La-Z-Boy Earnings Down 42 Percent on Rising Raw Material Costs

MONROE, Mich. – La-Z-Boy Inc. (LZB) said Tuesday that second-quarter profit fell 42 percent as the company was unable to pass rising raw material costs on to customers.

Shares of the furniture maker fell 16.3 percent, or $2.33, to $12 recently in the extended session after closing regular trade on the New York Stock Exchange (search) up 68 cents, or 5 percent, at $14.33.

For the three months ended Oct. 23, earnings fell to $8.9 million, or 17 cents per share, from $15.2 million, or 28 cents per share, a year ago. The company said results in the latest quarter were affected by $10 million in additional sales and a loss of 5 cents per share related to the consolidation of certain variable interest entities.

Revenue rose 4 percent to $533.7 million from $511 million during the same period last year.

Analysts surveyed by Thomson First Call predicted the company would 21 cents per share on sales of $528 million.

"In spite of challenging industry conditions we met our sales expectations for the quarter and are increasing market share with our La-Z-Boy branded business," president and chief executive Kurt L. Darrow said in a news release.

However, La-Z-Boy said prices of raw materials such as steel and plywood continued to rise and the company was not able to immediately pass these higher costs on to customers. Production problems at its Lewisburg, Pa., Pennsylvania House (search) manufacturing facility, which it is closing, also hurt results.

Looking forward, the company expects third-quarter earnings of 11 cents to 14 cents per share, including restructuring charges of 1 cent per share and a loss of up to 3 cents from the consolidation of variable interest entities. La-Z-Boy predicted sales will be flat with or slightly greater than the year-ago period.

"We continue to face record high energy and raw material costs, rising interest rates, indifferent consumer confidence and are somewhat cautious about consumer discretionary spending in the coming months," Darrow said. He added that the company expects previously announced price increases to partially offset the higher raw material costs.

Analysts expect the company to earn 25 cents per share in the third quarter, excluding charges, on sales of $510 million. During the third quarter of 2003, La-Z-Boy earned 29 cents per share, including a 1 cent restructuring charge, on sales of about $492 million.