Leggett & Platt Q3 2022 Earnings Call Transcript

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November 1, 2022

There are 10 speakers on the call.

Operator

Greetings, and welcome to the Leggett and Platt Third Quarter 2022 Webcast and Earnings Conference Call. At this time, all participants are in listen only mode. A brief question and answer session will follow the formal presentation. At this time, I will now introduce your host, Susan McCoy, Vice President of Investor Relations. Thank you, Ms.

Operator

McCoy. You may now begin.

Speaker 1

Good morning. Thank you for taking part in Leggett and Platt's 3rd quarter conference call. On the call today are Mitch Dollop, President and CEO Jeff Tate, Executive Vice President and CFO Steve Henderson, Executive Vice President And President of the Specialized Products and Furniture, Flooring and Textile Products segments Tyson Hagel, Senior Vice President and President of the Vending Products segment and Cassie Branscum, Senior Director of IR. The agenda for our call this morning is as follows. Mitch will start with a summary of the main points we made in yesterday's press release and discuss operating results and demand trends.

Speaker 1

Jeff will cover financial details and address This conference call is being recorded for Leggett and 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 Weigit's website. We posted to the IR portion of the website 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.

Speaker 1

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 And the sections in our most recent 10 ks and subsequent 10 Q entitled Risk Factors and Forward Looking Statements. I'll now turn the call over to Mitch.

Speaker 2

Good morning, and thank you for participating in our Q3 call. The current global economic environment and its impact on the consumer negatively impacted our Q3 results. Sales were $1,290,000,000 EBIT was $113,000,000 and earnings per share was $0.52 Sales in the quarter were down 2% versus 3rd quarter 2021, primarily from lower volume and currency impact, partially offset by raw material related price increases. The volume decline was driven by continued demand softness in residential end markets, partially offset by growth in automotive and industrial end markets. EBIT decreased 21% versus Q3 2021, primarily from lower volume, lower overhead absorption from reduced production and operational inefficiencies in specialty foam, partially offset by metal margin expansion.

Speaker 2

Earnings per share decreased 27% versus Q3 2021. We lowered our full year guidance on October 10 to reflect lower demand levels in the increasingly challenging macroeconomic environment. 3rd quarter earnings per share were Slightly better than expected, primarily due to incentive compensation adjustments. At the midpoint of guidance, 4th quarter is now expected to be Slightly lower than the Q3, primarily due to further reductions in steel rod production in response to the slowing steel market. We completed 2 acquisitions in August and 1 in October.

Speaker 2

In late August, we acquired Pekoma Hydraulic Technology, A leading global manufacturer of hydraulic cylinders primarily for the heavy construction equipment industry. With sales of approximately $65,000,000 in 20 21 and operations in Germany, China and the U. S, Vekoma is the next step in executing our strategy to pursue profitable In August, we also acquired a small Textiles business that converts and distributes construction fabrics for the furniture and bedding industries. In early October, we acquired a small Canadian based distributor of products used for erosion control, stormwater management and various other applications. We welcome the employees from all three businesses to Leggett and Platt.

Speaker 2

Now moving on to the segments. Sales in our Betting Products segment were down 12% versus Q3 of 2021. Volume declines from soft demand in U. S. And European bedding markets, along with currency impacts, were partially offset by raw material related selling price increases And trade sales growth in our steel rod and drawn wire businesses.

Speaker 2

Demand in the U. S. Bedding market was fairly stable versus 2nd quarter, but remains at relatively weak levels as macroeconomic impacts on consumer spending persist. Our Specialty Foam business has experienced larger demand impacts as a result of previous pandemic related supply issues and channel specific pressures. Demand in European bedding has declined more significantly amid geopolitical disruptions, the ensuing energy crisis and the related Commodity costs have been more stable, although at historically high levels.

Speaker 2

Other manufacturing inputs, including energy costs, continue to increase. We are carefully managing these costs and the impact to our business and customers. We are reducing inventory across the segment to levels needed to support demand while maintaining focus on our ability to service customer requirements. Sequential softening in trade demand for steel rod drove 3rd quarter steel inventory levels higher. Given the bedding demand environment and the slowing steel market, we We are cutting production days in our steel rod business during the Q4 to reduce those inventories.

