Leggett & Platt Inc Q3 FY2025 Earnings Call

Greetings, and welcome to the Leggett & Platt Third Quarter 2025 Webcast and Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stephen West, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to Leggett & Platt's Third Quarter 2025 Earnings Call. With me today are Karl Glassman, CEO; Ben Burns, CFO; Tyson Hagale, President of Bedding Products; and Sam Smith, President of Specialized Products and Furniture, Flooring and Textile Products. This call is being recorded, and a replay will be available on the Investor Relations section of our website. Yesterday, we issued our press release and a set of slides containing third quarter financial results. Those documents supplement the information we will discuss this morning, including non-GAAP financial reconciliations. Remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results may differ materially due to 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 sections in yesterday's press release and our most recent 10-K and 10-Q filings entitled Risk Factors and Forward-Looking Statements. And with that, I will turn the call over to Karl.

Thank you, Steve, and good morning, everyone. I'm pleased with another quarter of solid results, reflecting nearly 2 years of disciplined cost structure improvements despite ongoing soft demand in residential end markets. Importantly, we are reaffirming the midpoint of our full year sales and adjusted EPS guidance, which Ben will discuss in more detail later. Our third quarter was also marked by significant progress on our key strategic initiatives. Our team has done a terrific job driving results through the execution of our restructuring plan, disciplined cost management, and improving operational execution. These efforts have culminated in improved cash flow, which allowed us to significantly strengthen our balance sheet. On August 29, we completed the divestiture of our Aerospace business, aligned with our goal of optimizing our portfolio. We used proceeds from the sale, along with a portion of our operating cash flow to pay down all of our remaining commercial paper and substantially lower our net debt to trailing 12-month adjusted EBITDA ratio. Our restructuring plan is nearing completion and is meeting or exceeding our initial expectations. We made considerable progress on the second phase of the flooring consolidation during the quarter and expect the consolidation to be completed by the end of the year. In Hydraulic Cylinders, we completed the rightsizing of our U.K. facility. Beyond our formal restructuring plan, in early September, we announced the consolidation of our Kentucky adjustable bed manufacturing operation, which will be consolidated into our Mexico operation by the end of this year. This decision was driven by lower volume and tariffs on imported components, which resulted in a cost disadvantage for our domestic production in a category that primarily competes with imported products. Throughout the quarter, we continued to navigate a very dynamic environment. We still believe tariffs will be a net positive for us but remain concerned that wide-ranging tariffs could drive inflation, hurt consumer confidence and pressure consumer demand. We are actively mitigating some of the negative impacts experienced in a few of our businesses, such as supply chain disruptions that can have an indirect impact on us and our customer demand disruptions. Our teams are actively engaged with customers and suppliers across our global footprint to reduce tariff exposure and minimize impacts. In general, import issues are an ongoing risk, especially for our Bedding Products segment, but we are encouraged that some recent enforcement actions support fair competition for domestic manufacturers and importers alike. U.S. Customs and Border Patrol recently dismantled a Chinese mattress transshipment scheme estimated to have evaded more than $400 million in duties. The Consumer Product Safety Commission has also recently issued recalls and product safety warnings for certain imported mattresses that fail mandated U.S. flammability standards. Now more than ever, misclassification of shipments and understated product values are additional problems that domestic manufacturers face when competing against imports. While we continue to believe that imports have a role in the U.S. bedding market, the domestic industry must be able to compete on a level playing field. Amid these initiatives and macroeconomic challenges, our teams remain focused on providing high-quality innovative products to our customers, keeping our employees safe and continuously improving in everything we do. I'll now turn the call over to Ben.

