Tempur Sealy Reports Second Quarter 2015 Results

LEXINGTON, Ky., July 30, 2015 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE:TPX), the world's largest bedding provider, today announced financial results for the second quarter ended June 30, 2015. The Company also raised financial guidance for the full year 2015.

SECOND QUARTER 2015 FINANCIAL SUMMARY

• Total net sales increased 6.9% to $764.4 million from $715.0 million in the second quarter of 2014. On a constant currency basis⁽¹⁾, total net sales increased 10.9%, with double digit growth in both the North America and International business segments.
• Gross margin under U.S. generally accepted accounting principles ("GAAP") was 38.9% as compared to 37.5% in the second quarter of 2014. Adjusted gross margin⁽¹⁾ was 39.4% as compared to 37.6% in the second quarter of 2014, driven by solid improvement in gross margin of the North America business segment.
• Earnings before interest, tax, depreciation and amortization ("EBITDA")⁽¹⁾ increased 46.8% to $76.5 million as compared to $52.1 million for the second quarter of 2014. Adjusted EBITDA⁽¹⁾ increased 16.2% to $90.3 million as compared to $77.7 million for the second quarter of 2014.
• GAAP operating income was $52.0 million as compared to $50.3 million in the second quarter of 2014. Operating income included $6.7 million of integration costs and $11.7 million of additional costs related to the Company's 2015 Annual Meeting of Stockholders ("2015 Annual Meeting") and related issues, the CEO transition and related retention compensation. Operating income in the second quarter of 2014 included $5.6 million of integration costs. Adjusted operating income⁽¹⁾ was $70.4 million, or 9.2% of net sales, as compared to $55.9 million, or 7.8% of net sales in the second quarter of 2014.
• GAAP net income increased to $21.2 million as compared to GAAP net loss of $(2.2) million in the second quarter of 2014, which included a $20.4 million loss on the disposal of the Company's innerspring component production facilities recorded in the second quarter of 2014. The Company reported adjusted net income⁽¹⁾ of $33.3 million as compared to adjusted net income of $24.0 million in the second quarter of 2014, an increase of 38.8%. On a constant currency basis, adjusted net income increased 49.2%.
• GAAP Earnings per diluted share ("EPS") increased to $0.34 as compared to $(0.04) in the second quarter of 2014. Adjusted EPS⁽¹⁾ increased 35.9% to $0.53 as compared to adjusted EPS of $0.39 in the second quarter of 2014. On a constant currency basis, adjusted EPS increased 46.2%.
• The Company ended the second quarter of 2015 with consolidated funded debt less qualified cash⁽¹⁾ of $1.6 billion. The ratio of consolidated funded debt less qualified cash to EBITDA, calculated in accordance with the Company's senior secured credit facility,⁽¹⁾ was 3.83 times.

Tempur Sealy International, Inc. Interim CEO Tim Yaggi commented, "We are pleased with our second quarter performance as sales and earnings were ahead of plan, and we achieved a 29% adjusted contribution margin. Our products and advertising are clearly resonating with consumers. Given our strong sales momentum and our enhanced focus on costs, we are confident that we will further build on our performance during the balance of 2015 and beyond."

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 9.1% to $630.3 million from $577.9 million in the second quarter of 2014. On a constant currency basis, North America net sales increased 10.2%. GAAP gross margin was 36.1% as compared to 33.7% in the second quarter of 2014. GAAP operating margin was 10.2% as compared to 8.4% in the second quarter of 2014.

North America adjusted operating margin⁽¹⁾ was 11.2% as compared to 8.9% in the second quarter of 2014. The improvement in North America adjusted operating margin during the second quarter of 2015 was the result of an improvement in adjusted gross margin⁽¹⁾ of 280 basis points, offset partially by higher advertising expenses as compared to the same period in 2014.

International net sales decreased 2.2% to $134.1 million from $137.1 million in the second quarter of 2014. On a constant currency basis, International net sales increased 14.1%. GAAP gross margin was 52.3% as compared to 53.7% in the second quarter of 2014. GAAP operating margin remained flat at 17.7% in the second quarter of 2015 as compared to the same period in  2014.

International adjusted operating margin⁽¹⁾ was 18.1% as compared to 19.0% in the second quarter of 2014. The decline in International adjusted operating margin was primarily the result of a decline in adjusted gross margin⁽¹⁾ of 140 basis points, which declined primarily as a result of higher mix of Sealy brand sales.

