What happened?

Shares of Leggett & Platt (NYSE:LEG) were down 9.3% as of 3:04 p.m. EDT on Tuesday, having spent most of the afternoon down almost 10%. Today's big sell-off is the result of the company reporting a tough first quarter that could force it to cut its dividend. 

This would be a painful move for the bedding and flooring products manufacturer, a Dividend Aristocrat that's paid and increased its dividend for 48 straight years. 

So what

Leggett & Platt reported a 9% decline in sales and a 24% drop in earnings per share in the first quarter, but the bigger worry is how much sales fell late in the quarter. In the earnings release, the company said revenue fell sharply in the last two weeks of March, stabilizing at 55% of 2019 levels. Moreover, those substantially lower numbers have held steady in the second quarter. 

Hands reaching up for a dollar bill.

Image source: Getty Images.

Management is cutting costs. The full-year capital expenditures budget was slashed 60%, variable operating costs have been lowered, and steps to lower fixed costs are expected to save up to $150 million this year. 

Now what

As a dividend growth stock, the worry from many investors is that the cost cuts may not be enough to save the payout. Leggett & Platt reported it had $734 million in available liquidity at the end of Q1 and only $37.5 million in debt maturing this year. 

On the surface, that may look like plenty of cash to support a few tough quarters and keep the dividend streak alive, but the issue could be the company's ability to stay within the covenants on $1.2 billion of its debt. Management says it is working with its lenders to amend the covenant, but it's possible those lenders want to see the company cut its payout in order to improve its ability to continue meeting obligations. 

Today, it would seem that plenty of investors expect the dividend won't make it, and management isn't offering much to be optimistic about. According to the release, the board of directors will make a decision at its meeting this month. I'm sure if there's any possible way to save the dividend, the company will do it. But lenders may take the decision out of their hands.