influence net income. In light of Leggett & Platt's history, it's noteworthy that they have consistently maintained positive operating cash flows over the last 20 years, despite fluctuations in net income. Hence, for 2023, the criteria to assign 1 point as per the Piotroski analysis is well met, reflecting a robust ability to generate cash from core operations.

Liquidity of Leggett & Platt (LEG)

Leverage is declining?

Change in Leverage is significant as it reflects the company’s debt levels relative to its equity position.

The Leverage for Leggett & Platt (LEG) increased from 0.3949 in 2023 compared to 0.4296 in 2022, indicating an increase in debt relative to equity. This trend is crucial as it can impact the financial stability and risk profile of the company. Despite the data showing fluctuations over the last two decades, with a peak leverage of 0.4543 in 2019, the recent increase suggests heightened borrowing, possibly to finance new projects or manage operations. Given that the Leverage has increased in 2023, Leggett & Platt does not meet this Piotroski criterion, thus a score of 0 is assigned for this criterion.

Current Ratio is growing?

The Current Ratio is a liquidity ratio that measures a company's ability to cover its short-term liabilities with its short-term assets and is essential in assessing financial health.

Leggett & Platt's Current Ratio decreased from 2.0225 in 2022 to 1.4901 in 2023, implying a drop in its liquidity position. This decline indicates that the company has fewer short-term assets relative to its short-term liabilities compared to the previous year. Given the importance of the Current Ratio in determining a firm's ability to meet short-term obligations, this downward trend is concerning. Moreover, comparing LEG's 2023 Current Ratio of 1.4901 to the industry median of 1.7959, we see that LEG is underperforming its peers in this aspect. Over the past 20 years, LEG's Current Ratio peaked at 2.9069 in 2003 and has generally been higher than the industry median until recent years. Therefore, this trend is bad as it reflects a decreased capability of LEG to cover short-term liabilities.

Number of shares not diluted?

Change in Shares Outstanding is a measure of how many shares are available in the market. It's important because issuing more shares can dilute earnings per share (EPS).

In 2022, Leggett & Platt had 136.1 million outstanding shares, which increased to 136.3 million in 2023. This slight increase of 200,000 shares results in the criterion earning a score of 0 points. Looking at the historical data, a trend of decreasing shares from 2003 to 2018 is observed, suggesting responsible share buybacks. However, slight increases in recent years may warrant caution, as continuous increase could dilute EPS and investor value.

Operating of Leggett & Platt (LEG)

Cross Margin is growing?

The criterion evaluates whether the company's Gross Margin has improved compared to the previous year, indicating better cost management or increased pricing power.

Leggett & Platt's (LEG) Gross Margin decreased from 0.1898 in 2022 to 0.1807 in 2023, indicating a negative trend. This could hint at decreasing pricing power or rising production costs. Therefore, under the Piotroski Analysis, this would result in a 0 point. Additionally, the gross margin has been on a general downward trend from its peak in the mid-2010s, contrasting with the industry median, which has generally increased. This underperformance compared to industry peers suggests potential inefficiencies.

Asset Turnover Ratio is growing?

This evaluates how efficiently a company uses its assets to generate sales and is important for understanding operational performance.

Leggett & Platt's asset turnover decreased from 0.9809 in 2022 to 0.9623 in 2023. This decrement indicates that the company is generating fewer sales per dollar of assets than in the previous year, potentially signaling reduced operational efficiency. Historical data also show a declining trend over the past two decades which may warrant further investigation. Therefore, this criterion scores 0 points.