Thank you, Karl, and good morning, everyone. Third-quarter sales were just over $1 billion, down 6% year-over-year due primarily to continued soft demand in residential end markets as well as sales attrition from both the divestiture of our aerospace business and our restructuring efforts. Looking at sales by segment, Bedding product sales decreased 10% year-over-year but improved 3% sequentially versus the second quarter, and sales accelerated through the quarter. Specialized product sales declined 7%, while Furniture, Flooring and Textile product sales were flat year-over-year. In Bedding Products, as anticipated, sales weakness at a certain customer and retailer merchandising changes drove volume declines in adjustable bed and specialty foam. U.S. spring unit volume was in line with both mattress consumption and domestic mattress production volumes, both of which we estimate declined low single digits. U.S. mattress industry production improved sequentially versus the second quarter, marking the second consecutive quarter of improved domestic production volume. While we are encouraged to see sequential improvement, third-quarter domestic volume remained negative year-over-year. It is worth noting that the improvements we have seen are not consistent across the industry. Certain channels and market participants are performing better than others. We have also started to see stabilization in demand patterns between holiday promotional periods. In the fourth quarter, we expect U.S. domestic mattress production to slow sequentially due to normal seasonality and to remain negative on a year-over-year basis. Total market consumption for the full year is now expected to decline low single digits with domestic production down mid- to high single digits. Within our Specialized Products segment, we experienced modest sales declines in automotive and hydraulic cylinders, with the divestiture of Aerospace making up the largest sales drag during the quarter. Looking ahead, multiple global automotive supply chain risks, such as availability of aluminum, certain semiconductors, and access to rare earth minerals have materialized as we moved into the fourth quarter and have begun impacting both the industry and our business. However, we have experienced no material impact to date. Finally, within Furniture, Flooring and Textiles, continued sales growth in textiles and Work Furniture was offset by declines in home furniture and flooring. We anticipate continued year-over-year strength in the geo-component side of our textiles business, while current trends and seasonality will likely continue in the other businesses within the segment through the remainder of the year. As mentioned last quarter, aggressive competitive discounting, particularly in Flooring and Textiles, has led to pricing adjustments that will negatively impact us in the fourth quarter. Third-quarter EBIT was $171 million, and adjusted EBIT was $73 million, a $3 million decrease year-over-year, primarily from lower volume, partially offset by metal margin expansion and restructuring benefit. Third-quarter earnings per share were $0.91. On an adjusted basis, third-quarter EPS was $0.29, a $0.03 decrease year-over-year. Third-quarter operating cash flow was $126 million, an increase of $30 million versus the third quarter of 2024. This increase was primarily driven by working capital benefits. Moving to the balance sheet, we reduced debt by $296 million in the third quarter to $1.5 billion, bringing our total debt reduction for the year-to-date to $367 million. As Karl noted, we reduced our commercial paper balance to zero, significantly strengthening our balance sheet and lowering our net debt to trailing 12-month adjusted EBITDA ratio to 2.6 times. Excluding Aerospace on a pro forma basis, the ratio is about 0.3 times higher. At September 30, total liquidity was $974 million, comprised of $461 million of cash on hand and $513 million in capacity remaining under our revolving credit facility. We ended the quarter with adjusted working capital as a percentage of annualized sales down over 200 basis points year-over-year. Moving to our restructuring update, we have nearly completed the execution of the plan, which has delivered significantly better EBIT contribution with lower associated costs than originally announced. We remain on track to realize EBIT benefit of $60 million to $70 million on an annualized basis. This positive EBIT contribution is despite approximately $60 million in sales attrition. And we remain on track to generate real estate proceeds of $70 million to $80 million. Since plan inception, we have realized $43 million of proceeds and now expect up to an additional $17 million in the fourth quarter of 2025, with the balance in 2026. Despite the current dynamic operating environment, I'm pleased to say we are reaffirming the midpoint of our sales and adjusted EPS guidance while narrowing the previous guidance range. Sales are now expected to be $4.0 billion to $4.1 billion, or down 6% to 9% versus 2024. Earnings per share of $1.52 to $1.72 and adjusted earnings per share of $1.00 to $1.10. Adjusted EBIT margin is expected to be between 6.4% and 6.6%, and cash from operations is expected to be approximately $300 million. Our CapEx will be lower than usual this year at $60 million to $70 million, which is primarily due to customer-driven delays of some growth initiatives and due to our focus on executing and wrapping up our restructuring plan. Annual CapEx should return to more normalized levels going forward. In the near term, we plan to continue to use most of our excess cash flow to reduce net debt while also considering other uses such as small strategic acquisitions and share repurchases. Longer term, our priorities for the use of cash remain consistent: investing in organic growth, funding strategic acquisitions, and returning cash to shareholders through dividends and share repurchases. With that, I'll turn the call over to Karl for his closing remarks.

