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Tempur Sealy Reports Record Fourth Quarter And Full Year 2019 Results

- Fourth Quarter Net Sales Increased 29%, Direct Channel Net Sales Increased 62%

- Full Year Net Income Increased 89%, Full Year EPS Increased 88% to $3.42

- Establishes 2020 Adjusted EBITDA Guidance Range of $575 - $650 million

LEXINGTON, Ky. , Feb. 13, 2020 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX) announced financial results for the fourth quarter and year ended December 31, 2019. The Company also issued financial guidance for the full year 2020.

(PRNewsfoto/Tempur Sealy International, Inc.)

FOURTH QUARTER 2019 FINANCIAL SUMMARY

  • Total net sales increased 28.9% to $871.3 million as compared to $676.1 million in the fourth quarter of 2018. On a constant currency basis (1) , total net sales increased 29.2%, with an increase of 36.3% in the North America business segment and an increase of 4.0% in the International business segment.
  • Gross margin was 44.3% as compared to 41.9% in the fourth quarter of 2018. Adjusted gross margin (1) was 42.4% in the fourth quarter of 2018. There were no adjustments to gross margin in the fourth quarter of 2019.
  • Operating income increased 46.1% to $84.6 million as compared to $57.9 million in the fourth quarter of 2018. Operating income in the fourth quarter of 2019 included $29.8 million of charges associated with a wholesale customer bankruptcy. Adjusted operating income (1) increased 36.6% to $124.0 million as compared to $90.8 million in the fourth quarter of 2018.
  • Net income increased 275.6% to $46.2 million as compared to $12.3 million in the fourth quarter of 2018. Adjusted net income (1) increased 51.7% to $75.4 million as compared to $49.7 million in the fourth quarter of 2018.
  • Earnings before interest, tax, depreciation and amortization ("EBITDA") (1) increased 44.3% to $112.4 million as compared to $77.9 million in the fourth quarter of 2018. Adjusted EBITDA (1) increased 29.3% to $152.4 million as compared to $117.9 million in the fourth quarter of 2018.
  • Earnings per diluted share ("EPS") increased to $0 .84 as compared to $0 .22 in the fourth quarter of 2018. Adjusted EPS (1) increased 52.2% to $1.37 as compared to $0.90 in the fourth quarter of 2018.
  • Net cash provided by operating activities increased to a record $113.1 million compared to $76.9 million in the fourth quarter of 2018.

FULL YEAR 2019 FINANCIAL SUMMARY

  • Total net sales increased 14.9% to $3,106.0 million from $2,702.9 million in 2018.
  • Gross margin was 43.2% in 2019 as compared to 41.5% in 2018. Adjusted gross margin (1) was 41.9% in 2018. There were no adjustments to gross margin in 2019.
  • Operating income was $346.7 million as compared to $256.3 million in 2018. Adjusted operating income (1) was $392.2 million as compared to $307.6 million in 2018.
  • Net income was $189.5 million as compared to $100.5 million in 2018. Adjusted net income (1) was $221.9 million as compared to $163.0 million in 2018.
  • EBITDA (1) increased 31.5% to $468.4 million as compared to $356.1 million in 2018. Adjusted EBITDA (1) increased 19.6%  to $508.1 million  as compared to $424.7 million in 2018.
  • EPS increased to $3.42 as compared to $1 .82 in 2018. Adjusted EPS (1) increased 35.5% to $4 .01 as compared to $2 .96 in 2018.
  • Net cash provided by operating activities increased to a record $314.8 million compared to $207.5 million in 2018.

KEY HIGHLIGHTS

(in millions, except
percentages and per
common share
amounts)

Three Months Ended


%
Reported
Change


% Constant
Currency
Change (1)


Year Ended


%
Reported
Change


% Constant  
Currency
Change (1)

December
31, 2019


December
31, 2018


December
31, 2019


December
31, 2018



Net sales

$

871.3



$

676.1



28.9

%


29.2

%


$

3,106.0



$

2,702.9



14.9

%


16.0

%

Net income

$

46.2



$

12.3



275.6

%


276.4

%


$

189.5



$

100.5



88.6

%


92.1

%

EBITDA (1)

