Tempur Sealy reports Q3 adjusted net of $44.5 million on sales of $735.5 million

LEXINGTON, Ky., Nov. 6, 2013 /PRNewswire/ — Tempur Sealy International Inc. (NYSE: TPX), the world’s largest bedding provider, today announced financial results for the third quarter ended September 30, 2013. The Company also confirmed financial guidance for 2013.

THIRD QUARTER FINANCIAL SUMMARY

• Earnings per diluted share (“EPS”) under U.S. generally accepted accounting principles (“GAAP”) in the third quarter of 2013 were $0.65compared to GAAP EPS of ($0.03) in the third quarter of 2012. The 2013 results reflect transaction and integration costs related to the acquisition of Sealy Corporation (“Sealy”) and interest fees related to the Company’s refinancing of its Term A Facility under its senior secured credit facility. The 2012 loss reflects tax charges related to the Sealy acquisition.

• Adjusted EPS were $0.73 in the third quarter of 2013 as compared to adjusted EPS of $0.70 in the third quarter of 2012. The Company completed its acquisition of Sealy in March 2013, and results for 2012 do not include Sealy.

• GAAP net income in the third quarter of 2013 was $40.2 million as compared to a GAAP net loss of $2.0 million for the third quarter of 2012. The Company reported adjusted net income of $44.9 million for the third quarter of 2013 as compared to adjusted net income of $42.3 million for the third 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 111.4% to $735.5 million in the third quarter of 2013 from $347.9 million in the third quarter of 2012. The net sales increase was due to the inclusion of $389.9 million of Sealy net sales for the third quarter of 2013.

• Gross profit margin was 40.6% as compared to 49.2% in the third quarter of 2012. The gross profit margin decreased primarily as a result of the inclusion of Sealy, which has lower margins than the Tempur North America and Tempur International segments, and changes in product mix, offset partially by lower sourcing costs.

• Operating income was $81.2 million as compared to $63.4 million in the third quarter of 2012. Operating income in the third quarter of 2013 included $8.5 million of transaction and integration costs related to the Sealy acquisition. The higher operating income reflects the inclusion of Sealy.

• Adjusted EBITDA (which is a non-GAAP measure) for the third quarter of 2013 was $115.5 million. EBITDA (which is a non-GAAP measure) for the third quarter of 2012 was $69.3 million.

• The Company ended the quarter with consolidated funded debt less qualified cash of $1.8 billion. The ratio of consolidated funded debt less qualified cash to adjusted EBITDA was 4.3 times, calculated on a combined basis for Tempur-Pedic and Sealy in accordance with the Company’s new senior secured credit facility. For additional information regarding EBITDA, adjusted EBITDA and consolidated funded debt less qualified cash (which are non-GAAP measures) please refer to the reconciliations and other information included in the attached schedules.

“Overall our third quarter was in line with our expectations,” Tempur Sealy International Inc. CEO Mark Sarvary said. “The steps we have taken to improve Tempur North America’s performance showed progress and led to a slight sales increase during the quarter. Our Sealy business also showed growth during the quarter. However, Tempur International results were slightly below our plan due to continued weakness in Europe. The integration with Sealy continues to progress well, cost synergies continue to track to our plan, and we remain very excited about our ability to capture significant revenue synergies.”

Business Segment Highlights
The company’s business segments include Tempur North America, Tempur International, and Sealy. The company’s “Bedding” product sales include mattresses, foundations, and adjustable foundations and “Other products” include pillows and various other comfort products and components.

Tempur North America net sales increased 0.6% to $242.4 million in the third quarter of 2013 from $240.9 million in the third quarter of 2012.  Bedding net sales increased 0.2% to $220.6 million in the third quarter of 2013 from $220.1 million in the third quarter of 2012. Net sales of Other products increased 4.8% to $21.8 million from $20.8 million in the third quarter of 2012.

Tempur International net sales decreased 3.6% to $103.2 million in the third quarter of 2013 from $107.0 million in the third quarter of 2012.  Bedding net sales decreased 4.7% to $76.5 million in the third quarter of 2013 from $80.3 million in the third quarter of 2012. Net sales of Other products of $26.7 million were unchanged as compared to the third quarter of 2012.

Sealy net sales for the third quarter of 2013 were $389.9 million.  Bedding net sales were $365.2 million and net sales of Other products were $24.7 million.

Charges and Other Costs
The Company incurred various charges as a result of the Sealy acquisition. Transaction costs recorded in the third quarter of 2013 were $1.2 millionand integration costs were $7.3 million. In addition, the Company incurred $0.7 million in interest fees related to the Company’s refinancing of its Term A Facility under its new senior secured credit facility, which was completed in July 2013.

Financial Guidance
The Company confirmed its full year 2013 financial guidance.

The following guidance commentary reflects current expectations with respect to a full year of Tempur-Pedic results and Sealy results from March 18, 2013:

• Net sales to range from $2.425 billion to $2.450 billion

• Adjusted EBITDA to range from $370 million to $385 million

• Adjusted EPS to range from $2.25 to $2.40 per diluted share, including depreciation and amortization of approximately $0.14 per share associated with the Sealy purchase price allocation (“PPA”)

Tempur 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 EBITDA and adjusted EPS guidance does not include transaction and integration costs related to the Sealy acquisition.