October 19, 2010

Tempur-Pedic Reports Record Third Quarter 2010 Sales and Earnings

LEXINGTON, Ky., Oct 19, 2010 /PRNewswire via COMTEX News Network/ --

  • Reports Sales Up 32% and EPS Up 82% at $0.62
  • Gross Margin Up 340 Basis Points to 51.0% and Operating Margin Up 400 Basis Points to 23.0%
  • Raises Financial Guidance for 2010
  • Expands Share Repurchase Authorization to $150 Million

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, 2010. The Company also increased full year 2010 financial guidance and expanded its share repurchase authorization.

Financial Summary

  • Earnings per share (EPS) were $0.62 per diluted share in the third quarter of 2010 as compared to $0.34 per diluted share in the third quarter of 2009. The Company reported net income of $44.2 million for the third quarter of 2010 as compared to $25.7 million in the third quarter of 2009.
  • Net sales increased 32% to $295.8 million in the third quarter of 2010 from $224.1 million in the third quarter of 2009. On a constant currency basis, net sales increased 34%. Net sales in the North American segment increased 47%, while International segment net sales increased 4%. On a constant currency basis, International segment net sales increased 11%.
  • Mattress sales increased 33% globally. Mattress sales increased 46% in the North American segment and 3% in the International segment. On a constant currency basis, International mattress sales increased 10%. Pillow sales increased 20% globally. Pillow sales increased 39% in North America and 3% internationally. On a constant currency basis, International pillow sales increased 7%. Other product sales increased 37% globally. Other product sales increased 52% in North America and 8% internationally. On a constant currency basis, International other product sales increased 15%.
  • Gross profit margin was 51.0% as compared to 47.6% in the third quarter of 2009. The gross profit margin increased as a result of fixed cost leverage, improved efficiencies in manufacturing, and favorable product and channel mix, partially offset by higher commodity costs and geographic mix.
  • Operating profit margin was 23.0% as compared to 19.0% in the third quarter of 2009. The increase was driven by gross profit margin and operating expense leverage.
  • The Company generated $71.9 million of operating cash flow as compared to $55.0 million in the third quarter of 2009.

Chief Executive Officer Mark Sarvary commented, "We are pleased with the market share gains and the sales and earnings growth we have achieved in the third quarter. Throughout 2010 we have grown sales and profit while improving our competitive position - strengthening our product line, improving the effectiveness of our marketing and increasing our margins. We continue to project considerable potential for growth for Tempur-Pedic over the coming years, and over the coming quarters we will invest to capitalize on this opportunity."

Share Repurchase Program

During the third quarter of 2010, the Company purchased 1.8 million shares of its common stock at an average price of $27.57 for a total cost of $50.0 million. During the first three quarters of 2010, the Company purchased 8.5 million shares of its common stock at an average price of $29.41 for a total cost of $250.0 million.

The Company announced that the Board of Directors had expanded the Company's existing share repurchase program by $50.0 million for a total authorization of up to $150.0 million. Reflecting share repurchases made during the third quarter, the Company currently has $100.0 million remaining under this authorization. Stock repurchases 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. The share repurchase program may be limited, suspended or terminated at any time without prior notice.

Financial Guidance

The Company increased its full year 2010 guidance for net sales and earnings per share. It currently expects net sales for 2010 to range from $1.095 billion to $1.115 billion. It currently expects EPS for 2010 to range from $2.05 to $2.10 per diluted share. 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. The Company noted its EPS guidance does not assume any benefit from a potential additional reduction in shares outstanding related to its repurchase authorization.

Conference Call Information

Tempur-Pedic International will host a live conference call to discuss financial results today, October 19, 2010 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 888-293-6960. The dial-in number for international callers is 719-325-2289. The call is also being webcast and can be accessed on the investor relations section of the Company's website, http://www.tempurpedic.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.

