Jul 24, 2012

Tempur-Pedic Reports Second Quarter Earnings

Tempur-Pedic Reports Second Quarter Earnings 36.6 KB

LEXINGTON, Ky., July 24, 2012 /PRNewswire/ -- Tempur-Pedic International Inc. (NYSE: TPX), the leading manufacturer, marketer and distributor of premium mattresses and pillows worldwide, today announced financial results for the second quarter ended June 30, 2012. The Company also updated financial guidance for 2012.

SECOND QUARTER FINANCIAL SUMMARY

Earnings per diluted share (EPS) were $0.45 in the second quarter of 2012 as compared to EPS of $0.76 per diluted share in the second quarter of 2011. The Company reported net income of $29.1 million for the second quarter of 2012 as compared to net income of $53.1 million in the second quarter of 2011.
Net sales decreased 4% to $329.5 million in the second quarter of 2012 from $342.2 million in the second quarter of 2011. On a constant currency basis, net sales decreased 1%. Net sales in the North American segment decreased 8% and international segment net sales increased 8%. On a constant currency basis, international segment net sales increased 17%.
Mattress sales decreased 4% globally. Mattress sales decreased 8% in the North American segment and increased 11% in the international segment. On a constant currency basis, international mattress sales increased 20%. Pillow sales decreased 2% globally. Pillow sales decreased 10% in North America and increased 5% internationally. On a constant currency basis, international pillow sales increased 12%.
Gross profit margin was 50.7% as compared to 52.9% in the second quarter of 2011. The gross profit margin decreased primarily as a result of increased promotions and discounts, deleverage and product mix, offset partially by geographic mix.
Operating profit margin was 14.4% as compared to 24.2% in the second quarter of 2011 reflecting deleverage throughout the income statement.
The Company generated $42.0 million of operating cash flow as compared to $48.2 million in the second quarter of 2011.
During the second quarter of 2012, the Company purchased 4.9 million shares of its common stock for a total cost of $138 million. As of June 30, 2012, the Company had $100 million available under its existing share repurchase authorization.

Chief Executive Officer Mark Sarvary commented, "As we stated on June 6, 2012, changes in the competitive environment in North America during the second quarter had an adverse impact on our performance. We are taking actions across our operations to realign our expense structure appropriately. At the same time we are focused on a series of new initiatives designed to strengthen our competitive position. At next week's industry tradeshow in Las Vegas we will unveil several of these new initiatives to our customers. We are very confident in our Company's growth potential and our strong brand, and as a result remain committed to our long-term strategic plan."

Financial Guidance
On June 6, 2012, the Company revised its full year 2012 guidance. Today, the Company maintained its outlook for full year 2012 net sales to be approximately $1.43 billion. In addition, the Company updated its full year 2012 earnings guidance and currently expects diluted earnings per share to be approximately $2.80, principally reflecting a lower weighted average shares outstanding for 2012. 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 further reduction in shares outstanding related to its share repurchase program.

Conference Call Information
Tempur-Pedic International will host a live conference call to discuss financial results today, July 24, 2012 at 5:00 p.m. Eastern Time. The dial-in number for the conference call is 800-850-2903. The dial-in number for international callers is 224-357-2399. 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, information concerning our plans; objectives; goals; strategies; future events; future revenues or performance; the impact of the macroeconomic environment in both the U.S. and internationally on sales and our business segments; strategic long-term investments; changes in capital expenditures; the impact of consumer confidence; litigation and similar issues; pending tax assessments; financial flexibility; the impact of initiatives to respond to increased levels of competition in our industry; the impact of initiatives to accelerate growth, expand market share and attract sales from the standard mattress market; efforts to expand business within established accounts, improve account productivity, reduce costs and operating expenses and improve manufacturing productivity; initiatives to improve gross margin; the vertical integration of our business; the development, rollout and market acceptance of new products; our ability to further invest in the business and in brand awareness; our ability to meet financial obligations and continue to comply with the terms of our Senior Credit Facility, including its financial ratio covenants; effects of changes in foreign exchange rates on our reported earnings; our expected sources of cash flow; our ability to effectively manage cash; our ability to align costs with sales expectations; plan to introduce new initiatives and plans and expectations for net sales and earnings per share for the full year 2012; and other information that is not historical information. 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. Important factors, many of which are beyond the Company's control, could cause actual results to differ materially from those expressed as forward-looking statements. 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® 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® and Tempur-Pedic® 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					Six Months Ended
	June 30,					June 30,
		2012		2011	Chg %		2012		2011	Chg %
Net sales	$	329,461	$	342,212	-3.7%	$	713,854	$	668,050	6.9%
Cost of sales		162,578		161,194			340,985		316,722

Gross profit		166,883		181,018	-7.8%		372,869		351,328	6.1%

Selling and marketing expenses		83,672		67,980			166,971		132,350
General, administrative and other expenses		35,662		30,208			72,284		60,868

Operating income		47,549		82,830	-42.6%		133,614		158,110	-15.5%

Other expense, net:
Interest expense, net		(4,167)		(2,646)			(8,233)		(5,185)
Other income (expense), net		486		(118)			45		(721)
Total other expense		(3,681)		(2,764)			(8,188)		(5,906)

Income before income taxes		43,868		80,066	-45.2%		125,426		152,204	-17.6%
Income tax provision		14,745		26,982			40,085		50,860
Net income	$	29,123	$	53,084		$	85,341	$	101,344

Earnings per common share:
Basic	$	0.46	$	0.78		$	1.35	$	1.48
Diluted	$	0.45	$	0.76		$	1.31	$	1.44
Weighted average common shares outstanding:
Basic		62,851		67,959			63,366		68,257
Diluted		64,337		70,018			65,019		70,469

