LEXINGTON, Ky., Nov. 1,
2018 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE:
TPX) announced financial results for the third quarter
ended September 30, 2018. The Company also updated its
financial guidance for the full year 2018.
THIRD QUARTER 2018 FINANCIAL
SUMMARY(1)
- Total net sales increased 2.5% to $729.5
million as compared to $711.5 million in
the third quarter of 2017. On a constant currency
basis(2), total net sales increased 3.4%, with an
increase of 3.0% in the North
America business segment and an increase of 4.9% in the
International business segment.
- Gross margin under U.S. generally accepted accounting
principles ("GAAP") was 41.1% as compared
to 43.1% in the third quarter of 2017.
Gross margin in the third quarter of 2018 included $4.9 million of restructuring charges and
$3.7 million of supply chain
transition costs. Adjusted gross margin(2) was 42.3% as
compared to 43.3% in the third quarter of 2017.
- GAAP operating income decreased 12.9% to $84.7
million as compared to $97.3 million in
the third quarter of 2017. Operating income in the
third quarter of 2018 included $9.4
million of restructuring charges and $3.7 million of supply chain transition costs.
Adjusted operating income(2) decreased 2.5% to
$97.8 million as compared to
$100.3 million in the third quarter
of 2017.
- GAAP net income decreased 5.2% to $42.3
million as compared to $44.6
million in the third quarter of 2017.Adjusted
net income(2) increased 0.9% to $56.1 million as compared to $55.6 million in the third quarter of 2017.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(2) decreased 1.5% to $112.7 million as compared to $114.4
million for the third quarter of 2017. Adjusted
EBITDA(2) decreased 1.3% to $127.7 million as compared to $129.4 million in the third quarter of 2017.
- GAAP earnings per diluted share ("EPS") decreased 4.9% to
$0.77 as compared to
$0.81 in
the third quarter of 2017. Adjusted
EPS(2) increased 1.0% to $1.02 as compared to $1.01 in the third quarter of 2017.
KEY HIGHLIGHTS
(in millions,
except percentages and per common
share amounts)
|
Three Months
Ended
|
|
% Reported
Change
|
|
% Constant
Currency Change(2)
|
September 30,
2018
|
|
September 30,
2017
|
Net sales
|
$
|
729.5
|
|
|
$
|
711.5
|
|
|
2.5
|
%
|
|
3.4
|
%
|
EBITDA
(2)
|
112.7
|
|
|
114.4
|
|
|
(1.5)
|
%
|
|
1.4
|
%
|
Adjusted EBITDA
(2)
|
127.7
|
|
|
129.4
|
|
|
(1.3)
|
%
|
|
1.2
|
%
|
EPS
|
0.77
|
|
|
0.81
|
|
|
(4.9)
|
%
|
|
—
|
%
|
Adjusted EPS
(2)
|
1.02
|
|
|
1.01
|
|
|
1.0
|
%
|
|
5.0
|
%
|
Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, "Our recent
Tempur-Pedic and Sealy Hybrid product introductions have been the
best-received in the company's history, and have gained significant
share in the marketplace. Tempur-Pedic mattress units
accelerated during the quarter, with growth of 29% in North
America. In North America, we are currently rolling out our
higher-end Tempur LuxeAdapt product, and in early 2019 our Breeze
products will be launched, rounding out our completely new line of
Tempur-Pedic mattresses. The team is confident that the combination
of these innovative new products, our expanding direct to consumer
business, and our ongoing productivity initiatives will continue to
enhance our world wide competitive position."
(1) All amounts presented for 2017 reflect reclassifications to
previously reported amounts to adjust for discontinued
operations.
(2) This is a non-GAAP financial measure. Please refer to "Non-GAAP
Financial Measures and Constant Currency Information" below.
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 2.6% to $595.8 million as
compared to $580.6 million in the third quarter
of 2017. On a constant currency basis(2), North America net sales increased 3.0% as
compared to the third quarter of 2017. GAAP gross margin
was 38.5% as compared to 41.1% in the third quarter of 2017. GAAP
operating margin was 13.7% as compared to 17.2% in the third
quarter of 2017.
North America net sales through
the wholesale channel increased $6.3
million to $553.6 million.
