Greetings, and welcome to the Leggett & Platt Q4 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ms. Susan McCoy, Senior Vice President of Investor Relations. Thank you. Ms. McCoy, you may begin.
Good morning, and thank you for taking part in Leggett & Platt's fourth quarter conference call. On the call today are Mitch Dolloff, 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 Hagale, Senior Vice President and President of the Bedding 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. Jeff will cover financial details and address our outlook for 2022, and the group will answer any questions that you have. This conference call is being recorded for Leggett & Platt and is copyrighted material.
This call may not be transcribed, recorded, or broadcast without our express permission. A replay is available from the IR portion of Leggett & Platt'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. 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 in 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 Mitch.
Good morning, and thank you all for participating in our fourth quarter call. First, I'd like to welcome Tyson Hagale, President of our Bedding Products segment. Tyson is joining us today to participate in Q&A and will be a regular participant on these calls. Tyson's been with the company for over 20 years and previously served in various roles of increasing responsibility in our bedding, furniture, and corporate development areas. In 2021, Leggett & Platt achieved several milestones. We attained record sales and EPS. We increased our dividend for the 50th consecutive year. We issued our inaugural sustainability report.
We promoted Tyson Hagale to lead our Bedding Products segment, and Sonia Smith to lead our Automotive business, two outstanding long-tenured employees, and added newly created positions, including our first Chief Human Resources Officer, our first Inclusion, Diversity, and Equity Director, and our first Sustainability Manager, all demonstrating our commitment to ESG. Those achievements would not be possible without our 20,000 employees who are dedicated to creating innovative, sustainable products for our customers, ensuring a safe and inclusive workplace, and driving value for our shareholders. I want to thank our employees for their tremendous contributions in another challenging year. Your collaboration, agility, dedication, and commitment to our values drive our success. Yesterday, we reported record quarterly sales from continuing operations of $1.33 billion, EBIT of $152 million, and earnings per share of $0.77.
Sales in the quarter were up 13% versus fourth quarter 2020 and reflect the pass-through of significant inflation in 2021, partially offset by lower volume in several of our businesses. When comparing to the pre-pandemic results of fourth quarter 2019, trade sales grew 16%, adjusted EBITDA increased 15%, and adjusted EPS increased 31%. For the full year, 2021 sales increased 19% to $5.07 billion from a combination of raw material-related price increases, volume gains, and currency benefit. EBIT increased 46% and adjusted EBIT increased 25%, primarily from volume recovery from pandemic-related sales declines in 2020, expanded metal margins in our rod mill, and pricing discipline.
Full-year EPS was $2.94, and adjusted EPS was $2.78, a 29% increase versus 2020 adjusted EPS of $2.16. When comparing to the pre-pandemic results of 2019, trade sales grew 7%, adjusted EBITDA increased 9%, and adjusted EPS increased 16%. While we continue to navigate a number of macro market challenges, including supply chain constraints, inflation, and a likely shift to tighter monetary policy, we expect to see improvements in 2022 as conditions stabilize and growth continues in our businesses most negatively impacted by the pandemic. Moving on to the segments.
Sales in our Bedding Products segment were up 18% versus the fourth quarter of 2020, and up 22% versus the fourth quarter of 2019, primarily from raw material-related selling price increases from inflation in steel, chemicals, and nonwoven fabrics. Volume was down in both the one- and two-year periods, primarily due to challenges with chemicals and labor availability in the U.S. market early in the quarter, and softness in demand in the U.S. and European markets, which developed later in the quarter. Supply of chemicals used in our specialty foam operations negatively impacted our production levels in October and November, but improved in December. Despite softening in recent months, we still expect reasonable demand in 2022. EBITDA margins in the segment were lower versus fourth quarter 2020, primarily from lower volume, investments to maintain labor, and higher transportation costs.
Adjusted EBITDA margins improved over fourth quarter 2019, primarily from expanded metal margins in our steel rod business and fixed cost actions taken in 2020. Sales in our Specialized Products segment were down 3% from the fourth quarter 2020 due to lower volume in automotive, partially offset by growth in hydraulic cylinders and aerospace. Sales were down 2% from fourth quarter 2019 due to lower volume in automotive and aerospace, partially offset by growth in hydraulic cylinders. In our automotive business, volume was down over the one- and two-year periods. While industry production improved sequentially from the third quarter, semiconductor shortages negatively impacted vehicle production levels in the fourth quarter. Consumer demand remains strong, and vehicle inventory remains at record low levels.
