LEXINGTON, Ky., July 30, 2020 /PRNewswire/ -- Tempur Sealy
International, Inc. (NYSE: TPX) announced financial results for the
second quarter ended June 30, 2020.
SECOND QUARTER 2020 FINANCIAL
SUMMARY
- Total net sales decreased 8.0% to $665.2
million as compared to $722.8
million in the second quarter of 2019. On a constant
currency basis(1), total net sales decreased 7.3%, with
a decrease of 2.9% in the North
America business segment and a decrease of 26.9% in the
International business segment.
- Gross margin was 40.0% as compared to 43.4% in the second
quarter of 2019. Adjusted gross margin(1) was 40.6% in
the second quarter of 2020. There were no adjustments to gross
margin in the second quarter of 2019.
- Operating income decreased 34.1% to $53.4 million as compared to $81.0 million in the second quarter of 2019.
Adjusted operating income(1) decreased 16.5% to
$70.0 million as compared to
$83.8 million in the second quarter
of 2019. Operating income and adjusted operating
income(1) in the second quarter of 2020 included
$7.9 million of costs associated with
temporarily closed company-owned retail stores and sales force
retention costs as a result of the novel coronavirus ("COVID-19
charges").
- Net income decreased 44.7% to $23.0
million as compared to $41.6
million in the second quarter of 2019. Adjusted net
income(1) decreased 20.8% to $35.1 million as compared to $44.3 million in the second quarter of 2019.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(1) decreased 21.8% to $85.2 million as compared to $109.0 million in the second quarter of 2019.
Adjusted EBITDA (including COVID-19 charges)(1)
decreased 10.0% to $101.7 million and
adjusted EBITDA per credit facility(1) decreased 3.0% to
$109.6 million as compared to
$113.0 million in the second quarter
of 2019.
- Adjusted EBITDA per credit facility(1) excluded
$24.5 million of asset impairments,
incremental operating costs due to the global pandemic, COVID-19
charges and other items in the second quarter of 2020.
- Earnings per diluted share ("EPS") decreased 40.5% to
$0.44 as compared to $0.74 in the second quarter of 2019. Adjusted
EPS(1) decreased 13.9% to $0.68 as compared to $0.79 in the second quarter of 2019. Adjusted
EPS(1) included $0.11 of
COVID-19 charges in the second quarter of 2020.
- For the trailing twelve months ended June 30, 2020, leverage based on the ratio of
consolidated indebtedness less netted cash(1) to
Adjusted EBITDA per credit facility(1) was 2.83 times as
compared to 3.65 times in the corresponding prior year period.
- Net cash provided by operating activities increased to a record
$155.4 million as compared to
$41.3 million in the second quarter
of 2019.
KEY
HIGHLIGHTS
|
|
(in millions,
except percentages)
|
Three Months
Ended
|
|
% Reported
Change
|
|
%
Constant
Currency Change(1)
|
June 30,
2020
|
|
June 30,
2019
|
Net sales
|
$
|
665.2
|
|
|
$
|
722.8
|
|
|
(8.0)
|
%
|
|
(7.3)
|
%
|
Net income
|
$
|
23.0
|
|
|
$
|
41.6
|
|
|
(44.7)
|
%
|
|
(44.2)
|
%
|
EBITDA(1)
|
$
|
85.2
|
|
|
$
|
109.0
|
|
|
(21.8)
|
%
|
|
(21.5)
|
%
|
Adjusted EBITDA
(including COVID-19 charges) (1)
|
$
|
101.7
|
|
|
$
|
113.0
|
|
|
(10.0)
|
%
|
|
(9.7)
|
%
|
Adjusted EBITDA per
credit facility (1)
|
$
|
109.6
|
|
|
$
|
113.0
|
|
|
(3.0)
|
%
|
|
(2.7)
|
%
|
Company Chairman and CEO Scott
Thompson commented, "It was definitely a quarter of lows and
highs, ending clearly on a high note for the industry and our
business. Sales trends through the quarter accelerated each month
and have continued to accelerate into July unabated. We believe the
category is benefiting from a shift in consumer spend of
discretionary dollars into the home category in which our products
and brands are well-aligned to meet those consumer needs. We are
currently experiencing tremendous order volume in the U.S. that is
broad-based with growth across both Tempur and Sealy brands. In
fact, our sales have been constrained by our Sealy manufacturing
capacity and our suppliers' capacity to meet this increased demand.
Over the past five years, we have worked diligently to strengthen
the foundation of our company, and we are now benefiting from our
powerful omni-channel presence and strong competitive position in
the industry. While a level of uncertainty remains, we expect the
industry tailwinds and our sales momentum to continue."
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 decreased 3.0% to $570.5 million as
compared to $588.1 million in
the second quarter of 2019. On a constant currency
basis(1), North America
net sales decreased 2.9% as compared to
the second quarter of 2019. Gross margin was 37.9% as
compared to 40.8% in the second quarter of 2019. Adjusted gross
margin(1) was 38.6% as compared to 40.8% in the second
quarter of 2019. Operating margin was 12.2% as compared to 13.6% in
the second quarter of 2019. Adjusted operating margin(1)
was 14.3% as compared to 13.9% in the second quarter of 2019.
