Tempur-Sealy's stock dips as earnings fall short of estimates and company lowers guidance

By Ciara Linnane

Mattress maker is confident it can close Mattress Firm deal despite FTC opposition

Tempur-Sealy International Inc.'s stock fell 1.5% Tuesday after the mattress maker posted weaker-than-expected second-quarter earnings and lowered its full-year guidance.

The Lexington, Ky.-based company (TPX) had net income of $106.1 million, or 60 cents a share, for the quarter, up from $92.4 million, or 52 cents a share, in the year-earlier period.

Adjusted for one-time items, the company had earnings per share of 63 cents, a penny below the 64-cent FactSet consensus.

Sales fell 2.8% to $1.234 billion, also below the $1.278 billion FactSet consensus.

Sales fell 3.8% in North America but were up 1.9% in the international segment.

"We are pleased to see our global market outperformance mitigate the impact of softer-than-anticipated industry volumes," CEO Scott Thompson said in prepared remarks. "Despite an estimated mid-single-digit industry decline over the quarter, more than our anticipated low-single-digit decline for the period, our sales were only slightly below internal expectations."

Gross margins improved to 44.9% from 42.7% a year ago.

On a call with analysts, Thompson said the U.S. business outperformed the market in the period, buoyed by marketing initiatives and new products, with Tempur-Pedic emerging as top-performing brand.

"As a reminder, our updated collection is designed to alleviate aches and pains by leveraging our innovative Tempur material, which delivers a 20% improvement in pressure relief compared to standard materials," he said, according to a FactSet transcript.

The new ActiveBreeze product, an advanced heating and cooling system that is priced at about $13,800 for a king-size mattress, has also performed well with ultra-luxury customers, he said.

"While sales volumes are expected to be moderate, we believe this ultra-premium offering plays an important role in enhancing brand perception and signaling the future for bedding innovation," he said.

The company recently executed a new post-closing supply agreement with one of Mattress Firm's medium-size suppliers, one of several it has reached in preparation for its $4 billion acquisition of Mattress Firm, in line with its plan for that company to continue as a multibranded retailer.

The Federal Trade Commission in July voted unanimously to block the deal, arguing that combining the world's biggest supplier and maker of mattresses, Tempur-Sealy, with the largest U.S. retailer, Mattress Firm, "would have the ability and incentive to suppress competition and raise prices for mattresses for millions of consumers."

On Tuesday, the company said it was "confident in the pro-competitive rationale for this transaction and [looked] forward to presenting the facts of our case. We believe that a successful litigation process can be completed in the coming months, which would allow us to close the transaction in late 2024 or early 2025."

The company is now expecting full-year EPS of $2.45 to $2.65, down from the guidance of $2.60 to $2.90 offered in May with first-quarter earnings.

The stock has fallen 6% in the year to date, while the S&P 500 has gained 10%.

-Ciara Linnane

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08-06-24 1136ET

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