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. These forward-looking statements include, without limitation, statements relating to the potential to significantly grow sales and earnings over the coming years, investment in initiatives that will drive growth over the long term, the share repurchase authorization, and the Company's expectations for net sales and earnings per share for 2010. All forward looking statements 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, financial and industry conditions, particularly in the retail sector, as well as consumer confidence and the availability of consumer financing; 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 Company's 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 and expand its product line, maintain efficient, timely and cost-effective production and delivery of its products, and manage its growth; changes in tax rates, including the ability to utilize tax loss carry forwards; 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 and specialty sleep. 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 80 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
       Condensed Consolidated Statements of Income
    (In thousands, except per common share amounts)


                                     Three Months
                                         Ended
                                       September
                                              30,
                                          ----------
                                       2010            2009      Chg %
                                       ----            ----      -----
    Net sales                      $295,785        $224,082       32.0%
    Cost of
     sales                          145,031         117,373
                                    -------         -------

    Gross
     profit                         150,754         106,709       41.3%

    Selling and
     marketing
     expenses                        53,215          39,272
    General,
     administrative
     and other
     expenses                        29,385          24,761

    Operating
     income                          68,154          42,676       59.7%

    Other
     expense,
     net:
        Interest
         expense,
         net                         (4,068)         (4,311)
        Other
         (expense)
         income,
         net                           (624)           (214)
                                       ----            ----
            Total other
             expense                 (4,692)         (4,525)

    Income
     before
     income
     taxes                           63,462          38,151       66.3%
    Income tax
     provision                       19,324          12,467
                                     ------          ------
        Net income                  $44,138         $25,684



             Net loss
              (income)
              attributable
              to
                        the
              noncontrolling
              interest                   -
                                                        ---
                                         60
                                        ---
        Net income
         attributable
         to common
         stockholders           $                   $25,684       72.1%
                              ===                   =======
                                     44,198


    Earnings
     per common
     share:
        Basic                         $0.64           $0.34
                                      =====           =====
        Diluted                       $0.62           $0.34
                                      =====           =====
    Weighted
     average
     common
     shares
     outstanding:
        Basic                        69,199          74,938
                                     ======          ======
        Diluted                      71,433          76,166
                                     ======          ======



                                             Nine Months
                                                Ended
                                              September
                                                     30,
                                                 ----------
                                                 2010            2009  Chg %
                                                 ----            ----  -----
    Net sales                                $812,718        $586,362   38.6%
    Cost of sales                             409,114         311,461
                                              -------         -------

    Gross profit                              403,604         274,901   46.8%

    Selling and marketing
     expenses                                 146,273         108,335
    General,
     administrative and
     other expenses                            83,037          68,847

    Operating income                          174,294          97,719   78.4%

    Other expense, net:
        Interest expense, net                 (11,043)        (13,359)
        Other (expense)
         income, net                             (525)            404
                                                 ----             ---
            Total other expense               (11,568)        (12,955)

    Income before income
     taxes                                    162,726          84,764   92.0%
    Income tax provision                       51,830          28,885
                                               ------          ------
        Net income                           $110,896         $55,879

             Net loss (income)
              attributable to
                                         the
                          noncontrolling
              interest                          (44)        -
                                                  ---             ---
        Net income
         attributable to
         common stockholders                 $110,852         $55,879   98.4%
                                             ========         =======

    Earnings per common
     share:
        Basic                                   $1.56           $0.75
                                                =====           =====
        Diluted                                 $1.51           $0.74
                                                =====           =====
    Weighted average
     common shares
     outstanding:
        Basic                                  71,065          74,902
                                               ======          ======
        Diluted                                73,450          75,396
                                               ======          ======


 
    TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
          Condensed Consolidated Balance Sheets
                      (In thousands)


                                     September        December
                                           30,               31,
                                              2010             2009
                                              ----             ----
    ASSETS

    Current Assets:
         Cash and cash
          equivalents                   $38,048             $14,042
         Accounts receivable, net       127,453             105,576
         Inventories                     68,175              57,686
         Prepaid expenses and
          other current assets           15,027              11,268
         Deferred income taxes           19,155              20,411
                                         ------              ------
    Total Current Assets                267,858             208,983

         Property, plant and
          equipment, net                162,910             172,497
         Goodwill                       211,723             193,391
         Other intangible assets,
          net                            69,179              64,717
         Other non-current
          assets                          4,280               3,791
                                          -----               -----
    Total Assets                       $715,950            $643,379
                                       ========            ========