$

112.4



$

77.9



44.3

%


44.6

%


$

468.4



$

356.1



31.5

%


33.2

%

Adjusted EBITDA (1)

$

152.4



$

117.9



29.3

%


29.5

%


$

508.1



$

424.7



19.6

%


21.0

%

EPS

$

0.84



$

0.22



281.8

%


281.8

%


$

3.42



$

1.82



87.9

%


91.2

%

Adjusted EPS (1)

$

1.37



$

0.90



52.2

%


52.2

%


$

4.01



$

2.96



35.5

%


37.5

%

Company Chairman and CEO Scott Thompson commented, "The investments we have made over the past four years strengthening the long-term foundation of our company investments have enhanced our competitive position. We exited 2019 with all-time record fourth quarter sales, adjusted EBITDA, and free cash flow. The combination of our powerful omni-channel distribution platform coupled with our market leading brands and products continues to drive market share gains and solid financial performance.  We are carrying our momentum from 2019 forward, and we expect record full-year revenues and over 20% growth in adjusted EBITDA in 2020."

(1) This is a non-GAAP financial measure. Please refer to "Non-GAAP Financial Measures and Constant Currency Information" below.

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 36.3% to $719.2 million as compared to $527.6 million in the fourth quarter of 2018. On a constant currency basis (1) , North America net sales increased 36.3% as compared to the fourth quarter of 2018. Gross margin was 42.3% as compared to 39.2% in the fourth quarter of 2018. Adjusted gross margin (1) was 39.8% in the fourth quarter of 2018. Operating margin was 11.2% as compared to 9.5% in the fourth quarter of 2018. Adjusted operating margin (1) was 16.6% as compared to 14.2% in the fourth quarter of  2018.

North America net sales through the wholesale channel increased $153.8 million , or 31.6%, to $641.0 million as compared to the fourth quarter of 2018, driven primarily by the expansion of our retail distribution network. North America net sales through the direct channel increased $37.8 million , or 93.6%, to $78.2 million , as compared to the fourth quarter of 2018, driven primarily by growth from company-owned stores, which includes the acquisition of Sleep Outfitters. North America net sales through the direct channel, excluding Sleep Outfitters, increased approximately 30% as compared to the fourth quarter of 2018.

North America gross margin improved 250 basis points as compared to adjusted gross margin (1)  in the fourth quarter of 2018. The improvement was driven primarily by favorable brand mix, fixed cost leverage on higher unit volume, and lower commodity costs. These improvements were partially offset by increased floor model expenses. North America adjusted operating margin (1) improved 240 basis points as compared to the fourth quarter of 2018. The improvement in adjusted operating margin was driven primarily by the improvement in gross margin and operating expense leverage, partially offset by increased variable compensation.

International  net sales increased 2.4% to $152.1 million as compared to $148.5 million in the fourth quarter of 2018. On a constant currency basis (1) , International net sales increased 4.0% as compared to the fourth quarter of 2018. Gross margin was 54.2% as compared to 51.5% in the fourth quarter of 2018. Adjusted gross margin (1) was 51.7% in the fourth quarter of 2018. Operating margin was 23.3% as compared to 21.6% in the fourth quarter of 2018. Adjusted operating margin (1) was 24.8% in the fourth quarter of 2018.

International net sales through the wholesale channel decreased $1.4 million , or 1.2%, to $117.9 million as compared to the fourth quarter of 2018. International net sales through the direct channel increased $5.0 million , or 17.1%, to $34.2 million as compared to the fourth quarter of 2018.

International gross margin improved 250 basis points as compared to adjusted gross margin (1) in the fourth quarter of 2018. The improvement was driven primarily by country and channel mix. International operating margin declined 150 basis points as compared to adjusted operating margin (1) in the fourth quarter of 2018. The decline was driven primarily by increases in operating expenses, offset by the improvement in gross margin.

Corporate operating expense increased to $31.5 million as compared to $24.1 million in the fourth quarter of 2018. Corporate adjusted operating expense (1)  increased to $30.8 million as compared to $20.9 million in the fourth quarter of 2018. The increase in operating expenses was primarily driven by increased variable compensation expense due to the Company performing above targeted expectations.

