Leggett & Platt Inc Q2 FY2020 Earnings Call

Greetings, and welcome to the Leggett & Platt Second Quarter Conference Call and Webcast. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Susan McCoy. Thank you. Ms. McCoy, you may begin.

Good morning and thank you for taking part in Leggett & Platt's second quarter conference call. As with last quarter, we are conducting the call from different locations. Please bear with us if you experience minor delays or mixed audio quality. On the call today are Karl Glassman, Chairman and CEO; Mitch Dolloff, President and COO; Jeff Tate, Executive Vice President and Chief Financial Officer; Steve Henderson, Executive Vice President and President of the Specialized Products and Furniture, Flooring and Textile Products segment; Wendy Watson, Vice President of IR, and Cassie Branscum, recently promoted to Senior Director of IR. Before I proceed with the agenda, I wanted to let you know that today, after 22 years at Leggett & Platt, Wendy will be leaving the company. Wendy began her career with Leggett in 1998 and joined the IR team in early 2017. She has done outstanding work in the IR role and brought tremendous value to Leggett in all of her past roles. Please join me in congratulating Wendy on her outstanding career with Leggett. We wish her great success as she moves on to a new exciting opportunity and the next stage of her career. She will be sincerely missed. Joining us for the first time today is Tarah Sherwood, Director of IR. She will be working directly with Cassie and me. Tarah has been with Leggett since 2007 and has a strong background in accounting and financial analysis. Tarah has held roles in internal audit and corporate development where she participated in some of the largest transactions in our history, including the acquisition and integration of ECS last year. We are excited to have Tarah as the newest member of our IR team. The agenda for our call this morning is as follows: Karl will start with a statement of the main points we made in yesterday’s press release, Mitch will discuss demand trends and the status of our operations amid the many complexities driven by the COVID-19 pandemic, and Jeff will discuss financial details. This conference call is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded, or broadcast without our expressed permission. A replay is available from the IR portion of Leggett’s website. We posted to the Investor Relations portion of the website yesterday’s press release and a set of PowerPoint slides that contain summary detail of the key information we are sharing with you this morning along with our regular quarterly financial information and 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 in the sections in our most recent 10-K and subsequent 10-Q entitled Risk Factors and forward-looking statements. I’ll now turn the call over to Karl.

Good morning and thank you for participating in our second quarter call. As we reported yesterday, second quarter sales were $845 million, down 30% versus the second quarter of 2019. EBIT decreased in the quarter versus second quarter last year, primarily due to lower demand. A noncash goodwill impairment charge in our Hydraulic Cylinders business reduced second quarter EBIT by $25 million. EBIT was further reduced by approximately $3 million of restructuring charges incurred primarily from pandemic-related cost reductions. Second quarter earnings per share were a $0.05 loss, including $0.19 per share from the impairment charge and $0.02 per share from the restructuring. Adjusted EPS was $0.16, down from $0.64 in 2019. Our second quarter results were significantly impacted by the COVID-19 pandemic. We were pleased to see sales improve sequentially throughout the quarter as demand improved in most of our markets. The swift cost reduction actions implemented at the onset of the pandemic helped to mitigate some of the earnings impact from lower demand levels. We continue to experience demand recovery throughout July, although at varied rates across our markets and geographies, given the ongoing effects of the pandemic and continuing economic uncertainty. We have improved our liquidity, and we continue to carefully manage our cash and balance sheet. We also reported yesterday that our Board of Directors declared a $0.40 per share third quarter dividend. We recognize the importance of the dividend to our shareholders and our liquidity supports this decision. Our first priority remains the health and safety of our employees and their families, along with our customers and suppliers, and the communities we serve around the world. As Mitch will describe in more detail, we are focused on creating a safe work environment. I am extremely proud of how our employees are working together to keep each other safe and healthy while serving our customers during this challenging 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. Our capabilities are unmatched in our large and expanding addressable markets. The diversity of our businesses makes us stronger. We have an outstanding track record of strong cash flow, and we remain committed to our long-standing transparency and financial discipline. We are dedicated to our long-term vision for the company, and we are confident that we will emerge from this crisis strong and focused on the future. I’ll now turn the call over to Mitch.