North America net sales through
the direct channel increased $8.9
million, or 26.7%, to $42.2
million, as compared to the third quarter of 2017,
driven primarily by growth from expanded retail stores.
North America adjusted gross
margin(2) declined 130 basis points as compared to the
third quarter of 2017. The decline was driven primarily by
commodity cost inflation and unfavorable Tempur product mix. These
were partially offset by favorable brand mix, pricing and
operational improvements. North
America adjusted operating margin(2) declined 150
basis points as compared to the third quarter of 2017. The decline
in adjusted operating margin(2) was primarily driven by
the decline in adjusted gross margin(2).
International net
sales increased 2.1% to $133.7 million as compared to $130.9
million in the third quarter of 2017. On a constant
currency basis(2), International net sales increased
4.9% as compared to the third quarter of 2017. Gross margin was
53.0% as compared to 52.4% in the third quarter of 2017. GAAP
operating margin was 19.3% as compared to 18.0% in the third
quarter of 2017.
International net sales through the wholesale channel decreased
$3.6 million to $107.3 million and net sales through the direct
channel increased $6.4 million, or
32.0%, to $26.4 million as compared
to the third quarter of 2017.
International gross margin improved 60 basis points as compared
to gross margin for the third quarter of 2017. The improvement in
gross margin was driven primarily by the change in classification
of royalty income due to the adoption of new revenue recognition
guidance and operational improvements. These were partially offset
by unfavorable mix, foreign exchange and commodity cost inflation.
International adjusted operating margin(2) improved 20
basis points as compared to the third quarter of 2017. The
improvement was driven by favorable operating expense leverage and
the improvement in gross margin, offset by the change in
classification of royalty income due to the adoption of new revenue
recognition guidance.
Corporate operating expense decreased to $23.0 million as compared to $25.9 million in the third quarter of 2017.
Balance Sheet
As of September 30, 2018, the Company reported $32.1 million in cash and cash equivalents and
$1.7 billion in total debt, as
compared to $41.1 million in cash and
cash equivalents and $1.8 billion in
total debt as of December 31, 2017.
Financial Guidance
The Company updated its financial guidance for 2018. For the
full year 2018, the Company currently expects adjusted
EBITDA(1) to range from $425
million to $435 million due to retailer credit issues,
the under-performance of our International operations, primarily in
Europe, and incremental commodity
headwinds primarily related to tariffs which are not yet offset by
the pricing actions announced for January
2019.
The Company also 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.
(1) All amounts presented for 2017 reflect reclassifications to
previously reported amounts to adjust for discontinued
operations.
(2) This is a non-GAAP financial measure. Please refer to "Non-GAAP
Financial Measures and Constant Currency Information" below.
Adjusted EBITDA as used in connection with the Company's 2018
outlook is a non-GAAP financial measure that excludes or has
otherwise been adjusted for items impacting comparability. The
Company is unable to reconcile this forward-looking non-GAAP
financial measure to GAAP net income, its most directly comparable
forward-looking GAAP financial measure, without unreasonable
efforts, because the Company is currently unable to predict with a
reasonable degree of certainty the type and extent of certain items
that would be expected to impact GAAP net income in 2018 but would
not impact adjusted EBITDA. Such items may include restructuring
activities, foreign currency exchange rates, income taxes
(including the impact of the Tax Cuts and Jobs Act of 2017) and
other items. The unavailable information could have a
significant impact on the Company's full year 2018 GAAP financial
results.
Discontinued Operations
The Company completed an evaluation of its International
operations and identified certain subsidiaries with low
profitability and difficult operating environments with higher
operational risk and volatility. As a result of this evaluation,
the Company has decided to divest of the net assets of certain of
these subsidiaries and enter into licensee relationships in those
markets. Certain of the dispositions occurred during the three
months ended September 30, 2018, with
the remaining actions expected to be taken over the next several
months. The Company has accounted for these subsidiaries as
discontinued operations in its financial statements. These
subsidiaries earned $6.4 million and
$26.8 million in net sales for the
three and nine months ended September 30,
2018, respectively. The Company expects to receive
royalty payments from these licensee relationships in these markets
in future years.
Please refer to Exhibit 99.2, furnished with the Current Report
on Form 8-K, for a recast of selected financial information for
2017 and 2018, by quarter and year-to-date periods, adjusted for
discontinued operations, which is provided for comparative purposes
only.
