Leggett & Platt Inc Q4 FY2023 Earnings Call

Greetings, and welcome to the Leggett & Platt Fourth Quarter and Full Year 2023 Webcast and 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Cassie Branscum, Vice President of Investor Relations for Leggett & Platt. Please go ahead.

Good morning, and welcome to Leggett & Platt's fourth quarter and full year 2023 earnings call. With me on the call today are Mitch Dolloff, President and CEO; Ben Burns, Executive Vice President and CFO; Steve Henderson, Executive Vice President and President of the Specialized Products and Furniture, Flooring & Textile Products segment; Tyson Hagale, Executive Vice President and President of the Bedding Products segment; Susan McCoy, Director of IR Special Projects; and Kolina Talbert, Manager of Investor Relations. The agenda for our call this morning is as follows: Mitch will start with a summary of the main points we made in yesterday's press release and discuss operating results and demand trends. Ben will cover financial details and address our outlook for 2024, and the group will answer any questions you have. This conference call is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our express permission. A replay will be available on the Investor Relations section of our website. We posted to the IR section of our website, yesterday's press release and a set of slides that contain summary financial information along with segment details. Those documents supplement the information we discuss on this call, including non-GAAP reconciliations. 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 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 Mitch.

Good morning, and thank you for joining our call. First, I want to acknowledge Susan McCoy, as this will be her final earnings call before her retirement at the end of March after 38 years with the company, including 22 years in Investor Relations. Susan has made significant contributions to Leggett, greatly enhancing the IR function that has benefited both the company and the investment community over the years. Thank you, Susan, for your service, and congratulations on your retirement. As part of a well-planned succession, Cassie Branscum will step into the lead role as Vice President of Investor Relations starting in 2024. Cassie joined our IR team in 2018 after holding various positions in the company since 2005. Her strong financial skills and extensive knowledge of Leggett will serve us well as she leads the IR function moving forward. 2023 proved to be another challenging year, especially in our residential end markets. Our employees demonstrated resilience by achieving notable milestones, including crafting a restructuring plan for our Bedding Products and Furniture, Flooring & Textile Products segments. These initiatives will enhance our operating efficiency and profitability while ensuring we maintain high quality products and services for our customers, generating strong cash flow with a continued emphasis on managing working capital, and progressing our efforts in sustainability data collection to establish baseline metrics and goals for our 2024 report. I appreciate your ongoing dedication to each other at Leggett & Platt. We have made some tough yet necessary decisions to secure the company’s long-term success. I sincerely value your continuous support and thank you for your commitment every day. Now, before we discuss our fourth quarter and full year 2023 financial results, I want to outline the restructuring plan we announced on January 16, primarily affecting our Bedding Products segment. We are taking steps to become a more focused and agile organization with a product portfolio aligned to meet market demands and an operational footprint that corresponds with the markets we serve. These initiatives build on existing work to better prepare our bedding business for the future. Optimizing our bedding manufacturing and distribution capabilities will generate significant one-time costs and future EBIT benefits from this plan. Most of these actions will occur within our U.S. Spring and specialty foam businesses. Over the next few months, we will be gradually closing operations at smaller U.S. Spring distribution sites and expect to shift innerspring production to four higher-output facilities throughout 2024. In Specialty Foam, we will consolidate several manufacturing operations and increase product synergies