Tempur Sealy lowers financial guidance for remainder of year

Tempur Sealy’s second quarter
Net sales $660.6 million
Adjusted net income $22.3 million
Gross profit margin 38.6%

Tempur Sealy International, the newly merged bedding major with headquarters in Lexington, Ky., reported that net sales for the second quarter of fiscal 2013 were up when compared with the prior-year quarter, but that net income and gross profit margin decreased, all the result of Tempur-Pedic’s purchase of Sealy and related integration issues. The acquisition was completed in March. The company also lowered its financial guidance for 2013.

Total net sales increased 100.5% to $660.6 million in the second quarter of 2013, up from $329.5 million in the second quarter of 2012. The increase was due to the inclusion of $344.6 million of Sealy net sales for the quarter, according to the company.

Tempur Sealy reported a net loss in the second quarter of $1.6 million (using generally accepted accounting principles) and adjusted net income of $22.3 million, down from GAAP net income of $29.1 million in second-quarter 2012.

Gross profit margin was 38.6%, down from 50.7% in the second quarter of 2012. The company attributed the decline to “the inclusion of Sealy, which has lower margins than the Tempur North America and Tempur International segments, changes in product mix and higher new product launch costs, offset partially by improved efficiencies in manufacturing and distribution, and lower sourcing costs.”

Operating income in second-quarter 2013 was $44 million, or 6.7% of net sales, as compared with $47.5 million in the second quarter of last year. Operating income included $11.9 million of transaction and integration costs related to the Sealy acquisition. Excluding those costs, the higher operating income reflects the inclusion of Sealy, the company said.

GAAP earnings per diluted share $0.03 and, according to the company, reflect transaction and integration costs and a purchase price allocation inventory adjustment related to the Sealy purchase, as well as tax provision adjustments related to the repatriation of foreign earnings utilized in connection with the Sealy acquisition and interest fees related to Tempur Sealy’s refinancing of its Term B loans under its senior secured credit facilities.

Adjusted earnings per share were $0.36 in the second quarter of 2013, compared with $0.45 in the second quarter of 2012.

Adjusted EBITDA for the second quarter of 2013 was $84.2 million, up from $60 million in the second quarter of 2012.

Tempur Sealy’s business segments include Tempur North America, Tempur International and Sealy.

Tempur North America’s net sales decreased 4.9% to $215.5 million in the second quarter of 2013 from $226.6 million in 2012. Bedding net sales decreased 5.2% to $199.5 million from $210.5 million. Net sales of other sleep products decreased 0.6% to $16 million from $16.1 million.

Tempur International net sales decreased 2.3% to $100.5 million in the second quarter of 2013, down from $102.9 million in the prior-year quarter. Bedding net sales decreased 6.1% to $73.9 million in the second quarter of 2013, compared with $78.7 million. Net sales of other products increased 9.9% to $26.6 million from $24.2 million.

Sealy net sales for the second quarter of 2013 were $344.6 million. Bedding net sales were $325.1 million and net sales of other products were $19.5 million.

“The steps we have taken to return Tempur North America to growth are appropriate, but are taking longer than expected,” said Mark Sarvary, Tempur Sealy chief executive officer. “As a result, we are lowering our financial outlook for the full year. We are pleased with the performance of the rest of our portfolio. Both Sealy and Tempur International net sales were in line with our projections for the second quarter. The integration with Sealy continues to progress well, cost synergies are being realized ahead of plan and we are more confident than ever that the combination provides significant competitive advantage.”

For 2013, Tempur Sealy expects net sales to range from $2.425 billion to $2.450 billion, adjusted EBITDA to range from $370 million to $385 million, and adjusted earnings per share to range from $2.25 to $2.40 per diluted share.

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