Speaker 2

EBITDA margins in the segment were lower versus Q3 2021, primarily from lower volume and lower overhead absorption as production levels adjusted to meet reduced demand and operational efficiencies in specialty foam, which are being addressed by continuing integration work. These decreases were partially offset by expanded metal margins in our steel rod business. Sales in our Specializ Product segment increased 24% versus Q3 2021 from strong volume growth in all three businesses, raw material related price increases and the Vekoma acquisition in late August. These improvements were partially offset by currency impact. While improving year over year, automotive industry production forecasts remain dynamic as supply chain and geopolitical impacts bring continued volatility.

Speaker 2

The current industry forecast for global production shows just over 5% growth in the major markets this year, reflecting relative strength in North America And China and weakness in Europe. Consumer demand remains strong and vehicle inventories, while continuing to recover, still remain at record low levels. However, raw material and labor shortages are creating some volatility across the industry. End market demand in hydraulic cylinders is strong and order backlogs in both the Material Handling and Heavy Construction Equipment market segments remain at elevated levels. Our OEM customers generally are seeing some improvement in production levels.

Speaker 2

However, elevated order backlogs While EBITDA margins decreased, EBITDA dollars increased primarily from higher volume, partially offset by currency impact, higher raw material cost and labor inefficiencies. Cost recovery is improving in automotive, but at a slower rate than expected. Sales in our Furniture, Flooring and Textile Product Segment were flat with Q3 2021 as raw material related selling price increases and higher volume in geocomponents and work furniture were offset particularly at mid to lower price points with slower consumer demand and excess inventory at retail. This is also impacting volume in fabric converting. Work furniture sales continue to grow in the Q3, largely from improved contract demand.

Speaker 2

However, overall order rates are beginning to soften, reflecting economic uncertainties. In Flooring Products, residential demand has softened modestly with lower home improvement activity. Hospitality demand is slowly improving, That remains well below pre pandemic levels. GEO component demand remains solid, particularly in the civil construction market and to a somewhat lesser In retail, EBITDA margins in the segment decreased versus Q3 2021, primarily from lower volume, partially offset by pricing discipline. We continue to focus on the things we can control and are taking actions to mitigate the impact of this challenging environment by aligning cost, production levels and inventory with demand.

Speaker 2

We also are evaluating near term opportunities with our customers and are working with them on new product developments. And we are continuing to build out our existing businesses Through acquisitions. Our strong balance sheet and cash flow give us confidence in our ability to navigate challenging markets while investing in long term opportunities. Finally, I would like to thank our employees for your dedication, commitment and strength. Your collaboration And then, agility enables us to rapidly assess and respond to dynamic circumstances in our various end markets around the world.

Speaker 2

Your efforts are very much appreciated. I'll now turn the call over to Jeff.

Speaker 3

Thank you, Mitch, and good morning, everyone. In 3rd quarter, we generated cash from operations of $65,000,000 Up $15,000,000 as compared to $50,000,000 in Q3 2021, reflecting a much smaller use of cash for working capital, Partially offset by lower earnings, working capital increased significantly last year due to restocking efforts following the inventory depletion in 2020, but increased to a lesser extent this year as we continue to return to inventory levels more reflective of current demand. This improvement was partially offset by a decrease in accounts payable as purchases slowed due to lower volume and our efforts to reduce inventory levels. We ended the Q3 with adjusted working capital as a percentage of annualized sales of 16.6%. Our priorities for use of cash are unchanged.

Speaker 3

They include an order priority funding organic growth, paying dividends, Funding strategic acquisitions and share repurchases with available cash. Capital expenditures in the 3rd quarter were $25,000,000 In August, our Board of Directors declared a quarterly dividend of $0.44 per share, dollars 0.02 or 5 Higher than last year's Q3 dividend. At an annual indicated dividend of $1.76 The yield is 5.3% based upon Friday's closing price, one of the highest among the dividend kings. We used $63,000,000 during the Q3 for 2 acquisitions, a hydraulic cylinders business and a textile business that Mitch previously mentioned. With the deleveraging we accomplished over the past few years, share repurchases have returned as one of our priorities for use of cash.

Speaker 3

The level of repurchases will vary depending on various considerations, including alternative uses of cash and opportunities to repurchase shares at an attractive price. During the Q3, we repurchased 90,000 shares at an average price of $38.42 per share For a total of $3,000,000 This brings year to date repurchases to 1,700,000 shares or $60,000,000 During the quarter, we used our commercial paper program to repay $300,000,000 of 3.4 percent 10 year bonds that matured in August. We ended the 3rd quarter with net debt to trailing 12 month adjusted EBITDA of 2.63 times And total liquidity of $1,000,000,000 Our strong financial base gives us flexibility when making capital and investment decisions. We remain focused on cash generation, while maintaining our balance sheet strength and deploying capital in a balanced and disciplined manner That positions us to capture near and long term growth opportunities, both organically and through strategic acquisitions. Now moving to guidance.

