LEG
#<UNK>, first off, you'll remember that, from a residential perspective, we were ---+ and continue to be ---+ up against some really difficult comps.
Innerspring volume in the first quarter of last year was up 15% from the previous year.
We have those same headwinds in the second quarter, with second quarter last year being up 17%.
But, a direct answer to your question, the first quarter was a little bit choppy.
February was the softest.
We think that it was correlated to a lesser tax refund season than is typical.
March improved somewhat, certainly compared to February.
And through the first three weeks of April, US spring sales are flat.
With unit flat and the real favorable mix benefit that we have going forward, we're pretty bullish, from a selling price perspective, as our customers start to launch their new product lines that are very heavily weighted to our technology.
33% in the first quarter.
No, <UNK>, actually furniture, as we speak, is softer than bedding.
April, as you know, isn't the strongest month for home furniture typically anyway.
And it is a little softer.
We have a dynamic that's taking place in that ---+ you remember a year ago the industry, or all industry, was significantly impacted by the West Coast port strikes.
We think that there was significant demand or shipment built in Asia, product that did not hit the US shores.
So, we saw abnormal growth in the US mechanism business in the first, really, half of last year that normalized in the back half.
So those comps are difficult, but admittedly furniture is a little softer, as we speak, than bedding.
In Europe, actually, it's 59% of our sales, total units in the first quarter.
Now I will say, in Europe we tend to mix higher to the medium price points and premium price points.
And for margin reasons really don't participate in the real low-entry price points in the bedding industry.
Where, in the US ---+
Yes, <UNK>, market scrap was up $20 in the first quarter.
Selling prices didn't follow that.
So the spread was tighter in the first quarter than it was during any of the quarters in 2015.
With a $50 market increase in scrap in April and an expectation of another $50 increase in May, we have announced wire-based increases ---+ so, at the rod and the wire level ---+ and have started to implement selling price increases in the bedding industry.
So, we were narrower on spread in the first quarter.
The second quarter, we will probably have that typical lag where you start to see inflation.
There's a 90-day lag before we can recover it.
We should start to see normal spreads in the back half of the year.
And again, I'll remind the listeners, our people do a great job of passing through inflation, but there is a little bit of a lag on the upside.
Inflation is very good for our shareholders, and badly needed at this point.
<UNK>, let me help you a little bit with that.
We should, as we get into second quarter, start to see some sales growth and, in the back half of the year, would expect more sales growth.
Obviously, we're gradually anniversarying the 2015 deflation as we move through the year.
In first quarter of 2015, we really didn't have too much price deflation.
It started to ramp up in second quarter, and then we had a quite a lot in the back half of the year.
And then, to <UNK>'s point, we also ---+ based on current commodity environment ---+ should start to see some inflation growing as we move through, certainly late second quarter, but in the third quarter, fourth quarter.
That, along with the comp dynamics ---+ if you'll remember, first quarter of last year was actually our most challenging total Company comp quarter, with units up 8%.
When you roll all that together, it, I think, helps to make some sense out of our expectation that our sales growth should start to improve as we get into second quarter and certainly back half.
Dan, it would be correlated to the relative softness in US spring.
So, the expectation is, as the comps get easier, that we'll start to consume more tons of wire internally.
We're heavy weighted to internal consumption.
So, that's the softness.
We don't want to buy it in terms of tons.
Yes.
Dan, actually, 27% was ---+ I looked back last night ---+ was our full-year tax rate for 2015 also.
The dynamics that we are seeing this year are ongoing.
First quarter, in most years ---+ assuming that our share price continues to, over time, move up ---+ will typically kick out a tax benefit that will lower our effective tax rates in the first quarters.
And then the second quarters just don't have as much of that new phenomenon that hits them because of when our stock-based comp programs ultimately pay out.
So, yes, is a long way of answering that ---+ 27% is reasonable this year.
It was consistent with last year and what we set our expectations at the start of each year.
But there would be no reason to think of ongoing years of being meaningfully different than that, based on what we would know right now.
That's a good question relative to progression.
We would expect, year over year, in both the first and second quarters ---+ obviously, we did in the first quarter a 150- to 200-basis-point improvement.
Back half, year over year, is going to be down because of prior-year comps being fairly challenging.