Thank you, Karl, and good morning, everyone. As mentioned, sales in the second quarter were down 30% versus the second quarter of 2019, with demand improving each month throughout the quarter. April sales were down over 50%. May sales were down almost 30%, and June sales were down just over 15%, all versus the prior year. We continue to see sequential improvement through the first three weeks of July with sales near prior year levels. As demand improved through the quarter, we ramped up most of our operations, implementing safety protocols, bringing employees back to work and tackling supply chain challenges. Given the ongoing uncertainty in the global economy, we remain focused on keeping our variable cost structure aligned with current demand levels. As we discussed last quarter, we reacted quickly to reduce our fixed costs. These actions reduced our second quarter cost by nearly $40 million. At current demand levels, we now expect full year fixed cost savings of approximately $100 million. This is lower than the previous estimate of $130 million to $150 million as demand recovered faster and more robustly than expected in several of our markets. Sales in our Bedding Products segment were down 28% in the second quarter. The reopening of brick-and-mortar retail locations and continuing strong e-commerce demand drove sequential improvement throughout the quarter with April sales down 54%, May sales down 20%, and June sales down 14% versus prior year. The sequential demand improvements have continued in July with sales up 1% through the first three weeks of July. Demand in the U.S. bedding market continues to be strong, sales in both U.S. Spring and ECS were positive year-over-year in June and through the first three weeks of July. Sales in our Specialized Products segment were down 47% in the second quarter. We saw sequential improvements in this segment throughout the quarter as automotive OEMs restarted production in Europe and North America and production in Asia continued to improve. During the quarter, segment sales were down 63% in April, 54% in May, and 29% in June versus 2019. The sequential demand improvements have continued with sales up 13% through the first three weeks of July. In our Automotive business, all regions are operational at varied levels of capacity. Our Asian facilities are operating at 90% of capacity. Our North American facilities are operating at 80% of capacity, and our European operations are at 70% of capacity. European and North American OEMs restarted production in May, and demand has increased sharply. North American sales have been driven by demand for trucks and SUVs. We are very pleased to see a recovery from the steep declines in April and May, but we are closely watching global demand trends as the economic impact from the pandemic remains unpredictable. Market demand in both Aerospace and Hydraulic Cylinders held up initially but declined in the later part of the quarter. We expect that Aerospace demand will remain weak for some time given the many challenges in the industry. Demand signals for Hydraulic Cylinders are somewhat mixed at this point, but we are preparing for lower sales in this market as well. Sales in our Furniture, Flooring & Textile Products segment were down 22% in the second quarter. This segment initially was less impacted by the pandemic than our other segments, primarily because of the strong demand in our Geotextiles Components business. Fabric Converting and Flooring products also held up well, and Home Furniture improved as the quarter progressed. Recovery in Work Furniture has lagged the other businesses in this segment. Industry demand in this business may be challenged for some time as work environments change to meet evolving expectations of employers and employees. For the total segment, April sales were down 40%, and May sales were down 22%, and June sales were down 7% versus the prior year. The sequential demand improvements have continued in July with sales up 7% for the first three weeks. Looking forward, our operational priorities for the third quarter are increasing production to meet strong bedding demand, tackling widespread labor shortages, especially in the U.S., managing supply chain issues associated with the global shortage of nonwoven fabrics stemming from a surge in demand for medical PPE applications, and ongoing government restrictions on production in Mexico and India, and monitoring changes in demand signals and responding rapidly to control costs and optimize cash flow. We developed a layered approach to manage the impact of the COVID-19 pandemic in order to effectively reach all levels of the company. We focused on four primary workstreams: safety and social distancing, communications, training and visual management, manufacturing layout and governance and compliance. As cases around the world continue to increase, we also have seen an increase in confirmed COVID cases in our facilities. Contact tracing indicates that while employees are contracting the virus in their local communities, our safety protocols are effective at preventing transmission of the virus among our employees at work. The health and safety of our employees is our number one priority, and I’m pleased that our efforts are paying off. To our employees, I sincerely thank you for your dedication, ingenuity, and resilience. The global pandemic has forced us to alter the ways we operate and interact with each other, our customers, and our suppliers. You have found creative new ways to make it work. I know it makes your jobs more challenging on top of all the uncertainty that the pandemic brings to our personal lives. I’m incredibly proud of how we have pulled together across our businesses and corporate functions to overcome these challenges. Thank you very much for all your efforts. I’ll now turn the call over to Jeff.