Recent Changes to Revenue Recognition Accounting
Standards
Due to a new revenue recognition standard adopted on
January 1, 2018, the Company changed
the classification of royalty income from a component of operating
income to revenue. In the third quarter of 2018, adoption of this
new standard increased North
America wholesale net sales by $1.6
million and increased International wholesale net sales by
$3.9 million, as compared to the same
period in the prior year. There is no impact to reported operating
income, net income, or EBITDA arising from this change in
classification. Although these earnings measures did not change,
net sales and gross margin increased compared to the same period in
the prior year and operating margin was negatively impacted.
Adoption of the new standard will continue to impact the Company's
results and their comparability to the prior year period, in the
fourth quarter of 2018.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, November 1, 2018, 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,
adjusted EPS, adjusted net income, adjusted operating income,
adjusted gross margin, adjusted operating margin, consolidated
funded debt, and consolidated funded debt less qualified 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.
(1) All amounts presented for 2017 reflect reclassifications to
previously reported amounts to adjust for discontinued
operations.
(2) This is a non-GAAP financial measure. Please refer to "Non-GAAP
Financial Measures and Constant Currency Information" below.
Forward-Looking Statements
This press release contains "forward-looking statements," within
the meaning of the federal securities laws, which might include
information concerning one or more of the Company's plans,
objectives, goals, strategies, and other information that is not
historical information. When used in this release, the words
"estimates," "expects," "guidance," "anticipates," "projects,"
"plans," "proposed," "targets," "intends," "believes," 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 adjusted EBITDA for 2018 and
performance generally for 2018 and subsequent periods and the
Company's expectations for product launches over the next few
quarters, increasing sales growth, expanding direct to consumer
business and ongoing productivity initiatives. 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 as forward-looking statements. These risk
factors include risks associated with the Company's capital
structure and debt level; general economic, financial and industry
conditions, particularly conditions relating to the financial
performance and related credit issues present in the retail sector,
as well as consumer confidence and the availability of consumer
financing; changes in product and channel mix and the impact on the
Company's gross margin; changes in interest rates; the impact of
the macroeconomic environment in both the U.S. and internationally
on the Company's business segments; uncertainties arising from
global events; the effects of discontinued operations on the
Company's operating results and future performance; the effects of
changes in foreign exchange rates on the Company's reported
earnings; consumer acceptance of the Company's products; industry
competition; the efficiency and effectiveness of the Company's
advertising campaigns and other marketing programs; the Company's
ability to increase sales productivity within existing retail
accounts and to further penetrate the Company's wholesale channel,
including the timing of opening or expanding within large retail
accounts and the timing and success of product launches; the
effects of consolidation of retailers on revenues and costs;
changes in demand for the Company's products by significant
retailer customers; the Company's ability to expand brand
awareness; the Company's ability to expand distribution either
through third parties or through direct sales; the Company's
ability to continuously improve and expand its product line and
successfully roll out new products, maintain efficient, timely and
cost-effective production and delivery of its products, and manage
its growth; the effects of strategic investments on the Company's
operations; changes in foreign tax rates and changes in tax laws
generally, including the ability to utilize tax loss carry
forwards; the outcome of various pending tax audits or other tax,
regulatory or investigation proceedings and pending litigation;
changing commodity costs; the effect of future legislative or
regulatory changes; and disruptions to the implementation of the
Company's strategic priorities and business plan caused by abrupt
changes in the Company's senior management team and Board of
Directors.
