Leggett & Platt Stock

Greetings, and welcome to the Leggett & Platt Fourth Quarter 2025 Webcast and Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Ryan Kleiboeker. Please go ahead.

Good morning. Welcome to Leggett & Platt's fourth quarter and full year 2025 earnings call. With me on the call today are Karl Glassman, CEO; Ben Burns, CFO; Tyson Hagale, President of the Bedding Products segment; and Sam Smith, President of the Specialized Products and Furniture, Flooring and Textile Products segments.

We posted to the IR section of our website yesterday's press release and a set of slides that contain summary financial information along with segment details. Those documents supplement the information we will discuss on this call, including non-GAAP reconciliations. 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. Please refer to yesterday's press release and the sections in our most recent 10-K and subsequent 10-Q entitled Risk Factors and Forward-Looking Statements.

I'll now turn the call over to Karl.

Thank you, Ryan, and good morning, everyone. Early last year, we shared our 2025 priorities, which included strengthening the balance sheet, improving operational efficiency and margins and positioning Leggett & Platt for profitable long-term growth. Thanks to the tremendous efforts by our teams, we delivered on those priorities and made significant progress to position the business to accelerate when residential end markets turn. We have substantially completed the restructuring plan we launched in early 2024, reflecting strong execution and disciplined follow-through. The actions taken over the past 2 years delivered greater EBIT benefit at lower cost than originally expected. These improvements are sustainable, and we expect they will contribute to improved profitability and cash flow generation, which will allow us to reinvest in growth and return capital to our shareholders. Although the 2024 restructuring plan is essentially complete, we continue to identify opportunities to improve our cost structure and enhance profitability across our businesses. We also took meaningful steps in 2025 to simplify our portfolio and ensure focus on our core operations. Notably, we divested our Aerospace business in the third quarter. After-tax proceeds from that transaction were used to retire our outstanding commercial paper and accelerate our deleveraging efforts, moving us meaningfully closer to our long-term leverage target of 2x.

Our teams also did outstanding work in 2025 to further strengthen our foundation for long-term profitable growth. A few highlights include the continued growth of our semi-finished products, particularly Eco-Base and pre-foam-encased ComfortCore and bedding products. We also made significant progress on filling key roles to expand our competencies, especially in Specialty Foam, where we are working to diversify and expand the customer base. Automotive made progress in building our innovation pipeline and establishing greater intimacy with our OEM and Tier 1 customers to strengthen our position in seating comfort and in-car motion systems.

Our Home Furniture team opened a facility in Vietnam to better serve our customers who have relocated to this growing region of furniture production, and in Textiles, we have continued to penetrate new specialty markets such as medical nonwovens, where we are poised to introduce additional new products in 2026.

Our Geo Components team saw growth in our retail business, where we continue to gain share at major home improvement retailers.

As we turn to demand trends and expectations for 2026, our residential markets, which account for roughly half of the company's revenue, remain in a multiyear depression with demand well below average cycle levels. While we cannot predict the timing of demand recovery, we are confident that we are well positioned to capitalize on the incremental volume when it materializes.

In Bedding, trade rod and wire sales benefited from metal margin expansion and strong domestic demand last year, while our mattress-related businesses faced another year of soft demand in addition to specific customer challenges. We believe the U.S. mattress market was down low single digits in 2025. Domestic production was down high single digits, but second half performance improved after a tough start to the year.

Demand in our Bedding Products segment is expected to be down low single digits in 2026 due to volume declines in Adjustable Bed and Specialty Foam as we lap customer program changes that began in 2025. However, U.S. Spring is anticipated to perform in line with the U.S. mattress market and domestic production, which we expect to both be flat to up low single digits in 2026.

In the Specialized segment, we expect automotive volume in 2026 to reflect the impacts of a challenging industry backdrop. In North America, demand faces inflationary pressures as automakers seek to recoup a portion of tariff-related costs. Exports from China are expected to continue pressure multinational OEMs in Europe, especially as the Chinese EV manufacturers face near-term demand headwinds in their domestic market. Overall, these dynamics support our expectation to perform in line with broader market trends from down 1% to 2% as we balance regional pressures with disciplined execution across the business.

Excluding Aerospace, our 2026 Specialized Products segment comparable sales are expected to be flat to slightly above 2025. Anticipated currency benefits are expected to offset the effects of lower volume and pricing year-over-year in both automotive and hydraulic cylinders.

In our Furniture, Flooring and Textile Products segment, we saw continued soft demand in our residential-focused businesses, Home Furniture and Flooring, while Work Furniture and Textile saw modest growth year-over-year. We anticipate further demand uncertainty in our residential markets, but expect to see growth in textiles, both in our Geo Components business and nonresidential markets in Fabric Converting.

As we move through 2026, we will continue to prioritize balance sheet strength, operational efficiency and margin improvement and build on the progress we've made over the last couple of years to position the company for profitable long-term growth. In Bedding, we will focus on diversifying our customer base in Specialty Foam, further integrating our foam and innerspring capabilities while growing component content and improving our ability to support the omnichannel needs of our bedding customers.

In Automotive, with new leadership in 2026, we will focus on making strategic investments in our commercial organization and operations to return to growth and strengthen our relationships with OEM and Tier 1 customers.

In Textiles, we are focused on expanding our business through organic growth and small strategic acquisitions. And throughout the company, we are committed to driving operational excellence through continuous process improvement, cost reduction and footprint optimization, while also investing in our talent and developing a strong pipeline of future leaders. Although near-term demand in several of our markets remains challenged, the foundation we have in place will enable us to pursue growth opportunities in 2026 and return capital to shareholders.

I'll now turn the call over to Ben.

Thank you, Karl, and good morning, everyone. Fourth quarter sales were $939 million, down 11% versus the fourth quarter of 2024, resulting from sales weakness at a certain customer and retailer merchandising changes in Adjustable Bed and Specialty Foam as well as continued soft demand in residential end markets, customer supply chain disruptions in Automotive and lower demand in Hydraulic Cylinders. Growth in Textiles and Work Furniture, along with higher trade wire and rod sales partially offset demand declines.

Looking at sales by segment, Bedding products decreased 11% compared to the fourth quarter of 2024. Additionally, Specialized Products declined 21%, mostly due to the Aerospace divestiture and sales in Furniture, Flooring and Textile products were down 3%. Fourth quarter EBIT was $32 million and adjusted EBIT was $48 million, down $8 million versus fourth quarter 2024, primarily due to lower volume and earnings associated with our divested aerospace business, partially offset by metal margin expansion and restructuring benefit.

Fourth quarter earnings per share was $0.18. On an adjusted basis, fourth quarter EPS was $0.22, a 5% increase from fourth quarter 2024 adjusted EPS of $0.21. For the full year, 2025 sales decreased 7% to $4.05 billion, primarily from continued weak demand in residential end markets, sales weakness at a certain customer and retail merchandising changes in Adjustable Bed and Specialty Foam, divestitures, lower demand in Automotive and Hydraulic Cylinders and restructuring-related sales attrition. These declines were partially offset by growth in Textiles and Work Furniture, higher trade wire and rod sales, raw material-related selling price increases and currency benefit.