Thank you, Mitch, and good morning, everyone. Throughout the second quarter, our primary financial focus has been on maximizing liquidity, generating cash, and disciplined uses of cash. In early May, we amended our revolving credit agreement to change our financial covenant to a 4.75 times net debt to trailing 12-month EBITDA metric. This change increased the availability under our revolving credit facility, which serves as the backup for our commercial paper program. As of June 30, our net debt to trailing 12-month EBITDA, as defined in our revolving credit facility, equated to a maximum borrowing capacity of $1.2 billion. On June 30, our total liquidity was $1.3 billion and was comprised of $209 million in cash on hand and $1.1 billion in available capacity under the revolving credit facility. Cash from operations was $112 million in the second quarter, a decrease of $60 million versus second quarter of 2019, primarily due to lower earnings. We continue to monitor all elements of working capital in order to optimize cash flow. Our primary focus is on customer collections. As an example, by the end of the second quarter, the level of our accounts receivable and current status had improved and were consistent with pre-COVID-19 levels. We’re also taking steps to carefully control inventory levels as demand improves. Adjusted working capital as a percentage of annualized sales was 15.4% at the end of the quarter, which reflected a combination of very weak sales early in the quarter and working capital increases later in the quarter to support demand improvements. Regarding our uses of cash, we continue to expect our capital expenditures to approximate $60 million for the year. Dividends should require approximately $210 million for the full year. Our scheduled debt repayment for the remainder of the year is $25 million, and we’re limiting our acquisition activity. In connection with our annual goodwill impairment testing, we recognized a $25 million goodwill impairment of our Hydraulic Cylinders business. The impairment was primarily driven by the anticipated longer-term impacts of the global pandemic and was a complete write-off of the goodwill associated with this business. The goodwill impairment also resulted in an unusually high tax rate in the second quarter. This noncash expense is not deductible for tax purposes. After the impact from the impairment and the restructuring charges, Karl discussed earlier, our second quarter adjusted tax rate is approximately 29%. So in summary, we remain committed to maintaining our strong balance sheet, investment-grade credit rating, and our position as a dividend aristocrat. We continue to take the necessary steps to maximize liquidity and financial flexibility as we navigate the current economic challenges. With those comments, I’ll turn the call back over to Susan.

That concludes our prepared remarks. We thank you for your attention. Karl will direct our Q&A session, and the group will be guided to answer your questions. Maria, we’re ready to begin Q&A.

Thank you. Our first question is from Bobby Griffin from Raymond James. Please proceed with your question.

Good morning, everyone. Thank you for taking my questions. I hope everybody stands safe. Cassie and Tarah, congrats on your promotions. And Wendy, congrats on the next role. I’m going to miss working with you, but happy for you on a personal level. I guess the first question I had, Karl, maybe was on a production and capacity side of things. We’ve heard from some other industry players that capacity was an issue as demand ramped back up pretty quickly during the quarter. Can you maybe talk a little bit about your capacity? Does that hinder growth or sales growth in 2Q? And kind of where are you at a capacity standpoint and backlog standpoint as we look at 3Q?