Thank you, Ben. In a relatively short time, we have made significant progress on our strategic priorities. We have strengthened our balance sheet by adjusting our capital allocation to prioritize debt reduction. Through our restructuring plan, we have created a leaner manufacturing footprint that can meet customer demand when it rebounds and support strong incremental contribution margins. We have simplified our portfolio through recent divestitures to improve focus on core operations. All of this has been accomplished with a consumer who has seemingly been in a recession for more than 3 years, compounded by the complexities of a dynamic tariff landscape. Leggett & Platt has been at the forefront of innovation for a very long time. Today, we have a robust innovation pipeline and relatively new products that are just gaining traction. We have also closely partnered with many of our customers to develop innovative products designed to meet their specific needs. These efforts, combined with meaningful cost reductions and operational improvements position us well to aggressively pursue longer-term profitable growth opportunities that will create value for our shareholders. With that, I would thank all of our employees for their continued hard work and dedication to position Leggett & Platt for a very bright future. Operator, you may now open the line for Q&A.

Our first questions come from Susan Maklari with Goldman Sachs.

My first question is, I want to talk a bit more about the benefit that you're seeing from the cost actions and the restructuring that you've undertaken in the last 2 years or so. It seems like you're really getting a nice lift from that in the margins despite the volume and the demand environment that we're in. Can you just help us kind of parse out how those are coming through, what the upside is as we think about the forward quarters? And anything else that's notable as it relates to that?

Yes, Susan, this is Ben. Thanks for the question. As we said in the prepared remarks, our teams have done a great job executing the restructuring plan, and we're really nearly complete at this point. And as we look at the metrics that we laid out at the beginning in our original expectations, we're meeting or exceeding them in really all categories, including EBIT benefits, costs, sales attrition, and real estate sales. So really good execution. With all of that, we've had no customer disruptions. And it's important to remember, this touches not only our Bedding segment, but also we've had significant actions in home furniture and flooring, hydraulic cylinders, and also an initiative to reduce our corporate G&A expenses. So as we look forward, we're very confident in our $60 million to $70 million of annualized EBIT benefit. I think in 2025, we'll end up around $60 million of that benefit already realized with another up to $10 million coming next year. The sales attrition that we laid out at the beginning, we thought was about $100 million. Now we've got that down to $60 million. So that's good news. And then from a real estate perspective, we still expect $70 million to $80 million of cash proceeds. We've had $43 million to date, and we expect up to $17 million possibly later this year with the remainder coming in 2026. So really good execution. And then the other thing I would say is these are all costs out. As we think about going forward and volume recovery, contribution margins should be strong for us. We think 25% to 35% as we go forward with that incremental volume. So we can't say enough about how appreciative we are of all of our employees' efforts in this area.

Yes. Okay. That's great color, Ben. And then I want to turn to Bedding. Can you talk about the demand environment and how that came through during the quarter? I think you said that you did see things improve each month in the third quarter. But it seems like that's coming despite the headwinds that we are seeing in the housing market and the volatility in consumer confidence. How do we sort of weigh those different factors out there? And can you just talk a bit about what you think is actually going on out on the ground?

Susan, thanks for the question. Before we continue, I'm going to hand it over to Tyson, but I want to take a moment to commend Tyson and his team for the excellent work they've done in the Bedding segment. The restructuring has posed challenges, and there have been demand headwinds. However, the team has united, and our innovation pipeline is stronger than ever in our history. It's true they still face issues, particularly with specialty foam and adjustable beds, and Tyson will address these candidly. Looking at the financials in response to your earlier question, the benefits of restructuring are evident, along with cost management, operational efficiency improvements, and margin expansion from the sale of trade rods. As we discussed earlier this year, the advantages from customer product launches are starting to materialize and are gaining momentum. Most importantly, the upcoming year, 2026, is poised to showcase significant innovation that highlights our team's capabilities. So, with all that said, Tyson, please go ahead.