Operating income and adjusted operating income(1)
included $6.0 million of COVID-19
charges in the second quarter of 2020.
North America net sales through
the wholesale channel decreased $33.9
million, or 6.4%, to $494.6
million as compared to the second quarter of 2019.
North America net sales through
the direct channel increased $16.3
million, or 27.3%, to $75.9
million, primarily driven by an increase of more than 140%
in web sales as compared to the second quarter of
2019.
North America adjusted gross
margin(1) declined 220 basis points as compared to the
second quarter of 2019. The decline was primarily driven by
product and brand mix, partially offset by decreased floor model
expenses and lower commodity costs. North
America adjusted operating margin(1) improved 40
basis points as compared to the second quarter of 2019. The
improvement was primarily driven by the lower operating expenses as
a result of cost actions in the quarter, partially offset by the
decline in gross margin and COVID-19 charges.
International net
sales decreased 29.7% to $94.7 million as compared to $134.7
million in the second quarter of 2019. On a constant
currency basis(1), International net sales decreased
26.9% as compared to the second quarter of 2019. Gross margin was
52.5% as compared to 54.5% in the second quarter of 2019. Adjusted
gross margin(1) was 53.0% as compared to 54.5% in the
second quarter of 2019. Operating margin was 10.1% as compared to
20.3% in the second quarter of 2019. Adjusted operating
margin(1) was 14.6% in the second quarter of 2020. There
were no adjustments to operating margin in the second quarter of
2019. Operating income and adjusted operating
income(1) included $1.9
million of COVID-19 charges in the second quarter of
2020.
International net sales through the wholesale channel decreased
$34.6 million, or 33.4%, to
$69.1 million as compared to the
second quarter of 2019. International net sales through the direct
channel decreased $5.4 million, or
17.4%, to $25.6 million as compared
to the second quarter of 2019.
International adjusted gross margin(1) declined 150
basis points as compared to the second quarter of 2019. The decline
was primarily driven by fixed cost deleverage on lower unit volumes
and decreased royalties, partially offset by favorable country mix.
International adjusted operating margin(1) declined 570
basis points as compared to the second quarter of 2019. The decline
was primarily driven by fixed cost deleverage on operating
expenses, increased bad debt expense, COVID-19 charges and the
decline in gross margin. These declines were partially offset by
the performance of the Asia joint
venture.
Corporate operating expense decreased to
$25.6 million as compared to
$26.5 million in the second quarter
of 2019. Corporate adjusted operating expense(1) was
$25.4 million in the second quarter
of 2019. There were no adjustments to operating expense in the
second quarter of 2020.
The Company ended the second quarter of 2020 with total debt of
$1.8 billion and consolidated
indebtedness less netted cash(1) of $1.6 billion.
Leverage based on the ratio of consolidated indebtedness less
netted cash(1) to adjusted EBITDA per credit
facility(1) was 2.83 times for the
trailing twelve months ended June 30, 2020, the lowest in
Tempur Sealy history.
Company Chairman and CEO Scott
Thompson commented, "We are lowering our target leverage
ratio for the second time in the last 12 months. Our new revised
target range is 2.0 to 3.0 times. The reduction in our leverage
target is not due to any market concerns; it is a strategic move to
provide optionality and lower market volatility. We have always
seen our financial strength as a competitive advantage and part of
our long-term strategy for the Company."
Consolidated net income decreased 44.7% to $23.0 million as compared to $41.6 million in the second quarter
of 2019. Adjusted net income(1) decreased
20.8% to $35.1 million as compared to
$44.3 million in the second quarter
of 2019. EPS decreased 40.5% to $0.44 as compared to $0.74 in the second quarter
of 2019. Adjusted EPS(1), which included
$0.11 of COVID-19 charges,
decreased 13.9% to $0.68 as
compared to $0.79 in the second
quarter of 2019.
(1) This is a non-GAAP financial measure. Please refer to
"Non-GAAP Financial Measures and Constant Currency Information"
below.
Business Update
The Company continues to study, respond and optimize its
operations related to the challenges from the COVID-19 crisis. The
Company has taken, and continues to take precautionary measures to
mitigate health risks during the evolving situation resulting from
COVID-19.
The Company experienced a major reduction in total net sales
when COVID-19 began materially impacting our North American
business in mid-March. Order trends reached their lowest point in
the second quarter when they were down 80% for a few days in early
April and began to improve thereafter, with orders down
approximately 55% for the full month of April as compared to the
same month in 2019. The Company experienced significant and
accelerating improvement in order trends throughout the remainder
of the quarter, and the Company provided market updates in May and
June as orders improved from previous expectations. This
improvement was primarily due to the reopening of brick-and-mortar
stores, the acceleration of e-commerce business trends, and a shift
in consumer spending habits towards in-home purchases, including
bedding products.
