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Tempur-Pedic Reports Third Quarter Earnings
LEXINGTON, Ky., Oct 18, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced financial results for the third quarter ended September 30, 2007. In addition, the Company increased full year 2007 financial guidance and announced a new share repurchase authorization.
THIRD QUARTER 2007 FINANCIAL SUMMARY
* Earnings per share increased 44% to $0.49 per diluted share in the
third quarter of 2007 as compared to $0.34 per diluted share in the
third quarter of 2006.
* Net sales rose 22% to $294.1 million in the third quarter of 2007 from
$240.9 million in the third quarter of 2006. Retail sales increased 27%
worldwide.
* Operating income increased 26% to $67.5 million in the third quarter of
2007 from $53.7 million in the third quarter of 2006. The increase was
principally driven by incremental sales as well as modest operating
expense leverage.
* Operating cash flow increased to $55.7 million in the third quarter of
2007 from $46.6 million in the third quarter of 2006. The increase was
principally driven by net income growth. In addition, capital
expenditures were $3.3 million in the third quarter of 2007, $2.3
million less than in the third quarter of 2006.
* The Company achieved net sales and unit growth across all products and
both geographic segments. Worldwide mattress revenue increased 22%.
Worldwide mattress unit growth was 17% led by domestic mattress unit
growth of 22%. Pillow sales rose 15% worldwide driven by unit growth of
12%. Domestic pillow units were especially strong, up 23%.
For the third quarter of 2007, the Company reported net income of $38.8 million as compared to $28.9 million in the third quarter of 2006. This net income growth of 34% largely resulted from an increase in operating income. Net income results include stock-based compensation expense, which increased 46% to $1.7 million in the third quarter of 2007.
President and Chief Executive Officer H. Thomas Bryant commented, "Tempur-Pedic delivered outstanding results in the third quarter, with growth across all products and geographic segments. While Tempur-Pedic is already the industry leader for profitability, we believe our year to date financial results are consistent with our goal of ultimately becoming the worldwide bedding leader in terms of both sales and profitability. We are pleased with our year to date results and continue to see abundant opportunities to gain bedding market share around the globe.
"In the third quarter, consumers continued to express their preference for our proprietary TEMPUR(R) material as we lead the technology shift away from innersprings. Mattress growth was balanced across our product line with excellent results from our existing product line as well as strong contribution from our recently introduced models. While the last several quarters have been challenging for the mattress industry, our sales team has exceeded our goals for slot growth, account productivity and market share gains.
"We are pleased with our new advertising campaign as it appears to be resonating exceptionally well with our target consumers, especially affluent baby boomers. In fact, the campaign is doing so well that we are in the process of evaluating its use throughout many of our international markets. We anticipate rolling the campaign into Europe in the first quarter.
"Our operations team delivered excellent performance, producing more mattresses than in any other quarter in our history. As previously disclosed, U.S. retail demand exceeded our expectations during the third quarter, which resulted in some product shortages as certain key suppliers were not able to ramp their production as quickly as needed. We addressed this issue through a variety of actions, some of which modestly impacted our gross margins. We are pleased to now be running in a more optimal fashion, having largely eliminated shortages by the end of the quarter."
Current Share Repurchase Authorization Completed and New Authorization Announced
During the third quarter of 2007, the Company purchased 6.6 million shares of its common stock at an average price of $30.48 for a total cost of $200.0 million. During 2007, the Company has purchased 10.4 million shares of its common stock for a total cost of $300.0 million.
The Company announced that the Board of Directors has authorized a new share repurchase program of up to an incremental $300.0 million. Stock repurchases under this program may be made through open market transactions, negotiated purchases, or otherwise, at times and in such amounts as management and a committee of the Board deem appropriate. The timing and actual number of shares repurchased will depend on a variety of factors including price, financing and regulatory requirements and other market conditions. Repurchases may also be made under a Rule 10b5-1 plan, which would permit shares to be repurchased when the Company might otherwise be precluded from doing so under insider trading laws. This share repurchase program may be limited, suspended or terminated at any time without prior notice.
Chief Financial Officer Dale Williams stated, "We continue to view share repurchases as an excellent means to return value to shareholders over the long term. During the third quarter we completed the $200 million share repurchase program we announced on July 19, 2007. We currently anticipate substantial cash flow growth over the next several years and so we are pleased with the Board's decision to authorize a new buyback program."
2007 Financial Guidance
Given the Company's strong performance through the first three quarters of 2007 and its continued positive outlook for the year, the Company is increasing 2007 full year financial guidance. The Company currently expects net sales for 2007 to range from $1.105 billion to $1.115 billion, rather than $1.065 billion to $1.085 billion as contemplated by the Company's prior guidance. This updated guidance reflects an increase of 17% to 18% compared to 2006 net sales of $945.0 million. The Company currently expects diluted earnings per share for 2007 to range from $1.74 to $1.76, rather than $1.63 to $1.66 as contemplated by the Company's prior guidance. This updated guidance reflects an increase of 36% to 38% compared to 2006 diluted earnings per share of $1.28. Based on the Company's year to date performance of $1.22 per diluted share, this guidance would imply diluted earnings per share of $0.52 to $0.54 for the fourth quarter of 2007. This guidance reflects year to date performance, incremental earnings resulting from increased sales expectations, shares repurchased through September 30, 2007, and interest on associated borrowings. This guidance does not take into account the anticipated effect of any additional share repurchases.
