In the Furniture world, Leggatt & Platt (NYSE:LEG) announced first-quarter earnings in April, and they were outstanding. Its management expects 2010 revenues of at least $3.1 billion and earnings per share of 95 cents. Over the last 28 months, it's achieved total shareholder returns of 49%, compared to negative 13% for the S&P 500. It's still a buy. Also, Ethan Allen (NYSE:ETH), with stock that was off 62% in the past five years, was still generating free cash flow. Since then, both it and La-Z-Boy (NYSE:LZB) have delivered encouraging third quarter results. The question now becomes, which is the better buy?
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Ethan Allen's third-quarter sales grew by 5%, while its nine-month net delivered sales declined by $108 million, or 20.3%. La-Z-Boy's third quarter sales grew by 5.7%, while its nine-month sales dropped $73.7 million, or 7.8%. Clearly, Ethan Allen's sales have been affected more so than La-Z-Boy's have. To put these numbers in perspective, Natuzzi (NYSE:NTZ) just reported first-quarter sales growth of 13.6%. It's obvious from these results and those of others like Tempur-Pedic (NYSE:TPX) and Pier 1 (NYSE:PIR) that the furniture business is slowly getting its groove back. They're not out of the woods yet, but they can see the road.
Ethan Allen suffered a third quarter operating loss (excluding impairment charges) of just $2.4 million, compared to a $19.0 million loss a year earlier. That's moving in the right direction. For the first nine months of 2010, its operating loss was $22.2 million, compared to a nine-month operating profit of $1.7 million in 2009, excluding restructuring charges. This tells me this past quarter is a turning point for the Connecticut company. As for La-Z-Boy, it delivered a 2010 third-quarter operating profit of $14.1 million, compared to a loss of $15.1 million year-over-year, excluding impairment charges. For the first nine months of 2010, its operating profit was $26.2 million, compared to an operating loss of $49.9 million in 2009. Once again, the turning point was the third quarter. La-Z-Boy wins when it comes to profitability.
Comparing EBITDA with total debt, La-Z-Boy is the stronger company. Its trailing twelve-month EBITDA is $58 million, while its total debt is $49.3 million. Ethan Allen's trailing 12-month EBITDA is $7.1 million, while its total debt is $203.2 million. La-Z-Boy has one-quarter the debt and eight-times the EBITDA earnings. La-Z-Boy's free cash is 7.4% of sales, compared with 5.7% for Ethan Allen. The only thing going in Ethan Allen's favor is cash. It has $73 million in cash, about the same amount as La-Z-Boy, but it has half the revenue. That's not much, but it's something.
The Bottom Line
La-Z-Boy and Ethan Allen's market caps are within $25 million of each other. Multiply their forward price-to-earnings ratios with price-to-sales, price-to-book and price-to-cash flow and you'll find that Ethan Allen's number is about 10-times that of La-Z-Boy. In fact, by all four valuation metrics, La-Z-Boy is the cheaper stock. However, if you want to buy the best stock, Leggatt & Platt is the way to go. (For more stock analysis, take a look at The World Cup 2010 Portfolio.)
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