This unexpected and rapid increase in demand for bedding
products has challenged the entire bedding industry and supply
chain including the Company. The broad-based increase in demand
coupled with supply chain constraints has resulted in longer order
to delivery times for Sealy products in the second quarter and
continue July to-date. The Tempur-Pedic manufacturing process is
not as impacted by the current supply chain constraints as it is
less labor-dependent and has fewer components than the Sealy
process. The Company is in the process of ramping global production
capabilities across its entire portfolio of products to meet
heightened demand, but expects to continue experiencing capacity
constraints on some Sealy bedding products in the U.S. through the
third quarter of 2020.
Financial Guidance
As previously announced, the Company has withdrawn its
previously-issued full-year financial guidance for 2020 and will
not provide updated full-year adjusted EBITDA guidance until there
is more visibility into the worldwide operating environment.
Management is targeting third quarter 2020 net sales to increase
approximately 25 percent from the same period last year.
If the current order trends were to continue and if there are no
significant changes in supply chain or manufacturing capacity, it
is possible the Company's third quarter or fourth quarter financial
performance could trigger vesting of the Company's long-term
aspirational plan resulting in a non-cash charge as outlined in
previous regulatory filings.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, July 30, 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
(including COVID-19 charges), adjusted EBITDA per credit facility,
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 sales and demand
trends, performance generally for 2020 and subsequent periods, the
potential vesting of the Company's long-term aspirational plan and
the Company's expectations for emerging from the market downturn.
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 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; risks associated with the duration, scope
and severity of COVID-19 and its effects on the Company's business
and operations, including the disruption or delay of production and
delivery of materials and products in the Company's supply chain;
the impact of travel bans, work-from-home policies, or
shelter-in-place orders; a temporary or prolonged shutdown of
manufacturing facilities or retail stores and decreased retail
traffic; 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 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 liquidity, financial performance and related credit issues
present in the retail sector; financial distress among the
Company's business partners, customers and competitors, and
financial solvency and related problems experienced by other market
participants, any of which may be amplified by the effects of
COVID-19; 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; market disruptions related to COVID-19 which may
frustrate the Company's ability to access financing on acceptable
terms or at all; 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; 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" in Part I, ITEM 1A of the
Company's Annual Report on Form 10-K for the year ended
December 31, 2019 and in Part II, ITEM 1A of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 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 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
Condensed Consolidated Statements of Income
(in millions, except percentages and per common share
amounts)
(unaudited)
|
|
|
Three Months
Ended
|
|
|
|
Six Months
Ended
|
|
|
|
June
30,
|
|
Chg
%
|
|
June
30,
|
|
Chg
%
|
|
2020
|
|
2019
|
|
|
|
2020
|
|
2019
|
|
|
Net sales
|
$
|
665.2
|
|
|
$
|
722.8
|
|
|
(8.0)%
|
|
$
|
1,487.6
|
|
|
$
|
1,413.7
|
|
|
5.2%
|
Cost of
sales
|
399.3
|
|
|
409.4
|
|
|
|
|
864.6
|
|
|
818.5
|
|
|
|
Gross
profit
|
265.9
|
|
|
313.4
|
|
|
(15.2)%
|
|
623.0
|
|
|
595.2
|
|
|
4.7%
|
Selling and marketing
expenses
|
135.1
|
|
|
163.3
|
|
|
|
|
306.1
|
|
|
316.8
|
|
|
|
General,
administrative and other expenses
|
82.4
|
|
|
72.7
|
|
|
|
|
163.0
|
|
|
143.4
|
|
|
|
Equity income in
earnings of unconsolidated affiliates
|
(5.0)
|
|
|
(3.6)
|
|
|
|
|
(4.8)
|
|
|
(6.5)
|
|
|
|
Operating
income
|
53.4
|
|
|
81.0
|
|
|
(34.1)%
|
|
158.7
|
|
|
141.5
|
|
|
12.2%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
20.6
|
|
|
22.5
|
|
|
|
|
40.9
|
|
|
44.9
|
|
|
|
Other expense
(income), net
|
0.3
|
|
|
—
|
|
|
|
|
0.8
|
|
|
(7.8)
|
|
|
|
Total other
expense, net
|
20.9
|
|
|
22.5
|
|
|
|
|
41.7
|
|
|
37.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income taxes
|
32.5
|
|
|
58.5
|
|
|
(44.4)%
|
|
117.0
|
|
|
104.4
|
|
|
12.1%
|
Income tax
provision
|
(9.4)
|
|
|
(15.8)
|
|
|
|
|
(32.9)
|
|
|
(32.7)
|
|
|
|
Income from continuing
operations
|
23.1
|
|
|
42.7
|
|
|
(45.9)%
|
|
84.1
|
|
|
71.7
|
|
|
17.3%
|
Income (loss) from
discontinued operations, net of tax
|
0.1
|
|
|
(1.2)
|
|
|
|
|
(1.1)
|
|
|
(1.6)
|
|
|
|
Net income before
non-controlling interests
|
23.2
|
|
|
41.5
|
|
|
(44.1)%
|
|
83.0
|
|
|
70.1
|
|
|
18.4%
|
Less: Net income
(loss) attributable to non-controlling
interests
|
0.2
|
|
|
(0.1)
|
|
|
|
|
0.3
|
|
|
0.1
|
|
|
|
Net income
attributable to Tempur Sealy International, Inc.