Speaker 3

On October 10, we lowered our full year guidance for sales, earnings per share and cash from operations. 2022 sales are now expected to be $5,100,000,000 to $5,200,000,000 roughly flat to up 2% Over 2021, guidance reflects volume down high single digits with the bedding product segment down mid teens, Specialized Products segment up low double digits and Furniture, Flooring and Textile Products down low single digits. The guidance also assumes raw material related price increases net of currency impact to mostly offset volume declines. And acquisitions, net of small divestitures should add 1% to sales growth. 2022 earnings per share are now expected to be in the range of $2.30 to $2.45 The decrease versus Q2 guidance primarily reflects lower expected volume, reduced production, slower than anticipated cost recovery in automotive and operational inefficiencies in specialty foam.

Speaker 3

Based upon this guidance framework, our 2022 full year EBIT margin range Should be 9.5% to 10%. Earnings per share guidance assumes a full year effective tax rate of 23%, Depreciation and amortization to approximate $180,000,000 net interest expense of approximately $80,000,000 And fully diluted shares of 137,000,000. Cash from operations is now expected $400,000,000 to $450,000,000 for the year. This is below 2nd quarter guidance, primarily due to lower expected earnings and higher expected working capital as we continue to balance inventory levels. For the full year 2022, We expect capital expenditures of approximately $115,000,000 and dividends of approximately $230,000,000 In closing, Leggett and Platt remains well positioned to navigate the challenging economic environment and capitalize on long term opportunities in our various end markets.

Speaker 3

Our enduring fundamentals give us confidence in our ability to continue creating long term value for our shareholders. With those comments, I'll now turn the call back over to Susan.

Speaker 1

Thank you, Jeff. That concludes our prepared remarks. We thank you for your attention and we'll be glad to answer your questions. Operator, we're ready to begin the Q and A session.

Operator

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

Speaker 4

Thank you. Good morning, everyone.

Speaker 2

Good morning.

Speaker 4

My first question is focusing a little bit on the Some of those inefficiencies that you're seeing in the specialized foam segment of bedding, can you talk a bit about the efforts that you're undertaking there To move past some of them and any thoughts on the timeline and how that could come together over the next couple of quarters?

Speaker 2

Yes, great question, Susan. Tyson, I'll pass that over to you. You're deeply involved in that.

Speaker 5

Sure. Good morning, Susan. We'll recall when Leggate acquired ECS, It was 4 companies that were being brought together and that was in 2019. So our integration efforts were underway and then really had to be paused once we entered the pandemic. The biggest headwind, of course, we have is demand and we've documented those.

Speaker 5

That channel of the betting market has been More challenged than the rest due to the customer acquisition costs and a bit of a shift away from direct to consumer back to brick and mortar over the last 12 months or so. But specifically during the pandemic, like everybody else, we were really struggling with labor and also had a difficult time obtaining chemicals. And our priority really became to service as much business as we possibly could during that time. And frankly, we developed some production inefficiencies during that time with those efforts. Primarily, that's around our labor usage and efficiency and then also our material scrap.

Speaker 5

And while business has been slow, we are working through those issues. We've invested in our equipment and automation. We're also working to stabilize our labor force and improving our processes and controls around material. We're already making some progress. It is going to take us a bit of time.

Speaker 5

I would say it will take us into next year to really get our footing underneath this there. But the good news is these are fixable problems. These aren't things that are out of our control and we can definitely address them and already have those underway.

Speaker 4

Okay. That's very helpful color. And then perhaps shifting to the specialized segment, you obviously saw a really nice lift in those automotive volumes, actually the volumes Across all three of those businesses this quarter, can you just talk a little bit about the outlook there and how you're thinking about the rate of Production in those three businesses and perhaps with that too, any commentary on how you're thinking of the pricing piece of that, The ability to catch up on some of the inflation that you've been hit with?

Speaker 2

Sure, Susan. There's a lot Back there. So I'll dive in a little bit and then Steve, I'll turn it over to you. But from an auto side, I think we continue to see production increase Chip shortages start to soften a little bit, but it's still relatively volatile, but improving. I will remind you that the Q3 of last was really the lowest point of production for the industry overall.