between specialty foam and innersprings, particularly for private label and OEM hybrid mattress production over the next 18 months. The combination of our larger manufacturing facilities and an optimized distribution network will enable us to manufacture and distribute products more efficiently, thus serving our customers more effectively. While we are scaling back capacity in some product categories to reflect changing consumer preferences, we will still maintain enough capacity to provide our customers with the essential products they need as market demand rebounds to more typical levels. The sales reductions from these initiatives largely stem from discontinuing the production of specific commodity bedding products in certain areas. Additionally, we are consolidating a small number of production facilities in our home furniture and flooring products businesses within the Furniture, Flooring & Textile Products segment. The home furniture consolidation is in progress and will be completed in the first half of 2024. The flooring products consolidation is also underway, but will likely carry into 2025 due to the complexity of moving various product lines among locations. These efforts align our capacity with regional demand and promote operational efficiencies. In relation to the restructuring plan, we are pausing our total shareholder return goals and financial targets, which includes revenue growth, EBIT margin, and dividend payout ratio. We will release revised financial targets in the future when we implement our restructuring initiatives and gain clearer visibility over further opportunities that may impact our long-term performance. Moving on to our fourth quarter and full year 2023 results. Fourth quarter sales were $1.1 billion, down 7% compared to the same quarter in 2022. Continued weak demand in our residential end markets was somewhat mitigated by stronger demand in our automotive, aerospace, and hydraulic cylinders sectors. The EBIT for the fourth quarter was a loss of $367 million, primarily due to a $444 million non-cash intangible asset impairment charge related to our ECS and other acquisitions, mainly concerning customer relationships, technology, and trademark intangible assets. Prolonged weak demand and market fluctuations have caused disruption and financial instability for some of our customers, leading to recent actions to enhance their financial standing, which is likely to diminish our future sales and earnings. This situation prompted a review of our intangible assets, resulting in the impairment charge for the fourth quarter of 2023. Adjusted EBIT for the quarter was $66 million, a decrease of $25 million from the fourth quarter 2022, mainly due to reduced metal margins in our Steel Rod business and falling volumes in our residential markets. The earnings per share for the fourth quarter was a loss of $2.18 due to the factors discussed in yesterday’s press release. Excluding those items, the adjusted EPS for the fourth quarter was $0.26, reflecting a 33% decline from the fourth quarter 2022 EPS of $0.39. For the full year, 2023 sales fell 8% to $4.7 billion, largely due to weak demand in the residential end markets and decreases in raw material prices, partially counterbalanced by acquisitions and stronger demand in industrial sectors. EBIT went down by $575 million, predominantly from the intangible asset impairment of $444 million. Adjusted EBIT decreased by $151 million to $334 million, mainly because of metal margin compression and declining volumes in residential markets. The full year EPS reported a loss of $1, while adjusted EPS was $1.39, which is a 39% drop from the 2022 EPS of $2.27. Cash flow from operations was $497 million, an increase of $56 million compared to 2022. Now, looking at our segments. The U.S. Bedding market remains in a severe recession, with mattress consumption levels similar to those seen in 2016. We estimate that U.S. mattress consumption in 2023 was down by high-single digits compared to 2022, and we anticipate mattress demand in 2024 will be stable or slightly decrease relative to the prior year. Imported finished mattresses are adding further pressure on U.S. production amid this period of low demand. Sales in our Bedding Products segment were down 14% from the fourth quarter of 2022 and fell 17% across the full year. Volume in U.S. Spring dropped 12% in 2023, while ComfortCore's performance