Corporate GAAP operating loss increased 59.2% to $36.3 million from $22.8 million in the second quarter of 2014. During the second quarter of 2015, the Company incurred $11.7 million of additional costs related to the Company's 2015 Annual Meeting and related issues, the CEO transition and related retention compensation. Corporate incurred $11.6 million of these costs and $0.1 million were included in the North America results.

Corporate adjusted operating loss⁽¹⁾ increased 11.5% to $24.2 million from $21.7 million in the second quarter of 2014. The increase in Corporate adjusted operating loss was related to higher stock-based compensation expense as well as higher legal and professional costs.

Non-GAAP Financial Measures and Constant Currency Information. For additional information regarding adjusted EPS, adjusted net income, adjusted gross profit, adjusted gross margin, adjusted operating income (loss), adjusted operating margin, EBITDA, adjusted EBITDA, EBITDA calculated in accordance with the Company's senior secured credit facility, 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" at the end of this press release.

Recent Developments
As announced in a separate press release today, the Company has appointed Barry A. Hytinen to Executive Vice President and Chief Financial Officer, succeeding Dale E. Williams, effective immediately. The Company and Mr. Williams have agreed that Mr. Williams will step down from his role and remain with the Company until August 31, 2015 to ensure a smooth transition.

Financial Guidance

Tempur Sealy also today raised its financial guidance for 2015.

For the full year 2015, the Company currently expects:

• Net sales to range from $3.125 billion to $3.175 billion
• Adjusted EPS to range from $3.00 to $3.20 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 adjusted EPS guidance does not include integration costs related to the Sealy acquisition, redemption value adjustments on the Company's redeemable non-controlling interest, additional costs related to the Company's 2015 Annual Meeting and related issues, the CEO transition and related retention compensation.

Conference Call Information

Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, July 30, 2015 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.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days. In connection with the conference call, the Company has prepared an investor presentation which has been filed with the Securities and Exchange Commission and is also available on the investor relations section of the Company's website.

Forward-looking Statements

This press release contains "forward-looking statements," within the meaning of the 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," "guidance," "anticipates," "projects," "plans," "proposed," "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 Company's expectations regarding net sales and adjusted EPS for 2015 and performance generally for 2015 and subsequent years. 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.

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 risks associated with the Company's capital structure and increased debt level; the ability to successfully integrate Sealy Corporation into the Company's operations and realize cost and revenue synergies and other benefits from the transaction; whether the Company will realize the anticipated benefits from its asset dispositions in 2014 and the acquisition of brand rights in certain international markets in 2014; general economic, financial and industry conditions, particularly in the retail sector, as well as consumer confidence and the availability of consumer financing; changes in product and channel mix and the impact on the Company's gross margin; changes in interest rates; the impact of the macroeconomic environment in both the U.S. and internationally on the Company's business segments; 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 and the timing and success of product launches; the effects of consolidation of retailers on revenues and costs; the Company's ability to expand brand awareness, distribution and new products; 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; the effects of strategic investments on the Company's operations; changes in foreign tax rates and changes in tax laws generally, including the ability to utilize tax loss carry forwards; the outcome of various pending tax audits or other tax, regulatory or litigation proceedings; changing commodity costs; the effect of future legislative or regulatory changes; and disruptions to the implementation of the Company's strategic priorities and business plan caused by abrupt changes in the Company's senior management team and Board of Directors.

There are a number of risks and uncertainties that could cause the Company's actual results to differ materially from the forward-looking statements contained in this press release. There are important factors, many of which are beyond the Company's control, that could cause its actual results to differ materially from those expressed as forward-looking statements in this press release, including the risk factors discussed under the heading "Risk Factors" under ITEM 1A of Part 1 of our Annual Report on Form 10-K for the year ended December 31, 2014. There may be other factors that may cause the Company's actual results to differ materially from the forward-looking statements.

About the Company

Tempur Sealy International, Inc. (NYSE: 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 of the most highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy®, Sealy Posturepedic®, Optimum™ and Stearns & Foster®. World headquarters for Tempur Sealy International, Inc. is in Lexington, KY. For more information, visit http://www.tempursealy.com or call 800-805-3635.

 

 

 

 

 

Summary of Channel Sales

The following table highlights net sales information, by channel and by segment, for the three months ended June 30, 2015 and 2014:

 

Summary of Product Sales

The following table highlights net sales information, by product and by segment, for the three months ended June 30, 2015 and 2014:

 

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Measures
(in millions, except percentages and per common share amounts)

The Company provides information regarding adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (loss), adjusted operating margin, EBITDA, EBITDA in accordance with the Company's senior secured credit facility, adjusted EBITDA, consolidated funded debt and consolidated funded debt less qualified cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income and earnings per share as a measure of operating performance or total debt. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies.