Speaker 2

So that big 25% or so increase year over year was a bit of a is a bit of an outlier. But we do expect continued sequential improvement across the industry and in our business as well. So the industry forecast for the Q4 is up about 5% or 6 Year over year, I think it's about the same sequentially. So we would see that growth as well. We continue to make progress on the cost recovery in automotive, But it was taking a little bit longer than expected.

Speaker 2

The industry, as I've commented before, just works on fixed pricing with cost downs over the life of those programs. So It really takes enough time for pressure to mount up across the supply chain that OEMs are really forced to And that is taking place, but it's a really complicated process that takes quite a bit of time. So Again, making progress, confident in our ability to continue to make that progress, but it will probably take us through this year and maybe into even the Q1 or so, but Hard to predict that, which is part of what changed from our previous guidance. And let me remind you that the recoveries can Take multiple forms, whether it's just price changes or one off payments or value engineering or delayed cost down. So I think that For us, the outlook for the automotive industry remains very strong, might be a little bit dynamic as we navigate the geopolitical or macroeconomic Times that are out there, but the backlog and demand is there.

Speaker 2

The inventories remain at very low levels and the remain at very low levels and the average age of vehicles is also extended. So I think there's a long term tailwind there for us to benefit from. Also very positive dynamics in aerospace and in hydraulic cylinders, probably even stronger Growth there in the near term. But Steve, I'll turn it over to you to add more comments there.

Speaker 6

All right, Mitch. Thank you. Good morning, Susan. So I'll start maybe with aerospace up 26%. So demand Is improving and that's really being driven still by the single aisle planes.

Speaker 6

Consumer travel is at or exceeding Numbers prior to the pandemic, fuel costs are driving the need for more efficient planes and really the challenges And cost of making the planes airworthy after sitting 3 years is a challenge. So that's really what's driving the growth. And as a result, Teal had Teal, which is the company that forecasts in that industry, they've reduced 2022 slightly to About 82% of 2018 levels, but have increased the 2023 forecast by 8%, so basically offsetting the 'twenty two Reduction in getting to 100% of 2018, so pretty significant forecast increase. Airbus is recovering faster than Boeing, which you probably have heard. So as that demand It's improving raw material and labor shortages are creating a little bit of volatility across that industry, somewhat similar to what we've seen In automotive, but very, very positive as we work through that.

Speaker 6

You mentioned pricing, Purchase price cost changes, we're largely able to pass those on to our customers. And then in the hydraulic cylinders area, Yes. As Mitch mentioned, the industry backlogs are at high levels for both material handling and heavy construction. We'll probably do that well in 2023, some of our customers like Caterpillar significantly beat their 3rd quarter earnings. It said demand It remains healthy across most of their end markets during the quarter.

Speaker 6

So that's a positive for us. And then Would be remiss if I didn't talk a little bit about the acquisition, Pekoma that we made in late August, which fits really well with our hydraulic strategy For technologies and as well as the macro trends towards emission reduction and autonomous equipment in that area, There are leading manufacturers of hydraulic cylinders that primarily serve the heavy construction equipment industry such as like large excavators And wheel loaders, operations in Germany and China and distribution in the U. S. And have 2021 sales of about $65,000,000 So it represents our next step to pursue profitable growth in the engineered hydraulic component space, Increases our participation in industrial markets, which is also very positive, brings some scale and now the Total business will be around $200,000,000 and that group has been able to largely pass pricing And as necessary as well, so pretty exciting things going on in that business unit.

Speaker 4

Great. That was a great overview. Thank you. And I'll get back in the queue.

Speaker 2

Thank you, Susan.

Operator

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

Speaker 7

Good morning, everybody. Thank you for taking my questions.

Speaker 2

Good morning, Bobby.

Speaker 7

First off for me is just kind of the earnings power of the business and today's economic I mean, clearly tough to predict what's going to happen going forward. So when we look at the back half year of 2022 And kind of take that, the business implies it's going to earn maybe $1,000 $1 or $2 and we annualize that out. Is the right way for us Think about that in today's economic environment, it's a $2 to $2.05 earnings business. In order for that to grow, we need the economic environment to improve or there's some other levers that you would tell us to keep in mind as we're Thinking about the underlying earnings power of this business in 2023?

Speaker 2

Yes. Great question, Bobby. And I'll make some initial Amit and Jeff maybe ask you to jump in as well with some of the maybe financial details. But Bobby, I think it is undoubtedly a dynamic environment, has Been for quite a while. We all know that.