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

	June 30,		December 31,
	2012		2011
ASSETS

Current Assets:
Cash and cash equivalents	$	134,198	$	111,367
Accounts receivable, net		131,192		142,412
Inventories		106,056		91,212
Prepaid expenses and other current assets		24,148		20,088
Deferred income taxes		17,161		14,391
Total Current Assets		412,755		379,470

Property, plant and equipment, net		166,310		160,502
Goodwill		213,150		213,273
Other intangible assets, net		64,959		66,491
Other non-current assets		8,366		8,904
Total Assets	$	865,540	$	828,640

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

Current Liabilities:
Accounts payable	$	69,179	$	69,936
Accrued expenses and other current liabilities		76,009		76,636
Income taxes payable		8,632		20,506
Total Current Liabilities		153,820		167,078

Long-term debt		681,500		585,000
Deferred income taxes		19,568		24,227
Other non-current liabilities		22,792		21,544
Total Liabilities		877,680		797,849

Total Stockholders' (Deficit) Equity		(12,140)		30,791

Total Liabilities and Stockholders' (Deficit) Equity	$	865,540	$	828,640

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

	Six Months Ended
	June 30,
		2012		2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	85,341	$	101,344
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		17,648		16,590
Amortization of stock-based compensation		7,410		7,719
Amortization of deferred financing costs		700		346
Bad debt expense		1,260		1,137
Deferred income taxes		(7,150)		(1,133)
Foreign currency adjustments and other		779		826
Changes in operating assets and liabilities		(19,447)		(22,879)
Net cash provided by operating activities		86,541		103,950

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(20,664)		(12,098)
Other		(1,669)		(1,970)
Net cash used by investing activities		(22,333)		(14,068)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term revolving credit facility		245,500		572,500
Repayments of long-term revolving credit facility		(149,000)		(504,500)
Payments of deferred finance costs		-		(6,109)
Proceeds from issuance of common stock		10,077		22,386
Excess tax benefit from stock-based compensation		9,678		14,133
Treasury shares repurchased		(152,565)		(160,010)
Other		(2,321)		-
Net cash used by financing activities		(38,631)		(61,600)

NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		(2,746)		4,834

Increase in cash and cash equivalents		22,831		33,116

CASH AND CASH EQUIVALENTS, beginning of period		111,367		53,623

CASH AND CASH EQUIVALENTS, end of period	$	134,198	$	86,739

Summary of Channel Sales The following table highlights net sales information, by channel and by segment:

(In thousands)
	CONSOLIDATED				NORTH AMERICA				INTERNATIONAL
	Three Months Ended				Three Months Ended				Three Months Ended
	June 30,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011

Retail	$	288,061	$	299,024	$	205,901	$	227,186	$	82,160	$	71,838
Direct		25,439		22,884		17,733		17,296		7,706		5,588
Healthcare		7,379		8,000		2,979		2,630		4,400		5,370
Third Party		8,582		12,304		-		-		8,582		12,304
	$	329,461	$	342,212	$	226,613	$	247,112	$	102,848	$	95,100

Summary of Product Sales The following table highlights net sales information, by product and by segment:

(In thousands)
	CONSOLIDATED				NORTH AMERICA				INTERNATIONAL
	Three Months Ended				Three Months Ended				Three Months Ended
	June 30,				June 30,				June 30,
	2012		2011		2012		2011		2012		2011

Mattresses	$	224,297	$	232,618	$	160,810	$	175,270	$	63,487	$	57,348
Pillows		34,103		34,886		15,067		16,731		19,036		18,155
Other		71,061		74,708		50,736		55,111		20,325		19,597
	$	329,461	$	342,212	$	226,613	$	247,112	$	102,848	$	95,100

TEMPUR-PEDIC INTERNATIONAL INC. AND SUBSIDIARIES
Reconciliation of EBITDA to Net Income and Total debt to Funded debt
Non-GAAP Measures
(In thousands)

The Company provides information regarding Earnings Before Interest Taxes Depreciation and Amortization (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 EBITDA to the Company's Net income and a reconciliation of Total debt to Funded debt are provided below. Management believes that the use of 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 EBITDA

The following table sets forth the reconciliation of the Company's reported Net income to the calculation of EBITDA for each of the three months ended September 30, 2011, December 31, 2011, March 31, 2012 and June 30, 2012, as well as the twelve months ended June 30, 2012:

		Three Months Ended				Twelve Months Ended
		September 30, 2011	December 31, 2011	March 31, 2012	June 30, 2012	June 30, 2012

GAAP Net income	$	61,949	$ 56,315	$ 56,218	$29,123	$203,605
Plus:
Interest expense		3,265	3,498	4,066	4,167	14,996
Income taxes		31,164	26,759	25,340	14,745	98,008
Depreciation & Amortization		12,166	14,513	13,052	12,006	51,737
EBITDA	$	108,544	$ 101,085	$ 98,676	$60,041	$368,346

Reconciliation of Total debt to Funded debt

The following table sets forth the reconciliation of the Company's reported Total debt to the calculation of Funded debt as of June 30, 2012:

		As of
		June 30, 2012

GAAP basis Total debt	$	681,500
Plus:
Letters of credit outstanding		1,025
Funded debt	$	682,525

Calculation of Funded debt to EBITDA

		As of
		June 30, 2012

Funded debt	$	682,525
EBITDA		368,346
		1.85 times

SOURCE Tempur-Pedic International Inc.

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Tempur-Pedic Reports Second Quarter Earnings

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