As supply chains begin to stabilize, the industry should see improving production in the second half of 2022. Industry forecasts indicate recovery continuing through 2023. In our aerospace business, demand for fabricated duct assemblies continued to be at pre-pandemic levels, and we began to see demand recovery for welded and seamless tube products in the fourth quarter. We expect to see continued recovery in 2022. However, with the lingering impact from pandemic-related disruption in air travel and resulting buildup of aircraft and supply chain inventories, the industry is not anticipated to return to 2019 demand levels until 2024. End market demand in hydraulic cylinders is strong, and order backlogs in the industry remain high. However, global supply chain constraints and labor availability has hampered the ability of our OEM customers to ramp up production.
We expect our sales to increase as OEM production increases. EBITDA margins in the segment declined over the one-year and two-year period, primarily from lower volume, partially offset by fixed cost actions taken last year. Sales in our Furniture, Flooring & Textile Products segment were up 17% versus fourth quarter 2020, primarily from raw material related selling price increases and volume recovery in work furniture, partially offset by lower volume in flooring products and fabric converting. Sales were up 22% versus fourth quarter 2019, primarily from raw material related selling price increases and volume growth in Geo Components and home furniture, partially offset by lower volume in flooring products. We expect continued strength in our home furniture business in 2022 as customer backlogs remain elevated.
So far this year, the Chinese market has slowed as most manufacturers are taking early and longer Chinese New Year holidays to avoid anticipated COVID related quarantines. Work furniture sales recovered to pre-pandemic levels with steady demand for products sold for residential use and improving demand in the contract market. We expect modest growth in 2022 as residential and hybrid work products remain relatively strong and the contract market continues to gradually improve as employees return to the office. Volume in our fabric converting and geo components businesses have returned to more normalized level after experiencing pandemic related sales opportunities in the back half of 2020. In flooring products, residential demand remains strong while hospitality demand remains well below pre-pandemic levels. Volume was down in the quarter due to limited labor availability and transportation disruptions.
EBITDA margins in the segment improved over the one- and two-year periods, primarily from pricing discipline. For the company overall, the fixed cost actions we took in 2020 reduced our fourth quarter cost by approximately $20 million versus the fourth quarter of 2019. For the full year 2021, we maintained approximately $80 million of the approximately $90 million of fixed cost actions taken in 2020. We remain focused on controlling our costs by only adding fixed costs as necessary to support future growth opportunities. Leggett remains well-positioned both competitively and financially to capitalize on long-term opportunities in our various end markets. Our enduring fundamentals give us confidence in our ability to continue creating long-term value for our shareholders. Jeff will now discuss our 2021 financial details and full year guidance for 2022.
Thank you, Mitch, and good morning, everyone. In 2021, we generated cash from operations of $271 million versus a very strong $603 million in 2020. This large one-year decrease was primarily driven by inflationary impacts and planned working capital investments to rebuild inventory levels in our rod, wire, and U.S. spring businesses following severe depletion in 2020. With softening demand in the bedding market in the fourth quarter of 2021, along with our decision to postpone the reheat furnace replacement at our steel rod mill until first quarter of 2022, inventory levels were higher at year-end than previously anticipated. These were the main factors leading to the lower than previously expected operating cash flow for the full year 2021.
We ended the year with adjusted working capital as a percentage of annualized sales of 13.4%. In addition, we brought back $247 million of offshore cash in 2021. We expect cash from operations of approximately $600 million in 2022 as this past year's significant inflationary impacts are not anticipated to recur, and we work to right-size our inventory levels. Our long-term priorities for use of cash are unchanged. They include, in order of priority, funding organic growth, paying dividends, funding strategic acquisitions, and share repurchases with available cash. Total capital expenditures in 2021 were $107 million, reflecting a balance of investing for the future while controlling our spending. In November, our Board of Directors declared a $0.42 fourth quarter dividend, $0.02 higher than last year's fourth quarter dividend.