The Company ended the fourth quarter of 2019 with total debt and consolidated indebtedness less netted cash (1)  of $1.5 billion. Leverage based on the ratio of consolidated indebtedness less netted cash (1)  to adjusted EBITDA (1)  was 2.92 times for the year ended December 31, 2019. During the fourth quarter of 2019, the Company repurchased 0.6 million shares of its common stock for a total cost of $50.0 million. As of December 31, 2019, the Company had approximately $124.6 million available under its existing share repurchase authorization. In a separate press release issued today, Tempur Sealy International announced that its Board of Directors increased the authorization under the Company's share repurchase program to approximately $300.0 million .

Consolidated  net income increased 275.6% to $46.2 million as compared to $12.3 million in the fourth quarter of 2018. Adjusted net income (1)  increased 51.7% to $75.4 million as compared to $49.7 million in the fourth quarter of 2018. EPS increased 281.8% to $0.84 as compared to $0.22 in the fourth quarter of 2018. Adjusted EPS (1)  increased 52.2% to $1.37 as compared to $0.90 in the fourth quarter of 2018.

Financial Guidance

For the full year 2020, the Company currently expects adjusted EBITDA (1)  to range from $575 million to $650 million.

The Company noted that 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.

Adjusted EBITDA as used in connection with the Company's 2020 outlook is a non-GAAP financial measure that excludes or has otherwise been adjusted for items impacting comparability. The Company is unable to reconcile this forward-looking non-GAAP financial measure to net income, its most directly comparable forward-looking GAAP financial measure, without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact net income in 2020 but would not impact adjusted EBITDA. Such items may include restructuring activities, foreign currency exchange rates, income taxes and other items. The unavailable information could have a significant impact on the Company's full year 2020 GAAP financial results.

(1) This is a non-GAAP financial measure. Please refer to "Non-GAAP Financial Measures and Constant Currency Information" below.

Conference Call Information

Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, February 13, 2020, at 8:00 a.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.

Non-GAAP Financial Measures and Constant Currency Information

For additional information regarding EBITDA, adjusted EBITDA, adjusted EPS, adjusted net income, adjusted operating income (expense), adjusted gross profit, adjusted gross margin, adjusted operating margin, free cash flow, consolidated indebtedness, and consolidated indebtedness less netted 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" included in the attached schedules.

Forward-Looking Statements

This press release contains statements that may be characterized as "forward-looking," within the meaning of the federal securities laws. Such statements might include information concerning one or more of the Company's plans, guidance, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "assumes," "estimates," "expects," "guidance," "anticipates," "might," "projects," "plans," "proposed," "targets," "intends," "believes," "will" 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 EBITDA and adjusted EBITDA for 2020 and performance generally for 2020 and subsequent periods and the Company's expectations for increasing sales growth, product launches, channel growth, acquisitions and commodities outlook. Any forward-looking statements contained herein are based upon current expectations and beliefs and various assumptions. There can be no assurance that the Company will realize these expectations, meet its guidance, 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 any that may be expressed herein as forward-looking statements. These risk factors include the impact of the macroeconomic environment in both the U.S. and internationally on the Company's business segments and expectations regarding growth of the mattress industry; uncertainties arising from global events, natural disasters or pandemics; the effects of strategic investments on the Company's operations, including efforts to expand its global market share; the ability to develop and successfully launch new products; the efficiency and effectiveness of the Company's advertising campaigns and other marketing programs; the ability to increase sales productivity within existing retail accounts and to further penetrate the retail channel, including the timing of opening or expanding within large retail accounts and the timing and success of product launches, and the related expenses and life cycles of such products; the ability to continuously improve and expand the Company's product line; the ability to maintain efficient, timely and cost-effective production and delivery of products and manage growth generally and in connection with the new or expanded supply agreements with Mattress Firm, Inc., Big Lots, Inc. and Beter Bed Holding N.V.; the effects of consolidation of retailers on revenues and costs; competition in the Company's industry; consumer acceptance of the Company's products; general economic, financial and industry conditions, particularly conditions relating to the financial performance and related credit issues present in the retail sector; financial distress among the Company's business partners, customers and competitors; financial solvency and related problems experienced by other market participants; the Company's ability to execute on its strategy to optimize and integrate assets of Innovative Mattress Solutions, LLC acquired by an affiliate of the Company (Sleep Outfitters); risks associated with the Company's acquisition of 80% ownership of Sherwood Acquisition Holdings, LLC, including the possibility that the expected benefits of the acquisition are not realized when expected or at all; the Company's reliance on information technology and associated risks involving potential security lapses and/or cyber-based attacks; the outcome of pending tax audits or other tax, regulatory or investigation  proceedings and pending litigation; changes in foreign tax rates and changes in tax laws generally, including the ability to utilize tax loss carryforwards; the Company's capital structure and debt level, including its ability to meet financial obligations and continue to comply with the terms and financial ratio covenants of its credit facilities; changes in interest rates; effects of changes in foreign exchange rates on the Company's reported earnings; changing commodity costs; disruptions in the supply of raw materials, or loss of suppliers; expectations regarding the Company's target leverage and share repurchase program; sales fluctuations due to seasonality; the effect of future legislative or regulatory changes, including changes in international trade duties, tariffs and other aspects of international trade policy; the Company's ability to protect its intellectual property; and disruptions to the implementation of the Company's strategic priorities and business plan caused by changes in its executive management team.