And, collectively, that gets us to the flat to up slightly guidance that we have issued.
Dan, this is <UNK>.
I would just weigh in and echo what <UNK> basically said.
First quarter came in very strong, as you see.
The second quarter you should expect a pretty strong EBIT performance.
And then, naturally, with some of the seasonality of the business as well as the lag going the other way, with inflation possibly ticking up in the back half of the year, you should see those likely to be a bit lower than the ---+ if 13% is what it's going to be all year long, we think the third and fourth quarter might be a tad on the underside of that, whereas the first two quarters would be on the tad on the upper side.
But we'll see.
We are certainly not surrendering at all to the margin opportunities through the rest of the year.
But you should expect the second quarter to also be strong, and third and fourth quarter will probably be closer to our full-year guidance, if not just a tad below that.
<UNK>, why don't you hit the aerospace side of things.
Okay.
I think for our aerospace business, it's been relatively steady.
In the broader market, there is really solid build rates through 2019, mainly driven by more fuel-efficient aircraft.
But I think that does create some disruption ---+just through end of life of programs and new programs starting, it creates some disruptions at individual suppliers on those programs.
But, for us, I'd say it's been relatively steady.
As it relates to global demand, <UNK> actually should probably answer part of that, too, because we continue to see really strong global auto demand.
Europe is recovering significantly in the markets that we serve, not only from an automotive perspective but from a bedding components perspective.
There's a lot written about Asian automotive.
It continues to perform extremely well.
So, if there is a little bit of softness, oddly it's in US residential.
The rest of the globe and the rest of our businesses are performing extremely well.
And, Herb, on your margin question, our full-year earnings guidance has come up by about $0.10, as we noted, but that's partly the tax benefit in the first quarter.
We're allowing for the $0.03 benefit from the litigation settlement that <UNK> made mention of.
Our overall margin framework has improved a little bit.
We were previously thinking that we would be flattish, maybe down a bit from last year's 12.9% and now we're thinking 12.9% to maybe a few basis points higher than that, even with current guidance.
That essentially reflects the strong performance that we had in the first quarter, and the fact that, even though we had the FIFO carryover, as we would have expected in residential, much of that impact was offset with really strong operating improvements happening in our industrial segment and in commercial, some other parts of the Company, too.
So, I think, collectively, those things are helping to bias modestly our overall margin will be a little higher for the full year.
We recognize, to <UNK>'s earlier point, the lag potential on commodity inflation as we start to inflate, but would expect to come out by the end of the year in pretty good shape.
From a Commercial standpoint, it was volume.
Our people in Fashion Bed are doing a great job of picking up share.
The recovery in adjustables is notable and a very good thing for us.
So that the expansion is really just contribution margin on additional volume.
Those businesses are all extremely well managed.
As regards Industrial, the primary driver of the margin improvement is significantly improved performance at our steel mill.
It is running at record levels of productivity in, obviously, a tough market from a spread perspective but the tons output per hour, per kilowatt, both are fantastic.
And we were implementing some new manufacturing processes a year ago first quarter.
So, we are comping at that steel mill to a little bit of year-on-year softness.
But they're just doing a great job of executing.
<UNK>, I would encourage you and any of your friends to buy adjustables.
We can ship them.
I promise you.
(Laughter).
I would not have said that a year ago, but with four manufacturing sites, our people are very well aware of the market demand expectation for growth in that category.
And we are dressed up and ready to go.
We can service any bit of business that we're graced with.
Yes, I think that's actually been the real growth in the category.
But that's a story from 2015, as well, that the ultra-premium side, the attach rates probably continue to expand slightly.
But, as you know, there's not a lot of units there.
But to be able to sell more adjustables in that pricing band between $1,000 and $2,000, all of the manufacturers and the retailers are attacking that band.
And that's where we are seeing the largest unit growth, for sure.
Just one quick one before we sign off.
This was really a great quarter from an operating perspective.
But our tax ---+ our accounting and legal people really did some Herculean work with adopting new accounting rules, and the tax folks working well together, and the legal folks getting some of this foam litigation behind us.
So, to each and every one of them, I want to thank them, as well.
Dave.
Anything ---+.
With that, we will just say we do appreciate your participation on the call and we will talk to you again next quarter.
Thank you.