Other potential risk factors include the risk factors discussed
under the heading "Risk Factors" under ITEM 1A of Part 1 of the
Company's Annual Report on Form 10-K for the year ended
December 31, 2017. 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
|
|
|
|
Nine Months
Ended
|
|
|
|
September
30,
|
|
Chg
%
|
|
September
30,
|
|
Chg
%
|
|
2018
|
|
2017
|
|
|
|
2018
|
|
2017
|
|
|
Net sales
|
$
|
729.5
|
|
|
$
|
711.5
|
|
|
2.5%
|
|
$
|
2,026.8
|
|
|
$
|
2,069.2
|
|
|
(2.0)%
|
Cost of sales
(1)
|
429.5
|
|
|
404.5
|
|
|
|
|
1,189.3
|
|
|
1,216.1
|
|
|
|
Gross
profit
|
300.0
|
|
|
307.0
|
|
|
(2.3)%
|
|
837.5
|
|
|
853.1
|
|
|
(1.8)%
|
Selling and marketing
expenses
|
145.9
|
|
|
152.0
|
|
|
|
|
444.6
|
|
|
451.4
|
|
|
|
General,
administrative and other expenses
|
73.2
|
|
|
66.5
|
|
|
|
|
206.0
|
|
|
199.8
|
|
|
|
Customer termination
charges, net (1)
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
14.4
|
|
|
|
Equity income in
earnings of unconsolidated affiliates
|
(3.8)
|
|
|
(3.5)
|
|
|
|
|
(11.5)
|
|
|
(10.6)
|
|
|
|
Royalty income, net
of royalty expense
|
—
|
|
|
(5.3)
|
|
|
|
|
—
|
|
|
(15.0)
|
|
|
|
Operating
income
|
84.7
|
|
|
97.3
|
|
|
(12.9)%
|
|
198.4
|
|
|
213.1
|
|
|
(6.9)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
23.6
|
|
|
22.1
|
|
|
|
|
69.5
|
|
|
65.4
|
|
|
|
Other expense
(income), net
|
1.4
|
|
|
1.0
|
|
|
|
|
(1.8)
|
|
|
(6.7)
|
|
|
|
Total other expense,
net
|
25.0
|
|
|
23.1
|
|
|
|
|
67.7
|
|
|
58.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
continuing operations before income taxes
|
59.7
|
|
|
74.2
|
|
|
(19.5)%
|
|
130.7
|
|
|
154.4
|
|
|
(15.3)%
|
Income tax
provision
|
(15.6)
|
|
|
(21.0)
|
|
|
|
|
(34.4)
|
|
|
(46.5)
|
|
|
|
Income from
continuing operations
|
44.1
|
|
|
53.2
|
|
|
(17.1)%
|
|
96.3
|
|
|
107.9
|
|
|
(10.8)%
|
Loss from
discontinued operations, net of tax
|
(2.7)
|
|
|
(12.0)
|
|
|
|
|
(10.9)
|
|
|
(13.0)
|
|
|
|
Net income before
non-controlling interest
|
41.4
|
|
|
41.2
|
|
|
0.5%
|
|
85.4
|
|
|
94.9
|
|
|
(10.0)%
|
Less: Net loss
attributable to non-controlling interest
|
(0.9)
|
|
|
(3.4)
|
|
|
|
|
(2.8)
|
|
|
(8.1)
|
|
|
|
Net income
attributable to Tempur Sealy International, Inc.
|
$
|
42.3
|
|
|
$
|
44.6
|
|
|
(5.2)%
|
|
$
|
88.2
|
|
|
$
|
103.0
|
|
|
(14.4)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
for continuing operations
|
$
|
0.83
|
|
|
$
|
1.05
|
|
|
|
|
$
|
1.82
|
|
|
$
|
2.15
|
|
|
|
Loss per share for
discontinued operations
|
(0.05)
|
|
|
(0.22)
|
|
|
|
|
(0.20)
|
|
|
(0.24)
|
|
|
|
Earnings per
share
|
$
|
0.78
|
|
|
$
|
0.83
|
|
|
(6.0)%
|
|
$
|
1.62
|
|
|
$
|
1.91
|
|
|
(15.2)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
for continuing operations
|
$
|
0.82
|
|
|
$
|
1.03
|
|
|
|
|
$
|
1.80
|
|
|
$
|
2.13
|
|
|
|
Loss per share for
discontinued operations
|
(0.05)
|
|
|
(0.22)
|
|
|
|
|
(0.20)
|
|
|
(0.24)
|
|
|
|
Earnings per
share
|
$
|
0.77
|
|
|
$
|
0.81
|
|
|
(4.9)%
|
|
$
|
1.60
|
|
|
$
|
1.89
|
|
|
(15.3)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average
common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
54.5
|
|
|
54.0
|
|
|
|
|
54.4
|
|
|
54.0
|
|
|
|
Diluted
|
55.1
|
|
|
54.9
|
|
|
|
|
55.0
|
|
|
54.6
|
|
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(in
millions)
|
|
|
September 30,
2018
|
|
December 31,
