Leggett & Platt Inc
NYSE:LEG
| US |
|
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
| US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Mastercard Inc
NYSE:MA
|
Technology
|
| US |
|
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
| US |
|
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
| US |
|
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
|
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
| US |
|
Visa Inc
NYSE:V
|
Technology
|
| CN |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
| US |
|
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
| US |
|
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
| US |
|
Coca-Cola Co
NYSE:KO
|
Beverages
|
| US |
|
Walmart Inc
NYSE:WMT
|
Retail
|
| US |
|
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
9.5
26.51
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
|
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Mastercard Inc
NYSE:MA
|
US |
|
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
|
Pfizer Inc
NYSE:PFE
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
|
Nike Inc
NYSE:NKE
|
US |
|
|
Visa Inc
NYSE:V
|
US |
|
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
|
3M Co
NYSE:MMM
|
US |
|
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
|
Coca-Cola Co
NYSE:KO
|
US |
|
|
Walmart Inc
NYSE:WMT
|
US |
|
|
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Leggett & Platt Inc
You don't have any saved screeners yet
Greetings, and welcome to the Leggett & Platt Fourth Quarter 2019 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. [Operator Instructions] As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Ms. Wendy Watson, Vice President of Investor Relations for Leggett & Platt. Thank you. You may begin.
Good morning and thank you for taking part in Leggett & Platt fourth quarter 2019 conference call. I am Wendy Watson. With me today are Karl Glassman, Chairman and CEO; Mitch Dolloff, President and COO; Jeff Tate, Executive Vice President and Chief Financial Officer; and Susan McCoy, Senior Vice President of Investor Relations.
The agenda for our call this morning is as follows: Karl will start with a summary of the major statements we made in yesterday's press release; Jeff will discuss financial details and address our outlook for 2020, and finally, the group will answer any questions that you may 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 expressed permission. A replay is available from the IR portion of Leggett's Web site. We posted to the Investor Relations portion of the Web site yesterday's press release and a set of PowerPoint slides that contain summary financial information along with 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 section in our 10-K and 10-Qs entitled Forward-Looking Statements and Risk Factors.
I'll now turn the call over to Karl.
Good morning and thank you for participating in our fourth quarter call. First, I want to thank our dedicated fellow employees around the world for your efforts during this past year.
In 2019, our employees accomplished the acquisition and integration of ECS, the largest acquisition in our history, the very successful restructuring of our home furniture business, where we are already seeing an EBIT margin benefit, the orderly closure of our Fashion Bed business, and successful liquidation of that inventory, all while keeping a sharp focus on de-leveraging, generating record cash from operations, and delivering our 48th consecutive annual dividend increase. This represents tremendous work by our employees across the company, and these efforts are very much appreciated. Thank you all.
As a reminder, in November, we filed an 8-K that discussed changes to our segments structure. These changes align with how we manage our businesses, effective January 1, 2020, all of our bedding-related businesses including our innerspring and specialty foam businesses, our steel rod and wire, and machinery businesses, and our adjustable bed business will be one bedding product segment. This optimizes efficiency, and allows us to holistically manage our bedding value chain of rod, wire, spring specialty foam. The newly-formed furniture flooring and textile product segment will contain our home and work furniture businesses, our flooring products business, and our fabric converting and geo-components businesses. Our specialized product segment is not changing, and includes our automotive, aerospace, and hydraulic cylinder businesses.
The segment commentary in yesterday's press release is based on the historical reporting format as we continue to report under the prior segment structure through 2019. Before we report first quarter 2020 earnings, we will furnish an 8-K providing five years of historical segment data based upon the new segment reporting structure.
We have several items to highlight in our 2019 performance. Full-year sales grew 11%, EBIT grew 18%, and adjusted EBIT grew 12%. Full-year EPS was $2.47, and adjusted EPS was $2.57, a 4% increase over 2018 adjusted EPS. We generated record operating cash flow of $668 million. Adjusted working capital as a percent of annualized sales improved to a low 9.9% at year-end. We experienced fluctuations in sales and earnings from the effects of raw material costs, primarily steel scrap cost and selling prices for steel rod, wire, and innersprings along with corresponding movements in LIFO benefits or expense. We passed our steel costs increases or decreases along to our customers after an approximate 90-day lag. Because of this lag, in the first-half of 2019, our selling prices for steel, rod, wire, and innerspring increased from the recovery of cost inflation that occurred in 2018.