EBIT increased $786 million, primarily due to the non-recurrence of $676 million in goodwill impairment charges during 2024. Adjusted EBIT decreased $4 million to $263 million, primarily from lower volume, partially offset by restructuring benefit and metal margin expansion. Full year EPS was $1.69 and adjusted EPS was $1.05, flat versus 2024.

In 2025, operating cash flow was $338 million, an increase of $33 million versus 2024. This increase was primarily driven by working capital benefits. We ended the year with adjusted working capital as a percentage of annualized sales of 11.6%, a decrease of 140 basis points versus 2024.

Our teams executed exceptionally well, resulting in significant balance sheet improvement in 2025. Aerospace divestiture proceeds, along with cash from operations and real estate sales allowed us to reduce debt by $376 million. Our net debt to adjusted EBITDA decreased from 3.8x to 2.4x by the end of the year, bringing us significantly closer to our long-term leverage target of 2x. As we move into 2026, we expect to use most of our excess cash flow to reduce net debt, while also pursuing opportunities for share repurchases and small strategic acquisitions as conditions allow. Our long-term priorities for uses of cash remain consistent: Funding organic growth, funding strategic acquisitions and returning cash to shareholders through share repurchases and dividends.

As Karl mentioned earlier, we have substantially completed the restructuring plan in 2025 and significantly exceeded our original expectations. We expect a full run rate of approximately $70 million of EBIT benefit and total cost of $80 million, half of which were noncash costs. We also expect cash proceeds from real estate sales of $70 million to $80 million, $48 million of which have already been realized with the remaining balance expected in 2026.

Moving to guidance. 2026 sales are expected to be $3.8 billion to $4.0 billion or down 1% to 6% versus 2025. 2025 divestitures are expected to reduce sales 3%. Volume is expected to be flat to down low single digits with volume at the midpoint, down low single digits in Bedding Products, down low single digits in Specialized Products and flat in Furniture, Flooring and Textile Products.

Inflation and currency benefit combined are expected to increase sales low single digits. 2026 earnings per share are expected to be $0.92 to $1.38, including approximately $0.02 to $0.11 per share impact from restructuring costs, primarily related to cost improvement and footprint optimization opportunities identified across the company that are currently being evaluated. $0.05 to $0.08 per share impact from costs associated with the unsolicited offer from Somnigroup and $0.11 to $0.25 per share gain from sales of real estate.

Full year adjusted earnings per share are expected to be $1 to $1.20. The midpoint reflects operational efficiency improvements, disciplined cost management, favorable product mix and full year benefit of metal margin expansion that started in Q2 2025, partially offset by lower volume. We expect normal seasonality in our 2026 results with lower sales and earnings in the first and fourth quarters. Based upon this guidance framework, our 2026 full year adjusted EBIT margin range is expected to be 6.3% to 7.0%. Cash from operations is expected to be $225 million to $275 million in 2026. While we do not anticipate a benefit from working capital this year, we will continue to have a sharp focus on cash flow generation.

Our CapEx is expected to be $100 million to $115 million in 2026. The increase versus last year is due to the timing of some initiatives being pushed from 2025 into 2026, and the replacement of equipment lost in the storage facility fire within our Bedding segment.

With that, I'll turn the call back over to Karl for final remarks.

Thank you, Ben. In closing, I want to thank our employees around the globe for your efforts in transforming the company in 2025. Together, we executed our restructuring plan, strengthened our balance sheet and positioned Leggett & Platt for long-term success. While near-term demand uncertainty remains, we are confident in our ability to execute our strategic priorities and create long-term shareholder value.

Before we begin Q&A, I want to acknowledge the current discussions between Leggett & Platt and Somnigroup. As we announced in January, we have entered into a customary nondisclosure agreement and 6-month standstill. We do not intend to make any further public comments and will not be answering any questions related to these discussions on this call.

With that, operator, we're ready for Q&A.

[Operator Instructions] And our first question comes from Susan Maklari with Goldman Sachs.

My first question is on the restructuring. It's nice to see how those efforts are coming together even with all the headwinds that you're still facing. Can you talk about how they are coming through to the various segment margins in last year, what we should expect for this year? And then you also mentioned, Karl, that you're looking at additional ways to further improve the cost structure and enhance the margins, can you talk about where you're seeing perhaps some of those additional opportunities, and what they could mean over time?

Yes, Susan, thank you for the questions. I'll start with the latter and ask Ben and the rest of the team to fill in the first question. But we continue to look at the portfolio. I will say at this point, there are no divestitures of BUs being contemplated, but we continue to look for operational improvement opportunities in every one of the BUs. Nothing has been announced other than a consolidation of one of our Flooring Products segment facilities that's closing one small facility, moving that productive capacity into a larger facility into North Carolina. The teams continue to look at each one of the BUs, and there are some things that we're analyzing, but it would be premature to announce. But Ben, as regards to segment margins, why don't you...

Yes. So Susan, as we said in the prepared remarks, really good benefits from the restructuring efforts. We had really in 2025, $63 million of benefits that are flowing through, and we expect roughly another $5 million in 2026. So puts us at a $70 million run rate as we look to the future. So obviously, that had a very big impact with our Bedding segment. Also we saw some benefits in our Specialized segment with Hydraulic Cylinders, and then that benefited us as well in the FF&T segment, primarily with Home Furniture and Flooring. As we look forward, I think you'll see, like I said, a more modest impact from the restructuring plan for 2026, the $5 million that will flow through. And then as Karl said, we do have some other opportunities that we're looking at, but not ready to quantify those just yet. From a cost impact, we do have about $2 million or a pretty small amount that is left that we know of in the formal restructuring plan.

Okay. All right. That's helpful color. And then turning to Bedding and the outlook there. You mentioned that you expect springs to be flat to up low single digits, it sounds like, for this year. Just generally speaking, as you think about the Bedding market and the demand there, how much of a recovery do you think we can see if we don't have housing that really starts to come back? How important is that? And what does it mean in terms of the near-term potential path for the industry versus where we could be longer term?

Yes, Susan, great questions. I'll ask Tyson to answer all of that. I do want to remind you and the rest of the investors that there is no expectation of macro market recovery in our 2026 forecast. We'd like to see it. We've been guilty as have some others of forecasting a strong back half. We're not doing that. So to the degree that, that impact takes place, it would be upside to the midpoint of our guidance. But Tyson, why don't you unravel that?

