Tempur Sealy third-quarter sales climb, earnings impacted by acquisition and other costs

Tempur Sealy third quarter
Net income $37.1 million
Net sales $827.4 million
Operating income $87.1 million
Gross profit margin 38.5%

Lexington, Kentucky-based bedding major Tempur Sealy International reported third-quarter GAAP (generally accepted accounting principles) net income of $37.1 million, an 8% decline compared with $40.2 million in the same quarter of 2013. The company linked the earnings decline to costs associated with the 2013 Sealy acquisition and the disposal of three U.S. innerspring manufacturing plants in 2014. Earnings per diluted share dropped to $0.60, compared with $0.65 in the prior-year quarter.

Net sales rose to $827.4 million, up 12.5% compared with net sales of $735.5 million in the third quarter of 2013, an increase driven by double-digit growth in all three of Tempur Sealy’s business segments.

Operating income rose 7% to $87.1 million, compared with $81.2 million in 2013. The third quarter included $10.5 million in integration costs, and $8.5 million in transaction and integration costs related to the 2013 acquisition of Sealy Inc., the company said.

Adjusted earnings before interest, taxes, depreciation and amortization for the third quarter came to $106.2 million, compared with $107 million in the previous year. Adjusted EBITDA was $119.5 million, compared with $115.5 million in third-quarter 2013.

Gross profit margin was 38.5%, compared with 40.6% in the prior year. Tempur Sealy attributed the decrease to declines in gross profits in the Sealy and Tempur International businesses, partially offset by an increase in Tempur North America’s gross profit margin.

Year to date, Tempur Sealy has reduced its total debt by $189.7 million. The company ended the quarter with consolidated, funded debt less qualified cash of $1.6 billion. The ratio of debt to adjusted EBITDA is in accordance with Tempur Sealy’s senior secured credit facility.

“Overall we are pleased with our third-quarter performance,” said Mark Sarvary, Tempur Sealy chief executive officer. “We executed well on our strategic initiatives, which led to better-than-expected sales and a solid increase in earnings. Tempur North America in particular performed very well, achieving record quarterly sales and a significant improvement in operating margin. Both Sealy and Tempur International sales grew well, but their margins were below plan and constrained our overall profitability. In addition, our year-to-date operating cash flow of $181 million has allowed us to significantly reduce our total debt.”

Sealy net sales rose 10.9% to $432.3 million, from $389.9 million in the prior-year quarter. Bedding sales increased 11.4% to $407.0 million; other products increased by 2.4% to $25.3 million.

Tempur International net sales increased 10.9% to $114.5 million, from $103.2 million in the third quarter of 2013. On a constant currency basis, Tempur International sales increased 10.7%.

Tempur North America net sales rose 15.8% to $280.6 million, from $242.4 million in the prior-year period. Bedding net sales increased 19.5% to $263.6 million. Net sales of other products declined 22% to $17 million, from $21.8 million in the third quarter of 2013.

The company updated its 2014 guidance, increasing the adjusted EBITDA range from $410 million to $430 million, and raising its EPS upper range to $2.85 per diluted share.

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