At the same time, our costs for steel scrap were deflating. This had a positive impact on both sales and earnings as sales dollars were increasing, and earnings benefited from the lower cost. In the second-half of 2019, we began to pass our lower steel scrap costs along to our rod, wire, and innerspring customers. Despite the downward effect on our sales dollars, we continue to experience earnings growth from steel cost deflation through October of 2019. We also experienced increased earnings from LIFO benefits as steel costs deflated.
Steel scrap costs began to rise in November 2019, and have continued inflating through January of 2020. We expect steel movements to cause sales and earnings fluctuations in 2020, and anticipate negative earnings impact in the first quarter. We also expect year-over-year changes in LIFO as we had $32 million LIFO benefit in 2019. As the quarters progress, we will update you on the changes in steel scrap and rod, and our full-year LIFO expectations. While we are most affected by moves in steel scrap and rod, we also experienced a negative effect on sales from foam chemical deflation in our ECS business that I will discuss later in the call.
Fourth quarter sales increased 9% to $1.14 billion. The ECS acquisition added 13% to sales in the quarter. Organic sales were down 4%, 1% from volume, and 3% from raw material-related price decreases, and a negative currency impact. Most of our businesses grew in the fourth quarter. The growth was more than offset by the planned exit of business in Fashion Bed and Home Furniture, which reduced sales 3%, and continued weak trade demand for steel, rod, and wire. Absent declines from exited businesses, volume was up 2%.
We are pleased with the performance of our bedding businesses in the quarter. U.S. Spring sales were up 7%, international spring sales were up 4%, and adjustable bed sales were up 22%. In addition, our automotive business was up 8% in the quarter, while global auto production was down 5%. Our aerospace business was up 11% in the quarter.
Fourth quarter EBIT increased $51 million over fourth quarter 2018, and adjusted EBIT increased $20 million or 17% to $140 million. Adjusted EBIT benefited from the ECS acquisition, even after $12 million of amortization expense, lower raw material cost, including LIFO benefits, and improved earnings performance in furniture products. Adjusted EBIT margin increased 70 basis points to 12.2%, and adjusted EBITDA margin increased 160 basis points to 16.4%.
Fourth quarter earnings per share were $0.64. This included restructuring-related charges that reduced earnings $0.04 per share. Adjusted fourth quarter earnings were $0.68 per share, a 10% increase versus fourth quarter of 2018. The increase in fourth quarter earnings reflects higher adjusted EBIT, partially offset by higher interest expense and tax rate.
For the full-year 2019, sales grew 11% to $4.75 billion. ECS and other smaller acquisitions added 14% to sales. Organic sales were down 3%, on 3% lower volume. Raw material-related selling price inflation from increases implemented in late 2018, were offset by a negative currency impact.
Full-year organic sales growth in most of our businesses including U.S. Spring, automotive, work furniture, and aerospace was more than offset by the planned exit of business in Fashion Bed and Home Furniture, which reduced sales 3%, and weak trade demand in steel, rod, and wire. Volume was flat for the year absent declines from exited business.
Content gains continue to drive sales growth in both our bedding and automotive businesses in 2019. U.S. Spring sales were up 6%, benefiting from the continued shift to higher value innersprings. Our automotive sales were up 2% for the year with global auto production down 6%. Full-year EBIT increased $76 million, and adjusted EBIT increased $56 million, or 12% to $529 million. Adjusted EBIT benefited from the ECS acquisition even after $50 million of acquisition accounting, lower raw material costs, including LIFO benefits, and improved earnings performance in our furniture product segment. Full-year earnings per share increased to $2.47, adjusted earnings per share increased 4% to $2.57, adjusted EPS benefited from higher EBIT partially offset by higher interest expense and tax rate.
In January 2019, we acquired Elite Comfort Solutions, and gained critical capabilities in proprietary phone technology along with scale in the production of private label finished mattresses. ECS's full-year 2019 sales were flat with 2018, primarily from deflation and weaker demand in non-bedding markets. Volume was up 11%. As expected, ECS's EBITDA margin is accretive to our total company EBITDA margin, and their cash flow generation is strong.
In the fourth quarter of 2018, we have initiated restructuring activities after an in-depth analysis of our Fashion Bed and Home Furniture businesses. Total restructuring-related charges were $15 million in 2019 and $16 million in 2018. The restructuring activity is substantially complete. In November, the U.S. mattress industry's anti-dumping petition on imported Chinese mattresses came to a successful conclusion. With the International Trade Commission making a unanimous final determination that the U.S. industry had been materially injured by Chinese mattresses sold at prices that violates the U.S. trade laws.
Jeff will discuss our 2019 financial details and full-year guidance for 2020. I'll now turn the call over to him.