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.
Conference Call Information
Tempur-Pedic International will host a live conference call with President and Chief Executive Officer H. Thomas Bryant and Chief Financial Officer Dale Williams to discuss financial results today, October 18, 2007 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 888-297-0353. The call is also being webcast and can be accessed on the investor relations section of the Company's website, http://www.tempurpedic.com.
For those who cannot listen to the live broadcast, a telephone replay of the call will be available from October 18, 2007 at 8:00 p.m. Eastern Time through October 25, 2007. To listen to the replay, dial 888-203-1112, participant code 9844895.
Forward-looking Statements
This release contains "forward-looking statements," within the meaning of federal securities laws, which include information concerning one or more of the Company's plans, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including without limitation, statements relating to the Company's goal of becoming the worldwide bedding leader, opportunities to gain bedding market share, the rollout of the Company's new advertising campaign, steps taken to address product shortages and expectations regarding the Company's new share repurchase authorization, cash flow growth over the next several years, and net sales and earnings per share for 2007, are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations or that these beliefs will prove correct.
There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements contained in this release. Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from those expressed as forward-looking statements. These risk factors include general economic and industry conditions and consumer confidence; uncertainties arising from global events; the effects of changes in foreign exchange rates on the Company's reported earnings; consumer acceptance of the Company's products; industry competition; the efficiency and effectiveness of the Company's advertising campaigns and other marketing programs; the Company's ability to increase sales productivity within existing retail accounts and to further penetrate the US retail channel, including the timing of opening or expanding within large retail accounts; the Company's ability to address issues in certain underperforming international markets; the Company's ability to continuously improve its product line, maintain efficient, timely and cost-effective production and delivery of its products, and manage its growth; changes in foreign tax rates: and rising commodity costs. Additional information concerning these and other risks and uncertainties are discussed in the Company's filings with the Securities and Exchange Commission, including without limitation the Company's annual report on Form 10-K under the headings "Special Note Regarding Forward-Looking Statements" and "Risk Factors." Any forward-looking statement speaks only as of the date on which it is made, and the Company undertakes no obligation to update any forward-looking statements for any reason, including to reflect events or circumstances after the date on which such statements are made or to reflect the occurrence of anticipated or unanticipated events or circumstances.
About the Company
Tempur-Pedic International Inc. (NYSE: TPX) manufactures and distributes mattresses and pillows made from its proprietary TEMPUR(R) pressure-relieving material. It is the worldwide leader in premium sleep, the fastest growing segment of the estimated $13 billion global mattress market. The Company is focused on developing, manufacturing and marketing advanced sleep surfaces that help improve the quality of life for people around the world. The Company's products are currently sold in over 70 countries under the TEMPUR(R) and Tempur-Pedic(R) brand names. World headquarters for Tempur-Pedic International is in Lexington, KY. For more information, visit http://www.tempurpedic.com or call 800-805-3635.
TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 Chg % 2007 2006 Chg %
Net sales $294,094 $240,917 22% $817,768 $688,465 19%
Cost of sales 152,484 124,894 423,930 354,672
Gross profit 141,610 116,023 22% 393,838 333,793 18%
Selling and
marketing
expenses 48,830 41,827 144,630 127,230
General and
administrative
expenses 23,628 19,235 68,497 55,521
Research and
development
expenses 1,603 1,240 4,278 3,031
Operating income 67,549 53,721 26% 176,433 148,011 19%
Other expense, net:
Interest expense,
net (8,261) (6,728) (21,394) (17,402)
Loss on
extinguishment
of debt -- -- (126) --
Other expense, net (33) (183) (410) (142)
Total other
expense (8,294) (6,911) (21,930) (17,544)
Income before
income taxes 59,255 46,810 27% 154,503 130,467 18%
Income tax
provision 20,437 17,947 52,974 48,599
Net income $38,818 $28,863 34% $101,529 $81,868 24%
Earnings per share:
Basic $0.50 $0.35 $1.25 $0.96
Diluted $0.49 $0.34 $1.22 $0.92
Weighted average
shares
outstanding:
Basic 77,725 82,946 81,522 85,533
Diluted 79,173 85,681 83,069 88,666
TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
September 30, December 31,
2007 2006 Chg %
ASSETS
Current Assets:
Cash and cash equivalents $23,580 $15,788
Accounts receivable, net 165,735 142,059
Inventories 82,065 61,736
Prepaid expenses and other
current assets 13,053 8,002
Income taxes receivable -- 588
Deferred income taxes 9,566 9,383
Total Current Assets 293,999 237,556 24%
Property, plant and
equipment, net 208,140 215,428
Goodwill 198,623 198,207
Other intangible assets, net 69,014 70,826
Deferred financing and other
non-current assets, net 4,044 3,649
Total Assets $773,820 $725,666 7%
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $64,880 $51,220
Accrued expenses and other 74,364 61,050
Income taxes payable 15,751 --
Current portion of long-term
debt 282 19,497
Total Current Liabilities 155,277 131,767 18%
Long-term debt 555,805 341,635
Deferred income taxes 34,294 38,536
Other non-current liabilities 330 380
Total Liabilities 745,706 512,318 46%
Stockholders' Equity:
Common stock, $.01 par value;
300,000 shares authorized;
99,215 shares issued as of
September 30, 2007 and
December 31, 2006 992 992
Additional paid in capital 280,638 264,709
Retained earnings 207,797 140,608
Accumulated other
comprehensive income 11,586 3,992
Treasury stock, at cost;
24,110 and 15,993 shares
as of September 30, 2007
and December 31, 2006,
respectively (472,899) (196,953)
Total Stockholders' Equity 28,114 213,348 (87)%
Total Liabilities and
Stockholders' Equity $773,820 $725,666 7%
TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
Nine Months Ended
September 30,
2007 2006 Chg %
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $101,529 $81,868
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 25,326 18,640
Amortization of deferred
financing costs 719 1,479
Loss on extinguishment of debt 126 --
Amortization of stock-based
compensation 5,081 2,672
Provision for doubtful accounts 4,541 2,813
Deferred income taxes (3,101) (2,479)
Foreign currency adjustments 661 243
Loss on sale of equipment
and other 101 207
Changes in operating assets
and liabilities:
Accounts receivable (22,585) (23,696)
Inventories (14,228) 18,545
Prepaid expenses and other
current assets (5,035) 725
Accounts payable 10,250 5,351
Accrued expenses and other 10,636 3,986
Income taxes 25,864 28,926
Excess tax benefit from
stock based compensation (10,025) (6,189)
Net cash provided by operating
activities 129,860 133,091 (2%)
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for trademarks and other
intellectual property (636) (699)
Purchases of property, plant
and equipment (8,181) (24,159)
Acquisition of businesses (5,756) --
Proceeds from sale of equipment 135 83
Net cash used by investing
activities (14,438) (24,775) 42%
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term revolving
credit facility 347,547 152,000
Repayments of long-term revolving
credit facility (119,293) (55,000)
Repayments of long-term debt (45,416) (70,622)
Proceeds from issuance of
Series A Industrial Revenue Bonds 15,385 --
Repayment of Series A Industrial
Revenue Bonds (5,765) (3,840)
Proceeds from exercise of
stock options 8,078 3,401
Excess tax benefit from
stock based compensation 10,025 6,189
Treasury stock repurchased (299,998) (144,000)
Dividend paid to stockholders (17,895) --
Payments for deferred financing
costs (1,530) (698)
Net cash used by financing
activities (108,862) (112,570) 2%
NET EFFECT OF EXCHANGE RATE CHANGES
ON CASH 1,232 1,652
Increase/(Decrease) in cash and
cash equivalents 7,792 (2,602)
CASH AND CASH EQUIVALENTS, beginning
of period 15,788 17,855
CASH AND CASH EQUIVALENTS, end
of period $23,580 $15,253 55%
Summary of Channel Sales
The Company generates sales through four distribution channels: retail, direct, healthcare and third party. The retail channel sells to furniture, specialty and department stores globally. The direct channel sells directly to consumers. The healthcare channel sells to hospitals, nursing homes, healthcare professionals and medical retailers. The third party channel sells to distributors in countries where Tempur-Pedic International does not operate its own distribution company.
The following table highlights net sales information, by channel and by segment, for the third quarter of 2007 compared to 2006:
($ in thousands)
CONSOLIDATED DOMESTIC INTERNATIONAL
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
2007 2006 2007 2006 2007 2006
By Sales
Channel
Retail $251,452 $198,659 $177,372 $139,883 $74,080 $58,776
Direct 18,009 20,608 15,140 18,214 2,869 2,394
Healthcare 12,384 10,522 4,222 3,099 8,162 7,423
Third Party 12,249 11,128 3,717 3,250 8,532 7,878
Total $294,094 $240,917 $200,451 $164,446 $93,643 $76,471
Summary of Product Sales
A summary of net sales by product is reported below:
($ in thousands)
CONSOLIDATED DOMESTIC INTERNATIONAL
Three Months Ended Three Months Ended Three Months Ended
September 30, September 30, September 30,
2007 2006 2007 2006 2007 2006
Net Sales
Mattresses $207,341 $169,334 $149,221 $122,117 $58,120 $47,217
Pillows 34,418 29,934 17,960 14,863 16,458 15,071
Other 52,335 41,649 33,270 27,466 19,065 14,183
Total $294,094 $240,917 $200,451 $164,446 $93,643 $76,471
SOURCE Tempur-Pedic International Inc.
http://www.tempurpedic.com
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