|
$
|
23.0
|
|
|
$
|
41.6
|
|
|
(44.7)%
|
|
$
|
82.7
|
|
|
$
|
70.0
|
|
|
18.1%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for
continuing operations
|
$
|
0.44
|
|
|
$
|
0.78
|
|
|
|
|
$
|
1.60
|
|
|
$
|
1.31
|
|
|
|
Loss per share for
discontinued operations
|
—
|
|
|
(0.02)
|
|
|
|
|
(0.02)
|
|
|
(0.03)
|
|
|
|
Earnings per
share
|
$
|
0.44
|
|
|
$
|
0.76
|
|
|
(42.1)%
|
|
$
|
1.58
|
|
|
$
|
1.28
|
|
|
23.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for
continuing operations
|
$
|
0.44
|
|
|
$
|
0.76
|
|
|
|
|
$
|
1.58
|
|
|
$
|
1.29
|
|
|
|
Loss per share for
discontinued operations
|
—
|
|
|
(0.02)
|
|
|
|
|
(0.02)
|
|
|
(0.03)
|
|
|
|
Earnings per
share
|
$
|
0.44
|
|
|
$
|
0.74
|
|
|
(40.5)%
|
|
$
|
1.56
|
|
|
$
|
1.26
|
|
|
23.8%
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
51.6
|
|
|
54.7
|
|
|
|
|
52.5
|
|
|
54.7
|
|
|
|
Diluted
|
52.0
|
|
|
56.0
|
|
|
|
|
53.0
|
|
|
55.6
|
|
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in millions)
|
|
|
June 30,
2020
|
|
December 31,
2019
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and
cash equivalents
|
$
|
146.8
|
|
|
$
|
64.9
|
|
Accounts
receivable, net
|
341.8
|
|
|
372.0
|
|
Inventories
|
258.8
|
|
|
260.5
|
|
Prepaid
expenses and other current assets
|
198.1
|
|
|
202.8
|
|
Total Current
Assets
|
945.5
|
|
|
900.2
|
|
Property,
plant and equipment, net
|
462.8
|
|
|
435.8
|
|
Goodwill
|
757.5
|
|
|
732.3
|
|
Other
intangible assets, net
|
633.5
|
|
|
641.4
|
|
Operating
lease right-of-use assets
|
281.6
|
|
|
245.4
|
|
Deferred
income taxes
|
13.6
|
|
|
14.1
|
|
Other
non-current assets
|
107.4
|
|
|
92.6
|
|
Total
Assets
|
$
|
3,201.9
|
|
|
$
|
3,061.8
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
247.1
|
|
|
$
|
251.7
|
|
Accrued
expenses and other current liabilities
|
455.2
|
|
|
473.2
|
|
Current
portion of long-term debt
|
256.4
|
|
|
37.4
|
|
Income
taxes payable
|
43.0
|
|
|
11.0
|
|
Total Current
Liabilities
|
1,001.7
|
|
|
773.3
|
|
Long-term
debt, net
|
1,497.2
|
|
|
1,502.6
|
|
Long-term
operating lease obligations
|
239.3
|
|
|
205.4
|
|
Deferred
income taxes
|
93.0
|
|
|
102.1
|
|
Other
non-current liabilities
|
121.0
|
|
|
118.0
|
|
Total
Liabilities
|
2,952.2
|
|
|
2,701.4
|
|
|
|
|
|
Total Stockholders'
Equity
|
249.7
|
|
|
360.4
|
|
Total Liabilities and
Stockholders' Equity
|
$
|
3,201.9
|
|
|
$
|
3,061.8
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in millions)
(unaudited)
|
|
|
Six Months
Ended
|
|
June
30,
|
|
2020
|
|
2019
|
CASH FLOWS FROM
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Net income before
non-controlling interests
|
$
|
83.0
|
|
|
$
|
70.1
|
|
Loss from discontinued
operations, net of tax
|
1.1
|
|
|
1.6
|
|
Adjustments to
reconcile net income from continuing operations to net cash
provided by
operating activities:
|
|
|
|
Depreciation
and amortization
|
47.5
|
|
|
43.5
|
|
Amortization of
stock-based compensation
|
14.8
|
|
|
13.2
|
|
Amortization of
deferred financing costs
|
1.7
|
|
|
1.2
|
|
Bad debt
expense
|
26.5
|
|
|
4.6
|
|
Deferred income
taxes
|
(6.6)
|
|
|
8.8
|
|
Dividends
received from unconsolidated affiliates
|
1.5
|
|
|
2.3
|
|
Equity income
in earnings of unconsolidated affiliates
|
(4.8)
|
|
|
(6.5)
|
|
Foreign
currency adjustments and other
|
1.0
|
|
|
(6.3)
|
|
Changes in
operating assets and liabilities, net of effect of business
acquisitions
|
4.7
|
|
|
(86.6)
|
|
Net cash provided by
operating activities from continuing operations
|
170.4
|
|
|
45.9
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Purchases of property,
plant and equipment
|
(49.4)
|
|
|
(39.9)
|
|
Acquisitions, net of
cash acquired
|
(37.9)
|
|
|
(17.1)
|
|
Other
|
0.1
|
|
|
10.3
|
|
Net cash used in
investing activities from continuing operations
|
(87.2)
|
|
|
(46.7)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
1,073.9
|
|
|
509.2
|
|
Repayments of
borrowings under long-term debt obligations
|
(866.9)
|
|
|
(509.8)
|
|
Proceeds from exercise
of stock options
|
1.5
|
|
|
5.5
|
|
Treasury stock
repurchased
|
(199.5)
|
|
|
(5.5)
|
|
Payments of deferred
financing costs
|
(1.6)
|
|
|
(0.1)
|
|
Repayments of finance
lease obligations and other
|
(6.0)
|
|
|
(3.3)
|
|
Net cash provided by