Thank you, Karl, and good morning everyone. In 2019, we generated record cash flow from operations of $668 million, a $228 million increase over 2018. This improvement was driven by significant reduction and working capital across the company, and strong operating cash generation in many of our businesses, including ECS. We ended the year with adjusted working capital as a percentage of annualized sales of 9.9%, an improvement versus 10.6% at the end of 2018. In addition, we brought back $96 million of offshore cash in the fourth quarter, bringing our full-year total to $279 million.
In November, we declared a $0.40 per share quarterly dividend, a 5% increase versus the fourth quarter of 2018. At yesterday's closing price of $46.96, the current yield is 3.4%, which is one of the higher yields among the S&P 500 dividend aristocrats. Consistent with our de-leveraging plan, share repurchases were limited in 2019. For the full-year, we repurchased only 700,000 shares of our stock, primarily surrounded for employee benefit plans at an average price of $44.20. We issued $2 million shares, primarily for employee benefit plans and stock option exercises.
From an acquisition perspective, during the year, we acquired ECS in one small geo component operation. We also continue to invest in capital to support organic growth opportunities. Total capital expenditures in 2019 were $143 million 10% lower than the prior year, reflecting a balance of investing for the future while controlling our spending. Our financial base remains strong. We ended 2019 with debt at 2.9 times our trailing 12 months adjusted EBITDA.
We remain committed to maintaining a strong investment credit rating, and continue to expect to deliver to a ratio of debt to trailing 12-months adjusted EBITDA of approximately 2.5 times by the end of 2020. We expect to accomplish this by limiting share repurchases, controlling the pace of acquisitions, and using our operating cash flow to repay debt. We assess our overall performance by comparing our total shareholder returns to that appear companies on a rolling three-year basis.
Our target is to achieve TSR in the top third of the S&P 500 over the long-term, which we believe will require an average TSR of 11% to 14% per year. Our annual TSR was below the 11th of 14% targets in both 2017 as well as 2018, but significantly above the target in 2019. Over those same years, the TSR, the S&P 500 was well above historical averages. As a result, our recent three-year performance did not meet our top third goal. However, we believe our disciplined growth strategy, portfolio management and prudent use of capital will support achievement of this goal over time.
Now, moving to a discussion of our 2020 guidance, 2020 Sales are expected to be in the range of $4.7 billion to $4.9 billion or down 1% to up 3% over 2019. Acquisitions in 2019, should add 1% of sales growth in 2020. Raw material related price decreases implemented in the second-half of 2019 shouldn't lower sales 1%. We expect mid-single-digit volume growth in 2020 for most of our major businesses. This includes automotive, U.S. Spring, ECS, aerospace, geo components and work furniture. We also expect the growth in these businesses to be offset by approximately 1% of further year-over-year sales decreases from flat exit volume in both fashion based and home furniture, as well as continued with trade demand for steel rod and wire. So, absent exited business volume is expected to be flat up 4%. 2020 earnings per share are expected to be in the range of $2.40 cents to $2.60 cents, reflecting earnings growth in our automotive, bedding, and other businesses to be more than offset by increasing steel costs, including the non-recurrence of 2019's LIFO benefit.
Additionally, we expect increased cost in 2020 because of investments we're making to support the growth, security, and continuity of the company. These investments include network and cyber security upgrades, and personnel to support those activities. We're also investing in our human resources organizations and related technology.
Finally, employee benefit costs are increasing due to a valuable change we made to our 401(k) plan, adding employee auto enrollment. We're very pleased that this change increased employee participation rates in the 401(k) plan. Earnings per share guidance assumed a full-year effective tax rate of 23% versus 22% in 2019. We expect 2020 depreciation and amortization to approximate $200 million. Net interest expense of approximately $80 million and fully diluted shares of $136 million. Based upon this guidance framework, our 2024-year adjusted EBIT margin should be in the range of 10.7% to 11%.
Cash from operations should approximate $550 million in 2020. Capital expenditures should approximate $160 million for the year and dividends should require $220 million of cash. Finally, we know impacts from the coronavirus, our top of mind for many of you, and we're closely monitoring global developments. Our current 2020 guidance does not include possible impacts from the virus. It's still too early to develop reasonable quantitative data related to the impact. Our first priority is the health and safety of our employees around the world.
For employees in China, we've extended the Lunar New Year plant shutdown in accordance with Chinese provincial and local government extensions. We are establishing protocols in all 16 of our Chinese facilities to better protect our 5200 employees in China when they can return to work. And for all negative flat employees around the world, we've implemented a travel ban to Asia and are severely restricting all international travel.