Sure. Good morning, Susan. I agree with Karl. We've definitely been tired of just hoping that a recovery is coming. And you mentioned one of the big macro factors being housing and the continued headwind that we face there. But that's a big one, obviously. It's not the only one. Generally, consumer confidence and how people are feeling about discretionary purchases is a big deal. And then just general affordability, which goes into housing for sure, but also across the board, whether people are spending the money on insurance, gas, food, all of those things are a big deal. And just seeing where things stand today, that's why we don't feel good about building any type of recovery into guidance. Essentially, what we thought about in the bedding market for 2026 is a continuation of what we really saw in the back half of the year. The first half of 2025 was pretty tough. And so really just a more seasonal pattern in 2026 is really carrying off the back half of 2025. And that's where we get to a flat to up low single digits is really just lapping the early struggles that the market had in 2025. Relative to our business, and you mentioned U.S. Springs, that's where we have the tightest correlation to the market. And we've had some ups and downs through 2025 and in prior years relative to our performance against the market. And I think we talked about this in the third quarter, but it's true for us and our customer base, performance is mixed across the industry, and we still see a lot of choppiness. We were impacted in the fourth quarter. And we've had some other periods where this has happened as well, where we've had some consolidations happen, and we had one at the beginning of the fourth quarter that was related to some financial distress with one of our partners. And that was the biggest impact that we had in the U.S. Spring versus the market. But generally, and we saw this in the second and third quarter, we've closed the gap and have been performing pretty close to market. And we feel good about in 2026, where we've had some content gains and have some more coming as we've had more products introduced in some of our comfort products and comfort layers, and we think that helps us manage our business along with the rest of the market.

Okay. That's great color. And then I'm going to squeeze one more in, which is for Ben, can you just run through the guide for the segments for this year in terms of the revenue and the margins for each one of them?

Yes. Sure. Thanks, Susan. So from a Bedding perspective, we would expect net trade sales and volume to both be down low single digits with margins up 150 basis points. From the Specialized Products segment, this is adjusting for the Aerospace divestiture, we would expect organic sales and volume down low single digits with margins down 150 basis points. And then on the Furniture, Flooring and Textile side, we'd expect net trade sales and volumes to be flat and margins to be flat as well.

And our next question comes from Bobby Griffin with Raymond James.

This is Alessandra Jimenez on for Bobby Griffin. First, I wanted to follow up on the Bedding segment. U.S. Spring volumes notably decreased in 4Q versus 3Q. Is that mainly driven by the consolidation you mentioned in 4Q, or was there something else that impacted the volume trends? Sorry, what was your view on industry for 4Q versus 3Q for the Bedding segment?

Good morning, thanks for the question. Yes, our primary delta between our performance in the market was the customer consolidation that I mentioned just a moment ago. Otherwise, generally performed, we feel like, in line with the market. We expected fourth quarter to be down versus third quarter, just the general seasonality that we always see in the business. And also just a reminder that we had a tough comparison against last year fourth quarter. There was a pretty strong run-up post election in the market. So it was a little bit of a tougher comparison against the fourth quarter of last year. But overall, we saw the normal sequential decline in the fourth quarter versus the third quarter.

Okay. That's helpful. And then maybe switching gears a bit to Auto. You had mentioned customer supply chain disruptions during the quarter. Can you walk us through the impact there? And are you seeing any lingering issues in 1Q?

Thanks, Alessandra. This is Sam. I'll jump in with that one. So I think last quarter, we mentioned that we were seeing some supply chain issues of various types when we talked. And those are the ones we were referring to. And just for memory's sake, there was a Dutch semiconductor company who had some disputes with the Chinese Government and got shut down for a while. That caused the largest and most widespread customer impacts. And when our customers were impacted, they just rolled back to us. On top of that, in North America, there was an aluminum manufacturer that had a fire and had to shut its production. That hurt a few customers here. And then over in Europe, there were a couple of very specific customer issues. One of the OEMs got hit by a cyber attack, and it was shut down -- all of its factories were shut down for several weeks. And then another OEM found themselves long on inventory and had to shut a few plants for a little while. And our team did just a really good job working together with our customers to manage through all those issues and all those issues that we faced last quarter are really behind us now.

Okay. That's very helpful. And then finally, I wanted to talk on capital allocation. We are pleased to see debt tick down again this quarter. With the rest of the debt kind of well termed out, can you refresh us on your capital allocation priorities? Is the goal to get to that 2x leverage to get there on EBITDA growth or continue to build the cash balance?

Alessandra, I'll take that, and Ben jump in at any time. But you'll remember our long-term priorities, as Ben said in the prepared remarks, are the same. Fund organic growth, which I'm proud to say that we're starting to see some green shoots there, moving a little bit from defense to offense, and we can walk through all those areas of opportunity, small strategic complementary acquisitions and then return the excess to the shareholders via either repurchases or dividends. But in the near term, the goal is to move closer to the 2x leverage target. So we'll -- we think probably conservatively, we'll be there by the end of this calendar year. We'll continue to move toward it. We'll update you as we make that progress. You'll remember that the first quarter typically is a use of cash just as we rebuild working capital for the normal seasonality of the businesses. So we'll continue to update you. But near term, the goal is to move closer to the 2x leverage metric.

[Operator Instructions] We'll go next to Keith Hughes with Truist Securities.

I also have a question on Bedding. It seems implied in your guidance that some of these customer disruptions are going to be ending. Are you anniversary-ing those as we head into 2026?

Keith, this is Tyson. Yes, the bulk of that, we would lap early in the year. And there's always -- it's hard to forecast those things. There's always the chance that we have some other things like that pop up, just hard to estimate that. And on the flip side, we see some balance on things that could be opportunities for additional volume gains on the other side of it. But balancing it out for the midpoint of our guidance, we left the Spring business flat.

It appears that would be some disruptions at some retailers as well as some wholesale manufacturers. Is that correct?

That's correct. Yes, that's correct.

Okay. And then I guess a question for Karl as a little historical perspective on mattress sales. The last 3 or 4 years have been just so difficult for the industry. Have you ever seen anything like this in your career or anything approached like this in your career? And I think you've talked about affordability, but what do you think is the issue for the entire industry in terms of getting these sales going?

Keith, you know you've been around a long time when you get asked the question from a historical perspective.

I am old, but I didn't want to say that.

As a matter of fact, once again, you're accurate. No, I've never seen anything like this. There's -- interestingly enough, when we track data back to the early '70s, and I was not in the industry -- well, I guess I was -- anyway, no, that typically, in any kind of macroeconomic step down, Bedding goes into the cycle first and comes out of it earliest. So if there's -- even in the Great Recession, so you had their 2.5 years of softness, you saw real strength coming back out of it, and it was a leading indicator of recovery. So we've never seen anything of this duration, this magnitude, probably overused phrase of pent-up demand, but it feels like it's building. We think that normal consumption -- normalized consumption in the U.S. should be in the 34 million to 35 million mattress range. We're probably just sub 30 million on an annualized basis and have been there for a while. So it feels good once the consumer becomes confident and Housing is unleashed, but we just have no ability to predict when that happens. So in the interim, Tyson and the team are doing an outstanding job. First, the restructuring effort was really important, getting that successfully completed and behind us. And then now working with customers on innovation, product development and the opportunities are significant. We feel pretty good about the year. But Keith, to your point, I have been around a long time. We're manufacturing, a manufacturer that is unit sensitive. When additional volume goes through these assets, that are now rightsized via restructuring, it will get really good, really quick through a value chain that starts at a steel mill, walks through a wire mill and then into a spring plant. So the volume will be fantastic. It will be on the high side of our contribution margins. We just can't make a call as to when it happens.