(used in) financing activities from continuing
operations
|
1.4
|
|
|
(4.0)
|
|
|
|
|
|
Net cash provided by
(used in) continuing operations
|
84.6
|
|
|
(4.8)
|
|
|
|
|
|
CASH USED IN
DISCONTINUED OPERATIONS:
|
|
|
|
Operating cash
flows
|
(1.0)
|
|
|
(2.0)
|
|
Investing cash
flows
|
—
|
|
|
—
|
|
Financing cash
flows
|
—
|
|
|
—
|
|
Net cash used in
discontinued operations
|
(1.0)
|
|
|
(2.0)
|
|
|
|
|
|
NET EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
|
(1.7)
|
|
|
(0.7)
|
|
Increase (decrease)
in cash and cash equivalents
|
81.9
|
|
|
(7.5)
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
64.9
|
|
|
45.8
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
146.8
|
|
|
38.3
|
|
LESS: CASH AND CASH
EQUIVALENTS OF DISCONTINUED OPERATIONS
|
—
|
|
|
—
|
|
CASH AND CASH
EQUIVALENTS OF CONTINUING OPERATIONS
|
$
|
146.8
|
|
|
$
|
38.3
|
|
Summary of Channel Sales
The following table highlights net sales information, by channel
and by business segment, for the three months
ended June 30, 2020 and 2019:
|
Three Months Ended
June 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Wholesale
(a)
|
$
|
563.7
|
|
|
$
|
632.2
|
|
|
$
|
494.6
|
|
|
$
|
528.5
|
|
|
$
|
69.1
|
|
|
$
|
103.7
|
|
Direct
(b)
|
101.5
|
|
|
90.6
|
|
|
75.9
|
|
|
59.6
|
|
|
25.6
|
|
|
31.0
|
|
|
$
|
665.2
|
|
|
$
|
722.8
|
|
|
$
|
570.5
|
|
|
$
|
588.1
|
|
|
$
|
94.7
|
|
|
$
|
134.7
|
|
(a)
|
The Wholesale channel
includes all third party retailers, including third party
distribution, hospitality and healthcare.
|
(b)
|
The Direct channel
includes company-owned stores, e-commerce and call
centers.
|
TEMPUR SEALY INTERNATIONAL, INC. AND
SUBSIDIARIES
Reconciliation of Non-GAAP Financial
Measures
(in millions, except percentages, ratios and per
common share amounts)
The Company provides information regarding adjusted net income,
adjusted EPS, adjusted gross profit, adjusted gross margin,
adjusted operating income (expense), adjusted operating margin,
EBITDA, adjusted EBITDA (including COVID-19 charges), adjusted
EBITDA per credit facility, consolidated indebtedness and
consolidated indebtedness less netted cash, which are not
recognized terms under GAAP and do not purport to be alternatives
to net income, earnings per share, gross profit, gross margin,
operating income (expense), operating margin or an alternative to
total debt as a measure of liquidity. The Company believes these
non-GAAP financial measures provide investors with performance
measures that better reflect the Company's underlying operations
and trends, providing a perspective not immediately apparent from
net income, gross profit, gross margin, operating income (expense)
and operating margin. The adjustments management makes to derive
the non-GAAP financial measures include adjustments to exclude
items that may cause short-term fluctuations in the nearest GAAP
financial measure, but which management does not consider to be the
fundamental attributes or primary drivers of the Company's
business.
The Company believes that exclusion of these items assists in
providing a more complete understanding of the Company's underlying
results from continuing operations and trends, and management uses
these measures along with the corresponding GAAP financial measures
to manage the Company's business, to evaluate its consolidated and
business segment performance compared to prior periods and the
marketplace, to establish operational goals and to provide
continuity to investors for comparability purposes. Limitations
associated with the use of these non-GAAP financial measures
include that these measures do not present all of the amounts
associated with the Company's results as determined in accordance
with GAAP. These non-GAAP financial measures should be considered
supplemental in nature and should not be construed as more
significant than comparable financial measures defined by GAAP.
Because not all companies use identical calculations, these
presentations may not be comparable to other similarly titled
measures of other companies. For more information about these
non-GAAP financial measures and a reconciliation to the nearest
GAAP financial measure, please refer to the reconciliations on the
following pages.