matched overall mattress market trends. We expect 2024 volume in U.S. Spring to decline modestly, primarily due to expected sales losses from the restructuring plan and additional reductions in lower-value Open Coil layer springs and wire grids. However, these declines should be partially offset by growth in ComfortCore innerspring units, including developments in our new combination pocket and eco-based products. In 2023, metal margins decreased slightly more than anticipated, mainly due to product mix. We expect modest declines to continue in 2024. To remain competitive with global steel costs, we made adjustments to both contract and non-contract innerspring pricing in the latter half of 2023, with pricing impacts beginning in the fourth quarter and expected to be fully realized in 2024. Specialty Foam volume is forecasted to decrease by high-single to low-double digits in 2024, mainly as a consequence of customer actions that led to the earlier impairment charge. These effects are anticipated to unfold throughout the year. We project that 2024 adjusted segment EBIT will be slightly lower year-over-year due to reduced volume, price adjustments related to global steel cost differentials, and moderate metal margin compression, only partially offset by approximately $45 million in decreased amortization from the intangible asset impairment recorded in the fourth quarter of 2023. Despite the current challenging market conditions, the steps we are taking aim to strengthen our Bedding business for long-term success as we optimize operational efficiencies and continue to deliver valuable product solutions for our customers. In our Specialized Products segment, sales rose by 5% compared to the fourth quarter of 2022 and increased by 14% for the entire year. In our automotive sector, the impact of the UAW strike on fourth quarter sales was around $5 million, and we do not foresee any ongoing effects from the strike in 2024. We continue to experience fluctuations in certain regions due to geopolitical and supply chain factors. We anticipate growth in 2024 and expect to outperform global automotive production, mainly due to new program launches throughout the year. Demand for our aerospace products is expected to remain strong in 2024 with commercial aerospace backlogs at record levels. Anticipated industry production for 2024 is projected to be slightly above pre-pandemic levels. In hydraulic cylinders, demand in the U.S. remains robust, with backlogs supporting growth at least through the first half of 2024. However, domestic growth could be offset by a decrease in demand in Europe. We expect segment EBIT in 2024 to be stable compared to 2023, as anticipated volume growth may be balanced out by reduced benefits from a contingent purchase price liability adjustment linked to last year's acquisition. Sales in our Furniture, Flooring & Textile Products segment declined by 6% in the fourth quarter of 2022 and fell by 11% for the full year. Demand in home furniture has been sluggish. We predict 2024 will mirror the previous year with improvements in low-end market demand, countered by continuous weakness in mid to high-end market demand. Demand for Work Furniture remains low in both contract and residential markets, and we expect 2024 demand to align with 2023. In Flooring Products, we expect another year of reduced residential demand due to stagnant existing home sales and renovation activity. Hospitality demand is gradually improving but remains significantly below pre-pandemic levels. After experiencing weaker than expected demand in 2023, we anticipate that Geo Components demand will increase over the year, particularly in infrastructure and commercial spending within civil construction markets, while retail sales are expected to remain flat. For 2024, we project adjusted segment EBIT will experience a modest year-over-year decline due to lower volume and moderate pricing pressures from deflation. Our primary earnings challenge continues to be low volume levels in residential end markets. In the short term, we are concentrating on improving operational efficiency across all our businesses, driving cash flow, and executing our restructuring plan. We are confident that, over the long term, our revamped bedding strategy will drive key product growth, enhance profitability, and create greater value for our customers and shareholders. I will now turn the call over to Ben.