We're assessing the potential impact of this pandemic on our business, including demand for our goods and our customer's good, inventory availability throughout our supply chain as well as our customer supply chain, the global movement of goods and workforce availability. We do not anticipate that there are factors unique to us that will cause the impact from this coronavirus to be greater to our company than our global manufacturers -- than other global manufacturers. We continue to monitor the situation, and we'll take all reasonable mitigation steps as facts unfold.
With those comments, I'll turn the call back over to Wendy.
That concludes our prepared remarks. We thank you for your attention, and we will be glad to answer your questions. To allow everyone an opportunity to participate, we request that you ask only one question and then yield to the next participant. If you have additional questions, you are welcome to re-enter the queue and we will answer those questions as well.
Melissa, we're ready to begin the Q&A session.
Thank you. [Operator Instructions] Our first question comes from the line of Susan Maklari with Goldman Sachs. Please proceed with your question.
Good morning, everybody.
Good morning.
Good morning, Susan.
I guess my first question is just - can you talk a little bit to ComfortCore maybe in the quarter overall bedding how that did, and anything that we should be aware of in the channel as we head into the President's Day weekend and kind of the sales events around that?
Sure. This is Mitch, Susan. So, for ComfortCore units continue to be very strong on the U.S. Spring side. They were running at about 62% of the units for the quarter, and about 48% of those included are quantum edge as well. So, I think that you know, the bedding outlook continues to be strong, I'll let Karl comment on any trends going forward into the holiday period.
Good morning, Susan. That as Mitch said, continued adoption of ComfortCore driven somewhat by the growth of hybrid mattresses, both compressed and uncompressed, is at a level -- the rate of 62% for the quarter, 56% for the year that we didn't anticipate. So, we are pleased with the launch of new product lines at the Las Vegas market, which was last weekend that there was a greater introduction of ComfortCore. The bedding industry feels pretty optimistic in terms of that there's relative stability in that industry, which is kind of a change, compared to last five years, and advertising investments seem to be in place new product launches, so there's excitement around there. We feel pretty good, Presidents Day is a tough one to call, I know there'll be heavy advertising going into it, but it's always one of those holidays that is performance is subject to weather, just because of being in February, but there is a build up to it. We're exciting. Bedding was a great story in 2019, and we expect the same in 2020.
Okay, great. That's very helpful. And then, you gave a lot of color around the impacts that you've seen over the last year and then into the beginning of this year from steel prices, and understanding that it's kind of hard for you to project going forward, but can you just kind of give us some sense of maybe what's going on in that market? You talked to the weakness of trade demand in your rod and wire segment in there. So, can just talk a little bit to, how we should think about that as we move through 2020? What's driving that weakness and demand, and any other color there?
Yes. Let's talk first pricing and then we'll go through weakness and trade demand, which is very different than our internal demand, but what happened is a continual deflation of input costs as 2019 progressed until November, where we saw the first move up in scrap. So, we saw steel scrap inflate in November at a rate of $20 a ton, followed by $25 a ton in December, and then $30 a ton in January. So, we're dealing now with kind of the reverse lag effect from the standpoint that is prices deflated in 2019. We kept that benefit for 90 days. We are flipping that situation in 2020, but because of the kind of oddities of year-end, we actually decreased our customer prices in January of 2020, because we adjust every quarter. So, where those contracts actually in the phase of our increase in input costs, we lower prices, because of lag effect. We will be increasing our customer's prices starting in April. So, with that, there is a LIFO swing. There is zero impact of LIFO expense in our forecast for 2020 as we laid out guidance, but who the heck knows to your point. So, that's what's happening from a pricing standpoint.
From a trade market perspective, again, this is trade, so think of us for about the 25% of the total tons that we produced from the perspective as you would a large public steel company. In that case, we are like them from the standpoint that our metal margins are okay. Margins aren't so bad, because of the deflationary cycle, but the demand is incredibly soft. It's not specific to any particular sector. It's just macro U.S. economic and export demand for steel products in virtually every channel of distribution. So, people may question, "Well, wait a second. The U.S. steel industry was protected by Trump tariffs last year, while the products weren't." So, there was a continued inflow of products in an environment, where export demand was very, very soft. So, from a trade perspective, that's really what happened in 2019, and we don't see a change in that in 2020. So, I apologize for the longwinded answer, but steel moves are really, really complex.
Yes, I know. That's very helpful, and it sounds like it's having quite an impact on the 2020 and how we think about the guidance. So that's really helpful for us. And in a…
That really does from a quarter perspective, Susan. So, expect Q1 is going to be negatively impacted by that pricing decrease, while costs are rising. So yes, it is impacting the kind of the quarterly sequencing.