Constant Currency Information
In this press release the Company refers to, and in other press
releases and other communications with investors the Company may
refer to, net sales, earnings or other historical financial
information on a "constant currency basis," which is a non-GAAP
financial measure. These references to constant currency do not
include operational impacts that could result from fluctuations in
foreign currency rates. To provide information on a constant
currency basis, the applicable financial results are adjusted based
on a simple mathematical model that translates current period
results in local currency using the comparable prior corresponding
period's currency conversion rate. This approach is used for
countries where the functional currency is the local country
currency. This information is provided so that certain financial
results can be viewed without the impact of fluctuations in foreign
currency rates, thereby facilitating period-to-period comparisons
of business performance.
Adjusted Net Income and Adjusted EPS
A reconciliation of reported net income to adjusted net income
and the calculation of adjusted EPS is provided below. Management
believes that the use of these non-GAAP financial measures provides
investors with additional useful information with respect to the
impact of various adjustments as described in the footnotes at the
end of this release.
The following table sets forth the reconciliation of the
Company's reported net income to adjusted net income and the
calculation of adjusted EPS for the three months
ended June 30, 2020 and 2019:
|
Three Months
Ended
|
(in millions,
except per share amounts)
|
June 30,
2020
|
|
June 30,
2019
|
Net income
|
$
|
23.0
|
|
|
$
|
41.6
|
|
(Income) loss from
discontinued operations, net of tax (1)
|
(0.1)
|
|
|
1.2
|
|
Incremental operating
costs (2)
|
4.9
|
|
|
—
|
|
Asset impairments
(3)
|
7.0
|
|
|
—
|
|
Restructuring costs
(4)
|
3.4
|
|
|
—
|
|
Accounting standard
adoption (5)
|
1.3
|
|
|
—
|
|
Acquisition-related
costs and other (6)
|
—
|
|
|
2.8
|
|
Tax adjustments
(7)
|
(4.4)
|
|
|
(1.3)
|
|
Adjusted net
income
|
$
|
35.1
|
|
|
$
|
44.3
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
0.68
|
|
|
$
|
0.79
|
|
|
|
|
|
Diluted shares
outstanding
|
52.0
|
|
|
56.0
|
|
Adjusted net income included COVID-19 charges of $5.8 million, net of tax, and adjusted earnings
per share of $0.11.
Adjusted Gross Profit and Gross Margin and Adjusted Operating
Income (Expense) and Operating Margin
A reconciliation of gross profit and gross margin to adjusted
gross profit and adjusted gross margin, respectively, and operating
income (expense) and operating margin to adjusted operating income
(expense) and adjusted operating margin, respectively, are provided
below. Management believes that the use of these non-GAAP financial
measures provides investors with additional useful information with
respect to the impact of various adjustments as described in the
footnotes at the end of this release.
The following table sets forth the reconciliation of the
Company's reported gross profit and operating income (expense) to
the calculation of adjusted gross profit and adjusted operating
income (expense) for the three months ended June 30, 2020.
|
2Q
2020
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
665.2
|
|
|
|
|
$
|
570.5
|
|
|
|
|
$
|
94.7
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
265.9
|
|
|
40.0
|
%
|
|
$
|
216.2
|
|
|
37.9
|
%
|
|
$
|
49.7
|
|
|
52.5
|
%
|
|
$
|
—
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental operating
costs (2)
|
4.5
|
|
|
|
|
4.0
|
|
|
|
|
0.5
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
270.4
|
|
|
40.6
|
%
|
|
$
|
220.2
|
|
|
38.6
|
%
|
|
$
|
50.2
|
|
|
53.0
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
53.4
|
|
|
8.0
|
%
|
|
$
|
69.4
|
|
|
12.2
|
%
|
|
$
|
9.6
|
|
|
10.1
|
%
|
|
$
|
(25.6)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incremental operating
costs (2)
|
4.9
|
|
|
|
|
4.1
|
|
|
|
|
0.8
|
|
|
|
|
—
|
|
Asset impairments
(3)
|
7.0
|
|
|
|
|
7.0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Restructuring costs
(4)
|
3.4
|
|
|
|
|
—
|
|
|
|
|
3.4
|
|
|
|
|
—
|
|
Accounting standard
adoption (5)
|
1.3
|
|
|
|
|
1.3
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Total
adjustments
|
16.6
|
|
|
|
|
12.4
|
|
|
|
|
4.2
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income
(expense)
|
$
|
70.0
|
|
|
10.5
|
%
|
|
$
|
81.8
|
|
|
14.3
|
%
|
|
$
|
13.8
|
|
|
14.6
|
%
|
|
$
|
(25.6)
|
|
Operating income and adjusted operating income included
$7.9 million of COVID-19 charges. The
North America and International
business segments included $6.0
million and $1.9 million of
these charges, respectively.