At an annual indicated dividend of $1.68, the yield is 4.4% based upon Friday's closing price of $37.88. We raised our annual dividend for the fiftieth consecutive year in 2021, honoring our ongoing commitment to return value to our shareholders. As a result of this commitment over many decades, we are now a member of a select group of companies referred to as Dividend Kings. From a strategic acquisition perspective during 2021, we acquired three businesses. An aerospace business located in the U.K. that specializes in metallic ducting systems, flexible joints, and components for space, military, and commercial applications. In second quarter, we acquired Kayfoam, a leading provider of specialty foam and finished mattresses, primarily serving customers in the U.K. and Ireland.
Finally, we acquired a small manufacturer of bent metal tubing used in office and residential furniture located in Poland that has been an important supplier to our local work furniture operation. We also divested a small specialty wire operation in our drawn wire business with annual sales of approximately $12 million. Consistent with our deleveraging plan, share repurchases were limited in 2021. In November, we issued $500 million of 30-year, 3.5% notes and used some of the proceeds to repay outstanding commercial paper. We ended 2021 with net debt to trailing 12-month adjusted EBITDA of 2.29 times. Our strong financial base, along with our deleveraging efforts over the last two years, gives us flexibility when making capital and investment decisions.
We remain focused on cash generation while reducing debt and deploying capital in a balanced and disciplined manner that positions us to capture near- and long-term growth opportunities, both organically and through acquisitions. Now moving to 2022 guidance. 2022 sales are expected to be $5.3 billion-$5.6 billion, or up 4%-10% over 2021. This guidance reflects flat to mid-single-digit volume growth and continued inflationary impact, primarily from raw material-related price increases implemented in 2021. Acquisitions in 2021 should add 1% to sales growth in 2022. Volume growth is expected from continued recovery in the businesses in the Specialized Products segment that were most negatively impacted by the effects of the pandemic. We also expect improved operating conditions and stabilized demand in Bedding.
2022 earnings per share are expected to be in the range of $2.70-$3.00. The midpoint reflects higher volume, metal margins in our steel rod business to expand modestly, partially offset by increased transportation and labor costs and reduced overhead absorption as we right-size our inventory levels. Based upon this guidance framework, our 2022 full year adjusted EBIT margin range should be 10.5%-11%. Earnings per share guidance assumes a full year effective tax rate of 23%, depreciation and amortization to approximate $200 million.
Net interest expense of approximately $80 million and fully diluted shares of 137 million. For the full year 2022, we expect capital expenditures of approximately $150 million. Dividends should approximate $230 million and share repurchases to offset share issuances. In closing, I would also like to thank all of our employees around the world for your tremendous efforts this past year to safely deliver record 2021 results. With those comments, I'll turn the call back over to Susan.
That concludes our prepared remarks. We thank you for your attention, and we'll be glad to answer your questions. Mitch will direct our Q&A session as the group answers your questions. Operator, we're ready to begin the Q&A.
The first question is from the line of Bobby Griffin with Raymond James. Please go ahead.
Good morning, everybody. Thank you for taking my questions. Mitch, congrats on your first call as CEO, and I'm sure Karl is listening. Just wanna, Karl, wish you the best of luck in the next chapter for you and your family retirement.
Good morning, Bobby. Thank you very much.
Absolutely. I guess my first question, more about the quarter, then I have one high level question as well. Just on the quarter itself, can we maybe dive into a little bit of the innerspring and spring volumes for your businesses that were reported here in Q4? I guess maybe elaborate a little on the supply chain challenges and how much that costs from volume. What did you expect the market did in the fourth quarter? Understanding it's hard to kinda get a great sense of that, but, you know, we're getting a few questions today on your share versus the market's performance during Q4.
Yeah, thanks, Bobby. We figured that would be an important topic for us this morning. You know, when we talked on the call in the third quarter, we, you know, mentioned that we were really expecting the fourth quarter to be unseasonably strong on the Bedding side as there was, you know, backlogs, and we were holding on to labor and our inventory to make sure that we could support our customers. That kinda didn't prove out to be how it happened. You know, you're right, there's not a lot of information out there yet. Certainly, the ISPA data is not available, but we have a pretty good perspective, we think, and we're happy to share that with you. Tyson, why don't you dig into that? I know there's a lot there.