Good morning, Bobby, thanks for the question. I think that you’re specifically asking in the area of the U.S. Bedding business. So we’ll go down that path that as you know, when things got so soft in April, we pulled down production and were working off of inventory and then the second week of May, we started to see a surge of bedding demand in the U.S., not knowing if it was stimulus related or if it was a buildup to Memorial Day; at that point, we didn’t know if it was a head fake, to be honest with you. The demand has continued to be extremely strong. A noteworthy data point in the month of June is that we shipped more innersprings that month than any month in Leggett’s history, which is remarkable considering the backdrop. But regarding where we sit from a production capacity and the related issues, Mitch, why don’t you take the details, if you don’t mind?

Yes, Sure, Karl. I’m happy to. And good morning, Bobby. We’re certainly doing everything we can to meet demand. As Karl said, I think demand is outpacing the overall capacity in the industry. So we’re running at full capacity. But there are a few challenges that I think we, as well as, I think everybody, are facing. The first is labor. There’s general availability across the U.S., especially as we try to ramp up second and third shifts, as well as the loss of employees due to quarantine in communities with large COVID outbreaks. We’ve seen this particularly in parts of Georgia, Missouri, Texas, and California. Right now, we seem to be doing a little bit better in that area, but it’s a constant battle for us. The other significant issue that I think the industry faces is the availability of nonwoven fabrics. As I mentioned, the diversion of spunbond to medical PPE has had a big impact. While there are alternatives, like needle punch, they are more expensive, slower to run, and the availability of these fabrics is still constrained. I think this problem is likely to persist for a while, probably well into next year. And with demand outpacing supply, we can expect nonwoven prices to increase further. Lastly, it’s important to note the government restrictions in certain parts of the world. Today, Mexico is constraining our production capacity in a couple of our plants, impacting, particularly automotive and adjustable beds. Also, some impact in India regarding automotive and PHC. So, we’re running full-out, but we face some challenges to deal with on a day-to-day basis.

Yes, Bobby, to add a little bit to that. I don’t think that it had a significant impact on 2Q. It might have slightly impacted the last week or so, but it definitely impacted July. Our people are being pressed and doing a fantastic job under really difficult circumstances, trying to communicate effectively on a daily basis. But I see it more as a 3Q issue than it having been a 2Q issue.

Okay. That’s very helpful. That was actually part of my follow-up. It would be safe for us to think about the July data that you gave us, Mitch, and think that overall order growth is likely running above the overall reported sales growth that you talked about in Bedding, just given that production catch-up that’s taking place?

Yes, that's right.

Okay. And then when we think about the pricing of the nonwoven fabrics, we’ve always talked about price in the past regarding steel-related aspects. How significant is the nonwoven fabrics and kind of the cost of an innerspring? And then is the price increase that you’re going to pass through to customers? Is it substantial enough to move the needle that we should account for when we think about second-half revenue for the Bedding segment?

So I think you probably saw our price increases are up about 15% to 16% due to the nonwovens. So there’s some impact, but I wouldn’t say that it’s overly material. We do see continued pressure on nonwoven pricing, and it’s not out of the question that we would have to pass that through, again, later in the year. However, I don’t think it’s a massive inflationary impact for us, Bobby.

Okay, very helpful. I’m going to jump back in the queue, but I appreciate the details.

Thank you, Bobby.

Thank you. Our next question is from Susan Maklari with Goldman Sachs. Please proceed with your question.

Thank you, good morning. And I have to say, Wendy, we’ll miss you, but good luck to Cathy and Tara. We’re excited to work with them as well. My first question is just, can you talk a little bit about the inventories in the end markets? It sounds like things are extremely low when we think about bedding and autos. But can you just give us perhaps some insights on what you’re seeing there? And how you’re thinking about being able to supply that inventory given all these constraints that you’re seeing?

Yes. Susan, I’ll start. In Bedding, inventories don’t exist. We have a very good customer who emailed Mitch and me this morning that said we understand the supply chain issues. I can sell every mattress I can get my hands on. So, it’s in my history that I haven’t known of a consumer walking into a retail environment or buying the product in an omnichannel environment and not getting instantaneous gratification from a mattress perspective. What our customers are telling us is that there are no cancellations of orders; the consumer is forgiving and understands the environment we’re working in. Simply put, there’s significantly more demand than there is supply. To Mitch’s point, we’re working daily to try to mitigate that. It’s a good problem, but a bit painful for our people every day. On the Automotive side, Mitch or Steve, do you want to handle that inventory question?