Thank you, Mitch, and good morning, everyone. In 2023, we generated cash from operations of $497 million, $56 million higher than the $441 million we generated in 2022. This increase reflects a continued focus on working capital management, partially offset by lower earnings. We ended the year with adjusted working capital as a percentage of annualized sales of 13.9%, a notable improvement from 2022. Consistent with our near-term priorities of managing cash and reducing debt, we did not complete any acquisitions and had minimal share repurchases in 2023. Major uses of cash in 2023 were $114 million of capital expenditures, reflecting a balance of investing for the future while controlling our spending. $239 million for dividend payments, extending our record of consecutive annual dividend increases to 52 years and $107 million to reduce debt. We ended the year with total debt of $2 billion, including $186 million of commercial paper outstanding. Net debt to trailing 12-month adjusted EBITDA was 3.16 times at year end, in line with the third quarter and consistent with our expectations. We monitor our debt leverage and liquidity closely. As a reminder, our covenant calculation is more favorable than our publicly reported leverage ratio, and we expect that favorable difference to expand in 2024. Total liquidity was $697 million at year end comprised of $365 million of cash on hand and $332 million in capacity remaining under our revolving credit facility. As we anticipate weak residential end market demand again this year, we are focused on maintaining our investment grade credit rating and managing debt leverage while balancing continued investment in our business for future growth and our dividend track record. We continue to focus on managing working capital and identifying other opportunities to generate cash. In 2024, we expect pre-tax proceeds of $20 million to $30 million from real estate sales, consisting of idle real estate that we are actively marketing and to a lesser extent, real estate that we will be exiting as a result of our restructuring initiatives. We expect to predominantly use our commercial paper program to repay $300 million of 3.8%, 10-year notes maturing in November. Now moving to the 2024 full year guidance. 2024 sales are expected to be $4.35 billion to $4.65 billion, down 2% to 8% versus 2023, reflecting continued weak demand in our residential end markets, partially offset by growth in automotive and our industrial end markets. Volume is expected to be down low to mid-single digits with volume at the midpoint, down high-single digits in bedding products, up low-single digits in Specialized Products and down low-single digits in Furniture, Flooring & Textile Products. Deflation and currency combined is expected to reduce sales by low-single digits. 2024 earnings per share expected to be in the range of $0.95 to $1.25, including approximately $0.20 to $0.25 per share of negative impact from restructuring costs and $0.10 to $0.15 per share gain from the sale of real estate. Full year adjusted earnings per share are expected to be $1.05 to $1.35 primarily reflecting lower volume, pricing responses related to global steel cost differentials, modest metal margin compression, and several expense items that were abnormally low in 2023 and are expected to normalize in 2024, including bad debt expense, a reduction to a contingent purchase price liability associated with the prior year acquisition, and incentive compensation. These decreases are partially offset by lower amortization from the 2023 intangible asset impairment. Based upon this guidance framework, our 2024 full year adjusted EBIT margin range is expected to be 6.4% to 7.2%. EPS guidance assumes a full year effective tax rate of 25% versus an adjusted rate of 24% in 2023. Depreciation and amortization of approximately $135 million, which is approximately $45 million lower as a result of the impairment taken last year. Net interest expense of approximately $85 million and fully diluted shares of $138 million. Cash from operations is expected to be $325 million to $375 million in 2024, as we expect fewer opportunities for working capital improvement year-over-year. We will continue to closely manage all elements of working capital. For the full year 2024, we assumed capital expenditures of $100 million to $120 million, dividends of approximately $245 million, indicating $1.84 annual dividend in 2024 versus $1.82 in 2023 and minimal spending for acquisitions and share repurchases as we focus on managing cash. In closing, I would like to thank our employees. Your continued efforts to drive value for our customers and shareholders while supporting and keeping each other safe is very much appreciated. With those comments, I’ll turn the call back over to Cassie.