Adjusted Net Income and Adjusted EPS
A reconciliation of GAAP net income to adjusted net income and GAAP EPS to adjusted EPS is provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various integration costs associated with the acquisition of Sealy Corporation ("Sealy") and its historical subsidiaries (the "Sealy Acquisition"), including the transition of manufacturing facilities in North America, redemption value adjustments to the carrying value of the Company's redeemable non-controlling interest, additional costs related to the Company's 2015 Annual Meeting and related issues, the CEO transition and related retention compensation.

Adjusted Gross Profit and Gross Margin and Adjusted Operating Income (Loss) and Operating Margin
A reconciliation of GAAP gross profit and gross margin to adjusted gross profit and gross margin, respectively, and GAAP operating income (loss) and operating margin to adjusted operating income (loss) and operating margin, respectively, is provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the Company's gross profit, operating income and margin performance excluding the impact of various integration costs associated with the Sealy Acquisition, including the transition of manufacturing facilities in North America, additional costs related to the Company's 2015 Annual Meeting and related issues, the CEO transition and related retention compensation.

EBITDA and Adjusted EBITDA
A reconciliation of the Company's GAAP net income to EBITDA and adjusted EBITDA are provided below. Management believes that the use of EBITDA and adjusted EBITDA also provides investors with useful information with respect to the Company's performance excluding the impact of various integration costs associated with the Sealy Acquisition, including the transition of manufacturing facilities in North America, additional costs related to the Company's 2015 Annual Meeting and related issues, the CEO transition and related retention compensation.

EBITDA in accordance with the Company's senior secured credit facility, Funded debt and Funded debt less qualified cash
A reconciliation of the Company's GAAP net income to EBITDA in accordance with the Company's senior secured credit facility (which the Company may refer to as "EBITDA for covenant compliance purposes") and a reconciliation of total debt to consolidated funded debt and consolidated funded debt less qualified cash are provided below. Management believes that presenting these non-GAAP measures provides investors with useful information with respect to the terms of the Company's senior secured credit facility and the Company's compliance with key financial covenants.

Reconciliation of GAAP net income to adjusted net income and GAAP EPS to adjusted EPS

The following table sets forth the reconciliation of the Company's GAAP net income and EPS for the three months ended June 30, 2015 and 2014 to the calculation of adjusted net income and adjusted EPS for the three months ended June 30, 2015 and 2014:

 

 

Reconciliation of GAAP gross profit and margin to adjusted gross profit and margin and GAAP operating income (loss) and margin to adjusted operating income (loss) and margin

The following table sets forth the reconciliation of the Company's reported GAAP gross profit and operating income (loss) to the calculation of adjusted gross profit and operating income (loss) for the three months ended June 30, 2015:

 

 

The following table sets forth the reconciliation of the Company's reported GAAP gross profit and operating income (loss) to the calculation of adjusted gross profit and operating income (loss) for the three months ended June 30, 2014:

 

 

Reconciliation of GAAP net income to EBITDA, EBITDA in accordance with the Company's senior secured credit facility and adjusted EBITDA

The following table sets forth the reconciliation of the Company's reported GAAP net income to the calculation of EBITDA, EBITDA in accordance with the Company's senior secured credit facility and adjusted EBITDA for the three months ended June 30, 2015 and 2014:

 

 

The following table sets forth the reconciliation of the Company's net income to the calculations of EBITDA, EBITDA in accordance with the Company's senior secured credit facility and adjusted EBITDA for the twelve months ended June 30, 2015:

 

 

Reconciliation of total debt to consolidated funded debt less qualified cash

The following table sets forth the reconciliation of the Company's reported total debt to the calculation funded debt less qualified cash as of June 30, 2015. "Consolidated funded debt" and "qualified cash" are terms used in the Company's senior secured credit facility for purposes of certain financial covenants.

 

Calculation of consolidated funded debt less qualified cash to EBITDA in accordance with the Company's senior secured credit facility

 

Constant Currency Information

In this press release the Company refers to, and in other press releases and other communications with investors the Company may refer to, net sales or earnings or other historical financial information on a "constant currency basis", which is a non-GAAP financial measure. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior year period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance.

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SOURCE Tempur Sealy International, Inc.