Hurricanes, distribution change lead to revenue drop for Tempur Sealy

Manufacturing major Tempur Sealy International Inc. reported mixed results for the third quarter which ended Sept. 30.

Revenue fell more than 10% due to natural disasters and the end of the company’s sales relationship with Mattress Firm, while earnings came in slightly ahead of analyst estimates.

For the quarter, the Lexington, Kentucky-based company’s total net sales decreased 12.9% to $724.8 million from $832.4 million in the same quarter of 2016. Gross margin under U.S. generally accepted accounting principles was 43.1% as compared with 43.5% in the third quarter of 2016.

Net income under GAAP decreased 42.7% to $44.6 million as compared with $77.8 million in the third quarter of 2016. Adjusted net income decreased 29.4% to $54.9 million as compared with $77.8 million in the third quarter of 2016.

GAAP operating income in this year’s third quarter decreased 27.8% to $94.6 million, compared with $131.1 million in the same period of 2016. Adjusted operating income decreased 23.6% to $100.1 million, compared with $131.1 million in the third quarter of 2016.

Earnings before interest, tax, depreciation and amortization decreased 20.1% to $123.8 million, compared with $155 million for the third quarter of 2016. Adjusted EBITDA decreased 16.6% to $129.3 million, compared with $155 million in the third quarter of 2016.

GAAP earnings per diluted share decreased 38.6% to $0.81 as compared with $1.32 in 2016’s third quarter. Adjusted EPS decreased 24.2% to $1.00, compared with $1.32 in the third quarter of 2016, but $0.03 higher than analysts were expecting.

Net cash provided by operating activities was $127.3 million as compared with $57.9 million in the third quarter of 2016. The company generated $109.8 million in free cash flow in the third quarter, compared with $40.3 million in the third quarter of 2016.

“The team generated one of the highest cash-flow quarters in our company’s history despite several challenges, including a significant change in our distribution network, three hurricanes and commodity inflation,” said Scott Thompson, Tempur Sealy chair and chief executive officer. “Looking ahead, our robust pipeline of innovation provides the foundation for new products next year, especially an exciting new Tempur-Pedic line in North America. These products, combined with our new multichannel advertising campaigns, will reinforce our leadership position in premium bedding, provide our retailer partners with a competitive advantage to grow their revenue and earnings, and simplify the consumer’s retail experience.”

In the company’s North America business segment, net sales decreased 16.9% to $580.6 million from $698.5 million in the third quarter of 2016. On a constant-currency basis, North America net sales decreased 17.2% compared with the third quarter of 2016.

During the third quarter, hurricanes impacted operations in two of the company’s largest markets—Florida and Texas. The company estimates that the hurricanes decreased sales in the quarter by approximately $10 million to $15 million.

At the beginning of this year’s second quarter, the company terminated its contract with Houston-based Mattress Firm. In the third quarter of 2016, net sales to Mattress Firm totaled $171.5 million. When Mattress Firm sales are excluded in third-quarter 2017 results, North America net sales increased 10%, driven by Tempur-Pedic, which increased sales by 26% in the period.

International net sales increased 7.7% to $144.2 million from $133.9 million in the third quarter of 2016. On a constant-currency basis, international net sales increased 7% compared with the third quarter of 2016.

The company increased the bottom level of its financial guidance for 2017. It now expects adjusted EBITDA to range from $435 million to $450 million, up from its previous level of $425 million to $450 million.