Sure. This is Steve. Good morning, Susan. Yes, from an Automotive perspective, the last information we have is from June, and the June inventory numbers were just about 2.6 million units or 58 days supply. So, well within the range of the targets, actually towards the lower end. And that’s down about 1.3 million units from June of last year or about 30% to 33%. These declines happened despite the U.S. sales in May falling 26%. So, what’s kind of happened is the COVID factory shutdowns have helped self-correct the inventory levels in about two months. As Mitch was mentioning in his comments, some models, particularly trucks and SUVs, require more production to increase the availability of those products, and the dealer lots are becoming fairly limited in supply.

Okay. And following up on that, I have a slightly higher-level question. We’ve obviously seen a lot of stimulus that came through over the second quarter. How are you thinking about – or have you heard anything from your customers on how perhaps that has impacted the demand that we’ve seen? And obviously, with all the conversations happening today in Washington around the next level of stimulus activity and the potential that maybe there’s a gap that comes in there. How are you thinking about what that could mean for demand? And this level of activity that you’re seeing today?

Susan, it’s a great question, but it’s a pure speculation answer. Certainly, as I said, we saw a quick pickup when the stimulus checks were initially cut, and thought that it was stimulus-driven, but our customers are telling us that the demand has continued so aggressively that they believe it is not wholly driven by stimulus. It’s driven by a consumer, particularly in our Bedding and Home Furniture markets, who is very much focused on the home. Interestingly, if you look at historically, consumer spending on travel and entertainment, that’s $1 trillion of spending that isn’t finding a home right now. So, that includes cruise lines, airfare, movie theaters, and similar. Hence, the consumer is focusing on their home, and we believe that bodes really well for the future. The question we can’t answer is regarding the challenges or dysfunction in Washington. What happens with extraordinary unemployment? And does that start to slow demand? We haven’t seen any of that yet. We think that the home focus is driving that consumption but frankly, we just don’t know. That’s part of why we don’t give guidance. We appreciate every order we take and the respective margins it provides for our employees' safety of job, but the visibility into the future is really tough to forecast.

Yes. Okay. I appreciate that. Your thoughts are helpful there. Thank you, Karl.

Our next question is from Peter Keith with Piper Jaffray. Please proceed with your question.

Hi, thanks, everyone, and congrats to Wendy as well and to the others on the team with the promotions. Karl, I know you said it’s hard to forecast the future. So of course, I’m going to ask you a question about forecasting into the future.

I thought you were going to give me answers, Peter.

Probably more on a qualitative basis, though. So just thinking about a COVID backdrop that could be around us for the next year. I’m curious about the segments within your business that you think are benefiting from COVID-related spending. I think you referenced the home. If you could elaborate on areas where you see some positive activity that could be sustained, and then conversely, you mentioned a bit in the prepared remarks around extended weakness in the Work Furniture and Aerospace segments. Are there any other areas that we might be overlooking that could also be negatively impacted in the medium term?

Peter, I’ll address the positives, while leaving Mitch with the negatives. The positives continue to be global bedding, and we’re seeing some more recent uplift in Europe. So, those home focus areas are not just North American centric; they are global. I believe bedding and home furniture will do well, and we expect positive trends in the housing statistics for our Flooring business. The Hanes businesses in both Geo Components and on the Converting side are highly correlated to home focus, which includes some PPE manufacturing. Those businesses are projected to continue to perform well into the future. However, there may be a little bit of a head fake for some of you in that if you think of our Bedding segment, you might think of it as primarily U.S. Spring and ECS while the segment is much broader and includes some industrial materials business which is soft. We expect that to continue to remain soft. Mitch, I may have missed some positives there, so feel free to add your notes regarding the negatives.