Speaker 2

Tyson talked about some of the improvement efforts that we have underway at ECS. We mentioned the Cost recovery that we're making in automotive also improving some of the operational execution there. But beyond that, I think that there is more that we can do Control that business those businesses. I mean, first off, you see the stronger performance in the industrial markets and automotive. So we expect that We've also seen, while maybe a little bit lower in so the Furniture, Flooring and Textiles Business is still relatively stable.

Speaker 2

But beyond that, we can move to really balance our variable cost structure Inventories with demand, we've been doing that, I think, very actively. But we can also really actively assess our fixed cost across The whole business and our corporate structure, you remember that in 2020, we reduced fixed costs by about $90,000,000 and kept most of that in place. And we can I think to me that's a really valuable lesson and that we continue to really eliminate lower value historical fixed cost to support investments that we need to drive key capabilities and infrastructure in our business to prepare us for the future? So Yes. I think that we'll continue to do that.

Speaker 2

I know that we'll continue to do that and to help us Benefit in the future at both the business unit level and the corporate level. We also think, as we mentioned, that portfolio diversity or strong cash flow So I think it's dynamics. We're not just content with Sitting here waiting for the economy to improve. We are very focused on continuing to grow and improve our capabilities and across our businesses and prioritize the opportunities that these volatile times present for us. Okay.

Speaker 2

Let me turn it over to you. Anything you would add from a more financial perspective?

Speaker 3

I think you covered it well, Mitch, and good morning, Bobby. I think the things that we definitely want to emphasize here is that as we look at The agility and the flexibility that we have around a number of those levers that Mitch just mentioned, we'll continue to take action on those Because we've already started to execute on a number of those actions internally, and we'll continue to move forward in that regard. And Bobby, you know our company well. In challenging times, we continue to have very strong cash flow generation As we work through some of that demand softness and really manage our working capital extremely well as we go through quarter to quarter dynamics.

Speaker 7

Thank you. That's helpful. And I guess two quick follow-up questions for me, both betting related. One, if we're looking at the volumes here implied The year, I think it does imply a modest acceleration in 4Q betting volumes. Is that correct?

Speaker 7

And maybe unpack that if that's the case. And then secondly, can you just give a little bit more detail on the integration of ECS? Is it new systems, combining manufacturing plants, Add in new manufacturing plants somewhere, just anything there about what type of integration is taking place?

Speaker 5

Sure, Bobby. So on your first question around demand, we've seen things remain relatively stable, fairly stable still at weak levels. And into the Q4, I think we'd see things remaining pretty consistent with the Q3. You remember, we started to see the slowdown last year, late Q3, early 4th So our comparison is a little different than the rest of the market. But generally, right now, we're still planning on things to remain pretty consistent.

Speaker 5

At ECS, The integration work, we are working on new IT systems, trying to bring that business more together and having better visibility into our data inventory, etcetera. It's not a combination of plans. It's more around our equipment, our automation, like I mentioned, and just our Processes and controls that we generally use to manage our other business like our U. S. Spring business.

Speaker 7

Thank you. I appreciate it. Best of luck here on the Q4 and into 2023.

Speaker 2

Thank you, Bobby.

Operator

Thank you. The next question comes from the line of Keith Hughes with Truist. Please proceed with your question.

Speaker 8

Thank you. You referred in the prepared comments to building inventory in the steel markets and cutting production as a result of that. Is there any indication that's affecting the metal margin? I know it was a positive in the 3rd quarter. Is that going to turn around given that dynamic in the 4th and into next year.

Speaker 2

Yes, great question, Keith. Thanks. Tyson, I would like to handle that one as well.

Speaker 5

Sure. Hi, Keith. It's not so much about the metal margin. Actually, I think we'd say, although we've seen some softening in rod pricing of late, we've also Seeing some declines in scrap, but rod pricing not declining as much as scrap. And I think that's attributable to just the conversion costs and the increase that we've And the market has seen utilities, the consumables and everything goes into producing steel.

Speaker 5

We have seen sequentially softening in our trade rod business, and that's really where we've seen some of our Inventories increased and that's why we're being proactive in trying to take some days out, kind of just looking at what we've seen in the Q4 and making sure we don't build steel inventory. And it might be a bit confusing. Normally, I don't think that the business is quite this dynamic. But when you look at the mix of our business in steel, probably the bigger impact has been of late, Our mix has been more towards billet, so more of a semi finished steel product and getting into full rod. And while that helps us cover overhead costs in the melt shop, It doesn't provide the same type of profits that we get from either internal rod production or selling rod to the trade.