Yeah, sure thing, Mitch, and good morning, Bobby. Let me try to walk through this in a few pieces, and I'll start with just overall market demand. Like Mitch said, we don't have any directional data from ISPA and probably won't even, you know, for another week or so. Our expectation is that we'll see that the fourth quarter will show some declines year-over-year. We started to see that trend in the third quarter of this year, and some of that probably due to some supply chain issues. When you look at it in total, units being down in the third quarter year-over-year almost 9%, and U.S. produced between 4%-5%.
Our expectation would be that we would see continued slowdown as we move through the fourth quarter. A number of reasons that contribute to that, you know, not surprisingly, just lower consumer sentiment, inflation, and lack of stimulus and another round of COVID surge, you know, all those things combining to create some headwinds. It is hard to get a good read on where exactly we'll land, but I think we would say that we would expect, overall probably high single digit year-over-year decline in the fourth quarter. Not sure the combination between U.S. produced and imports, but do feel that the slowdown probably did occur as we moved through the fourth quarter.
The second part that I'll move through is as it relates to our sales and our difference or probably greater decline than the overall market. The first part is just, you know, our position within the supply chain and inventory positions. We believe we probably slowed down before the rest of the market. You know, thinking about as we moved through the quarter, we did have some constraints and our customers had some constraints related to chemicals and foam. That improved as we moved through the quarter, especially as we got towards the end of November and December. Our business, as we moved to the end of October, and especially at the beginning of November, is when we really started to see the slowdown, and the slowdown continued pretty consistently through the end of the year.
The third part would be the share that you referenced, and I'll go through this in a couple of parts, but first in inner springs, we would say that we've seen some share declines in the mid-single-digit range. A couple of reasons for that. I think it's been talked about on a couple of the previous calls, but about a third of that decline coming from some lower margin business that we voluntarily exited, and then two-thirds being related to just supply disruptions that really began in the early part of 2020, both from labor but also our shortage of nonwovens that just forced our customers to make some sourcing decisions that we're still dealing with now. On that part, we do feel good about regaining that business over time.
A big part of that impact came from imports, and we've been watching that closely and saw the trend of imports increase at the end of 2020, at the beginning of 2021. Really over the last six months or so, we've seen that trend start to decline as the cost and complexity of the imports has started to add up. As it relates to specialty foam, it's a similar story to the innerspring business, but the timing's a little bit different. The constraints that we had with chemicals came at a later date than it did in innersprings. We had tougher comparisons at the end of 2020. Really some outsized business that we had as demand was really pretty strong towards the end of 2020, and we had chemicals and foam available.
As we moved through the year, we had those constraints, and again, customers had to make some decisions as it related to sourcing just because of our allocations and things that we had to deal with. Overall, as it relates to the share, we do think that we can regain it over time. It's gonna take some work, but we feel good about our position in being able to do that.
Okay, that's helpful. Maybe one quick follow-up, and then I'll jump back in queue and just save my high level question. When you unpack the guidance for 2022 and what's assumed in bedding is, does the guide assume that you gain back the share in innerspring that you're referencing, or does it more assume that there's just no further share bleed?
At this point, no further share bleed. We overall for 2022 expect stabilizing demand. You know, things have been strong for the last couple of years, and we still feel good about the overall fundamentals of the business and the supply chains improve. We do feel as we move through the year that things will just generally get better at a pretty reasonable level, you know, probably up low single digits from 2021.
Okay.
Yeah. Tyson, maybe just a couple of things to add there real quick. On the foam side too, remember that our bun production is down quite a bit, right? As we shifted away from some of that business to try and service as much as we could on the bedding side. That's impactful to us. On the innerspring side, you know, most of the volume reduction, right, is on the open coil side on the lower end, where we're pretty flat on the higher end products, the ComfortCore products. You know, that all flows into our expectations for next year as well, right?
Yeah, that's right.
Okay.
Mitch.
Very good. I'll jump back in queue and turn it over to somebody else. Thank you, and best of luck here in 2022.
Thank you, Bobby.