2017
|
ASSETS
|
(Unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and
cash equivalents
|
$
|
32.1
|
|
|
$
|
41.1
|
|
Accounts
receivable, net
|
374.1
|
|
|
310.8
|
|
Inventories
|
220.5
|
|
|
179.1
|
|
Prepaid
expenses and other current assets
|
243.3
|
|
|
63.4
|
|
Current assets of
discontinued operations
|
7.6
|
|
|
13.0
|
|
Total Current
Assets
|
877.6
|
|
|
607.4
|
|
Property, plant and equipment, net
|
421.0
|
|
|
433.5
|
|
Goodwill
|
726.5
|
|
|
732.7
|
|
Other
intangible assets, net
|
657.0
|
|
|
667.1
|
|
Deferred
income taxes
|
22.8
|
|
|
23.4
|
|
Other
non-current assets
|
102.3
|
|
|
227.3
|
|
Non-current assets of discontinued operations
|
1.5
|
|
|
2.6
|
|
Total
Assets
|
$
|
2,808.7
|
|
|
$
|
2,694.0
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
|
266.6
|
|
|
$
|
228.3
|
|
Accrued
expenses and other current liabilities
|
376.0
|
|
|
222.3
|
|
Income
taxes payable
|
11.2
|
|
|
28.2
|
|
Current
portion of long-term debt
|
73.0
|
|
|
72.4
|
|
Current
liabilities of discontinued operations
|
6.9
|
|
|
25.7
|
|
Total Current
Liabilities
|
733.7
|
|
|
576.9
|
|
Long-term debt, net
|
1,616.0
|
|
|
1,680.7
|
|
Deferred
income taxes
|
121.7
|
|
|
114.3
|
|
Other
non-current liabilities
|
126.7
|
|
|
206.1
|
|
Non-current liabilities of discontinued operations
|
1.1
|
|
|
1.3
|
|
Total
Liabilities
|
2,599.2
|
|
|
2,579.3
|
|
|
|
|
|
Redeemable
non-controlling interest
|
—
|
|
|
2.2
|
|
|
|
|
|
Total Stockholders'
Equity
|
209.5
|
|
|
112.5
|
|
Total Liabilities,
Redeemable Non-Controlling Interest and Stockholders'
Equity
|
$
|
2,808.7
|
|
|
$
|
2,694.0
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(in
millions)
(unaudited)
|
|
|
Nine Months
Ended
|
|
September
30,
|
|
2018
|
|
2017
|
CASH FLOWS FROM
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Net income before
non-controlling interest
|
$
|
85.4
|
|
|
$
|
94.9
|
|
Loss from
discontinued operations, net of tax
|
10.9
|
|
|
13.0
|
|
Adjustments to
reconcile net income from continuing operations to net cash
provided by operating activities:
|
|
|
|
Depreciation and
amortization
|
65.2
|
|
|
60.1
|
|
Amortization of
stock-based compensation
|
19.6
|
|
|
8.5
|
|
Amortization of
deferred financing costs
|
1.8
|
|
|
1.6
|
|
Bad debt
expense
|
9.7
|
|
|
9.0
|
|
Deferred income
taxes
|
9.2
|
|
|
(17.1)
|
|
Dividends received
from unconsolidated affiliates
|
13.0
|
|
|
8.7
|
|
Equity income in
earnings of unconsolidated affiliates
|
(11.5)
|
|
|
(10.6)
|
|
Loss on disposal of
assets
|
2.2
|
|
|
1.7
|
|
Foreign currency
adjustments and other
|
(2.4)
|
|
|
(2.1)
|
|
Changes in operating
assets and liabilities
|
(72.5)
|
|
|
48.9
|
|
Net cash provided by
operating activities from continuing operations
|
130.6
|
|
|
216.6
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Purchases of
property, plant and equipment
|
(55.8)
|
|
|
(43.1)
|
|
Other
|
0.3
|
|
|
0.9
|
|
Net cash used in
investing activities from continuing operations
|
(55.5)
|
|
|
(42.2)
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
863.0
|
|
|
985.9
|
|
Repayments of
borrowings under long-term debt obligations
|
(922.7)
|
|
|
(1,124.7)
|
|
Proceeds from
exercise of stock options
|
4.2
|
|
|
6.5
|
|
Treasury stock
repurchased
|
(3.5)
|
|
|
(44.9)
|
|
Payment of deferred
financing costs
|
—
|
|
|
(0.5)
|
|
Other
