LEXINGTON, Ky. (May 3, 2013) — Tempur-Pedic International’s first quarter earnings dropped 78 percent as the company completed the acquisition and integration of Sealy Corp. in March. Net income during the first quarter was $12.5 million, down from $56.2 million during that quarter a year ago.
Tempur-Pedic released its first quarter results Thursday, and issued updated its 2013 financial guidance that incorporates Sealy.
The company expects full-year net sales to be approximately $2.5 billion. Adjusted earnings before interest, taxes, depreciation and amortization is expected to be approximately $435 million; adjusted earnings per share is predicted to be $2.75, including purchase price allocation (PPA) intangible depreciation and amortization of approximately $0.21 per share.
Tempur-Pedic’s adjusted EBITDA and adjusted EPS guidance does not include transaction and integration costs related to the Sealy acquisition.
“We are pleased to have completed the acquisition of Sealy in March. The integration is progressing smoothly and as planned,” said Tempur-Pedic International CEO Mark Sarvary. “We remain confident in realizing cost synergies in excess of $40 million by the third full year and continue to be very excited about the significant opportunity for revenue synergies. Our performance during the first quarter was in line with our projections and we expect positive net sales growth for the balance of the year.”
First-quarter earnings summary
♦ Earnings per diluted share (EPS) under U.S. generally accepted accounting principles (GAAP) in the first quarter of 2013 were $0.20, and reflect transaction and integration costs related to the recently completed Sealy acquisition as well as certain discrete tax items. Adjusted EPS were $0.62 in the first quarter of 2013 as compared to GAAP EPS of $0.86 in the first quarter of 2012.
♦ GAAP net income in the first quarter of 2013 was $12.5 million. Tempur-Pedic reported adjusted net income of $38.2 million for the first quarter of 2013 as compared to GAAP net income of $56.2 million in the first quarter of 2012. For additional information regarding adjusted EPS and adjusted net income (which are non-GAAP measures), please refer to the reconciliations and other information included in the attached schedules.
♦ Total net sales increased 1.5 percent to $390.1 million in the first quarter of 2013 from $384.4 million in the first quarter of 2012. The net sales increase was due to the inclusion of $46.7 million of Sealy sales for the stub period. Excluding Sealy, Tempur-Pedic net sales decreased 10.7 percent to $343.4 million.
♦ Gross profit margin was 48.3 percent. Excluding Sealy, Tempur-Pedic gross profit margin decreased to 51.7 percent as compared to 53.6 percent in the first quarter of 2012. The Tempur-Pedic gross profit margin decreased primarily as a result of product mix, deleverage, and increased promotions and discounts, offset partially by lower commodity costs and geographic mix.
♦ Operating income was $44.3 million, or 11.4 percent of net sales. Operating income included $16.0 million of transaction and integration costs related to the Sealy acquisition. Excluding Sealy, Tempur-Pedic operating income was $47.2 million as compared to $86.1 million in the first quarter of 2012. The lower Tempur-Pedic operating income reflects the reduced gross margin and deleverage of certain operating expenses related to lower sales.
♦ Adjusted EBITDA for the first quarter of 2013 was $76.8 million as compared to $98.7 million in the first quarter of 2012.
♦ Tempur-Pedic ended the quarter with consolidated funded debt of $2 billion. The ratio of consolidated funded debt less qualified cash to adjusted EBITDA was 4.4 times, calculated on a combined basis for Tempur-Pedic and Sealy in accordance with the Tempur-Pedic’s new senior secured credit facility.
Sealy fiscal first quarter 2013 results
Given that the Tempur-Pedic’s first quarter results reflect Sealy results only for the Sealy stub period, Tempur-Pedic has included the following commentary on Sealy’s fiscal first quarter ending March 3 in order to provide a sense of how the Sealy business performed.
For the quarter ended March 3, 2013, Sealy’s net sales increased 8.8 percent to $339.6 million from $312.3 million in the quarter ended Feb. 26, 2012. Sealy’s operating income was $10.8 million as compared with $25.9 million in the prior year period and included charges and other costs of $9.2 million related to the transaction with Tempur-Pedic and other restructuring costs.