    LIABILITIES AND
     STOCKHOLDERS' EQUITY

    Current Liabilities:
         Accounts payable               $62,798             $47,761
         Accrued expenses and
          other current
          liabilities                    94,461              81,452
         Income taxes payable            19,846               7,312
    Total Current
     Liabilities                        177,105             136,525

         Long-term debt                 436,000             297,470
         Deferred income taxes           30,732              29,865
         Other non-current
          liabilities                     4,254               7,226
                                          -----               -----
    Total Liabilities                   648,091             471,086

    Equity attributable to
     common stockholders                 66,590             172,293
    Equity attributable to
     the noncontrolling
     interest                             1,269                   -
    Total Stockholders'
     Equity                              67,859             172,293

    Total Liabilities and
     Stockholders' Equity              $715,950            $643,379
                                       ========            ========




    TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
    Condensed Consolidated Statements of Cash Flows
                      (In thousands)


                                                 Nine Months
                                                    Ended
                                                September 30,
                                                -------------
                                               2010                  2009
                                               ----                  ----
    CASH FLOWS FROM OPERATING
     ACTIVITIES:
       Net income                          $110,896               $55,879
        Adjustments to reconcile
         net income to net cash
         provided by operating
         activities:
            Depreciation and
             amortization                    23,870                23,526
            Amortization of stock-
             based compensation               7,953                 6,448
            Amortization of deferred
             financing costs                    517                   518
            Bad debt expense                  2,072                 4,659
            Deferred income taxes            (1,509)               (8,006)
            Foreign currency
             adjustments                     (1,504)                   34
        Loss on disposal of
         equipment                            1,081                     -
        Changes in operating
         assets and liabilities,
         net of effects of
         acquired business                   (3,662)               37,345
                                             ------                ------
    Net cash provided by
     operating activities                   139,714               120,403

    CASH FLOWS FROM INVESTING
     ACTIVITIES:
       Acquisition of business,
        net of cash acquired                (18,692)                    -
       Purchases of property,
        plant and equipment                 (12,330)               (8,961)
       Payments for other                      (152)                  (87)
                                               ----
    Net cash used by
     investing activities                   (31,174)               (9,048)

    CASH FLOWS FROM FINANCING
     ACTIVITIES:
       Proceeds from long-term
        revolving credit
        facility                            289,336                85,797
       Repayments of long-term
        revolving credit
        facility                           (149,313)             (189,036)
        Proceeds from issuance of
         common stock                        22,015                   129
       Excess tax benefit from
        stock-based
        compensation                          3,282                     -
       Treasury shares
        repurchased                        (250,000)                    -
                                           --------                   ---
    Net cash used by
     financing activities                   (84,680)             (103,110)

    NET EFFECT OF EXCHANGE
     RATE CHANGES ON CASH AND
     CASH EQUIVALENTS                           146                (3,627)
                                                ---                ------

    Increase in cash and cash
     equivalents                             24,006                 4,618

    CASH AND CASH
     EQUIVALENTS, beginning
     of period                               14,042                15,385
                                             ------                ------

    CASH AND CASH
     EQUIVALENTS, end of
     period                                 $38,048               $20,003
                                            =======               =======





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.

On April 1, 2010, the Company purchased its third party distributor in Canada. Accordingly, net sales in the Canadian market are reported in the appropriate channels within the North American segment. As Canada represented essentially all sales through the North American third party channel, the Company no longer reports third party sales in this segment.

The following table highlights net sales information, by channel and by segment:


    (In thousands)

                             CONSOLIDATED                    NORTH AMERICA
                          Three Months Ended              Three Months Ended
                             September 30,                   September 30,
                            2010            2009          2010            2009
                            ----            ----          ----            ----

    Retail              $261,425        $191,012      $197,586        $129,883
    Direct                17,072          12,245        14,192          10,600
    Healthcare             8,158           8,942         2,909           2,804
    Third Party            9,130          11,883             -           2,990
                           -----          ------           ---           -----
                        $295,785        $224,082      $214,687        $146,277
                        ========        ========      ========        ========



                             INTERNATIONAL
                          Three Months Ended
                             September 30,
                             2010            2009
                             ----            ----