Speaker 8

Okay. And the volume in rod was up really big in the Q3. Is that a decision to sell more into the trade because you just didn't need as much given what's going on in the mattress industry? Is that the right

Speaker 5

Yes. Year over year, it is a lower utilization For internal rod production, but really the bigger volume impact that you're seeing there is the large increase in billet sales rather than even trade rod.

Speaker 8

Okay. Okay. And if we switch over to bedding real quick, the adjustable number on year over year disallocated into the 3rd quarter In terms of units, it had been up slightly in the first half of the year, down 22% here in 3rd. Can you talk about what happened and what the outlook on adjustables are?

Speaker 5

Adjustables held up better than our direct mattress related businesses over the last three quarters or so. But we did see, as you noted, some slowdown in the Q3. And it's mostly as things have held up, it's been just where we've been partnered with our customers. We have seen some more supply chain related impacts in the Q3 and some slowdown in consumer activity around adjustables. I think as we kind of look forward, we probably see more consistency there, some improvement as some of those things get better.

Speaker 5

But it's Getting more in line with where we've seen the rest of our mattress related business.

Speaker 2

And maybe just to clarify, from a supply chain standpoint, I think our team has been tough, but they've been navigating More impacts further upstream.

Speaker 7

Right. Okay. All right. Thank you.

Operator

Our next question is from the line of Peter Keith with Piper Sandler. Please proceed with your question.

Speaker 9

Hey, good morning, everyone. Thanks for taking my questions. The first question I just had was on your U. S. Spring business.

Speaker 9

And I think we and others have historically thought about The U. S. Spring business is like having a very dominant position. But just looking now that the sales on a 3 year basis are down negative. Has the competitive landscape with Springs changed at all, whether it's from increased imports or maybe some other domestic production?

Speaker 2

Good morning, Peter. Yes, thanks. That's a good question. I mean, I think the answer is to some degree, yes, as we've gone through the dynamic situation over the last Few years, but I would say that not really meaningfully and I think that it's stabilizing to a large degree. But Tyson, let me Turn it over to you for more detail.

Speaker 5

Sure. That's right. Recently, I think it has stabilized. We certainly saw impacts that we've talked about during the pandemic from when we had Customers on allocations and really just did not have production available for the market demand and did see impacts for our customers having to go find import sources And did see some pickup in some merchant and maker user activity in the U. S.

Speaker 5

Recently, we have seen imported innerspring activity decline even more than the market in our estimation, year over year down more than 30% in imported activity. I I think another thing for us to keep in mind is what we sell is a little different now in our U. S. Spring business. We do focus more on content with some of our products and especially in Comfort And then, historically, we've done as well.

Speaker 5

So while the unit picture has been changing, our content is also a little different.

Speaker 2

Yes. I'll just add Add to that just maybe the credit profile out there, we're very cognizant of not only the profitability of the business, but making sure that we're able to get paid.

Speaker 9

Okay. All right. How about if we just now pivot over to the European side, which obviously remains very dynamic. Maybe if you could just talk a little bit more about what you're seeing there. Has it gotten weaker sequentially kind of month over month?

Speaker 9

And is there any difference between At a higher end or lower end bedding as you're seeing in Europe today?

Speaker 5

Sure. I'll jump in on that one too, Peter. So, Yes, we would see that the European business is facing more challenges than we are here in the U. S. Over the last couple of years, things have tracked pretty closely between the European market and here in the U.

Speaker 5

S. But just with what's been happening with Energy cost availability, the impact to consumers, we have seen things slow down more of late in our European activity. It is a little bit mixed between some of our finished product activity there with K Foam and our Innerspring business. But generally, yes, we feel like it is It's being impacted more than the U. S.

Speaker 5

On your question, just generally about high end versus low end, we feel like that's Still been a pretty consistent trend over time that the high end being impacted a little less or less In the low end, that's where we've seen the slowdown have the biggest impact.

Speaker 2

And you mentioned this, but just to emphasize on the energy issues and Impact of that in chemical production and chemical supply, right, and that's somewhat of a challenge there And also impacting pricing in the U. S, right, where Buchbalt being a softer market, exports of some of those chemicals is holding pricing now.

Operator

Thank you. At this time, there are no further questions. I would like to turn the floor back over to Susan McCoy for closing comments.

Speaker 1

Thank you for joining us today. We will speak to you again on February 7 after we

Operator

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

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