Sure. And thanks, Karl. Susan, I'll start just with some comments about the market. And I think we would characterize things right now as more stable than seeing a lot of recovery, although in both the second and third quarter, Ben mentioned this, but we saw sequential improvement in both quarters, which was coming off a pretty tough first quarter, but still that's a trend we haven't seen in quite some time. But really, it's getting us back to more of a stable place, but still in the third quarter, especially looking at the domestic market, down low single digits when we talk about units. A few things, though, that I think are worth mentioning. Kind of within that stability, first of all, we've talked about this in some past calls that we see some pretty high peaks when we get to the promotional holidays and then some pretty tough valleys when we come off of those. But we're seeing more stability month-to-month. So we see some improvement around the promotions, but we don't see quite the big drop-offs, which I think is notable and something we'll continue to watch. The other thing is that although things are reaching more of a stable level, we don't see consistent performance across all retail channels and brands. It is pretty choppy. And from our view, that's coming from a variety of factors with industry consolidation, new program launches, and advertising changes. All of those things are resulting in a lot of movement, which makes it a little more difficult to track exactly what's going on, but I think that's another thing we'll watch going forward. But big picture, I think we still have to continue to watch it. You mentioned it, Susan, but the big macro factors that tend to drive bedding and furniture are still a pretty big challenge. Karl talked about this too; the consumer is dealing with a tariff environment, but still pretty tough housing, wages dealing with inflation, and just general consumer confidence. Those are all big picture things that for us to plan for an actual more recovery type environment, we have to see those things start to flip to be more positive.

Yes. Okay. And then maybe turning to the cash and the balance sheet. It's really nice to see how the leverage has come together. You mentioned, Ben, that the CapEx is going to be lower this year. How do we think about your plans for spend in 2026, some of the growth opportunities that maybe are coming in there and then maybe the potential for some resumption of shareholder returns?

Yes, sure. Thanks, Susan. Yes, our CapEx is a little bit lower based on the factors I mentioned in the prepared remarks. As we go forward, with a smaller, leaner footprint, we do think a more normalized level of CapEx is something like what we started to guide the year on this year, which was about $100 million. So obviously, there'll be puts and takes in any given year and timing factors in, but that $100 million is probably a decent way to think about it. And then as we think about growth initiatives going forward, as Karl mentioned in his remarks as well, we do have some opportunities that we're pursuing. And so we'll continue to fund those. We've been funding whatever growth opportunities come along. And we'll provide more specific outlook on 2026 in the next call.

Yes. Okay. And then, Ben, I'm going to sneak one more in for you. Can you just walk through how you're thinking about the segment margins for this year?

Sure thing. On the bedding side, we now believe segment margins will be up 200 basis points. I think the last call, we were saying 150 basis points. So we're seeing a little bit more improvement there. On the Specialized segment, we are saying margins should be up about 50 basis points year-over-year. And then on the Furniture Flooring and Textile side, we're now predicting margins to be down 150 basis points, compared to what we said previously of 100 basis points down.

Our next questions come from the line of Peter Keith with Piper Sandler.

This is Alexia Morgan on for Peter. My first question is about the Furniture segment. It seems there was some improvement in Home Furniture, with volumes decreasing by 5% in Q3 compared to a 12% decrease in Q2. I would like to know your thoughts on this improvement and whether it suggests any underlying positive trends in the broader category.

Go ahead, Karl.

No, I was going to say go ahead, Sam.