Thank you. The next question is from the line of Susan Maklari with Goldman Sachs. Please go ahead.
Thank you. Good morning, everyone. Mitch, let me add my congratulations to you and Karl as well, who I'm sure he's listening, like Bobby said. My first question is, you know, kind of just continuing on the bedding side of things. You know, you've obviously talked about the fact that you expect to incrementally regain some of that share over time. Can you talk to some of the efforts that you're taking on and how we should be thinking about those coming together? Anything specific that you would highlight there as you do look to regain that?
Yeah. Tyson, I'll let you take this one. Remember too, a lot of the impact here has been just the volatility in the market overall. Certainly, there's some share contribution to us, but I don't think that's the biggest impact of it. I think it's probably worth digging into a little bit of, you know, the dynamics with our, some of our, contract versus non-contract customers that you see there.
Yes, sure. Thanks, Mitch. You know, part of it's some of the things that have been talked about on some of the previous calls. I mean, we've invested heavily, especially in our ComfortCore production. Mitch mentioned that, and we've rebuilt not only our capacity, but also our labor force and trained up to be more efficient, to be able to produce at a good level and suit the needs of our customers here domestically in the U.S. That was a big part of it. We continue to see demand for those products in the U.S. It's a bigger and bigger part of our business, and so we feel like we're well positioned for that part especially. It's something that we'll take some time to work through. Like I mentioned, there's inventory in the system.
Demand being slower is gonna take some time to work through that part of it. On top of it, we've also been dealing with a period of time when there's been a tremendous amount of inflation all the way through to retail. That's something we're gonna have to work through, but we feel like we're well positioned to do that.
Yeah. I mean, we were hit first, right, when we had the nonwoven shortages and supply and demand, you know, surge back. We were struggling to keep up. We added capacity, and nobody expected the chemical shortages and labor to affect the market overall. You know, we've made, I think, very thoughtful decisions about maintaining our capacity. You know, some of those decisions to secure supply elsewhere, because frankly some of our customers had to, as they were on allocation, you know, took a while to come in place. That inventory kind of hit, you know, primarily in early 2021, right? It's taken a little bit of time to work through that.
Remember the cost and the difficulty of importing, especially right now. I think that helps our position as well.
Okay. That's very helpful color. My next question is, you know, you obviously benefited this past year from the metal margins and those moves in the underlying commodity market. As you look forward to 2022, can you talk about how you're thinking of that dynamic for this year? Anything that, you know, is changing as we come into 2022? Obviously there's been a lot of movement in the broader sort of steel industry, especially, you know, rolled products as it relates to imports and some of those things. Anything that, you know, you're seeing that's impacting you for the year ahead?
Yeah. Thanks, Susan. I think, you know, we're starting the year with this spread at a very, you know, high position. We don't really see any sort of rapid decline. Tyson, I'll let you talk about it a little bit more. I think that the market dynamics there are probably pretty favorable for us.
Yeah, that's right, Mitch. I mean, really, we saw like a lot of things in inflation moving through as we got through 2021. A big part of it is just the overall conditions from supply and demand. Demand was extremely high, both for just the use of the products but also to rebuild inventory. Supply was constrained just with overall capacity and then also some outages that existed. Really, even as we got into the late part of the year and early part of this year, we've continued to see that holding. It's really gonna be difficult to predict, to see how those things unwind. I mean, we do expect that at some point supply and demand will become more balanced. At this point, like Mitch said, we don't see, you know, any rapid changes in that.
Actually, as we have it for the full year because of the timing of the increases, we actually have 2022 slightly higher on average than 2021.
Yeah. Maybe just a little more color on that. It's in an elevated position today. We think it stays, I mean, our guess is stays pretty strong at least through the first half of the year. You know, just kind of estimating, well, maybe there's a little bit of a return down to normal in the second half of the year. Hard to know. Really, that's just an estimate that it declines to some degree over time, but still on average ahead of, as you said, ahead of 2021.
Gotcha. Okay. Can I just sneak one more in here? A higher level question. There's been a lot of talk on the consumer and, you know, especially at lower price points, their ability to continue to spend as they just face a lot of inflation across, you know, a myriad of things, energy, food, all those types of things. When you look across your business and your consumer, you know, related areas that are exposed to the consumer, the bedding, the furniture, those kinds of things, can you talk in general to how you're thinking about overall levels of demand? Anything you're hearing from your various customers as we think about, you know, some of your more mid-price bedding products maybe, or some of your higher priced products on the foam side and, you know, even within furniture.