Okay. And then, as we go through the year though, your comps also in that segment, I know the segments are going to change, so it's going to make it a little -- that's going to change things as well for us, but the comps get a little easier, and then as we move through the year, from a revenue…
Said differently, we will become more fully recovered from a margin perspective, but the revenues, you are right, because we have the business that we appropriately walked away from that still impacts us in the first-half of the year that we anniversary. So, Fashion Bed, that kind of headwind of Fashion Bed really goes away in the back half of the year, but we still deal with that legacy exposure in the first-half, and Home Furniture has little of that same situation, but we'll move to an inflationary environment, which will help offset some of that from a top line perspective.
Susan, I am going to go ahead and take an opportunity here really quick. You didn't specifically ask the question about kind of progression of sales guidance and margin, sort of progression through the year, but Karl has introduced that idea already. So, I'll complete that discussion by saying just to be clear, as we look at quarters throughout 2020, we expect sales in the first-half of the year to be down slightly, and then in the second-half of the year to be up slightly, and so the stuff he was talking about, you guys have alluded to, there's more impact from the excess volume in the first-half of the year, we've got the flip from deflation to inflation, but the second-half of the year, we expect to have anniversary most of the excess volume. So, that's on the sales side.
On the earning side, we would expect to see our quarterly margins, the margin trend to be very similar to what we experienced in 2019, including the first quarter being lower than our expectations for the rest of the year, and that gets to the steel lag that Karl was talking about flip on the steel side, and then for the full-year, we would pattern the margin progression basically to be flat to down slightly, versus each quarter in 2019, and then for the full-year 2019.
Okay, all right. That's very helpful. And then, I assume like as we get closer to you restating the information according to the new segments to -- we'll get some of that historical, so we'll have a sense of how to model it going forward?
Absolutely.
Yes, okay.
It actually will help things having that historic industrial and residential pulled together in this bedding segment, I think it should help, because there's been this kind of offset. You had to read through to try to figure out where the impacts and when the event in industrial was rolling through residential. So, I think it will help you from an analytic standpoint, and more importantly that's how we manage the business.
Yes, I know, I think it's going to be very helpful, and especially as we get ECS in there, and a lot of those pieces of that supply chain. So, I think it is going to be helpful. So, yes, I will let somebody else talk now.
We have a lot of time on that, so…
I know. I am going to let someone else talk now.
Thanks, Susan.
All right, thank you.
Thank you. Our next question comes from line of Daniel Moore with CJS Securities. Please proceed with your questions.
Thanks. Good morning.
Good morning, Dan.
I guess, wanted to start with just one or two real quick, number one, can you quantify the dollar amount or EPS impact of increased costs for some of the investments you described network cyber security etcetera as well as the increased employee benefit related costs in '20 versus '19?
Hi, Daniel, this is Jeff. Good morning. That number is approximately $10 million in total.
Between the two?
Between the two, correct.
Perfect. And second is more philosophical, but obviously remain committed to de-leveraging, which I know a lot of investors appreciate, given the guidance little light relative to expectations as well as just the incredible powerful cash generation. Why be quite that rigid the shares were to come under pressure for any reason disappointment, whatever, why not being perhaps a little bit more opportunistic and flexible regarding potential buybacks?
Hi, Dan, this is Jeff again. Thank you for the question. I think that's a very appropriate one, but I think if you will go back and look at what we discussed that Investor Day, I think we're going to stay very disciplined, very methodical and very intentional with our uses of cash. I mean, for us, we're going to continue to invest for growth from a prioritization standpoint, we're going to continue to protect the dividend and we're going to continue on the path to reaching our de-leveraging commitment that we've made to all of our stakeholders, and after that with comp share repurchases as a potential opportunity as well as acquisitions that may come down to path as well. So, the point is well taken, but for us, we're going to continue down that sequential path in terms of our prioritization of uses of cash.
Okay, understood. I'll pass it over. Thank you.
Thank you, Dan.
Thank you. Our next question comes from line of John Baugh with Stifel. Please proceed with your question.
Thank you and good morning. I guess we'll start with ECS, could you clarify -- I wasn't clear, I guess I'm interested in volumes in Q4 than the year. I think you said the year was up 11%, and then of course, you talked about non-bedding being weak. I'm curious for 2020 in terms of the guide, if we're looking at -- I think mid-single digits of volume up for ECS, how does that sort of break out between non-bedding and bedding?
Hi, John, this is Mitch. Yes, so far I think we see that the same trend that we saw in '19 in terms of decline in some of the non-bedding markets, but continued strong opportunities in 2020 in the bedding markets both with pure foam mattresses and hybrid mattresses.
Yes.
