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Tempur Sealy Reports Record Third Quarter Results

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·16 min read
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  • TPX
Cision

-Net Sales Increased 20% Compared to the Third Quarter of 2020, Direct Sales Increased 79%

-EPS Increased 52.6% to $0.87, Adjusted EPS Increased 18.9% to $0.88

-Raises 2021 Adjusted EPS Guidance Range to $3.20 to $3.30

LEXINGTON, Ky., Oct. 28, 2021 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX) announced financial results for the third quarter ended September 30, 2021. The Company also issued updated financial guidance for the full year 2021 that reflects the improved business performance.

THIRD QUARTER 2021 FINANCIAL SUMMARY

  • Total net sales increased 20.0% to $1,358.3 million as compared to $1,132.3 million in the third quarter of 2020. On a constant currency basis(1), total net sales increased 19.2%, with an increase of 11.9% in the North America business segment and an increase of 71.6% in the International business segment.

  • Gross margin was 42.5% as compared to 46.8% in the third quarter of 2020. Adjusted gross margin(1) was 46.9% in the third quarter of 2020. There were no adjustments to gross margin in the third quarter of 2021.

  • Operating income increased 38.6% to $249.8 million as compared to $180.2 million in the third quarter of 2020. Operating income in the third quarter of 2020 included $45.2 million of amortization for aspirational plan stock-based compensation. Adjusted operating income(1) increased 11.0% to $252.1 million as compared to $227.2 million in the third quarter of 2020.

  • Net income increased 46.1% to $177.4 million as compared to $121.4 million in the third quarter of 2020. Adjusted net income(1) increased 15.6% to $179.6 million as compared to $155.4 million in the third quarter of 2020.

  • Earnings before interest, tax, depreciation and amortization ("EBITDA")(1) increased 5.5% to $295.2 million as compared to $279.9 million in the third quarter of 2020. Adjusted EBITDA(1) increased 6.6% to $297.6 million as compared to $279.3 million in the third quarter of 2020.

  • Earnings per diluted share ("EPS") increased 52.6% to $0.87 as compared to $0.57 in the third quarter of 2020. Adjusted EPS(1) increased 18.9% to $0.88 as compared to $0.74 in the third quarter of 2020.

KEY HIGHLIGHTS

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

Three Months Ended


% Reported
Change


% Constant
Currency Change(1)

September 30, 2021


September 30, 2020

Net sales

$

1,358.3



$

1,132.3



20.0

%


19.2

%

Net income

$

177.4



$

121.4



46.1

%


44.2

%

Adjusted net income (1)

$

179.6



$

155.4



15.6

%


14.0

%

EBITDA(1)

$

295.2



$

279.9



5.5

%


4.3

%

Adjusted EBITDA(1)

$

297.6



$

279.3



6.6

%


5.4

%

EPS

$

0.87



$

0.57



52.6

%


50.9

%

Adjusted EPS (1)

$

0.88



$

0.74



18.9

%


17.6

%

Company Chairman and CEO Scott Thompson commented, "Our strong third quarter sales performance was driven by growth across all brands, products, channels and segments. Our broad-based performance is especially notable given the strong prior year comparative period and our inability to fully meet market demand in the quarter due to continued supply chain constraints. We continue to see opportunity to further grow our business and extend our lead in the design, manufacture and distribution of bedding products over the long term. Our key building blocks to future growth include the meaningful expansion of our total global addressable market via our OEM initiative and our TEMPUR international product launch, our industry-leading innovation capabilities and our balanced capital allocation philosophy. In 2022 and beyond, we expect to leverage these complementary building blocks to deliver double-digit sales and EPS growth."

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 12.6% to $1,120.0 million as compared to $994.7 million in the third quarter of 2020. On a constant currency basis(1), North America net sales increased 11.9% as compared to the third quarter of 2020. Gross margin was 39.9% as compared to 44.7% in the third quarter of 2020. Adjusted gross margin(1) was 44.8% in the third quarter of 2020. There were no adjustments to gross margin in the third quarter of 2021. Operating margin was 21.2% as compared to 23.6% in the third quarter of 2020. Adjusted operating margin(1) was 23.8% in the third quarter of 2020. There were no adjustments to operating margin in the third quarter of 2021.

North America net sales through the wholesale channel increased $104.1 million, or 11.7%, to $991.2 million, as compared to the third quarter of 2020, primarily driven by broad-based demand across our retail partners. North America net sales through the direct channel increased $21.2 million, or 19.7%, to $128.8 million, primarily driven by strong company-owned stores sales growth, as compared to the third quarter of 2020.

North America gross margin declined 490 basis points as compared to adjusted gross margin(1) in the third quarter of 2020. The decline was driven by pricing benefit to sales with no improvement in gross margin, operational inefficiencies and unfavorable brand mix driven by supply chain issues. North America operating margin declined 260 basis points as compared to adjusted operating margin(1) in the third quarter of 2020. The decline was primarily driven by gross margin, partially offset by operating expense leverage.