Just any color or any sense of the consumer's health and how they're feeling today and the ability to continue to spend this year?
Yeah, that's a great question, and I think it's kind of early on, right? We're starting to see it emerging. I think probably have seen some impact on the bedding side more than anywhere else. It kind of makes sense if you think about particularly, you know, at lower wage levels where all suddenly faced with this really high inflation, with some of the stimulus now, you know, evaporating and lower household savings rates. I think that it, you know, logically makes sense to me that that would impact particularly those mid to lower, you know, range products. I think that we're starting to see some of that emerging on the bedding side. On the home furniture, the work furniture side, we still really haven't seen that yet today or in our other markets.
I think, you know, we'll continue to see what happens. Of course, there's likely to be tighter monetary policy going forward, and we'll see what that does to inflation. You know, we're not anticipating that there's a big pullback from the consumer by any means. I think there'll be a little bit of instability, certainly as we go through the first quarter and maybe the first part of the year.
Yeah. Okay. Thanks for the color, Mitch. I appreciate it, and good luck.
Thank you very much.
Okay.
Thank you. The next question is from Keith Hughes with Truist. Please go ahead.
Thank you. In your guidance you talk about flat to mid-single digits volume growth. Just wanna talk more on the Specialized Products. Do you anticipate that to be the leader of all the segments in volume growth? Specifically in Specialized Products, can you talk about how you're viewing the year shaping up? I think I heard something about second half improving. Is it gonna be more second half weighted?
Yeah. Good morning, Keith. Thanks. That's a great question. Yeah, we definitely see, you know, continued recovery in automotive, aerospace and hydraulic cylinders, the businesses within Specialized Products. You know, let me talk a little bit about automotive first. You know, we think that there's really been constrained consumer demand, you know, for a while. The consumer demand is really strong. You know, inventory is very low, down to something like 23 days in the U.S., we think. You know, that's just all a result of the semiconductor shortage, of course. We saw the low point really in the third quarter of this year of production overall in the industry, you know, recovered a little bit in this fourth quarter.
Probably still pretty tough first quarter of next year, but we do see it improving as we go through the rest of this year. That will have a really positive impact on our business. You know, the impact of that volume on margins in Automotive is very large. We do expect that to help us out as we go into the back half of the year. In hydraulic cylinders and aerospace, Steve, I'll let you comment on this, but I think, you know, hydraulic cylinders backlog is very strong in the lift truck market, and we expect to see the aerospace market improve a little bit. Steve, I'll let you add any other color there that you'd like.
Yeah. I would say the high demand for, you know, from our customers in 2022, you know, leads us to believe we'll certainly continue to see the sales growth recovery. But as Mitch said, the OEMs are still struggling to increase their output a little bit. We've seen a couple of them push.
Run into the later years. The backlog is sitting in the U.S. at a record 13 consecutive months of growth. The demand is definitely there once they're able to produce. In aerospace, basically all of the new build, if you will, aerospace segments are improving. Obviously, it'll take a little bit longer. Assembly business is nearly recovered with, you know, market recovery plus our content wins, and we are now finally seeing the tube supply recovery starts mainly in Europe at this point in time. That's positive. As we mentioned, that's gonna take through 2024 to fully play out.
It sounds like Specialized is gonna particularly the Automotive is gonna start out negative and they get better as the year goes along. Is that right? Then again, back to my question, is this gonna be the best growth division in units for 2022 from what you said today?
Yeah, Keith, I think that is probably right. I think, you know, we see the volume ticking down a little bit in the first quarter, still fighting through some inflation and, you know, transportation issues, and then we'll see it sequentially recover, is our expectation through the rest of the year. I think you're right that probably the biggest growth opportunity is in Specialized. That's, you know, it was the most negatively impacted and starting to recover now finally.
Okay, thank you.
Thank you.
Thank you. Again, if you have a question, please press star one on your telephone keypad. The next question is from the line of Peter Keith with Piper Sandler. Please go ahead.