Sorry. We are going to see some continuing deflation in 2020, and it's -- and some of that's due to just the softness in the furniture market and the furniture bands at ECS though.
Okay, so it's the mid-single digit guide for volumes for ECS for 2020 comprised of high single or almost double in bedding and declines in non-bedding or any help?
Yes, John, I think that's accurate, and that melt-off of non-bedding and move to bedding from a margin perspective is good for us. Remember the non-bedding tends to be blocks of commodity foam to the most part replaced by higher value bedding related products that may be either specialty foam components or finished mattresses. So, the answer to your question is yes, we would expect that the bedding related side of it would be in the double-digit range. The net 5% is a continuation to Wendy's point of deflation, which continues through the year, even into the fourth quarter, and the softness of the non-bedding business.
Great, thank you. And then in the 2020 guide again on it looks like I guess excluding the exiting of the Fashion Bed on the Home Furnishings, but is the guide for volume exclusive of the exits also down, and if so, sort of how much and why?
At the midpoint, it's up about 2%, and there's an expectation we rattle off all these businesses that are growing mid-single digits, and you heard that list, so some thing is down, and that's a continued expectation of soft demand in the trade steel industries is the primary driver of that.
Okay. And then, incredible job on working capital in the year, and a huge source of cash, particularly in Q4 in accounts receivable, Jeff, was there something timing-related there, or how do we think about either working capital as a percentage of revenue for 2020, or what are some of the big moving pieces on that, obviously it's a tough compare?
All right, thanks for the question, John. I mean, first of all the team you're right did a tremendous job on working capital during the course of 2019, and you saw that reflected in the 9.9% ratio there. I mean there were quite a few efforts that were contributors in 2019 especially the combination of liquidating the inventory of the exit businesses that we've highlighted during the call and increased overall and the focus of inventory level reductions. You saw the deflation of raw material costs throughout the course of 2019, it also contributed to that. As we think about 2020 John for us, the rigor and the focus will not change or not let up at all, as it relates to our working capital efforts and improvements, but we don't see where we will have as many of those significant huge wins that we saw in 2019 and 2020. However, again the focus will continue to be there and will continue to drive that result as best we can across the organization.
Great. And my last question is just sort of this high level focus that's taking hold on the investment side of the world on ESG, I'm wondering kind of where you are internally thinking about that, whether you hired a consultant or sort of measuring yourself, what early inning gleanings you may have on that, and what we might expect going forward? Thank you.
Yes. Hi, John. This is Wendy. Yes, we are working on ESG. We hope to finalize our first sustainability report sometime in 2020. We're working with some external consultants to help us as you know, we feel like we've long been doing the right thing and have a really strong story to tell from an ESG perspective, but gathering all that information from our different businesses around the world has had been a challenge. And so, we have some help to do that. So we're thanks for the question. And we're looking forward to being able to issue that for sustainability report. But there is a lot of work going on across the company on those factors every day, not in order to report great ESG but because it's the right thing to do in our businesses, but we are going to be pleased to be able to report them later this year.
Great, thank you and good luck.
Thank you, John.
Thank you. Our next question comes from the line of Bobby Griffin with Raymond James. Please proceed with your question.
Good morning, everybody. Thank you for taking my questions and hope everybody is doing well. But just quickly, Susan I want to go back to your comments about the regression for the year just to make sure I'm grasping it correctly, but for 1Q based on the steel, sequential kind of inflation that you're seeing from steel on the input side, we would want to model or the expectations for 1Q EBIT margins to be down year-over-year in the low point of 2020?
We would -- year-over-year in the first quarter expect each of the quarters not just the first quarter, but each of the quarters to be maybe in line with or slightly below what the prior year's quarter was. That means sequentially, it goes down from fourth quarter to first quarter because of the steel issues that Carl was talking about and just normal seasonality, frankly with our fourth quarter to first quarter in that business, very aggressive businesses.
Okay. And that would mark…
In case the low point to your question, the low point being the first quarter.
That's right.
Okay, okay, that's helpful. And I realized you guys are still doing some of the initial work on what the potential impact could be from the virus but can you maybe just remind us of what products are produced in China that are consumed backed by the U.S. consumer because I know typically you set up your production as produced in the local country consumed by the local country. So any color on that would be helpful.
Good morning, Bobby. This is Mitch. We are happy to comment on that. So we have 16 plants, as we mentioned in China, probably the biggest China to U.S. shipment comes in our home furniture business. There's some of that that's consumed by our customers in China converted to finish goods and then comes to the U.S. as well as best direction for us from China to the U.S. And then, we have 10 automotive plants in China. And as you mentioned, primarily those are local production for the local market, but there is some portion of our -- of those goods, particularly motors and actuators that are consumed all around the world, including Europe and the U.S. So those are probably the two largest impacts. There's a small operation on the work furniture side that has shipments to the U.S. but home furniture, automotive are probably the biggest exposures.