International net sales increased 73.2% to $238.3 million as compared to $137.6 million in the third quarter of 2020. On a constant currency basis(1), International net sales increased 71.6% as compared to the third quarter of 2020. Gross margin was 54.6% as compared to 61.9% in the third quarter of 2020. Operating margin was 21.1% as compared to 29.9% in the third quarter of 2020. Adjusted operating margin(1) was 22.1% as compared to 30.2% in the third quarter of 2020.

International net sales through the wholesale channel increased $7.9 million, or 7.9%, to $108.0 million as compared to the third quarter of 2020. International net sales through the direct channel increased $92.8 million, or 247.5%, to $130.3 million, primarily driven by the acquisition of Dreams Topco Limited ("Dreams") on August 2, 2021, as compared to the third quarter of 2020.

International gross margin declined 730 basis points as compared to the third quarter of 2020. The decline was primarily driven by the acquisition of Dreams and pricing benefit to sales with no improvement in gross margin. Dreams' margin profile is lower than our historical international margins as they sell a variety of products across a range of price points. International adjusted operating margin(1) declined 810 basis points as compared to the third quarter of 2020. The decline was primarily driven by the acquisition of Dreams, the decline in gross margin and operating expense deleverage.

Corporate operating expense decreased to $37.5 million as compared to $96.1 million in the third quarter of 2020. The decrease in operating expense was primarily driven by amortization for the Company's aspirational plan and other stock-based compensation.

Consolidated net income increased 46.1% to $177.4 million as compared to $121.4 million in the third quarter of 2020. Adjusted net income(1) increased 15.6% to $179.6 million as compared to $155.4 million in the third quarter of 2020. EPS increased 52.6% to $0.87 as compared to $0.57 in the third quarter of 2020. Adjusted EPS(1) increased 18.9% to $0.88 as compared to $0.74 in the third quarter of 2020.

The Company ended the third quarter of 2021 with total debt of $2.4 billion and consolidated indebtedness less netted cash(1) of $1.9 billion. Leverage based on the ratio of consolidated indebtedness less netted cash(1) to adjusted EBITDA(1) was 1.68 times for the trailing twelve months ended September 30, 2021.

During the third quarter of 2021, the Company repurchased 4.1 million shares of its common stock for a total cost of $190.3 million. Over the last twelve months, the Company has repurchased 19.6 million shares of its common stock for a total cost of $698.0 million. As of September 30, 2021, the Company had approximately $186.9 million available under its existing share repurchase authorization. In a separate press release issued today, the Company announced that its Board of Directors increased the authorization under its share repurchase program to $600.0 million.

Additionally, today the Company announced that its Board of Directors declared a quarterly cash dividend of 9 cents per share payable on November 23, 2021, to shareholders of record at the close of business on November 11, 2021.

Financial Guidance

The Company updated its financial guidance for 2021 to reflect the improved business trends. For the full year, the Company currently expects net sales growth to exceed 35% over prior year, with adjusted EPS(1) between $3.20 and $3.30. The midpoint of this guidance implies an increase of 70% from the Company's prior year adjusted EPS(1) of $1.91.

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.

Conference Call Information

Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, October 28, 2021, at 8:00 a.m. Eastern Time. The call will be webcast and can be accessed on the Company's investor relations website at investor.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 gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, 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 the Dreams acquisition, quarterly cash dividend, the Company's share repurchase targets, the Company's expectations regarding net sales for 2021, EBITDA and Adjusted EBITDA for 2021, and EPS and Adjusted EPS for 2021 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 potential risk factors include the risk factors discussed under the heading "Risk Factors" in Part I, ITEM 1A of the Company's Annual Report on Form 10-K for the year ended December 31, 2020. 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 is committed to improving the sleep of more people, every night, all around the world. As a global leader in the design, manufacture and distribution of bedding products, we know how crucial a good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries.

Our highly recognized brands include Tempur-Pedic®, Sealy® featuring Posturepedic® Technology and Stearns & Foster® and our non-branded offerings include value-focused private label and OEM products. Our distinct brands allow for complimentary merchandising strategies and are sold through third-party retailers, our Company-owned stores and e-commerce channels. This omni-channel strategy ensures our products are offered where ever and how ever customers want to shop.

Lastly, we accept our global responsibility to serve all stakeholders, our community and environment. We have and are implementing programs consistent with our responsibilities.