Okay. Thanks, Karl. Hi Peter, I think you highlighted a couple of the positives. I believe that the automotive segment is somewhere in between—certainly recovering from the lows we saw in the second quarter, and we’re pleased to see that. As you noted, our Aerospace business is likely to remain challenged as that industry sorts through its many difficulties. It’s a relatively small part of our overall business, and it’s highly nimble and diverse across our customer base, so we’ll remain adaptable. In the Work Furniture segment, we’ll see less extreme declines in demand but will lag in returning to the levels we’ve seen in previous years. Our sales in this sector encompass both traditional office furniture and collaborative seating. Hence, we’ll see how that plays out with people adjusting their work both at home and in the office. We’ll monitor our cost structure in response to shifts in demand.

Okay. That’s helpful, guys. I wanted to dig a little bit into the segment performance in July. The Furniture Flooring & Textile sales growth of up 7% seems quite strong in light of the continued weak performance in the Work Furniture business. So, can you clarify what’s driving that strong growth while addressing the ongoing weakness?

In bedding, Peter, a lot of it comes down to the entire segment and the negative impacts associated with the industrial divisions, such as wire and rod sales, which remain a challenge. We still haven’t fully anniversary our exit from the Consumer Products business, meaning the comparisons are still broad-based versus prior years. We believe that consumer-focused bedding businesses included in the bedding segment are performing significantly better than the segment totals would indicate. Mitch, do you want to provide extra insights on the other segments or add commentary on bedding?

Yes, just to clarify on bedding, the rod trade and wire trade sales have negatively impacted our overall segment. Remember that we exited the Fashion bed business last year, which has also been a drag. Turning to the Furniture, Flooring & Textile segment, yes, you are right, while Work Furniture is lagging, our Home Furniture has bounced back strongly, and Flooring has held up very well, driven significantly by the strength of our Hanes Converting and Geo businesses. So, the overall segment has exhibited enough strength to more than offset the struggles we continue to see in Work Furniture.

Okay. Sounds good, guys. Thanks a lot for all the insights.

Thank you, Peter.

Our next question is from Susan Maklari with Goldman Sachs. Please proceed with your question.

Thank you, again. Can you talk a little bit about what you’re seeing on scrap steel, raw materials in general? Obviously, for ECS, we saw oil come down tremendously in the second quarter. It has come back a bit, though. Just across some of your major raw material inputs, what you’re seeing there? And how we should think about that for the back half of the year?

Yes, sure. Susan, I think not a whole lot of impact. I think scrap and rod pricing has moved up and down a bit but is relatively stable, and we don’t foresee any significant impacts right now. Regarding chemicals, there was some weakness in the second quarter. The major producers are attempting to push through price increases, but I’m hopeful that they won’t significantly impact us either way—perhaps we’ll get back to levels we saw in the first quarter. We’ve previously discussed the shortage of nonwovens and the increased pricing there; that’s likely the most significant inflationary factor impacting us at present.

Okay. And one more question. With all these moving parts that you are seeing, are there any changes in how you think about the incremental or decremental margins for the third quarter across the different segments? Anything to note as we look ahead?

No, Susan. You know the answer differs depending on the business unit or, frankly, even segment. Recovery in automotive is a strong plus for us. The strength in bedding is another advantage. Incremental and decremental margins are still in the 25% to 35% range depending on the business unit.

Yes. I mean, they held up really well, especially in your furniture segment, which was great to see. Good to know we’re still targeting those levels. Thanks.

Thanks for mentioning furniture. Our team truly went above and beyond to restructure our home furniture business last year effectively. And while sales have been somewhat negatively impacted year-on-year, the comparison headwinds have significantly lessened. They indeed did exceptional work that showed up at the bottom line. Thank you for acknowledging that.

Our next question is from Bobby Griffin with Raymond James.

Good morning, everyone. A couple of follow-up questions. One, Jeff, when we think of it from a high-level perspective, with the cost takeout identified around $100 million, maybe about $60 million in the back half, we understand that a lot of that depends on demand fluctuations. If we hypothetically consider that demand recovers back to prior year levels, how much of those cost takeouts could potentially be permanent versus those that would need to be reinstated?