Okay. That's very helpful. And I guess lastly for me, Mitch, I think this would probably be back towards you again, but can you made a comment a little bit of detail on hydraulic cylinders? We had another decline in the fourth quarter, maybe what would happen over the last two quarters in that business, and then, maybe the outlook going into 2020 for that growth area?
Okay, Bobby. Sure. Yes, it's been a bit tough. Sales were really strong in hydraulic cylinders from the second quarter of '18 through the second quarter of '19. And then, really began to fall off rapidly. Our customers, who are really the leading forklift producers, started forecasting significant demand drops at 15% to 20%, and that's really what we started to see in Q3 and again saw that accelerate in Q4, we don't have a lot of great data but the industry data we do see shows that shipments were down over 20% in the fourth quarter, so, pretty much in line with where we were and down 13% for the full-year, again, with that same kind of accelerating decline trend in the fourth quarter. We expect some of this impact to continue as we look into 2020 probably, at this point we would see sales year-over-year down in the low double-digits.
I appreciate all the detail, best of luck in 1Q and in 2020.
Thanks, Bob.
Thank you.
Thanks, Bobby.
Thank you. Our next question comes from the line of Keith Hughes with SunTrust Robinson Humphrey. Please proceed with your question.
Thank you. Just a question on pricing, you talked about the raw material relationship throughout this call, with pricing you're going to be putting on your customers coming in April. I think you're talking about spring related products there. Can you talk about your foam products, what pricing it's looking like going into the New Year on that product?
Steel it's hard to forecast, but we think that the foam chemical inputs have stabilized. There was a little bit of a continued deflation in the fourth quarter but at a much lesser rate. So we think it's near bottom. Keith, there's frankly not a lot of room to go. Coronavirus may have some impact on it that, but we think we're at bottom, but we have not seen any signs of recovery. So in steel, we certainly are seeing inflationary cycle. We do not have that call on foam chemical inputs.
Okay. Second question, excuse me, on the shape of the year, is the LIFO impact going to be spread out evenly over the year, or is it a quarter-by-quarter sort of determination based on where inputs have moved?
Keith, we're starting the year with zero LIFO in 2020.
All right.
So, if nothing else changes, LIFO purely as a standalone element would basically unwind from last year. So, in quarter-to-quarter I think increased a little bit first quarter, second quarter, the third quarter and fourth quarter. We can provide these amounts to you, if you need the extra details.
Yes, I'll probably get those from you. I'll probably get those from Wendy offline.
Yes, I have that report. We don't -- I mean, it's also we don't know, Keith, we will update our LIFO estimates as the quarters progress, but it's way too early to make a call.
Yes, I didn't know if you either accrued something, and then make adjustments to the accrual as time went along, or just as that somewhat later?
That's how it works Keith, but again - because it's so early in the year, it's too early to make a call on where we think steel, the cost of our steel inventory will be at December 31, and that's - so those are the quarterly adjustments we make, and then we threw it up at the end of the year.
Okay. Final question, on the Home Furniture products, you've been moving LIFO businesses there, where are you in this process, you would call that out it's kind of a negative for the year, I thought that was mostly done as something else might come up on the radar that you just don't want to do anymore?
This is Mitch, Keith. No, you're right; it is essentially complete on the restructuring. We're looking at the year-over-year comparisons, we will continue to show some decline from revenue standpoint, and as Karl mentioned, we will face that in particularly in the first-half of next year as well, but from the point of the restructuring around improving margins and earnings that's been very successful, teams have done a great job there.
Keith, when you think about steel moving from a deflation to an inflationary environment, you remember the last time we went through this cycle, we had a hard time passing through steel inflation in a portion of our Home Furniture business, that we no longer participate in the side of the business and in Fashion Bed, which we no longer participate in. So we feel that as we move into this steel inflationary cycle, our company is better positioned and the pricing power that we had years ago, we now have again, and with a lot of good work and Home Furniture.
Yes.
And from again, going forward just to add-on in your Fashion Bed that exit, it will be particularly as we go into next year, those are significant dollars just don't repeat as we exited Fashion Bed.
Okay, thank you.
Thank you. [Operator Instructions] Our next question comes from line of Peter Keith with Piper Jaffray. Please proceed with your question.