Thank you, Ben. Operator, we're ready to begin Q&A.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everyone. I first want to congratulate Susan. It's been great working with you all these years, and you are going to be very missed. So congrats and best of luck in your retirement.

Thanks, Susan. I appreciate that. And we will definitely stay in touch.

Yes. So moving on to my questions. I've got a couple of them related to the restructuring that you've announced. And maybe to start with, can you talk a bit about how you think of the long-term dynamics of the Bedding industry? With all the different moves we've seen in the last three or four years or so, how did you determine the level of demand that you need to be sized to? How are those coming together and what are the sort of nuances of what you keep versus what you restructure out of the business, and how do you think about the go forward, I guess, of that operation?

Yeah. Good morning, Susan. Thanks for the question. I think the big picture for me is the restructuring is more than just thinking about our capacity. But Tyson, let me turn it over to you to share your thoughts.

Sure. Thanks. Good morning, Susan. I'll start by saying, and I know this is pretty obvious, but these are really difficult decisions, and we didn't take them lightly. And part of it is what Mitch said too; it goes beyond just capacity. I mean really if you think about how our business has been changing over several years, we've been changing our product lineup with the acquisition of specialty foam, how we've been pivoting to more semi-finished products, incorporating foam into our innerspring products as well, and a continued long-term shift from Open Coil to ComfortCore. So we've seen our product mix and what we're offering our customers change quite a lot over the last several years. So as we thought about the manufacturing part of the restructuring plan, also over the last several years, even during the pandemic. We've invested heavily in ComfortCore productive capacity and really efficient capacity. We've done the same thing at ECS after acquisition. We've been making investments there as well. So as we look at where the market is headed and what our customers really want in their products, we also still had some longer-term legacy capacity still in place from Open Coil in our innerspring business. So we've added the ComfortCore capacity and hadn't necessarily taken off as much of the good capacity as we needed to. So looking at that, we're not looking at today's market environment; we're at a really, really low point for U.S. mattress manufacturing. So we're not looking at today as the long-term needs. We really are looking at what we think to be the long-term trajectory of the overall market and more of a move towards ComfortCore and semi-finished products. So as we looked at just our overall footprint and our manufacturing capacity with what we've put into place, we saw an opportunity to go through the consolidations and still maintain our capacity and ability to flex up to whatever the market needs might be with our customers with just a smaller footprint, higher output facilities, and then also adjusting our distribution network to have fewer larger regional sites that will support our customers in a better way. So it's a long-winded answer, but really taking a lot of things into account and not necessarily walking away from active capacity, but more towards where we think the market is headed.

Okay. That's great color, Tyson. Thank you. And then I know that with the release a couple of weeks ago, you walked away from the long-term margin guide. But I guess, as you think about coming through this restructuring and being on the other side of it. How do we think about what that could mean for the margins, both within Bedding and then within Leggett just as a total, relative to where we are today, anything that you can sort of give us in terms of a general path there?

Yeah. I'll take that one, Susan. So great question. Yeah. I think the restructuring is certainly important for us. I think it resets us for sort of the more forward-looking market environment. And I don't mean that from a capacity standpoint, as Tyson said, we're really looking at sort of the normalized growth that we would achieve in bedding over the longer term. But beyond that, I think we have other actions that we can take and we are taking. The biggest one, of course, is volume. So when markets in residential end markets start to come back with volume, that has a huge, huge impact on the EBIT margins for the company overall. But beyond the restructuring, I think we have opportunities to continue to optimize our operating efficiency making sure that we are being as effective as we can, and that we are producing products and even in certain lines that are value-added to us. Continuing to recover cost impacts outside of just raw materials and whether that's through pricing actions or continuous improvement activities are just new product introductions that give us those opportunities as well. And then, I think it's always been a priority for us, but to continue to closely manage our corporate costs, making sure that they're aligned with services that are providing value and improving efficiency. As we always say, continuing to drive innovation and providing solutions for our customers to enhance our partnership with those key customers as well. And then finally, continuing to assess our portfolio management. So we see that there's opportunity for us to continue to drive improvement for the longer term across the company beyond just the restructuring. There's restructuring is certainly important; it's near-term focus, but we need to get to some visibility about the volume recovery, get more progress going on the restructuring and get some more insights into the benefits from some of these other items I mentioned, and then we'll get those targets back on the table. But certainly, we believe it's something that's important, and we're focused on it.

Okay. That's helpful. And then maybe I'll sneak one last one in for Ben. Everyone will get one this morning, which is, Ben, can you walk us through the change, when we think about the $500 million of operating cash flows from '23 relative to the $325 million to $375 million that you guided us to for this year? And then I guess with that too, when you think about the long-term cash generation of Leggett, where can that come together and how do we think about, again, what these changes will mean for the cash flow of the business?