The following table sets forth the Company's reported gross
profit and the reconciliation of the Company's operating income
(expense) and operating margin to the calculation of adjusted
operating income (expense) and adjusted operating margin for the
three months ended June 30, 2019. The Company had no
adjustments to gross profit for the three months ended
June 30, 2019.
|
2Q
2019
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
722.8
|
|
|
|
|
$
|
588.1
|
|
|
|
|
$
|
134.7
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
313.4
|
|
|
43.4
|
%
|
|
$
|
240.0
|
|
|
40.8
|
%
|
|
$
|
73.4
|
|
|
54.5
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
81.0
|
|
|
11.2
|
%
|
|
$
|
80.1
|
|
|
13.6
|
%
|
|
$
|
27.4
|
|
|
20.3
|
%
|
|
$
|
(26.5)
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
costs and
other (6)
|
2.8
|
|
|
|
|
1.7
|
|
|
|
|
—
|
|
|
|
|
1.1
|
|
Adjusted operating
income
(expense)
|
$
|
83.8
|
|
|
11.6
|
%
|
|
$
|
81.8
|
|
|
13.9
|
%
|
|
$
|
27.4
|
|
|
20.3
|
%
|
|
$
|
(25.4)
|
|
EBITDA, Adjusted EBITDA (including COVID-19 charges),
Adjusted EBITDA per Credit Facility and Consolidated Indebtedness
less Netted Cash
The following reconciliations are provided below:
- Net income to EBITDA, adjusted EBITDA (including COVID-19
charges) and adjusted EBITDA per credit facility
- Ratio of consolidated indebtedness less netted cash to adjusted
EBITDA per credit facility
- Total debt, net to consolidated indebtedness less netted
cash
Management believes that presenting these non-GAAP measures
provides investors with useful information with respect to the
Company's operating performance, cash flow generation and
comparisons from period to period, as well as general information
about the Company's progress in reducing its leverage.
The Company's credit agreement (the "2019 Credit Agreement")
provides the definition of adjusted EBITDA ("adjusted EBITDA per
credit facility"). In the second quarter of 2020, in determining
adjusted EBITDA per credit facility, the Company made an adjustment
for COVID-19 charges that was not made to adjusted EBITDA
(including COVID-19 charges). Accordingly, the Company presents
adjusted EBITDA per credit facility to provide information
regarding the Company's compliance with requirements under the 2019
Credit Agreement.
The following table sets forth the reconciliation of the
Company's reported net income to the calculations of EBITDA and
adjusted EBITDA (including COVID-19 charges) and adjusted EBITDA
per credit facility for the three months ended June 30,
2020 and 2019:
|
Three Months
Ended
|
(in
millions)
|
June 30,
2020
|
|
June 30,
2019
|
Net income
|
$
|
23.0
|
|
|
$
|
41.6
|
|
Interest expense,
net
|
20.6
|
|
|
22.5
|
|
Income
taxes
|
9.4
|
|
|
15.8
|
|
Depreciation and
amortization
|
32.2
|
|
|
29.1
|
|
EBITDA
|
$
|
85.2
|
|
|
$
|
109.0
|
|
Adjustments:
|
|
|
|
(Income) loss from
discontinued operations, net of tax (1)
|
(0.1)
|
|
|
1.2
|
|
Incremental operating
costs (2)
|
4.9
|
|
|
—
|
|
Asset impairments
(3)
|
7.0
|
|
|
—
|
|
Restructuring costs
(4)
|
3.4
|
|
|
—
|
|
Accounting standard
adoption (5)
|
1.3
|
|
|
—
|
|
Acquisition-related
costs and other (6)
|
—
|
|
|
2.8
|
|
Adjusted EBITDA
(including COVID-19 charges)
|
$
|
101.7
|
|
|
$
|
113.0
|
|
|
|
|
|
COVID-19 charges
(8)
|
7.9
|
|
|
—
|
|
Adjusted EBITDA per
credit facility
|
$
|
109.6
|
|
|
$
|
113.0
|
|
The following table sets forth the reconciliation of the
Company's net income to the calculations of EBITDA and adjusted
EBITDA per credit facility for the trailing twelve months ended
June 30, 2020:
|
Trailing Twelve
Months Ended
|
(in
millions)
|
June 30,
2020
|
Net income
|
$
|
202.2
|
|
Interest expense,
net
|
81.7
|
|
Income tax
provision
|
74.9
|
|
Depreciation and
amortization
|
124.0
|
|
EBITDA
|
$
|
482.8
|
|
Adjustments:
|
|
Loss from discontinued
operations, net of tax (1)
|
0.9
|
|
Customer-related
charges (9)
|
41.5
|
|
Charitable stock
donation (10)
|
8.9
|
|
COVID-19 charges
(8)
|
7.9
|
|
Incremental operating
costs (2)
|
7.2
|
|
Asset impairments
(3)
|
7.0
|
|
Earnings from Sherwood
prior to acquisition (11)
|
6.7
|
|
Restructuring costs
(4)
|
3.4
|
|
Accounting standard
adoption (5)
|
2.8
|
|
Credit facility
amendment (12)
|
0.7
|
|
Adjusted EBITDA per
credit facility
|
$
|
569.8
|
|
|
|
Consolidated
indebtedness less netted cash
|
$
|
1,614.9
|
|
|
|
Ratio of consolidated
indebtedness less netted cash to adjusted EBITDA per credit
facility
|
2.83 times
|
|
Under the 2019 Credit Agreement, the definition of adjusted
EBITDA (which the Company refers to as "adjusted EBITDA per credit
facility") contains certain restrictions that limit adjustments to
net income when calculating adjusted EBITDA. For the trailing
twelve months ended June 30, 2020,
the Company's adjustments to net income when calculating adjusted
EBITDA did not exceed the allowable amount under the 2019 Credit
Agreement.
