Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tempur Sealy International Inc (TPX, Financial) reported a 2% increase in net sales to $1.3 billion and a 6% growth in adjusted EBITDA to $275 million for the third quarter of 2024.
- The company's GAAP EPS grew by 14% to $0.73 per share, and adjusted EPS increased by 7% to $0.82 per share compared to the same period last year.
- The adjusted EBITDA margin reached 21.1%, the strongest in 10 quarters, driven by consolidated growth and operating efficiency initiatives.
- International sales grew by 12% on a reported basis, with a 200 basis point expansion in international operating margins.
- The Tempur-Pedic brand was awarded the number one in customer satisfaction in both in-store retail and online mattress segments by J.D. Power's 2024 Mattress Satisfaction Report.
Negative Points
- The overall bedding industry remains significantly below historical volumes, with a 30% decline from peak mattress unit demand in 2021.
- North American net sales declined approximately 1% in the third quarter, with a 10 basis point decline in adjusted gross margin to 43.1%.
- The company is facing a challenging demand environment, particularly at the lower price point, impacting product mix and margins.
- The proposed acquisition of Mattress Firm is subject to ongoing litigation with the FTC, which could delay the transaction.
- The North American adjusted operating margin declined by 20 basis points to 20.1%, driven by a decline in gross margin and operating expense deleverage.
Q & A Highlights
Q: Can you discuss the potential impact of the Fed cutting rates on consumer demand and how Tempur Sealy plans to respond with new product introductions?
A: Scott L. Thompson, CEO: The bedding industry has been in a recession, down about 30% from peak levels. We anticipate a recovery led by the Sealy Posturepedic launch, the largest in Sealy's history. With potential rate cuts and improved housing data, we expect normalization in 2025. Tempur Sealy is well-positioned to capture market share, having consistently done so in previous quarters.
Q: How should we think about the contribution margin of the business given recent changes like manufacturing optimization and new distribution?
A: Bhaskar Rao, CFO: Assuming the current distribution and brand mix continues, international business is growing in low double digits with higher contribution margins than the U.S. The U.S. contribution margin is around 30-35%. As the lower-end consumer returns, there will be incremental EBITDA, but the mix will impact contribution margins.
Q: What is your outlook for the bedding industry heading into 2025, considering the current market conditions?
A: Scott L. Thompson, CEO: We don't see housing as the primary driver for bedding. Instead, advertising, innovation, and consumer confidence are key. The U.S. consumer has held up well, and with political stability and strong product innovation, we expect a return to normal growth rates. The Sealy Posturepedic launch is expected to help normalize the market.
Q: How does the North American gross margin performance in Q3 inform expectations for next year, and what impact do tariffs have on the outlook?
A: Bhaskar Rao, CFO: North American margins saw expansion due to productivity, offset by mix. As we move into 2025, mix will be less of a headwind. Tariffs on China don't impact us significantly as we no longer source directly from there. Any tariffs on other countries would likely be passed on.
Q: Can you elaborate on the sustainability of international growth given the tough macro environment?
A: Scott L. Thompson, CEO: The new Tempur product, backed by effective advertising, is driving growth. We've also expanded distribution and adjusted our product positioning. The Dreams team in the UK is executing well, taking significant market share. We believe these factors will sustain growth despite macro challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