And moving on to Peter Keith with Piper Sandler.

This is Alexia Morgan on for Peter Keith. Maybe to start, regarding the 2026 EPS growth drivers in your guidance, can you elaborate on what the favorable sales mix driver is? And then as for metal margin expansion, how should we assume metal margin -- or should we assume that metal margin will be a benefit for all of 2026 or just concentrated to Q1? Or how should we think about those two pieces specifically?

Sure. Good morning, this is Tyson. I'll handle the Bedding pieces first, and hand it back to Ben for any others. But on your question about metal margin, yes, we've assumed continuation of the steel economics that we saw in the third and fourth quarter really carrying out through the full year at this point, just based off the data that we've looked at, that's our best estimate. So we would have the full year metal margin impact through 2026. In terms of mix in Bedding, both from trade rod and wire, which we also saw the tailwinds of that in the back half of 2025, but then also improving mix within our U.S. Spring business.

Yes. And then I'd just add on, we've got some operational efficiency improvements that will help us mostly from a bedding perspective, from a margin and EPS perspective. And then we -- like I said earlier, we'll have a little bit of additional restructuring benefit that will flow through that will also contribute to the higher EPS at the midpoint.

And then next, how should we think about organic growth assumptions by segment, by quarter? Does guidance assume any business segment sees improvement in sales trend as the year progresses, or is it pretty steady throughout the year?

Yes. I would say we would typically see our normal seasonality that really flows through first quarter and fourth quarter are generally lower and then second and third quarter are stronger. But I think as we think about organic growth over the course of the year, generally pretty ratable.

Okay. And then lastly, can you discuss your view on mattress industry trends for Q1, like any early reads you have quarter-to-date? And then looking longer term, can you elaborate on growth drivers for the Bedding segment specifically, and when you expect those to start to contribute?

Sure. I'll jump in on the first part. The big weather events that we've had over the last several weeks have certainly been impactful. We've heard that from our customers and just seeing between retail activity and what we've heard with foot traffic, but also facility closures and impacts there. So we expect there will be a catch-up, and we'll all be looking to President's Day and see what the activity is like there. But the weather impacts certainly have had some impact on the business early in the quarter. And we talked about it, I think the big drivers being housing, consumer confidence and general affordability are the big factors that we're watching to point to a recovery.

And I'd just circle back on your previous question about the quarters and growth. I think Tyson's point there on, weather is probably a good one to be aware of. The first quarter could be a little bit more impacted from that perspective. So that's probably a good thing to call out.

And we'll take a follow-up question from Susan Maklari with Goldman Sachs.

I have two things that I just want to touch on a little further. The first is in FF&T, we saw that meaningful drop-off in their margin in the fourth quarter. Can you just talk a little bit more about how we should think about the path of getting from where you ended this year back to something that is flat in line with the guide that you're giving us for the full year? And anything specific that came through that kind of caused that bigger-than-expected decline in the fourth quarter?

Susan, this is Sam. Thanks for the question. So yes, there were several factors that hit us. A couple of them, I think, are maybe just Q4 issues. And let me just talk through them. At the top of the list, like we've said over the last several quarters, we've seen some pricing adjustments in Flooring and Textiles, and that was still an issue in Q4. In Flooring, it's simply very weak consumer demand. And until that consumer demand turns around, we kind of see that as an ongoing issue for us. And that's baked into our forecast and our guide. In Textiles, it's been mainly a raw material-related issue. And it feels like we're really close to the bottom of that cycle now. In fact, some of the materials that we use in textiles, we saw a little bit of Q4 inflation, and that's actually a really good thing. And hopefully, we continue to see that going forward into Q1 for the rest of the year. Currency was a plus on the top line, but it was a pretty decent negative on the bottom line. Not sure exactly what to think about that going forward, but I feel like currency could continue to be a drag a bit. The third factor would just be lower consumer demand that we mentioned, driving those year-over-year volume declines in Home Furniture and Flooring. It feels like we can continue to see soft demand in those two businesses. And finally, we're launching our greenfield home furniture site in Vietnam, and there are always costs associated with the greenfield. We started at the last week of Q3, and we spent Q4 ramping up. So that was an impact for sure. Our team is working hard, and we've met our first goal, which was to ship product to our U.S. customers. We're there now. That's happening. Now we're focused on driving productivity and shipping more and more product to our Southeast Asian customers. And I think as we go through the year, go through Q1, Q2, we're going to see a productivity improvement there that should help alleviate some of these issues we saw in Q4. Those were the major factors. I think in all these businesses, our teams are just doing a great job continuing to focus on controlling what they can control in some difficult environments.

Yes. Okay, that's great color, Sam. And it actually brings up another question that I'm going to ask, which is when you think about Leggett's global footprint and what's going on from a trade perspective, are there other areas or other needs to shift your production on a relative basis to better align with some of the customers, and where they're looking to operate, or where they're looking to source from?

Go ahead, Sam, and I was actually going to go where you might be headed in Auto, there's that those tensions. But go ahead.

Yes, sure. That's exactly what I was going to talk about. There is a push in Automotive to do more regional sourcing, specifically from the North American OEMs to do more sourcing from here in North America. And we have traditionally been kind of a region-for-region business, meaning what we make in North America stays in North America, what we make in Asia tends to stay in Asia. But we are seeing some of those questions and some of those concerns, and we're addressing those and trying to relocate some product as needed. The push has been stronger from some OEMs than others because I think everybody is still, to some degree, concerned about what is the next change that might happen, right? Karl, do you have anything to add?

No, I was just going to say, absent Auto, I think we're really well positioned. And to your point, really well positioned in Auto today as the global industry is constructed, but it certainly is in a state of flux. And we'll be there to support our customers at every turn. But the rest of the businesses, I think we're really pretty well positioned geographically.

I agree.

Okay. All right. That's good. And then my next question is on the working capital. You've done an excellent job on the working capital side, even with all the moving parts and the pressures that the business has been under. Can you talk about how we should think of that going forward? Is there further opportunity there? Do you actually need to build a little working capital? And especially maybe if demand does start to come back, would there be a need to add some inventory or just thoughts on the path there?

Yes, I can jump in here. Susan, it's Ben. You're right. Our teams have done an excellent job of -- over the last couple of years, driving out a lot of working capital. Just last year, we had an $83 million benefit from working capital changes. So I think we're in a really good spot. We ended the year at 11.6% percent of sales. As we move forward, we don't -- we're not anticipating any working capital benefit in 2026, maybe a slight use of cash as we kind of work through the year. But if you think about it, our sales have been coming down the last couple of years, but our guide for 2026 is really more flat, especially as you adjust out Aerospace. So I think there's probably less opportunity, but we'll be really focused on it, of course. And then as sales growth comes, we would look to hold that percentage of sales mark and manage it tightly there, but I think we would have some investment as sales grow.

There are no further questions at this time. I would like to turn the floor back over to Ryan Kleiboeker for closing comments.

Thank you, [ Carrie, ] and thank you, everyone, for joining us. We appreciate your time today and your interest in Leggett & Platt. Take care.