Okay. This is Sam. If you recall from last quarter, we discussed how the tariffs implemented on April 2 significantly impacted our home furniture business, leading to a notable decrease in volume compared to the previous year. In this quarter, we've seen a normalization and a return to more consistent volume levels. Regarding the volume in relation to the market, I've come across some intriguing retail surveys and credit card data from Q3 that I want to mention. One survey indicated that year-over-year retail sales might be up by 6% to 7% among the surveyed retailers. It also revealed that these retailers responded to tariffs by raising their prices, resulting in an average price increase of about 9% to 10%. If we compare the 6% to 7% increase in sales to the 9% to 10% rise in prices, it's reasonable to conclude that unit volume for that survey is likely down about 3%. Additionally, credit card data indicated that retail furnishing sales have increased by approximately 2%. However, it's essential to consider that these prices likely reflect an adjustment for the tariffs. Factoring in the necessary price increases, it seems unit volumes are down in the low to mid-single digits, which aligns with our year-over-year performance. On a positive note, we launched our new factory in Vietnam at the end of Q3, and we began shipping products from it earlier this month. As we increase production at that facility, our products will benefit from a favorable tariff situation, which is advantageous for both our customers and us.

Okay. And then staying within Furniture, could you elaborate on any shift you've noticed in end customer behavior across different price points? Specifically, are you still observing a divergence in performance between the lower price points versus the middle and the higher price points?

Yes, we are. We still continue to see the higher price points be more stable on a week-to-week, month-to-month basis. And there continues to be a lot of pressure at those lower price points. It's very consistent with what we were seeing last quarter with the exception that tariff announcement in April seems to have passed us by, and we're past that now.

Great. And then one more. Moving to the Bedding segment, it looks like steel rod volume dropped off significantly, inflecting negative to down 20% in Q3. Can you talk about the drivers for that inflection?

Sure. I'm happy to explain. It's quite simple. Trade rod volumes remained stable. The most significant change has been our occasional sales of semi-finished products known as billets. Last year, we experienced a strong volume of billet sales in the third quarter. However, this year, due to both internal and external demand, we haven't needed to sell any billets. Thus, the decrease can be attributed solely to the absence of billet sales. Overall, our trade rod mix has been robust and beneficial, leaning towards high carbon instead of low carbon. So even though the surface numbers appear negative, the performance from our rod mill was actually quite strong.

Which is a contributor to the profitability of the segment because the non-value-added selling of a billet versus the value added of selling a rod. And someone may question, why did you sell billets last year? And the answer was to keep the rod mill going, keep our employees employed. We don't have that problem right now. Volume is pretty darn good.

Our next questions come from the line of Bobby Griffin with Raymond James.

This is Alessandra Jimenez filling in for Bobby. First, I wanted to discuss the growth opportunities moving forward. Now that we are nearing the completion of the restructuring, where do you see the best chances for organic growth if the macro environment remains favorable?

Well, longer term, I'm going to surprise you a little bit. I appreciate the question. Longer term, I see our largest growth opportunity probably in finished bedding. It's a long tail to sell that product through, but we're gaining momentum. We're replacing some lost volume. So again, I'm not calling this being a fourth quarter or first half of next year even. But longer term, that private label work that we're doing on finished bedding, I think will reap significant benefit.

And this is Tyson. I agree with Karl. The private label finished mattress opportunity, especially with where we've seen the biggest volume declines in our bedding business, but also as we see consumers get more confident in returning to bedding and furniture products, Karl referenced this in his opening comments, but some of the investments that we're seeing in innovation and giving consumers a reason to come back and do some shopping, we feel pretty good about those right now. And this is purely anecdotal. There's not a lot of data to support it, but just seeing the workload that our teams have right now in bedding, they are really busy working with our customers right now. And at least from a feel standpoint or gut, it seems like this is as busy as we've been working on new product development since at least the start of the pandemic. I mean, since then, it's been a lot of VA/VE or just trying to spec products to replace things in the supply chain, but we're seeing more activity around getting new products into the market, which hopefully is a signal of our customers getting ready to put more products on retail floors.