The ratio of consolidated indebtedness less netted cash to
adjusted EBITDA per credit facility is 2.83 times for the trailing
twelve months ended June 30, 2020.
The 2019 Credit Agreement requires the Company to maintain a ratio
of consolidated indebtedness less netted cash to adjusted EBITDA of
less than 5.00:1.00 times.
The following table sets forth the reconciliation of the
Company's reported total debt to the calculation of consolidated
indebtedness less netted cash as of June 30,
2020. "Consolidated Indebtedness" and "Netted Cash" are
terms used in the 2019 Credit Agreement for purposes of certain
financial covenants.
(in
millions)
|
June 30,
2020
|
Total debt,
net
|
$
|
1,753.6
|
|
Plus: Deferred
financing costs (13)
|
7.2
|
|
Consolidated
indebtedness
|
1,760.8
|
|
Less: Netted cash
(14)
|
145.9
|
|
Consolidated
indebtedness less netted cash
|
$
|
1,614.9
|
|
Footnotes:
(1)
|
Certain subsidiaries
in the International business segment are accounted for as
discontinued operations and have been designated as unrestricted
subsidiaries in the 2019 Credit Agreement. Therefore, these
subsidiaries are excluded from the Company's adjusted financial
measures for covenant compliance purposes.
|
(2)
|
In the second quarter
of 2020, the Company recorded $4.9 million of incremental operating
costs associated with the global pandemic. Cost of sales included
$4.5 million of costs for relief efforts, increased sanitation
supplies and services and other items. Operating expenses included
$0.4 million of charges related to increased sanitation supplies
and services. In the first quarter of 2020, the Company recorded
$2.3 million of charges related to the global pandemic.
|
(3)
|
In the second quarter
of 2020, the Company recorded $7.0 million of asset impairment
charges related to the write-off of certain sales and marketing
assets driven by the current macro-economic environment.
|
(4)
|
In the second quarter
of 2020, the Company incurred $3.4 million of restructuring costs
associated with International headcount reductions driven by the
current macro-economic environment.
|
(5)
|
The Company recorded
$1.3 million and $1.5 million of charges related to the adoption of
ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic
326)", in the second and first quarters of 2020, respectively. As
permitted by the 2019 Credit Agreement, the Company elected to
eliminate the effect of this accounting change within its covenant
compliance calculation.
|
(6)
|
In the second quarter
of 2019, the Company recorded $2.8 million of acquisition-related
and other costs in operating expenses, primarily related to post
acquisition restructuring charges and professional fees for the
acquisition of Sleep Outfitters.
|
(7)
|
Adjusted income tax
provision represents the tax effects associated with the
aforementioned items and other discrete income tax
events.
|
(8)
|
Adjusted EBITDA per
credit facility excluded $7.9 million of COVID-19 charges
associated with temporarily closed company-owned retail stores and
sales force retention costs.
|
(9)
|
In the first quarter
of 2020, the Company recorded $11.7 million of customer-related
charges in connection with the bankruptcy of Art Van Furniture, LLC
and affiliates to fully reserve trade receivables and other assets
associated with this account. In the fourth quarter of 2019, the
Company recorded $29.8 million of customer-related charges in
connection with the bankruptcy of Mattress PAL Holding, LLC
("Mattress PAL") and resulting significant liquidity issues of
Mattress PAL's affiliates to fully reserve trade receivables and
other assets associated with this account.
|
(10)
|
In 2019, the Company
recorded an $8.9 million charge related to the donation of common
stock at fair market value to certain public charities.
|
(11)
|
The Company completed
the acquisition of Sherwood Bedding on January 31, 2020 and
designated this subsidiary as restricted under the 2019 Credit
Agreement. For covenant compliance purposes, the Company included
$6.7 million of EBITDA from this subsidiary for the seven months
prior to acquisition in the Company's calculation of adjusted
EBITDA per credit facility for the trailing twelve months ended
June 30, 2020.
|
(12)
|
In 2019, the Company
recorded $0.7 million of professional fees in connection with the
amendment of the 2019 Credit Agreement.
|
(13)
|
The Company presents
deferred financing costs as a direct reduction from the carrying
amount of the related debt in the Condensed Consolidated Balance
Sheets. For purposes of determining total debt for financial
covenant purposes, the Company has added these costs back to total
debt, net as calculated per the Condensed Consolidated Balance
Sheets.
|
(14)
|
Netted cash includes
cash and cash equivalents for domestic and foreign subsidiaries
designated as restricted subsidiaries in the 2019 Credit
Agreement.
|
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SOURCE Tempur Sealy International, Inc.