Good morning, Bobby, and thanks for the question. First of all, the team has done a tremendous job, as Karl and Mitch highlighted, in stabilizing our cost structure with actions taken back at the end of the first quarter. As we look forward, it’s difficult to provide a numeric estimate, but we are working diligently to maintain as much of those cost savings as feasible, even if demand stabilizes in future quarters. While the term 'permanent' is challenging to use in this volatile environment, we assure you we are committed to disciplined cost containment and aim to retain as much savings as we can.

Okay, that’s helpful. And then secondly, Mitch, I want to follow up on the capacity and bedding comments to ensure clarity. Will the capacity constraints cause that revenue to decelerate in 3Q, or conversely, do you expect that business unit’s revenue to accelerate as you catch up on capacity through the third quarter?

Yes, I think it’s the latter, Bobby. We’re overcoming the challenges and finding ways to resolve them. We are actively working to onboard more labor and coordinate effectively with our customers concerning production schedules. So, I believe we will continue to accelerate assuming demand trends remain healthy.

Okay. And the growth you’re seeing in bedding—is it broad-based across customers? In the past, we’ve seen some larger customers do well while others have lagged behind; is the July demand pickup fairly broad-based?

Yes, I think it’s very broad-based across customers and channels, really across the entire industry.

Okay. That’s all very helpful. I appreciate you all. I’ll jump back in here. Best of luck in 3Q.

Thank you, Bobby.

Our next question is with Peter Keith of Piper Jaffray. Please proceed with your question.

Yes. One last question for me, and it may go to Wendy, who has always been my go-to on this subject, regarding the antidumping and countervailing duty investigations. Could you provide us with updated thoughts on the timeline for the following months? Assuming the Department of Commerce applies some duty rate, when might you foresee your domestic bedding business beginning to realize benefits from that?

I’ll jump in. Peter, we don’t expect the timeline to change. Hence, we would still foresee a preliminary duty order sometime in mid- to late October for the preliminary antidumping duties. Considering the 90-day lookback period the Department of Commerce has, where they have the authority to survey imports, this puts mid- to late July in view. Therefore, I expect the import numbers commencing in July to be much lower than the monthly figures we’ve seen over the past several months. For example, we still saw over 0.5 million mattresses come in from those seven countries in May. So, you should notice those numbers declining starting with the July import reports.

Yes. Thank you, Wendy. To add to that, we are already observing impacts. It’s important to note that the majority of the mattresses are foam-based, and ECS is quite busy. Some of that is due to abnormally strong domestic demand, and some is driven by demand as those products come back onshore.

Our next question is from Judy Merrick with SunTrust. Please proceed with your question.

Thanks. This is Judy on for Keith Hughes. I was just wondering if you had any additional commentary on the automotive outlook, anything you've gathered? You shared the capacity statistics with Asia being higher. What additional insights could you offer regarding auto forecasts?

Good morning, Judy. Steve, if you don’t mind, could you elaborate on that for us?

Good morning, Judy. We don’t have the visibility we’d prefer moving forward. In Q3, we are observing continued increases in demand, but looking out into Q4 and beyond, we rely on industry experts like IHS, which is stating that we’ll keep seeing recovery through Q3 and Q4 to around 90% of normal (2019) levels. This recovery should persist into 2021, with forecasts indicating a rise of approximately 13% over 2020 figures. Hence, although improvement is anticipated, it will take several years to recover fully to 2019 levels. On a positive note for our business, the models in highest demand also have the most substantial content, which is advantageous for Leggett in the long-term. Industry trends surrounding sustainability and the transition to electric and autonomous vehicles remain relevant; however, some timelines have shifted. In conclusion, while industry recovery is likely, our strategies and product development efforts seem well-positioned to meet customer demands.

Okay, that’s helpful. Thank you.

There are no further questions at this time. I would like to turn the floor back over to Ms. McCoy for closing comments.

I just wanted to thank you all for joining the call today, and we’ll talk to you next quarter. Thanks.

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.