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

Greetings, and welcome to the Leggett & Platt Third Quarter 2025 Webcast and Earnings Conference Call. {Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Stephen West, Vice President of Investor Relations. Thank you. You may begin.

Good morning, everyone, and welcome to Leggett & Platt's Third Quarter 2025 Earnings Call. With me today are Karl Glassman, CEO; Ben Burns, CFO; Tyson Hagale, President of Bedding Products; and Sam Smith, President of Specialized Products and Furniture, Flooring and Textile Products. This call is being recorded, and a replay will be available on the Investor Relations section of our website.

Yesterday, we issued our press release and a set of slides containing third quarter financial results. Those documents supplement the information we will discuss this morning, including non-GAAP financial reconciliations. Remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results may differ materially due to 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 sections in yesterday's press release and our most recent 10-K and 10-Q filings entitled Risk Factors and Forward-Looking Statements. And with that, I will turn the call over to Karl.

Thank you, Steve, and good morning, everyone. I'm pleased with another quarter of solid results, reflecting nearly 2 years of disciplined cost structure improvements despite an ongoing soft demand in residential end markets. Importantly, we are reaffirming the midpoint of our full year sales and adjusted EPS guidance, which Ben will discuss in more detail later.

Our third quarter was also marked by significant progress on our key strategic initiatives. Our team has done a terrific job driving results through the execution of our restructuring plan, disciplined cost management and improving operational execution. These efforts have culminated in improved cash flow, which allowed us to significantly strengthen our balance sheet. On August 29, we completed the divestiture of our Aerospace business, aligned with our goal of optimizing our portfolio. We used proceeds from the sale, along with a portion of our operating cash flow to pay down all of our remaining commercial paper and substantially lower our net debt to trailing 12-month adjusted EBITDA ratio.

Our restructuring plan is nearing completion and is meeting or exceeding our initial expectations. We made considerable progress on the second phase of the flooring consolidation during the quarter and expect the consolidation to be completed by the end of the year. In Hydraulic Cylinders, we completed the rightsizing of our U.K. facility.

Beyond our formal restructuring plan, in early September, we announced the consolidation of our Kentucky adjustable bed manufacturing operation, which will be consolidated into our Mexico operation by the end of this year. This decision was driven by lower volume and tariffs on imported components, which resulted in a cost disadvantage for our domestic production in a category that primarily competes with imported products.

Throughout the quarter, we continued to navigate a very dynamic environment. We still believe tariffs will be a net positive for us, but remain concerned that wide-ranging tariffs could drive inflation, hurt consumer confidence and pressure consumer demand. We are actively mitigating some of the negative impacts experienced in a few of our businesses, such as supply chain disruptions that can have an indirect impact on us and our customer demand disruptions. Our teams are actively engaged with customers and suppliers across our global footprint to reduce tariff exposure and minimize impacts.

In general, import issues are an ongoing risk, especially for our Bedding Products segment, but we are encouraged that some recent enforcement actions support fair competition for domestic manufacturers and importers alike. U.S. Customs and Border Patrol recently dismantled a Chinese mattress transshipment scheme estimated to have evaded more than $400 million in duties. The Consumer Product Safety Commission has also recently issued recalls and product safety warnings for certain imported mattresses that fail mandated U.S. flammability standards.

Now more than ever, misclassification of shipments and understated product values are additional problems that domestic manufacturers face when competing against imports. While we continue to believe that imports have a role in the U.S. bedding market, the domestic industry must be able to compete on a level playing field. Amid these initiatives and macroeconomic challenges, our teams remain focused on providing high-quality innovative products to our customers, keeping our employees safe and continuously improving at everything we do. I'll now turn the call over to Ben.

Thank you, Karl, and good morning, everyone. Third quarter sales were just over $1 billion, down 6% year-over-year due primarily to continued soft demand in residential end markets as well as sales attrition from both the divestiture of our aerospace business and our restructuring efforts.

Looking at sales by segment, Bedding product sales decreased 10% year-over-year but improved 3% sequentially versus the second quarter and sales accelerated through the quarter. Specialized product sales declined 7%, while Furniture, Flooring and Textile product sales were flat year-over-year. In Bedding Products, as anticipated, sales weakness at a certain customer and retailer merchandising changes drove volume declines in adjustable bed and specialty foam. U.S. spring unit volume was in line with both mattress consumption and domestic mattress production volumes, both of which we estimate declined low single digits.

U.S. mattress industry production improved sequentially versus the second quarter, marking the second consecutive quarter of improved domestic production volume. While we are encouraged to see sequential improvement, third quarter domestic volume remained negative year-over-year. It is worth noting that the improvements we have seen are not consistent across the industry. Certain channels and market participants are performing better than others. We have also started to see stabilization in demand patterns between holiday promotional periods.

In the fourth quarter, we expect U.S. domestic mattress production to slow sequentially due to normal seasonality and to remain negative on a year-over-year basis. Total market consumption for the full year is now expected to decline low single digits with domestic production down mid- to high single digits. Within our Specialized Products segment, we experienced modest sales declines in automotive and hydraulic cylinders with the divestiture of Aerospace making up the largest sales drag during the quarter. Looking ahead, multiple global automotive supply chain risks such as availability of aluminium, certain semiconductors and access to rare earth minerals have materialized as we moved into the fourth quarter and has begun impacting both the industry and our business. However, we have experienced no material impact to date.

Finally, within Furniture, Flooring and Textiles, continued sales growth in textiles and Work Furniture was offset by declines in home furniture and flooring. We anticipate continued year-over-year strength in the geo-component side of our textiles business, while current trends and seasonality will likely continue in the other businesses within the segment through the remainder of the year.

As mentioned last quarter, aggressive competitive discounting, particularly in Flooring and Textiles has led to pricing adjustments that will negatively impact us in the fourth quarter. Third quarter EBIT was $171 million and adjusted EBIT was $73 million, a $3 million decrease year-over-year, primarily from lower volume, partially offset by metal margin expansion and restructuring benefit. Third quarter earnings per share were $0.91. On an adjusted basis, third quarter EPS was $0.29, a $0.03 decrease year-over-year. Third quarter operating cash flow was $126 million, an increase of $30 million versus the third quarter of 2024. This increase was primarily driven by working capital benefits.

Moving to the balance sheet. We reduced debt by $296 million in the third quarter to $1.5 billion, bringing our total debt reduction for the year-to-date to $367 million. As Carl noted, we reduced our commercial paper balance to 0, significantly strengthening our balance sheet and lowering our net debt to trailing 12-month adjusted EBITDA ratio to 2.6x. Excluding Aerospace on a pro forma basis, the ratio is about 0.3x higher. At September 30, total liquidity was $974 million, comprised of $461 million of cash on hand and $513 million in capacity remaining under our revolving credit facility. We ended the quarter with adjusted working capital as a percentage of annualized sales down over 200 basis points year-over-year.

