Free Annual Reports
Reclining Profits Make for a La-Z Stock (LZB)
I'm a firm believer in the following epigram: There are only two types of companies -- ones that have problems and ones that are going to have problems.
I also believe it's preferable to buy the former and eschew the latter, which is why I'm warming up to furniture manufacturers.
And the furniture manufacturers have had their problems, to be sure.
One of the principal problems has been housing, which the sector's fortunes are so closely linked to.
In 2006, new home sales plunged 17.3%, the most since 1990, while previously owned home sales dropped 8.4%, the most since 1989.
Moreover, home prices have contracted in many markets and homebuilder activity has slowed to a glacier-like pace.
If that weren't bad enough, since the early 1990s, U.S. furniture manufacturers have been losing market share to foreign producers. According to U.S. government data, furniture imports have risen at about four times the rate of domestic furniture sales.
Still, it's a big market the furniture manufacturers are scrapping in. Domestic manufacturers and their foreign confreres produce roughly $15 billion in annual sales, with the top five manufactures accounting for about 55% of those sales. The top three publicly-traded domestic manufacturers include Furniture Brands International (FBN), La-Z-Boy (LZB), and Ethan Allen (ETH).
My favorite of this downtrodden triumvirate is La-Z-Boy, the largest reclining-chair manufacturer in the world, and North America's largest producer of upholstered furniture. The company offers upholstered products under the Bauhaus, Clayton Marcus, England, La-Z-Boy, and Sam Moore names.
To remain competitive, U.S. furniture manufacturers have been shifting production to Asia, where they can take advantage of a large, skilled and relatively cheap labor force.
To that end, La-Z-Boy recently closed most of its casegoods plants in order to outsource production across the Pacific. This year, the company plans import furniture fabric kits, leveraging both the cost-saving opportunities presented in Asia and the manufacturing prowess of its domestic base.
Admittedly, La-Z-Boy is going nowhere fast, at least in early 2007. Revenues are expected to decrease to $1.9 billion and then increase slightly in 2008, with EPS coming in at $0.35 and $0.45 for each year, respectively.
That said, La-Z-Boy's brand and pricing strength should stanch the effects of further market weakness. What's more, the company's conservative balance sheet should help it weather any turbulence. The current debt-to-equity ratio, 0.27, is low and is below the industry average, implying La-Z-Boy successfully manages its debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.6, which illustrates an ability to avoid short-term cash problems.
The coming year is expected to witness still slower growth in new housing activity. In the near term, soft secular demand will likely pressure the sector's financial results.
But while you're waiting for the inevitable rebound, you're waiting with a company that has one of the strongest brands in the industry that has a stock sporting an annual dividend of $0.48 that provides a 3.5% yield. And you're getting it at a 20% discount to its 52-week high.
I also believe it's preferable to buy the former and eschew the latter, which is why I'm warming up to furniture manufacturers.
And the furniture manufacturers have had their problems, to be sure.
One of the principal problems has been housing, which the sector's fortunes are so closely linked to.
In 2006, new home sales plunged 17.3%, the most since 1990, while previously owned home sales dropped 8.4%, the most since 1989.
Moreover, home prices have contracted in many markets and homebuilder activity has slowed to a glacier-like pace.
If that weren't bad enough, since the early 1990s, U.S. furniture manufacturers have been losing market share to foreign producers. According to U.S. government data, furniture imports have risen at about four times the rate of domestic furniture sales.
My favorite of this downtrodden triumvirate is La-Z-Boy, the largest reclining-chair manufacturer in the world, and North America's largest producer of upholstered furniture. The company offers upholstered products under the Bauhaus, Clayton Marcus, England, La-Z-Boy, and Sam Moore names.
To remain competitive, U.S. furniture manufacturers have been shifting production to Asia, where they can take advantage of a large, skilled and relatively cheap labor force.
To that end, La-Z-Boy recently closed most of its casegoods plants in order to outsource production across the Pacific. This year, the company plans import furniture fabric kits, leveraging both the cost-saving opportunities presented in Asia and the manufacturing prowess of its domestic base.
Admittedly, La-Z-Boy is going nowhere fast, at least in early 2007. Revenues are expected to decrease to $1.9 billion and then increase slightly in 2008, with EPS coming in at $0.35 and $0.45 for each year, respectively.
That said, La-Z-Boy's brand and pricing strength should stanch the effects of further market weakness. What's more, the company's conservative balance sheet should help it weather any turbulence. The current debt-to-equity ratio, 0.27, is low and is below the industry average, implying La-Z-Boy successfully manages its debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.6, which illustrates an ability to avoid short-term cash problems.
The coming year is expected to witness still slower growth in new housing activity. In the near term, soft secular demand will likely pressure the sector's financial results.
But while you're waiting for the inevitable rebound, you're waiting with a company that has one of the strongest brands in the industry that has a stock sporting an annual dividend of $0.48 that provides a 3.5% yield. And you're getting it at a 20% discount to its 52-week high.
by
Stephen Brown
Stephen P. Brown is a Chartered Financial Analyst, former equity analyst, investor, and freelance financial writer living in Brighton, Colorado. His work has been published in Barron's, CFA Magazine, Wealth Manager Magazine and The Denver Post.
Free Annual Reports