Alessandra, I'll add to that from a home furniture perspective. I attended the High Point Furniture market this past weekend. We had a large team present with a showroom, and we attracted a significant number of customers. As we toured our customers' showrooms, we observed that Home Furniture had more new products on display than we have seen in several years. Our teams have been diligently collaborating with our customers to drive product innovation that is relevant to consumers. These slower times have provided an excellent opportunity for this effort. I believe we are well-positioned for profitable growth when the residential markets rebound. From a Work Furniture perspective, we are also seeing many new near-shoring opportunities that our teams are actively pursuing, and we are winning some programs that should have an impact in 2026 and as we move into 2027.

Okay. Awesome. That is very encouraging. And then I wanted to switch to kind of a follow-up on capital allocation. With the rest of the long-term debt termed out pretty well, could you remind us on like the long-term leverage targets? And then any further details on capital allocation priorities? And maybe a follow-up on like what areas do you see an opportunity for potential bolt-on acquisitions?

Sure. This is Ben. I'll be happy to answer that. So yes, our long-term net debt leverage target is 2 times. So our capital allocation strategy will continue to be to reduce that net debt as we go forward. But we're also considering other uses of cash, including small strategic acquisitions. So to your question there, I think the most likely area would be in our textiles business. We've been very successful at having fairly modest purchase price acquisitions and bringing those in and driving immediate synergies. And then we'll also be considering share repurchases as we look forward. No specific timetable on that at this point, but that's on the top of our mind as well.

Our next questions come from the line of Keith Hughes with Truist Securities. Looking ahead, we are evaluating how to utilize our net debt, including small strategic acquisitions. Regarding your question, the textiles business is the most probable area for this. We have had considerable success with modestly priced acquisitions, allowing us to drive immediate synergies. Additionally, we are contemplating share repurchases in the future, although we do not have a specific timeline for that at the moment.

Question about bedding. U.S. Spring only declined by a point or two in the quarter. This seems to align with what you're saying about the industry, so do you think it will start to follow the industry's trends in the near term?

Keith, this is Tyson. Yes, that's something we've talked a lot about. It's been tough to track with all the moving parts. But we've talked about, especially some of our higher-value products have tracked really closely with the market. And overall, with more stability in open coil when you kind of get the total mattress cores, it sort of feels like we're trending kind of in the same direction with the domestic mattress market. And even within kind of the big picture view of our unit volumes, there are some pretty encouraging things that are going on. We've talked about our content gains, which goes back to the long-term decline of open coil, but then the addition of our Comfort Core products and some other things we've been introducing in the market. And starting to see that come through, especially in the third quarter, and that's where you see some of our profit improvement as well. But we're really starting to see some momentum from that. In the third quarter, we saw a significant boost in our Quantum share of Comfort Core, but also our semi-finished business grew more than 20% versus last year. So even when you look at the volume comparisons unit per unit, we think we're tracking pretty well, but also picking up some content.

Keith, if you don't mind, Tyson, while we're on that subject, much has been written about lost market share. Talk about that if you don't mind.

Well, and I think a lot of that comes from the moving pieces with the imported finished mattresses and how much are actually being consumed within the course of the year. It's been a tough thing to track, but we're seeing more stability with the imported finished mattresses, especially after some of those things were loaded up in the first part of the year ahead of tariffs. So it's a little easier to get a view of that now, Karl. But on top of that, we've seen some different moves with some of the brands and industry consolidation, but that's where we feel at least from the U.S. Spring point of view.

And if you look at adjustable and specialty, I know there's a customer issue. When do you lap that, when will that start to look more like a chance to do better than the industry or like the industry?

Yes, Keith. So it is a consistent commentary from what we shared last quarter. I'll talk just a little bit more about it. It's largely 2 customers, and they're the same ones for specialty foam and adjustable bed. The first one is Mattress Firm. And once the consolidation has been complete, with specialty foam, there was a private label mattress program that was taken internal. And then second to that, with our adjustable bed business, we still sell some product there, but we've seen a change in the merchandising plan and where some of the sourcing of that product is coming. So those have been both impactful to both specialty foam and adjustable bed. And it will really take fully through next year before we'll fully get through that part of it. The second big challenge again for both businesses is not a market share loss, but it's more just a headwind of a large customer of ours that impacts both foam and adjustable bed. Now it's hard to say exactly when we anniversary those because it's more of just a specific customer challenge, but not lost market share.