Moving to our restructuring update. We have nearly completed the execution of the plan, which has delivered significantly better EBIT contribution with lower associated costs than originally announced. We remain on track to realize EBIT benefit of $60 million to $70 million on an annualized basis. This positive EBIT contribution is despite approximately $60 million in sales attrition. And we remain on track to generate real estate proceeds of $70 million to $80 million. Since plan inception, we have realized $43 million of proceeds and now expect up to an additional $17 million in the fourth quarter of 2025 with the balance in 2026.

Despite the current dynamic operating environment, I'm pleased to say we are reaffirming the midpoint of our sales and adjusted EPS guidance while narrowing the previous guidance range. Sales are now expected to be $4.0 billion to $4.1 billion or down 6% to 9% versus 2024. Earnings per share of $1.52 to $1.72 and adjusted earnings per share of $1 to $1.10. Adjusted EBIT margin is expected to be between 6.4% and 6.6% and cash from operations is expected to be approximately $300 million. Our CapEx will be lower than usual this year at $60 million to $70 million, which is primarily due to customer-driven delays of some growth initiatives and due to our focus on executing and wrapping up our restructuring plan. Annual CapEx should return to more normalized levels going forward.

In the near term, we plan to continue to use most of our excess cash flow to reduce net debt while also considering other uses such as small strategic acquisitions and share repurchases. Longer term, our priorities for use of cash remain consistent, investing in organic growth, funding strategic acquisitions and returning cash to shareholders through dividends and share repurchases. With that, I'll turn the call over to Karl for his closing remarks.

Thank you, Ben. In a relatively short time, we have made significant progress on our strategic priorities. We have strengthened our balance sheet by adjusting our capital allocation to prioritize debt reduction. Through our restructuring plan, we have created a leaner manufacturing footprint that can meet customer demand when it rebounds and support strong incremental contribution margins. We have simplified our portfolio through recent divestitures to improve focus on core operations. All of this has been accomplished with a consumer who has seemingly been in a recession for more than 3 years, compounded by the complexities of a dynamic tariff landscape.

Leggett & Platt has been at the forefront of innovation for a very long time. Today, we have a robust innovation pipeline and relatively new products that are just gaining traction. We have also closely partnered with many of our customers to develop innovative products designed to meet their specific needs. These efforts, combined with meaningful cost reductions and operational improvements position us well to aggressively pursue longer-term profitable growth opportunities that will create value for our shareholders. With that, I would like to thank all of our employees for their continued hard work and dedication to position Leggett & Platt for a very bright future. Operator, you may now open the line for Q&A.

[Operator Instructions] Our first questions come from the line of Susan Maklari with Goldman Sachs.

My first question is, I want to talk a bit more about the benefit that you're seeing from the cost actions and the restructuring that you've undertaken in the last 2 years or so. It seems like you're really getting a nice lift from that in the margins despite the volume and the demand environment that we're in. Can you just help us kind of parse out how those are coming through, what the upside is as we think about the forward quarters? And anything else that's notable as it relates to that?

Yes, Susan, this is Ben. Thanks for the question. As we said in the prepared remarks, our teams have done a great job executing the restructuring plan, and we're really nearly complete at this point. And as we look at the metrics that we laid out at the beginning in our original expectations, -- we're meeting or exceeding them in really all categories, including EBIT benefits, costs, sales attrition and real estate sales. So really good execution. With all of that, we've had no customer disruptions. And it's important to remember, this touches not only our Bedding segment, but also we've had significant actions in home furniture and flooring, hydraulic cylinders and also an initiative to reduce our corporate G&A expenses.

So as we look forward, we're very confident in our $60 million to $70 million of annualized EBIT benefit. I think in 2025, we'll end up around $60 million of that benefit already realized with another up to $10 million coming next year. The sales attrition that we laid out at the beginning, we thought was about $100 million. Now we've got that down to $60 million. So that's good news. And then from a real estate perspective, we still expect $70 million to $80 million of cash proceeds. We've had $43 million to date, and we expect up to $17 million possibly later this year with the remainder coming in 2026.

So really good execution. And then the other thing I would say is these are all cost outs. As we think about going forward and volume recovery, contribution margins should be strong for us. We think 25% to 35% as we go forward with that incremental volume. So we can't say enough about how appreciative we are of all of our employees' efforts in this area.

Yes. Okay. That's great color, Ben. And then I want to turn to Bedding. Can you talk about the demand environment and how that came through during the quarter? I think you said that you did see things improve each month in the third quarter. But it seems like that's coming despite the headwinds that we are seeing in the housing market and the volatility in consumer confidence. How do we sort of weigh those different factors out there? And can you just talk a bit about what you think is actually going on out on the ground?

Susan, thanks for the question. Before we go down that path, though, I'm going to turn it over to Tyson, but I want to stop for just a second and congratulate Tyson and his team for the tremendous job that they've done in the Bedding segment. The restructuring has been a challenge, the demand headwinds. The team has come together. We have an innovation pipeline that is more robust than it's ever been in our history. And when you think of -- they still have issues, Tyson will be very candid on these issues regarding specialty foam and adjustable bed. But when you look at the financials, you can see to your earlier question, the restructuring benefits, you can see cost management, operational efficiency improvements, metal margin expansion through the trade sale of trade rods. And like I said, the early in the year, we talked about the benefit of customer product launches. We're seeing that. It's ramping up. But most notable is what the teams have coming into the near future. 2026 is going to be really robust from innovation, evidence of our team's capabilities. So with all of that, Tyson, why don't you go ahead?

Sure. And thanks, Karl. Susan, I'll start just with some comments about the market. And I think we would characterize things right now as more stable than seeing a lot of recovery, although in both the second and third quarter, Ben mentioned this, but we saw sequential improvement in both quarters, which was coming off a pretty tough first quarter, but still that's a trend we haven't seen in quite some time. But really, it's getting us back to more of a stable place, but still in the third quarter, especially looking at the domestic market, down low single digits when we talk about units.

A few things, though, that I think are worth mentioning. Kind of within that stability, first of all, we've talked about this in some past calls that we see some pretty high peaks when we get to the promotional holidays and then some pretty tough valleys when we come off of those. But we're seeing more stability month-to-month. So we see some improvement around the promotions, but we don't see quite the big drop-offs, which I think is notable and something we'll continue to watch.

The other thing is that although things are reaching more of a stable level, we don't see consistent performance across all retail channels and brands. It is pretty choppy. And from our view, that's coming from a variety of factors with industry consolidation that's been going on, new program launches, advertising changes. All of those things are resulting in a lot of movement, which makes it a little more difficult to track exactly what's going on, but I think that's another thing we'll watch going forward.

But big picture, I think we still have to continue to watch it. You mentioned it, Susan, but the big macro factors that tend to drive bedding and furniture are still a pretty big challenge. Karl talked about this, too, the consumer is dealing with a tariff environment, but still pretty tough housing, wages dealing with inflation and just general consumer confidence. Those are all big picture things that for us to plan for an actual more recovery type environment, we have to see those things start to flip to be more positive.

