LEXINGTON, Ky. (October 30, 2014) — Tempur Sealy International said its net sales grew 12.5 percent to $827.4 million in the third quarter of 2014 from $735.5 million in the third quarter of 2013, driven by double digit growth in each of its three business segments.
Lexington-based Tempur Sealy, the world’s largest bedding provider, reported it has increased its guidance for net 2014 sales by $30 million to $3 billion. Company business segments include Tempur North America, Tempur International, and Sealy. Products include mattresses, foundations and adjustable foundations as well as pillows and various comfort products and components.
Tempus Sealy reported net income of $37.1 million decreased from $40.2 million for the third quarter of 2013, but said its adjusted net income of $54.8 million had increased 22 percent from $44.9 million for the third quarter of 2013.
“Overall we are pleased with our third quarter performance,” CEO Mark Sarvary said. “We executed well on our strategic initiatives, which led to better than expected sales and a solid increase in earnings.”
Operating income was $87.1 million in the quarter ending Sept. 30, compared to $81.2 million in the third quarter of 2013. Operating income in the third quarter of 2014 included $10.5 million of integration costs and in the third quarter of 2013 included $8.5 million of transaction and integration costs related to the Sealy acquisition.
Third quarter earnings per share were $0.60 compared to $0.65 in the third quarter of 2013. The 2014 results reflect a tax item associated with the repatriation of foreign earnings, the company reported, saying 2014 and 2013 results reflect integration and transaction costs, and non-recurring interest expense and financing costs.
Gross profit margin was 38.5 percent in the third quarter of 2014 as compared to 40.6 percent in the third quarter of 2013. The gross profit margin decreased primarily as a result of lower Sealy and Tempur International gross profit margins, offset partially by an increase in Tempur North America’s gross profit margin.
“Tempur North America in particular performed very well, achieving record quarterly sales and a significant improvement in operating margin,” Sarvary said. “Both Sealy and Tempur International sales grew well, but their margins were below plan and constrained our overall profitability. In addition, our year-to-date operating cash flow of $181 million has allowed us to significantly reduce our total debt.”
Tempur North America net sales increased 15.8 percent to $280.6 million in the third quarter of 2014. Mattress and foundation sales increased 19.5 percent to $263.6 million while sales of other products decreased 22.0 percent to $17.0 million. Tempur North America’s operating margin improved significantly year-over-year, driven by an increase in gross margin and operating expense leverage on higher sales.
Tempur International net sales increased 10.9 percent to $114.5 million in the third quarter from $103.2 million in 2013. Mattress and foundation net sales increased 10.7 percent to $84.7 million in the quarter. Net sales of other products increased 11.6 percent to $29.8 million.
Tempur International’s operating margin declined year-over-year due to a decline in gross margin and higher operating expenses primarily related to startup costs associated with Sealy Europe.
Sealy net sales grew 10.9 percent to $432.3 million in the third quarter from $389.9 million in 2013. Bedding net sales increased 11.4 percent to $407.0 million in the quarter from $365.2 million in the third quarter of 2013. Other products increased 2.4 percent to $25.3 million. Sealy’s operating margin declined year-over-year due primarily to a decline in gross margin, offset partially by operating expense leverage on higher sales.
Year to date through September 30, the company has reduced total debt by $189.7 million and ended the quarter with consolidated funded debt less qualified cash of $1.6 billion.
In addition to raising its 2014 sales forecast, Tempur Sealy increased other financial guidance:
• Adjusted EBITDA to range from $405 million to $415 million
• Adjusted EPS to range from $2.60 to $2.70 per diluted share
The company said EBITDA and EPS guidance does not include costs related to the disposal of the three U.S. innerspring component facilities, transaction and integration costs related to the Sealy acquisition, the accelerated amortization of deferred financing charges for voluntary prepayment of Term A and Term B loans, discrete items associated with the repatriation of foreign earnings or costs related to the Company’s senior secured facilities amendment completed in October 2014.