Hi. Thanks. Good morning. Mitch, congratulations. I'm not gonna be as articulate as Bobby and Susan, but I hope that the team is doing very well there. Maybe, Mitch, just with you moving into the CEO chair, big picture, could we expect any adjustments to strategy, or company positioning?
Good morning, Peter, and thank you. You know, I'm really grateful that over the last three years or so to have worked with Karl the way we did. We have been you know planning for this transition, and I think in a pretty rare opportunity that he gave me to start making the changes that you know I felt that we needed to do to position the company for the future. Those are still underway, but I'm very grateful to have them underway rather than you know day one saying, "Now what do I wanna do?" You've already seen it.
It's really our continued investment in talent and infrastructure to be prepared to drive growth and to manage it properly, to really make sure that we're maintaining a global viewpoint and that really sort of market-facing outlook. Also, you know, really honing in our focus on innovation around consumer and customer insights and driving that into our product development. You know, I think it's the activities that you've already seen taking place over the last several years, the changes in how we view some of our businesses that really expand our addressable markets and give us more growth opportunities. No big shift. Our commitment to our capital allocations remains the same, right?
Focus on organic growth, on increasing the dividend, on strategic acquisitions and, you know, with excess cash share repurchases. I don't think we see any major shift, but hopefully continued and accelerated progress.
Okay. That's a good summary. The one thing you didn't mention would be the targeted total shareholder return. You guys laid this out in late 2019 to be at 11%-14%. Two-part question on this is that still the targeted TSR? And then secondarily, just looking at the 2022 outlook, you know, the EPS guidance calls for kind of low single-digit EPS growth. It seems like there's some nuanced margin pressure. Maybe Jeff could unpack that a little bit with regard to the labor, transportation and then this inventory absorption.
Yeah, let me. I'll give some high-level comments, Jeff, then I'll turn it over to you. Yeah, that's still our target. I mean, we thought that, you know, when we set that goal out there, we thought 11%-14% would put us in the top third of the S&P 500, and the dynamics have changed a little bit, but we haven't moved away from that target. I mean, you know, we've certainly had a lot of volatility around demand, around inflation, around supply chain constraints. All those things, you know, over the last couple of years have had an impact. You know, I think the critical elements for us to do that is to drive, you know, to continue to pass on raw material inflation. We've done that.
We will have some wage inflation and continued investment in labor as, you know, we expect markets to continue to be a little bit dynamic. But we've learned that we wanna most importantly, be able to service our customers, and that labor is in short supply. So where we need to make some investments to hold onto that, we'll do it. Of course, transportation costs are up, and as we look at this year, you know, in 2021, we were rebuilding short inventories after the, you know, the issues that we went through in the bedding market primarily, as well as the inflationary impact on that inventory. You know, as we look forward into this year, we'll be taking some of that down.
We'll certainly have some impact from overhead recovery as we switch from building inventory to taking it down a little bit. I think those are probably the main drivers in my mind. Jeff, let me turn it over to you. Anything that you would add or clean me up on?
Thanks, Mitch. I think you covered it well. Good morning, Peter. I would say, you know, as we look at the labor and transportation costs that, you know, we're assuming in our guidance, Peter, I mean, that's obviously gonna be pretty volatile and tough to predict throughout the year. We do expect those to be sizable as we look at year-over-year from a labor and transportation perspective. As Mitch mentioned, you know, we were very intentional in 2021 around knowing we needed to replenish our inventory levels.
We will be therefore very intentional as we work to lower our inventory levels throughout the year, which will have some level of reduced recovery on the overhead absorption, because we're gonna obviously ship out of that existing inventory, versus, you know, increasing our production at certain points for certain products. That will have an impact on what you're seeing in our guidance for 2022, as you mentioned earlier.
Okay, that's helpful. Maybe, if you don't mind, if I just ask one other question, on the volume outlook. Certainly I think the improvement in automotive makes a lot of sense. I guess on the bedding side, I think the phrasing that you used was a stabilized bedding environment, yet we're going into the year, you know, where you're also citing units are down negative high single digit and weakness at the low end. Maybe frame up the year for us with your bedding outlook. Do you expect that units are gonna be down in the first half, and then there's improvement in the second half to get to kind of a normalized backdrop?