Yes. Okay. And then maybe turning to the cash and the balance sheet. It's really nice to see how the leverage has come together. You mentioned, Ben, that the CapEx is going to be lower this year. How do we think about your plans for spend in 2026, some of the growth opportunities that maybe are coming in there and then maybe the potential for some resumption of shareholder returns?

Yes, sure. Thanks, Susan. Yes, our CapEx is a little bit lower based on the factors I mentioned in the prepared remarks. As we go forward, with a smaller, leaner footprint, we do think a more normalized level of CapEx is something like what we started to guide the year on this year, which was about $100 million. So obviously, there'll be puts and takes in any given year and timing factors in, but that $100 million is probably a decent way to think about it. And then as we think about growth initiatives going forward, as -- as Karl mentioned in his remarks as well, we do have some opportunities that we're pursuing. And so we'll continue to fund those. We've been funding whatever growth opportunities come along. And we'll provide more specific outlook on 2026 in the next call.

Yes. Okay. And then, Ben, I'm going to sneak one more in for you. Can you just walk through how you're thinking about the segment margins for this year?

Sure thing. On the bedding side, we now believe segment margins will be up 200 basis points. I think the last call, we were saying 150 basis points. So we're seeing a little bit more improvement there. On the Specialized segment, we are saying margins should be up about 50 basis points year-over-year. And then on the Furniture Flooring and Textile side, we're now predicting margins to be down 150 basis points. which is compared to what we said previously of 100 basis points down.

Our next questions come from the line of Peter Keith with Piper Sandler.

This is Alexia Morgan on for Peter. My first question is on the Furniture segment. It looks like there was some sequential improvement within Home Furniture, down -- volumes were down 5% in Q3 versus down 12% in Q2. I was wondering how you interpret that sequential improvement and if you think it indicates any underlying improvement within the broader category.

Go ahead, Karl.

No, I was going to say go ahead, Sam.

Okay. This is Sam. So if you remember back to last quarter, we talked about how those April 2 tariffs really upended our home furniture business and caused a pretty significant drop in volume year-over-year. So what we saw this quarter is more of a normalization, a return to kind of business at a more consistent volume level. And I'll just kind of comment a little bit on the volume versus where I think the market is. And I've read some really interesting Q3 retail surveys and some credit card data that I'm going to refer to. One survey suggested that year-over-year retail sales could be up 6% to 7% with the surveyed retailers. And it also showed that tariffs caused those same retailers to raise their prices and that weighted average price increase was up 9% to 10% -- so if you take the 6% to 7% sales increase, compare that back to the 9% to 10% price increase, and I think you could say that unit volume for that survey is down probably around 3%.

And then next to the credit card data that I saw, it showed that retail furnishing sales were up about 2%. Again, I think you got to apply some level of price increase to mitigate those tariffs. And when you apply the price increase to mitigate the tariffs, I think you can also assume unit volumes down low to mid- digits, and that's pretty much in line with our performance year-over-year. And I think from a positive news standpoint, we started up our new factory in Vietnam at the end of Q3, and we started shipping product from it early this month. And as we ramp up that plant, our products are going to be in a favorable tariff position, and that's really good for our customers and it's good for us.

Okay. And then staying within Furniture, could you elaborate on any shift you've noticed in end customer behavior across different price points? Specifically, are you still observing a divergence in performance between the lower price points versus the middle and the higher price points?

Yes, we are. We still continue to see the higher price points be more stable on a week-to-week, month-to-month basis. And there continues to be a lot of pressure at those lower price points. It's very consistent with what we were seeing last quarter with the exception that tariff announcement in April seems to have passed us by, and we're past that now.

Great. And then one more. Moving to the Bedding segment, it looks like steel rod volume dropped off significantly, inflecting negative to down 20% in Q3. Can you talk about the drivers for that inflection?

Sure. Happy to. And it's really -- it's pretty simple. Actually, trade rod volumes were pretty stable. The biggest change, and we've talked about this in the past, we also sell some semi-finished products called billets from time to time. And last year, we had a relatively strong amount of billet sales in the third quarter. And this year, because of both internal and external demand, we haven't had to resort to selling billets. So really, the full drop there is just an elimination of the billet sales. And overall, actually, our trade rod mix was pretty strong and helpful for us because it trended towards high carbon rather than low carbon. So although the headline there looks negative, it actually was a pretty strong result for us with the rod mill.

Which is a contributor to the profitability of the segment because the non-value-added of selling a billet versus the value added of selling a rod. And someone may question, why did you sell billets last year? And the answer was to keep the rod mill going, keep our employees employed. We don't have that problem right now. Volume is pretty darn good.

Our next questions come from the line of Bobby Griffin with Raymond James.

This is Alessandra Jimenez on for Bobby. First, I just wanted to touch on kind of the growth opportunity for here -- from here. Now that the majority of restructuring is near complete, where do you see the most opportunities for organic growth, assuming the macro environment is supportive?

Well, longer term, I'm going to surprise you a little bit. I appreciate the question. Longer term, I see our largest growth opportunity probably in finished bedding. It's a long tail to sell that product through, but we're gaining momentum. We're replacing some lost volume. So again, I'm not calling this being a fourth quarter or first half of next year even. But longer term, that private label work that we're doing on finished bedding, I think will reap significant benefit.

And this is Tyson. I agree with Karl. The private label finished mattress opportunity, especially with where we've seen the biggest volume declines in our bedding business, but also as we see consumers get more confident in returning to bedding and furniture products, Karl referenced this in his opening comments, but some of the investments that we're seeing in innovation and giving consumers a reason to come back and do some shopping, we feel pretty good about those right now. And this is purely anecdotal. There's not a lot of data to support it, but just seeing the workload that our teams have right now in bedding, they are really busy working with our customers right now. And at least from a feel standpoint or gut, it seems like this is as busy as we've been working on new product development since at least the start of the pandemic. I mean, since then, it's been a lot of VA/VE or just trying to spec products to replace things in the supply chain, but we're seeing more activity around getting new products into the market, which hopefully is a signal of our customers getting ready to put more products on retail floors.

Alessandra, I'll add on to that from a home furniture perspective. I was at the High Point Furniture market this past weekend. We had a big team there. We got a showroom, and we have a tremendous amount of customers to exhibit there. So as we walk through our customers' showrooms, we -- Home Furniture had more new product in our customer showrooms than we've had in quite a few years. Our teams have been really, really working hard and working closely with our customers in driving product innovation that's going to matter to consumers. And this -- these slow times have been a great time to do it. And I think we're in a great position for profitable growth when our residential markets recover. And from a Work Furniture standpoint, we continue to have a lot of new near-shoring opportunities that our team are working through and winning some programs that I think will feel the impact for in 2026 and as we move into 2027 as well.

Okay. Awesome. That is very encouraging. And then I wanted to switch to kind of a follow-up on capital allocation. With the rest of the long-term debt termed out pretty well, could you remind us on like the long-term leverage targets? And then any further details on capital allocation priorities? And maybe a follow-up on like what areas do you see an opportunity for potential bolt-on acquisitions?