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

Investor Relations Contact:

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

TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Income

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

(unaudited)



Three Months Ended




Nine Months Ended




September 30,


Chg %


September 30,


Chg %


2021


2020




2021


2020



Net sales

$

1,358.3



$

1,132.3



20.0%


$

3,571.2



$

2,619.9



36.3%

Cost of sales

781.2



602.1





2,017.0



1,466.7




Gross profit

577.1



530.2



8.8%


1,554.2



1,153.2



34.8%

Selling and marketing expenses

243.8



229.7





658.3



535.8




General, administrative and other expenses

90.3



125.1





254.9



288.1




Equity income in earnings of unconsolidated affiliates

(6.8)



(4.8)





(20.5)



(9.6)




Operating income

249.8



180.2



38.6%


661.5



338.9



95.2%













Other expense, net:












Interest expense, net

13.5



20.1





45.8



61.0




Loss on extinguishment of debt



0.9





23.0



0.9




Other expense (income), net

0.1



(0.5)





(0.3)



0.3




Total other expense, net

13.6



20.5





68.5



62.2
















Income from continuing operations before income taxes

236.2



159.7



47.9%


593.0



276.7



114.3%

Income tax provision

(58.7)



(40.3)





(143.9)



(73.2)




Income from continuing operations

177.5



119.4



48.7%


449.1



203.5



120.7%

(Loss) income from discontinued operations, net of tax

(0.1)



2.4





(0.6)



1.3




Net income before non-controlling interests

177.4



121.8



45.6%


448.5



204.8



119.0%

Less: Net income (loss) attributable to non-controlling interests



0.4





(0.2)



0.7




Net income attributable to Tempur Sealy International, Inc.

$

177.4



$

121.4



46.1%


$

448.7



$

204.1



119.8%













Earnings per common share:
























Basic












Earnings per share for continuing operations

$

0.91



$

0.58





$

2.26



$

0.97




Earnings per share for discontinued operations



0.01







0.01




Earnings per share

$

0.91



$

0.59



54.2%


$

2.26



$

0.98



130.6%













Diluted












Earnings per share for continuing operations

$

0.87



$

0.56





$

2.18



$

0.96




Earnings per share for discontinued operations



0.01







0.01




Earnings per share

$

0.87



$

0.57



52.6%


$

2.18



$

0.97



124.7%













Weighted average common shares outstanding:












Basic

195.8



206.4





198.9



208.8




Diluted

203.4



211.6





205.9



211.6




TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in millions)



September 30, 2021


December 31, 2020

ASSETS

(unaudited)







Current Assets:




Cash and cash equivalents

$

503.3



$

65.0


Accounts receivable, net

510.2



383.7


Inventories

384.9



312.1


Prepaid expenses and other current assets

84.4



207.6


Total Current Assets

1,482.8



968.4


Property, plant and equipment, net

556.6



507.9


Goodwill

1,082.1



766.3


Other intangible assets, net

755.7



630.1


Operating lease right-of-use assets

464.5



304.3


Deferred income taxes

17.3



13.5


Other non-current assets

108.3



118.1


Total Assets

$

4,467.3



$

3,308.6






LIABILITIES AND STOCKHOLDERS' EQUITY








Current Liabilities:




Accounts payable

$

463.4



$

324.1


Accrued expenses and other current liabilities

602.7



585.1


Current portion of long-term debt

53.0



43.9


Income taxes payable

40.3



21.7


Total Current Liabilities

1,159.4



974.8


Long-term debt, net

2,285.8



1,323.0


Long-term operating lease obligations

413.5



275.1


Deferred income taxes

96.6



90.4


Other non-current liabilities

141.0



131.8


Total Liabilities

4,096.3



2,795.1






Redeemable non-controlling interest

8.5



8.9






Total Stockholders' Equity

362.5



504.6


Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity

$

4,467.3



$

3,308.6


TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)



Nine Months Ended


September 30,


2021


2020

CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:




Net income before non-controlling interests

$

448.5



$

204.8


Loss (income) from discontinued operations, net of tax

0.6



(1.3)


Adjustments to reconcile net income from continuing operations to net cash provided by
operating activities:




Depreciation and amortization

82.5



72.5


Amortization of stock-based compensation

46.3



86.6


Amortization of deferred financing costs

1.9



2.6


Bad debt expense

2.4



32.8


Deferred income taxes

2.0



(23.4)


Dividends received from unconsolidated affiliates

18.2



15.8


Equity income in earnings of unconsolidated affiliates

(20.5)



(9.6)


Loss on extinguishment of debt

3.0



0.9


Foreign currency adjustments and other

1.0



0.4


Changes in operating assets and liabilities, net of effect of business acquisitions

11.6



115.8


Net cash provided by operating activities from continuing operations

597.5



497.9






CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:




Purchases of property, plant and equipment

(82.1)



(73.6)


Acquisitions, net of cash acquired

(426.0)



(37.9)


Other

0.1



0.1


Net cash used in investing activities from continuing operations

(508.0)



(111.4)






CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:




Proceeds from borrowings under long-term debt obligations

...