Other potential risk factors include the risk factors discussed under the heading "Risk Factors" under ITEM 1A of Part 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2018. There may be other factors that may cause the Company's actual results to differ materially from the forward-looking statements. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.

About Tempur Sealy International, Inc.

Tempur Sealy International, Inc. (NYSE: TPX) develops, manufactures and markets mattresses, foundations, pillows and other products.  The Company's brand portfolio includes many highly recognized brands in the industry, including Tempur®, Tempur-Pedic®, Sealy® featuring Posturepedic® Technology, and Stearns & Foster®. World headquarters for Tempur Sealy International is in Lexington, KY . For more information, visit http://www.tempursealy.com or call 800-805-3635.

Investor Relations Contact:

Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com

...

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

Consolidated Statements of Income

(in millions, except percentages and per common share amounts)

(unaudited)



Three Months Ended




Year Ended




December 31,


Chg %


December 31,


Chg %


2019


2018




2019


2018



Net sales

$

871.3



$

676.1



28.9

%


$

3,106.0



$

2,702.9



14.9

%

Cost of sales

484.9



392.9





1,763.8



1,582.2




Gross profit

386.4



283.2



36.4

%


1,342.2



1,120.7



19.8

%

Selling and marketing expenses

180.9



143.2





666.3



587.8




General, administrative and other expenses

96.6



67.0





315.3



273.0




Customer-related charges (2)

29.8



21.2





29.8



21.2




Equity income in earnings of unconsolidated
affiliates

(5.5)



(6.1)





(15.9)



(17.6)




Operating income

84.6



57.9



46.1

%


346.7



256.3



35.3

%













Other expense, net:












Interest expense, net

20.0



22.8





85.7



92.3




Other expense (income), net

2.0



0.8





(4.5)



(1.0)




Total other expense. net

22.0



23.6





81.2



91.3
















Income from continuing operations before income
taxes

62.6



34.3



82.5

%


265.5



165.0



60.9

%

Income tax provision

(15.9)



(15.2)





(74.7)



(49.6)




Income from continuing operations

46.7



19.1



144.5

%


190.8



115.4



65.3

%

Loss from discontinued operations, net of tax

(0.6)



(6.9)





(1.4)



(17.8)




Net income before non-controlling interests

46.1



12.2



277.9

%


189.4



97.6



94.1

%

Less: Net loss attributable to non-controlling
interests

(0.1)



(0.1)





(0.1)



(2.9)




Net income attributable to Tempur Sealy
International, Inc.

$

46.2



$

12.3



275.6

%


$

189.5



$

100.5



88.6

%













Earnings per common share:
























Basic












Earnings per share for continuing operations

$

0.87



$

0.35





$

3.50



$

2.17




Loss per share for discontinued operations

(0.01)



(0.12)





(0.02)



(0.32)




Earnings per share

$

0.86



$

0.23



273.9

%


$

3.48



$

1.85



88.1

%













Diluted












Earnings per share for continuing operations

$

0.85



$

0.35





$

3.45



$

2.15