Sure. This is Ben. I'll be happy to answer that. So yes, our long-term net debt leverage target is 2x. So our capital allocation strategy will continue to be to reduce that net debt as we go forward. But we're also considering other uses of cash, including small strategic acquisitions. So to your question there, I think the most likely area would be in our textiles business. We've been very successful at having fairly modest purchase price acquisitions and bringing those in and driving immediate synergies. And then we'll also be considering share repurchases as we look forward. No specific timetable on that at this point, but that's on the top of our mind as well.

[Operator Instructions] Our next questions come from the line of Keith Hughes with Truist Securities.

Question on the -- just back to bedding. U.S. Spring was only down a point or 2 in the quarter. That's starting to feel like what you're saying in the industry is, do you think it will start to track more what the industry does over the next near term?

Keith, this is Tyson. Yes, that's something we've talked a lot about. It's been tough to track with all the moving parts. But we've talked about, especially some of our higher-value products have tracked really closely with the market. And overall, with more stability in open coil when you kind of get the total mattress cores, it sort of feels like we're trending kind of in the same direction with the domestic mattress market.

And even within kind of the big picture view of our unit volumes, there are some pretty encouraging things that are going on. We've talked about our content gains, which goes back to the long-term decline of open coil, but then the addition of our Comfort Core products and some other things we've been introducing in the market. And starting to see that come through, especially in the third quarter, and that's where you see some of our profit improvement as well. But we're really starting to see some momentum from that. In the third quarter, we saw a significant boost in our Quantum share of Comfort Core, but also our semi-finished business grew more than 20% versus last year. So even when you look at the volume comparisons unit per unit, we think we're tracking pretty well, but also picking up some content.

Keith, if you don't mind, Tyson, while we're on that subject, much has been written about lost market share. Talk about that, if you don't mind.

Well, and I think a lot of that comes from the moving pieces with the imported finished mattresses and how much are actually being consumed within the course of the year. It's been a tough thing to track, but we're seeing more stability with the imported finished mattresses, especially after some of those things were loaded up in the first part of the year ahead of tariffs. So it's a little easier to get a view of that now, Karl. But on top of that, we've seen some different moves with some of the brands and industry consolidation, but that's where we feel at least from the U.S. Spring point of view.

And if you look at adjustable and specialty, I know there's a customer issue. When do you lap that, when will that start to look more like a chance to do better than the industry or like the industry?

Yes, Keith. So it is a consistent commentary from what we shared last quarter. I'll talk just a little bit more about it. It's largely 2 customers, and they're the same ones for specialty foam and adjustable bed. The first one is Mattress Firm. And once the consolidation has been complete, with specialty foam, there was a private label mattress program that was taken internal. And then second to that, with our adjustable bed business, we still sell some product there, but we've seen a change in the merchandising plan and where some of the sourcing of that product is coming. So those have been both impactful to both specialty foam and adjustable bed. And it will really take fully through next year before we'll fully get through that part of it. The second big challenge again for both businesses is not a market share loss, but it's more just of a headwind of a large customer of ours that impacts both foam and adjustable bed. Now it's hard to say exactly when we anniversary those because it's more of just a specific customer challenge, but not lost market share.

Okay. And I think it was Karl, your commentary on the sector, you were seeing some retail do better than others. Could you talk about that a little bit more of what type of retail is seeing some at least sequential improvement? I was still down year-over-year? And what areas are still struggling?

Yes, that was actually Tyson. Go ahead, Tyson.

Sure, Keith. Well, it's probably what you would suspect. On the online channel, see quite a bit of strength in some of the lower-end online e-commerce. There's a lot of volume moving through there. In brick-and-mortar, see quite a bit of activity happening in big box and through Mattress Firm. But it's not as we've kind of talked about here, it doesn't seem to be a rising tide lifting everybody at the same level. It is inconsistent, but see stronger unit volumes at least through those channels.

Okay. And one other question on textiles. It was up in the quarter, up several quarters now. I think you talked about potential price pressure there along with flooring. I think I know what's happened in flooring, but if you could talk about textiles, where you see that going?

Yes. Sure, Keith. This is Sam. We've got a little bit of bifurcation in our textile business. The traditional side that services furniture, bedding, fabrics, that's where we're seeing a tremendous amount of price pressure, just as you would see in flooring as these markets continue to be down from demand standpoint. So that's kind of where we see that. Where the growth is really coming from is from our GEO side. The U.S. civil construction is up really nicely year-over-year and what we call our engineered materials markets, which are automotive, filtration, some building -- some specific building products outside of geotextiles. Those volumes are looking really good for us and helping drive some of that growth.

Our next questions come from the line of Susan Maklari with Goldman Sachs.

I just have a couple of follow-ups. The first is just building on Keith's question on textiles. You have seen a lot of really nice growth in there. And I think, Ben, you mentioned that as a potential for some bolt-on M&A. Can you talk a bit more about how you're thinking about the future trajectory of that business? What kind of deals you could possibly be interested in and how we should think about what that will mean for growth?

Sure. And do you want to say? Or do you want me to jump in?

Well, I'll start off, Sam, if you want to pile on, that would be great. But Susan, just to answer your question, I think what we've seen in that business for over 20 years is really our ability to acquire small businesses, bolt them on and really drive immediate synergies through our purchasing, which we do really well with. So I think that is something that has been very successful for us. We look for applications of the raw materials and how we can convert them and really service customers on a just-in-time basis. And a lot of it also can be a geographic strategy to serve areas, new geographies with similar products. But Sam, what would you add on to that?

I think you covered it perfectly, Ben.

Yes.

Okay. And then going back to Bedding, you've talked a lot about innovation and the product pipeline that you have, and it sounds like that's gaining some really nice momentum. As we look out, how do we think about the benefit that you can see from a price mix perspective? And what that could mean for the business even if we remain in a tougher macro where we have those continued headwinds on overall broader demand?

Yes, Susan, I kind of referenced this a little bit already. But even with the semi-finished and content gains we've seen in U.S. Spring, you're kind of seeing some of it now. I mean versus third quarter last year, roughly half of our EBIT improvement comes from just fixed cost reductions and restructuring. The other half is mostly from margin enhancement. Some of that from trade rod business. But the other part is just from exactly what you said, of already seeing the benefits of improved content through our spring business, and that comes from products we talked about on previous calls. But on top of that, when I talked about working with our customers and our customers starting to lean in more towards differentiating their product line, a lot of that comes through improving the content, the comfort or even just the inclusion of specialty foam along with the innerspring units. So all of those end up being multiples in terms of the selling price for us versus kind of more the historic innerspring business that you think about. And that's where even as we've seen some volumes be even down slightly or where we've been in the last couple of years, that's where we see the opportunity for profit improvement and feel more of that is possible going into the future.

There are no further questions at this time. I would now like to turn the floor back over to Stephen West for closing comments.

Thanks, everyone, for joining us this morning, and we look forward to hosting you next quarter as well. And we are scheduled to issue our fourth quarter earnings release on February 11 after the market closes, and our conference call will be on February 12 at 8:30 a.m. Eastern Standard Time. In the meantime, if you have any questions, just reach out to me any time. Thanks.

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and enjoy the rest of your day.