Yeah. Good morning, Susan and thanks for the question. I appreciate it. Yeah. So our guidance for this year is $325 million to $375 million as compared to roughly $500 million in 2023. So I'd say, the biggest drivers there are the contribution that we had from improvements in working capital in 2023, which were really outstanding. Our teams did a great job and we drove over $100 million of working capital improvements. So that will be a contributor to cash flow in 2024, but it will be a much lower contributor because we've done such a great job. And just those opportunities are still there. We still think we have some pockets, but it will be a little bit smaller in nature. And then the second thing I'd mention is just the lower earnings with the volumes continuing to be lower, that's going to be another contributor to the lower cash flow this year. And then, the last thing is there's a little bit of a drag from the cash costs associated with our restructuring plan that will be a bit of a drag again on cash flow. If we think about from a longer-term perspective, I think it kind of goes back to the things Mitch and Tyson were just talking about with the actions that we're taking through, the restructuring and just other opportunities to drive operational efficiencies, those will really benefit us and especially as those volumes come back. I think Mitch just said it, but it's such a huge benefit to us with those incremental margins when those volumes are back to just normal levels or somewhere close to normal levels. So those are the biggest drivers. But I'd mention we’ll continue to manage our working capital really tightly and look for those opportunities to drive out costs and lower value items as well. But over the long run, I think that's kind of how I think about it.

Okay. All right. Well, that’s helpful color. Thank you, all, and I’ll turn it over.

Thank you. Our next question comes from the line of Bobby Griffin with Raymond James. Please proceed with your question.

Good morning, and thanks for taking my questions, and let me also echo a big thank you and congratulations to Susan on your retirement. It's been great working and getting to know you for the last 10 years.

Thanks, Bobby. I appreciate you, too.

Yeah. I guess first, maybe let's start off in the Bedding segment. Obviously, a lot going on here to unpack with the restructuring stuff. I guess the first aspect I wanted to talk about is just the difference in the performance of ComfortCore and I guess the Open Coil part of the business. And I'm asking more in kind of the context of, by my math, it looks like bedding innerspring volumes for Leggett versus 2019 are down, call it, mid to high-30s. And the industry collectively is down maybe mid-20s to high-20s, right? So there's a fairly big gap there in Leggett volumes versus industry volumes. And so I'm asking, are the Open Coil customers going elsewhere, sourcing differently? Like what is driving that gap? And then kind of when we look at the go forward, how do we think about this restructuring and how it impacts the business with your vertically integrated steel mill because I think volumes really need to run through that to make that profitable. So just kind of connecting all that aspect is the question.

Tyson, I’m happy to hand that over to you.

Sure. Thank you for the question, Bobby. I'll start with the Open Coil segment. We have observed a long-term decline in that category. Part of this is due to our customers transitioning from Open Coil to ComfortCore, which has contributed to the decline in Open Coil. There have also been some changes in sourcing options, particularly during the pandemic when supplies were limited. Additionally, there are differences in steel costs between the U.S. and Europe. We have seen growth in imported innerspring, especially at the lower end, along with the Open Coil segment. Another aspect not mentioned is the decline in wire grids, which is affecting our overall innerspring volume due to a shift in consumer preferences regarding foundation types. This shift also impacts the overall volume in our innerspring business. Regarding the rod mill, you are correct that volume is essential. As we witness the decline in Open Coil and wire grids, many of our ComfortCore products require more wire because they go fully to the edge, replacing some foam components. Therefore, even with fewer units, we are still seeing substantial tonnage. Currently, it poses a challenge since we are in a market situation with available capacity at the rod mill. However, we remain optimistic about our overall capacity utilization at Sterling due to market recovery and our efforts to diversify and enter some industrial markets.

I have a couple of follow-up questions on that, Tyson. Regarding the different sourcing options emerging in the industry, is there a way we can compete more effectively against these? Should we consider lowering our prices or introducing different product offerings to maintain our customer relationships? Additionally, I have a financial question. If the rod mill were to return to full capacity, what benefits would we see? What impact does the current partial capacity of the rod mill have on segment profitability?

Sure. Yeah. So to your first question, yes, I mean, our biggest job is to help our customers succeed. And so we want to make sure that we're giving them options to compete with especially just low-priced goods. So we will help them with VAV opportunities even on the low end, but also offering them different product options that help them compete there. I mean our restructuring effort is a big part of that as well. I mean us becoming more efficient utilizing our assets in a more efficient way in distribution is a large part to serve our customers better and help them succeed. So all of those things factor in. I mean, definitely around the innovation, trying to do the VAV work and just in the different options is a way to help offset some of those low price options. And then overall, I mean, not just in the rod mill, but running all the way through our vertically integrated rod wire spring value chain and also at ECS, the volume has, by far, the most significant impact to our margin profile. So that would be the biggest driver of recovery overall for the bedding segment.