Okay. And I think it was Karl, your commentary on the sector, you were seeing some retail do better than others. Could you talk about that a little bit more of what type of retail is seeing some at least sequential improvement? I was still down year-over-year? And what areas are still struggling?

Yes, that was actually Tyson. Go ahead, Tyson.

Sure, Keith. Well, it's probably what you would suspect. On the online channel, see quite a bit of strength in some of the lower-end online e-commerce. There's a lot of volume moving through there. In brick-and-mortar, see quite a bit of activity happening in big box and through Mattress Firm. But it's not as we've kind of talked about here, it doesn't seem to be a rising tide lifting everybody at the same level. It is inconsistent, but see stronger unit volumes at least through those channels.

Okay. And one other question on textiles. It was up in the quarter, up several quarters now. I think you talked about potential price pressure there along with flooring. I think I know what's happened in flooring, but if you could talk about textiles, where you see that going?

Yes, sure, Keith. This is Sam. We've got a little bit of bifurcation in our textile business. The traditional side that services furniture, bedding, fabrics, that's where we're seeing a tremendous amount of price pressure, just as you would see in flooring as these markets continue to be down from a demand standpoint. So that's kind of where we see that. Where the growth is really coming from is from our GEO side. The U.S. civil construction is up really nicely year-over-year, and what we call our engineered materials markets, which are automotive, filtration, some specific building products outside of geotextiles. Those volumes are looking really good for us and helping drive some of that growth.

Our next questions come from the line of Susan Maklari with Goldman Sachs.

I just have a couple of follow-ups. The first is just building on Keith's question on textiles. You have seen a lot of really nice growth in there. And I think, Ben, you mentioned that as a potential for some bolt-on M&A. Can you talk a bit more about how you're thinking about the future trajectory of that business? What kind of deals you could possibly be interested in and how we should think about what that will mean for growth?

Sure. And do you want to say? Or do you want me to jump in?

Well, I'll start off, Sam, if you want to pile on, that would be great. But Susan, just to answer your question, I think what we've seen in that business for over 20 years is really our ability to acquire small businesses, bolt them on and really drive immediate synergies through our purchasing, which we do really well with. So I think that is something that has been very successful for us. We look for applications of the raw materials and how we can convert them and really service customers on a just-in-time basis. And a lot of it also can be a geographic strategy to serve areas, new geographies with similar products. But Sam, what would you add on to that?

I think you covered it perfectly, Ben.

Okay. And then going back to Bedding, you've talked a lot about innovation and the product pipeline that you have, and it sounds like that's gaining some really nice momentum. As we look out, how do we think about the benefit that you can see from a price mix perspective? And what that could mean for the business even if we remain in a tougher macro where we have those continued headwinds on overall broader demand?

Yes, Susan, I kind of referenced this a little bit already. But even with the semi-finished and content gains we've seen in U.S. Spring, you're kind of seeing some of it now. I mean, versus third quarter last year, roughly half of our EBIT improvement comes from just fixed cost reductions and restructuring. The other half is mostly from margin enhancement. Some of that from the trade rod business. But the other part is just from exactly what you said, of already seeing the benefits of improved content through our spring business, and that comes from products we talked about on previous calls. But on top of that, when I talked about working with our customers and our customers starting to lean in more towards differentiating their product line, a lot of that comes through improving the content, the comfort, or even just the inclusion of specialty foam along with the innerspring units. So all of those end up being multiples in terms of the selling price for us versus kind of more the historic innerspring business that you think about. And that's where even as we've seen some volumes be even down slightly or where we've been in the last couple of years, that's where we see the opportunity for profit improvement and feel more of that is possible going into the future.

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

Thanks, everyone, for joining us this morning, and we look forward to hosting you next quarter as well. And we are scheduled to issue our fourth quarter earnings release on February 11 after the market closes, and our conference call will be on February 12 at 8:30 a.m. Eastern Standard Time. In the meantime, if you have any questions, just reach out to me anytime. Thanks.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.