Tempur Sealy posts second-quarter loss, sales surge

Tempur Sealy second-quarter results
Net income ($2.2 million)
Net sales $715 million
Gross profit margin 37.5%
Operating income $50.3 million

Lexington, Kentucky-based mattress maker Tempur Sealy International Inc. posted a loss of $2.2 million (using generally accepted accounting principles) in its second fiscal quarter, ending June 30.

During the quarter, the company recorded a $20.4 million loss on disposal of three U.S. innerspring production facilities and $5.2 million in integration costs related to its acquisition of Sealy Corp.

Net sales grew 8.2% to $715 million, as compared with the prior-year quarter. The increase reflects higher sales in each of the company’s business segments. Sealy net sales grew 6.8% to $368.2 million. Tempur International net sales increased 9% to $109.5 million. On a constant-currency basis, Tempur International net sales rose 5.4%. Tempur North America net sales grew 10.1% to $237.3 million.

Shares lost $0.04 (using GAAP) during the quarter, as compared with a $0.03 loss per share in the second quarter of 2013. Adjusted EPS were $0.39, as compared with $0.36 in the prior-year quarter.

Gross profit margin was 37.5%, as compared with 38.6% in the second quarter of 2013. The company attributed the decrease to product and channel mix and unfavorable changes in foreign exchange rates, partially offset by a purchase-price allocation inventory adjustment related to the second-quarter 2013 Sealy acquisition.

Operating income rose to $50.3 million as compared with $44.0 million in the prior-year quarter.

Quarterly earnings before interest, taxes, depreciation and amortization decreased 23% to $52.1 million. Adjusted EBITDA was $77.7 million, reflecting an 8% decline as compared with the second quarter of 2013.

“Overall our second quarter was in line with our expectations,” said Mark Sarvary, Tempur Sealy chief executive officer. “We experienced solid sales growth in each of our business segments, with particular strength in the U.S. driven by the initial success of our new products. The investment in new products and related marketing in the first half of 2014 pressured margins, but now that the products are rolled out, we expect significant margin improvement for the balance of the year. We are also pleased overall with our international performance and are excited about its growth prospects, however we are seeing some weakness in Central Europe.”

The company updated its financial guidance for 2014, raising its sales forecast to between $2.925 billion and $2.975 billion, and slightly lowering earnings expectations; they are expected to range from $410 million to $430 million. Adjusted EPS is expected to range from $2.60 to $2.85.

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