Hi, thanks a lot. Good morning everyone. I didn't want to dig into the auto business because you guys have actually done quite well there the last two quarters. I think with global market down five, you guys rebate? So, now you're back to outperforming the industry by over 1,000 basis points. Could you help us understand what's going on with some of that performance and if there's any ongoing continuation of that?
Yes, sure Peter. This is Mitch. Yes, and all it took was taking the basis point that 1000 basis points targeted were killing each other.
So we're…
Great, great timing, but no, I think we're glad that we did that. I mean - as we said before, it really is a long-term target. But we think it's fair to look at ourselves against you how the overall markets performing. But again, that's a longer term kind of basis. We did have stronger Q3 and Q4, as we expected, right, as we know it early in the year was tough to have confidence in us, but we I think we came through with what we expected, and I think we continue to see that same kind of optimism in 2020. Right now, I think we'd see somewhere in the mid-single digits improvement year-over-year for 2020 with the market right now, flat to down half of 1% who knows I think that'll continue to move around a bit, but we continue to have strong gains, content and new products. So, I think we remain very positive on that business.
Okay, thank you. Then I wanted to ask a question around spring and also the adjustable basis. So the U.S. spring business accelerated sequentially, but the raw material headwind also picked up notably, if I'm remember correctly, I think you did cut prices at the beginning of Q4. So, the two part question would be, does that imply the units of spring, which I know you don't report anymore, but did that accelerate it with the fourth quarter and then on a related note, why did the adjustable beds business pick up so strongly in Q4?
I'll take the mattress units. It's really a content story. For us to run 62% ComfortCore, as Mitch said, and then connectivity to an increasing adoption of Quantum Edge, so it's dollars are significantly outpacing units, but on adjustable…
Yes, on adjustable, yes, very strong quarter, up over 20%, but it's also you have to look - it was strong, it's been strong for the last few quarters I think that outsized year-over-year comparison is in part because of a very weak Q4 in '18. So the run rate was good, but pretty consistent with what we've been seeing for the last few quarters.
Okay. And lastly from me just on which is trying to understand the timing of processes and price increases, so are we corrected it was the beginning of Q4 there was a price cut. Now there's another one at the beginning of Q1, and that would be followed by a price increase in April. I guess I'm trying to get at is that raw material headwind looks like it could have a -- worse in Q1 and then start to stabilize and in Q2 to Q4?
You're exactly right based on what we know today. You're absolutely accurate.
Okay, thank you very much, guys.
Thank you, Peter.
Thanks, Peter.
Thank you. Our next question is a follow-up from the line of Bobby Griffin with Raymond James. Please proceed with your question.
Yes, thank you. Let me ask one more, I just want to quickly touch on the fabric and flooring product segment. How did that perform during the quarter, and is we haven't talked about in a while, but is that business still kind of the same strong cash flow generation business that we used to talk about it before?
The answer is yes. It's a really good business that consumes very little capital. Mitch and the team have done a really good job of winning those businesses out from working capital perspective. So, a greater focus there, but in floorings case, it's slow growth. Matter of fact, we would call it probably over time. Carpet adoption is probably negative 2% to 3% a year, but its returns on capital employed are very, very high as it's the proverbial cash cow, it's a good business. The fabric business is somewhat similar to that with the exception of geo components, which we continue to invest in and is performing very, very well.
Okay, I appreciate that. Thank you for the update.
Thanks, Bobby.
Thank you. Our next question is another follow-up from Susan Maklari with Goldman Sachs. Please proceed with your question.
Hello again.
Hello, Susan.
Karl, in your remarks you said that your arrows space volumes were up 11% in the quarter. Can you just give us any color there? Has there been any disruption as it relates to obviously some of the issues that the OEMs have been having this year with some of their models and, how are you seeing the health of that supply chain and how we should be thinking about that for 2020?
Susan, I just read numbers, Mitch is going to answer the question.
Okay, all right, we will let Mitch talk.
Okay, I will give it a shot. Yes. So, we actually haven't seen disruption so far. Of course, the Boeing 737 max production halt is big news in the industry, but the supply chain deep the supply chain had been struggling to catch up for a long time. And so while they have stopped production, it really hasn't impacted us at this point. We're also seeing really strong production on some of the engine platform that we are on and remember we service not only Boeing, but the Airbus planes as well. And so that's really what has been driving our strong growth in the last couple of quarters, particularly in on our fabrication facilities in the U.S. and in Europe, and we see that continuing into 2020. I think that right now our outlook is for low double-digit growth there, and aerospace continuing.
All right. All right, very good. Thank you.
Thank you.
Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Ms. Watson for any final comments.
Thank you everybody for your attention and questions this morning, and we will talk to you again next quarter.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.