Yeah. Tyson, I'll let you take that one. I mean, I think what we see during the first quarter, we would expect the first part of the year to be a little bit softer. Go ahead.
Yeah. That's right, Mitch. I mean, we see some of the carryover already in the early part of the year just from the softness that existed in the fourth quarter. You know, right now, just our expectations are that if things stabilize, that will improve through the year. You know, the third quarter is seasonally the high point, and we feel like we're getting back a little bit more on track kind of with the normal cycle of business. So we do expect the first half to be a little weaker than the second as things kind of rebuild, but then getting back to a little bit more normal.
Yeah. I mean, some of the underlying, you know, big picture factors remain still healthy at this point, right?
Yeah. That's right. I mean, the housing trends are still good, younger home buyers. There's been a big focus on health and wellness and you know, people you know, using mattresses and sleep and bedding as part of that too. We do feel like some of the fundamental drivers are still in a good place, even despite some of the short-term uncertainty around consumers and spending.
Okay. Very good. Thanks so much.
Thank you, Peter.
Thank you. The next question from the line of Bobby Griffin with Raymond James. Please go ahead.
Hey, Mitch. Maybe just come at Peter's first question a little bit different, but on a high level. When you look at the business today and the mix of revenue with about 50% in Bedding or so, and you know, then Specialized and Furniture making up the rest, and you think out two, three, four years for Leggett & Platt, do you see a changing mix of revenue to further diversify the revenue base? Or do you see something roughly about the same today?
You know, Bobby, that's a really interesting and great question. I think, you know, as we look at those markets, particularly if I think about bedding and the sort of shift that we've had with ECS to really be able to have a larger addressable market, and then similarly with Kayfoam in Europe, we think that we do have significant opportunities to grow that business, whether it's in components or private label finished goods. You know, that's a great thing for us. But we also have really strong growth opportunities in automotive. Certainly that industry's been really disrupted through the pandemic and all, you know, of course, the semiconductor issues. But in the long term, there's a lot of tailwind there.
You can think that we'll be able to continue to have, you know, those as our primary growth drivers. We also have some other businesses that have really come back and turned around. Home furniture, if you think about it, after we went through the restructuring, came from a very difficult place to today performing very well and growing. Probably not the same kind of growth opportunities that we have in Bedding and Automotive, but still very strong. Some of our smaller, newer businesses around hydraulic cylinders and aerospace. You know, we see hydraulic cylinders, you know, the market growth coming back. We still have room to invest in those businesses and get them up to some scale. You've seen our Textiles business growing as well.
I don't see any major shift in the mix, but I do think that we have opportunities across, you know, multiple businesses to continue to grow. I think we'll see it in this year, Bobby. That diversification is helpful and important for us, right? As we see maybe, you know, more normalized Bedding growth for the market overall, but we should have the tailwinds from the Specialized Products businesses. We look to maintain that.
Okay. With leverage starting to come down as you and the team have worked on, would you look at adding another adjacent business unit, or is it more just tuck in as we've seen, you know, with Kayfoam and some of the other acquisitions?
Yeah, that's a great question. I think that, you know, for now, I think we would see more, you know, add-on acquisitions that build out our footprint or our capabilities. You know, in the long term, we're dedicated to growth. You know, that means that we need to be thoughtful about our portfolio management and also about new opportunities that are good fits with us. I feel lucky and grateful that I don't feel pressure that we have to go run out and do anything right away, and I don't think that we will. We're, you know, recovering our leverage position, as you said.
Over the long run, we'll continue to look at opportunities that are good fits for us, knowing that the world, you know, doesn't stay the same, and that we'll, you know, ongoing portfolio management is critical for us.
All right. That's very helpful. I appreciate, Mitch, you taking these high level ones first call as CEO. Thanks for it.
Yeah. Thank you, Bobby.
Thank you. There are no further questions at this time. I would like to turn the floor back over to Ms. McCoy for closing comments.
Susan, are you there?
Oh, I'm sorry. My phone was on mute. Thank you for joining us today. We appreciate your time. We will talk to you again on May 3rd after we report our first quarter results.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.