    Retail                $63,839         $61,129
    Direct                  2,880           1,645
    Healthcare              5,249           6,138
    Third Party             9,130           8,893
                            -----           -----
                          $81,098         $77,805
                          =======         =======


 

Summary of Product Sales

The following table highlights net sales information, by product and by segment:


    (In thousands)

                             CONSOLIDATED                    NORTH AMERICA
                          Three Months Ended              Three Months Ended
                            September 30,                    September 30,
                            2010            2009          2010            2009
                            ----            ----          ----            ----

    Mattresses          $199,168        $149,810      $150,941        $103,122
    Pillows               33,961          28,386        18,307          13,216
    Other                 62,656          45,886        45,439          29,939
                          ------          ------        ------          ------
                        $295,785        $224,082      $214,687        $146,277
                        ========        ========      ========        ========



                             INTERNATIONAL
                          Three Months Ended
                             September 30,
                             2010            2009
                             ----            ----

    Mattresses            $48,227         $46,688
    Pillows                15,654          15,170
    Other                  17,217          15,947
                           ------          ------
                          $81,098         $77,805
                          =======         =======


 

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES

Reconciliation of Adjusted EBITDA to Net Income and Funded debt to Total debt

Non-GAAP Measures

(In thousands)

The Company provides information regarding Adjusted EBITDA and Funded debt which are not recognized terms under U.S. GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to Net income as a measure of operating performance or Total debt. A reconciliation of Adjusted EBITDA to the Company's Net income and a reconciliation of Funded debt to Total debt are provided below. Management believes that the use of Adjusted EBITDA and Funded debt provides investors with useful information with respect to the terms of the Company's credit facility.

Reconciliation of Net income to Adjusted EBITDA

The following table sets forth the reconciliation of the Company's reported Net income to the calculation of Adjusted EBITDA for each of the three months ended December 31, 2009, March 31, 2010, June 30, 2010 and September 30, 2010, as well as the twelve months ended September 30, 2010:

 
                                         Three Months Ended
                                         ------------------
                                      December     March 31,      June 30,
                                      31, 2009        2010          2010
                                     ---------    ----------     ---------

    GAAP Net income
     attributable to common
     stockholders                       $29,114       $33,148       $33,506
    Plus:
       Interest expense                   3,990         3,189         3,786
       Income taxes                      14,159        16,021        16,485
       Depreciation  &                   10,239         9,996        11,049
       Amortization
       Other (1)                              -           361           202
                                            ---           ---           ---
    Adjusted EBITDA                     $57,502       $62,715       $65,028
                                        =======       =======       =======



                                                        Twelve Months
                            Three Months Ended              Ended
                            ------------------          -------------
                                 September              September 30,
                                  30, 2010                   2010
                                ----------             --------------

    GAAP Net income
     attributable to common
     stockholders                              $44,198       $139,966
    Plus:
       Interest expense                          4,068         15,033
       Income taxes                             19,324         65,989
       Depreciation  &                          10,778         42,062
       Amortization
       Other (1)                                     -            563
                                                   ---            ---
    Adjusted EBITDA                            $78,368        263,613
                                               =======        =======


 

(1) Includes professional costs incurred in connection with the acquisition of the Company's Canadian distributor, which closed on April 1, 2010. In accordance with the Company's credit facility, this amount is excluded from the calculation of Adjusted EBITDA for purposes of calculating compliance with the ratio of Funded debt to Adjusted EBITDA.

Reconciliation of Funded debt to Total debt

The following table sets forth the reconciliation of the Company's reported Total debt to the calculation of Funded debt as of September 30, 2010:



                                              As of
                                       September 30, 2010
                                       ------------------

    GAAP basis Total debt                         $436,000
    Plus:
       Letters of credit
        outstanding                                 13,106
                                                    ------
    Funded debt                                   $449,106
                                                  ========



Calculation of Funded debt to Adjusted EBITDA



                                              As of
                                       September 30, 2010
                                       ------------------

    Funded debt                                   $449,106
    Adjusted EBITDA                                263,613
                                                   -------
                                                1.70 times
                                                ==========



SOURCE Tempur-Pedic International Inc.

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