Tempur Sealy Disappoints in 2Q, Lowers Forecast

Tempur Sealy International Inc. posted a loss for its second quarter, as the mattress company coped with weaker sales, lower profit margins and charges tied to its acquisition of Sealy. It also lowered its full-year forecast because of a slow recovery in North America.

Shares of the company fell sharply in after-hours trading Thursday on the news.

The company, formerly known as Tempur-Pedic International Inc., completed its $228.6 million acquisition of Sealy Corp. in March. The deal was expected to give the company an edge in the increasingly competitive mattress industry, combining its specialty products with Sealy’s more traditional mattress lines to appeal to a broader audience.

Tempur Sealy reported a loss of $1.6 million, or 3 cents per share, for the period that ended June 30. After adjusting for charges tied to the acquisition, it earned 36 cents per share. That compares with net income of $29.1 million, or 45 cents per share, a year earlier.

Total revenue for the period doubled, to $660.6 million from $329.5 million, on the addition of sales from Sealy.

The quarter fell short of market expectations. Analysts polled by FactSet, on average, expected earnings of 40 cents per share on revenue of $662.7 million.

Tempur Sealy said its revenue from North America fell nearly 5 percent to $215.5 million. Its international revenue fell 2.3 percent to $100.5 million. Its revenue from Sealy totaled $344.6 million; it did not own the brand during the second quarter last year.

While Tempur Sealy believes the acquisition will ultimately help its business, the addition of Sealy did send its gross profit margin down to 38.6 percent from 50.7 percent. Sealy products have lower profit margins than do the Tempur-Pedic brands.

The company also struggled with higher new-product launch costs during the period. These pressures were partially offset by improved efficiencies in manufacturing and distribution, and lower sourcing costs.

CEO Mark Sarvary said that the company was pleased with the performance of its international business and remains optimistic about the potential benefits of the acquisition. And while he believes the steps the company has taken to return its domestic business to growth are appropriate, he said they are taking longer than expected.

As a result, the company is lowering its outlook for the full year.

Tempur Sealy now expects to earn between $2.25 and $2.40 per share on an adjusted basis for the year, on revenue between $2.43 billion and $2.45 billion. That is down from its forecast in May of earnings of $2.75 per share on revenue of $2.5 billion, which analysts had matched.

Shares of Tempur Sealy fell $5.21, more than 12 percent, to $36.75 in after-hours trading following the report. Its stock fell 52 cents to close regular trading at $41.96.