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Tempur Sealy Reports Second Quarter 2016 Results

Furniture World News Desk on 7/29/2016


Tempur Sealy International, Inc. (TPX) recently announced financial results for the second quarter ended June 30, 2016. The Company also updated financial guidance for the full year 2016.

SECOND QUARTER 2016 FINANCIAL SUMMARY

  • Total net sales increased 5.2% to $804.4 million from $764.4 million in the second quarter of 2015. On a constant currency basis(1), total net sales increased 6.6%, with an increase of 6.4% in the North America business segment and an increase of 7.6% in the International business segment.

  • Gross margin under U.S. generally accepted accounting principles ("GAAP") was 41.9% as compared to 38.9% in the second quarter of 2015.

  • GAAP operating income increased 92.7% to $100.2 million as compared to $52.0 million in the second quarter of 2015. Operating income in the second quarter of 2016 included $1.0 million of integration costs. Operating income in the second quarter of 2015 included $6.7 million of integration costs and $11.7 million of additional costs related to the Company's 2015 Annual Meeting and related executive management transition and retention compensation. Adjusted operating income(1) increased 43.8% to $101.2 million, or 12.6% of net sales, as compared to $70.4 million, or 9.2% of net sales, in the second quarter of 2015.

  • GAAP net income increased 0.5% to $21.3 million as compared to $21.2 million in the second quarter of 2015. The Company incurred a $47.2 million loss on extinguishment of debt associated with the completion of a new credit facility and new senior notes offering in the second quarter of 2016 and related repayment of existing debt. Adjusted net income(1) increased 67.3% to $55.7 million as compared to $33.3 million in the second quarter of 2015.

  • Earnings before interest, tax, depreciation and amortization ("EBITDA")(1) increased 61.7% to $123.7 million as compared to $76.5 million for the second quarter of 2015. Adjusted EBITDA(1) increased 38.1% to $124.7 million as compared to $90.3 million in the second quarter of 2015.

  • GAAP earnings per diluted share ("EPS") was $0.35 as compared to $0.34 in the second quarter of 2015. Adjusted EPS(1) increased 73.6% to $0.92 as compared to adjusted EPS(1) of $0.53 in the second quarter of 2015.

  • The Company ended the second quarter of 2016 with consolidated funded debt less qualified cash(1) of $1.6 billion. Leverage based on the ratio of consolidated funded debt less qualified cash to Adjusted EBITDA(1) was 3.18 times for the trailing twelve months ended June 30, 2016 as compared to 3.77 times for the trailing twelve months ended June 30, 2015.

  • During the second quarter of 2016, the Company repurchased 2.1 million shares of its common stock for a total cost of $122 million. As of June 30, 2016, the Company had $178 million available under its existing share repurchase authorization. In a separate press release issued today, Tempur Sealy International announced that its Board of Directors authorized an additional $200 million to its existing share repurchase authorization. 

Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, "Thanks to the hard work of our more than 7,000 associates worldwide, the Company had an excellent quarter. We are gaining traction toward the goals we have set. Adjusted EBITDA and gross margins have increased for the third consecutive quarter, adjusted EPS is up 74%. We are improving operating leverage, continuing to invest heavily in our brands, expanding distribution, and successfully servicing our retailers and direct customers. By continuing to strengthen our iconic brands, drive higher ROIC and enhance our competitive cost position, we are positioning the Company well to deliver for our investors and other stakeholders for years to come."

Business Segment Highlights

The Company's business segments include North America and International. Corporate operating expenses are not included in either of the business segments and are presented separately as a reconciling item to consolidated results.

North America net sales increased 6.0% to $668.2 million from $630.3 million in the second quarter of 2015. On a constant currency basis(1), North America net sales increased 6.4% driven by the success of new products and expanded distribution. GAAP gross margin was 40.0% as compared to 36.1% in the second quarter of 2015. GAAP operating margin was 15.5% as compared to 10.2% in the second quarter of 2015, driven primarily by gross margin improvement.

North America adjusted gross margin(1) improved 340 basis points to 40.0% as compared to 36.6% in the second quarter of 2015. Gross margin and adjusted gross margin(1) improvements were primarily driven by operational improvements, pricing actions and product mix. These factors were slightly offset by new product launch costs. The increase in North America gross margin and adjusted gross margin(1) as well as an improvement in the Company's operating leverage drove a 430 basis point increase in the Company's North America adjusted operating margin(1) to 15.5% as compared to 11.2% in the second quarter of 2015.

International net sales increased 1.6% to $136.2 million from $134.1 million in the second quarter of 2015. On a constant currency basis(1), International net sales increased 7.6%. GAAP gross margin was 51.1% as compared to 52.3% in the second quarter of 2015. GAAP operating margin was 17.0% as compared to 17.7% in the second quarter 2015, driven primarily by the decrease in gross margin.

International adjusted gross margin(1) declined 120 basis points to 51.1% as compared to 52.3% in the second quarter of 2015. The decrease in gross margin and adjusted gross margin(1) was primarily driven by costs associated with new product introductions and product mix. These factors were slightly offset by an improvement in channel mix. The decrease in International gross margin and adjusted gross margin(1) drove a 110 basis point decrease in the Company's International adjusted operating margin(1) to 17.0% as compared to 18.1% in the second quarter of 2015.

Corporate GAAP operating expense decreased 27.5% to $26.3 million from $36.3 million in the second quarter of 2015. The decrease in operating expense was primarily driven by $11.7 million incurred in the second quarter of 2015 related to the Company's 2015 Annual Meeting and executive management transition and related retention compensation, which were not incurred in the second quarter of 2016.

Corporate adjusted operating expense(1) increased 6.2% to $25.7 million from $24.2 million in the second quarter of 2015. The increase in Corporate adjusted operating expense was primarily related to increases in performance related compensation expense.

Balance Sheet

As of June 30, 2016, the Company reported $137.9 million in cash and cash equivalents and $1.7 billion in total debt, as compared to $153.9 million in cash and cash equivalents and $1.5 billion in total debt as of December 31, 2015.

Financial Guidance

The Company also today updated its financial guidance for 2016. For the full year 2016, the Company currently expects Adjusted EBITDA(1) to range from $525 million to $550 million. The Company noted its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company's control.


Non-GAAP Financial Measures and Constant Currency Information

For additional information regarding adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, EBITDA, adjusted EBITDA, consolidated funded debt, and consolidated funded debt less qualified cash (all of which are non-GAAP financial measures), please refer to the reconciliations and other information included in the attached schedules. For information on the methodology used to present information on a constant currency basis, please refer to "Constant Currency Information" included in the attached schedules.

More about Tempur Sealy International, Inc.: Tempur Sealy International, Inc. (TPX) is the world's largest bedding provider. Tempur Sealy International, Inc. develops, manufactures and markets mattresses, foundations, pillows and other products. The Company's brand portfolio includes many highly recognized brands, including TEMPUR®, Tempur-Pedic®, Sealy®, Sealy Posturepedic® and Stearns & Foster®. World headquarters for Tempur Sealy International, Inc. is in Lexington, KY. For more information, visit http://www.tempursealy.com.