Tyson, to add to that, we're refocusing our strategy to not solely concentrate on volumes. When we consider the Open Coil opportunities, we have the option to pursue pricing, but that carries risks.

Definitely.

Perfect. And I guess, Mitch, switching gears here, and sorry just to zero in on our margins, but I think that is kind of the debate over the next couple of years. A lot of news in the bedding products and getting that restructured differently, specialized roughly a 10%-ish EBIT margin versus historical high-teens levels, auto production globally is coming back. What are the other aspects that need to happen there to rebuild the margin profile of that business over the next, call it, one, two and three years?

Thank you, Bobby. We have been making progress over the past couple of years despite the ongoing changes in the automotive industry. We are seeing a return in volume which is positively impacting our margins. While we still have improvements to make in automotive, we are on the right track. In the aerospace sector, although smaller, we have strong backlogs which will also contribute to volume recovery, although not as significantly as in automotive. In hydraulics, we are facing some challenges this year despite strong backlogs in material handling and heavy construction markets. We anticipate strong backlog support in the U.S. during the first half of the year, but there appears to be weaker demand in heavy construction in Europe, especially Germany. We may experience fluctuations, but the progress we’ve made in specialized sectors shows our potential to return to a higher margin profile. While we may not reach our peak margins again, we are definitely on the path toward a higher margin profile that will benefit the company significantly.

Okay. I appreciate the details. Best of luck here in the first quarter.

All right. Thank you, Bobby.

Thank you. Our next question comes from Peter Keith with Piper Sandler. Please proceed with your question.

Hi. Good morning. This is Alexia Morgan on for Peter Keith. My question is on anti-dumping scenarios. I know we're expecting a decision later this month. Can you give us an update on antidumping legislation? And then what are the best and worst case outcomes that you're thinking about once there's a ruling?

Sure. This is Tyson. I'll jump in and tackle that one. So yes, we're a part of that. And kind of what we said in past cases, the U.S. industry just needs a level playing field, and that's really what the industry is after. No matter which scenario we think might play out. We fully expect to see some level of imported mattress activity. It may move around to some different countries. There may be some shoring in the U.S. for former importers. But we still see that dynamic playing out regardless of scenario. It really is difficult to say how much will come back to U.S. producers just given potential moves to other regions. Also right now, things are a little muddy just because ahead of a potential decision. We have seen a higher level of imports over the last couple of quarters, just I think with some of the importers attempting to get in ahead of any impose duties. So that will take some time to work through, especially in a really soft market. So we'll see what kind of overhang there is in kind of the near term. But overall, I think we would see just that helps support the continued hub of the industry. So overall, I think we'd say it's still to be determined how much impact would come back to the U.S. producers.

Okay. Thank you. And then my next question is related to spring and foam pricing. Is there any deflation within those categories? And then any deflation baked into the sales outlook?

Certainly. We've observed a moderation in commodity prices for both chemicals and steel over the past year. Specifically, our specialty foam business has experienced a decline in pricing as we strive to address client reductions. In our steel segment, we noted a decrease in metal margins last year. We've also adjusted pricing for innerspring products to align with the competitive global steel market. Historically, steel prices in Europe and the U.S. have remained within a relatively tight range, but last year we saw a divergence. Consequently, we've made pricing adjustments to ensure fair compensation with our customers. Looking ahead to 2024, since most of the impact from steel pricing was felt in the latter part of 2023, the annualization of these price changes will be reflected in our guidance.

Great. Thank you.

You’re welcome.

Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Branscum for any final comments.

Thank you for joining us this morning and your interest in Leggett, and have a great weekend.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.