Tempur Sealy International Inc., with headquarters in Lexington, Kentucky, reported net sales of $832.4 million for the fiscal third quarter of 2016, a 5.4% decline compared with third-quarter 2015.
On a constant-currency basis, total net sales decreased 4.6%, with a decrease of 5.8% in the North America business segment and an increase of 1.8% in the international business segment.
In advance of releasing third-quarter results, Tempur Sealy lowered its full-year 2016 sales outlook, forecasting a 1% to 3% sales decline, compared with the prior year. In news reports, the company specifically cited soft sales on lower- to mid-priced goods during the Labor Day selling period. Previously, it had forecast a sales increase for 2016 in the single digits. The company also lowered expectations for adjusted full-year EBITDA (earnings, before interest, tax, depreciation and amortization), by $25 million, to between $500 million and $525 million.
Gross margin in the third quarter, using U.S. generally accepted accounting principles, was 43.5%, compared with 40.9% in the third quarter of 2015.
Operating income (GAAP) increased 18.2% to $131.1 million, or 15.7% of net sales, compared with 12.6% of net sales in the third quarter of 2015.
Tempur Sealy noted that operating income in the third quarter of 2015 included a number of unusual expenses—$5.5 million in integration costs, $5.2 million in costs related to executive management transition and retention compensation, and $2.4 million in restructuring costs. Third-quarter 2016 operating income increased 5.7%, compared with adjusted operating income of $124 million for the prior-year quarter, or 14.1% of sales.
Net income (GAAP) increased 93.5% to $77.8 million, compared with $40.2 million in the prior-year quarter. When compared with Tempur Sealy’s adjusted net income of $69.9 million for third quarter 2015, this year’s third-quarter net income increased 11.3%.
Adjustments to net income in the prior-year quarter included a $17.6 million legal settlement that Tempur Sealy reached with the German Foreign Cartel Office to fully resolve an FCO antitrust investigation and related legal fees.
The company had no adjustments to net income in third-quarter 2016.
EBITDA increased 27.7% to $155 million, compared with $121.4 million in the prior-year quarter. The increase is 8.9% when compared with 2015 adjusted EBITDA of $142.3 million.
Earnings per share (GAAP) increased 106.3% to $1.32, compared with $0.64 in the third quarter of 2015. EPS increased by 18.9% when compared with third-quarter 2015 adjusted EPS of $1.11.
Tempur Sealy ended the third quarter with total debt of $1.7 billion and consolidated funded debt less qualified cash of $1.6 billion.
During the quarter, the company repurchased 1.4 million shares of its common stock for a total cost of $96 million. As of Sept. 30, Tempur Sealy had approximately $280 million available under its existing share-repurchase authorization.
“We are pleased to report record EBITDA and GAAP EPS for the quarter,” said Scott Thompson, chair, president and chief executive officer. “The flexibility of our business model was displayed this quarter as our top- line sales were below our original expectations yet we delivered significant margin expansion and 19% EPS growth. We continue to effectively execute on our core strategy to drive our long-term operating performance.”