|
(4.7)
|
|
|
(2.9)
|
|
Net cash used in
financing activities from continuing operations
|
(63.7)
|
|
|
(180.6)
|
|
|
|
|
|
Net cash provided by
(used in) continuing operations
|
11.4
|
|
|
(6.2)
|
|
|
|
|
|
CASH USED IN
DISCONTINUED OPERATIONS:
|
|
|
|
Operating cash flows,
net
|
(17.6)
|
|
|
(14.1)
|
|
Investing cash flows,
net
|
(0.2)
|
|
|
3.7
|
|
Financing cash flows,
net
|
—
|
|
|
—
|
|
Net cash used in
discontinued operations
|
(17.8)
|
|
|
(10.4)
|
|
|
|
|
|
NET EFFECT OF
EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
(2.1)
|
|
|
(7.3)
|
|
Decrease in cash and
cash equivalents
|
(8.5)
|
|
|
(23.9)
|
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
41.9
|
|
|
65.7
|
|
CASH AND CASH
EQUIVALENTS, end of period
|
33.4
|
|
|
41.8
|
|
LESS: CASH AND CASH
EQUIVALENTS OF DISCONTINUED OPERATIONS
|
1.3
|
|
|
2.2
|
|
CASH AND CASH
EQUIVALENTS OF CONTINUING OPERATIONS
|
$
|
32.1
|
|
|
$
|
39.6
|
|
Summary of Channel Sales
The following table highlights net sales information, by channel
and by business segment, for the three months
ended September 30, 2018 and 2017:
|
Three Months Ended
September 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Wholesale (a)
(b)
|
$
|
660.9
|
|
|
$
|
658.2
|
|
|
$
|
553.6
|
|
|
$
|
547.3
|
|
|
$
|
107.3
|
|
|
$
|
110.9
|
|
Direct
(c)
|
68.6
|
|
|
53.3
|
|
|
42.2
|
|
|
33.3
|
|
|
26.4
|
|
|
20.0
|
|
|
$
|
729.5
|
|
|
$
|
711.5
|
|
|
$
|
595.8
|
|
|
$
|
580.6
|
|
|
$
|
133.7
|
|
|
$
|
130.9
|
|
|
|
(a)
|
The Wholesale channel
includes all third party retailers, including third party
distribution, hospitality and healthcare.
|
(b)
|
Royalty income has
been reclassified into the wholesale channel for 2018 due to the
new revenue recognition standard adopted on January 1,
2018.
|
(c)
|
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, consolidated funded debt and consolidated
funded debt less qualified cash, which are not recognized terms
under GAAP and do not purport to be alternatives to net income and
earnings per share as a measure of operating performance or an
alternative to total debt. 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
and operating income. 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 basis 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 GAAP net income to adjusted net income and a
calculation of adjusted EPS 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 GAAP net income to adjusted net income and a calculation
of adjusted EPS for the three months ended September 30,
2018 and 2017:
|
Three Months
Ended
|
(in millions,
except per share amounts)
|
September 30,
2018
|
|
September 30,
2017
|
GAAP net
income
|
$
|
42.3
|
|
|
$
|
44.6
|
|
Loss from
discontinued operations, net of tax (2)
|
2.7
|
|
|
12.0
|
|
Restructuring costs
(3)
|
10.4
|
|
|
—
|
|
Supply chain
transition costs (4)
|
4.5
|
|
|
—
|
|
Other costs
(5)
|
—
|
|
|
3.0
|
|
Tax adjustments
(6)
|
(3.8)
|
|
|
(4.0)
|
|
Adjusted net
income
|
$
|
56.1
|
|
|
$
|
55.6
|
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
|
1.02
|
|
|
$
|
1.01
|
|
|
|
|
|
Diluted shares
outstanding
|
55.1
|
|
|
54.9
|
|
Adjusted Gross Profit and Gross Margin and Adjusted Operating
Income (Expense) and Operating Margin
A reconciliation of GAAP gross profit and gross margin to
adjusted gross profit and gross margin, respectively, and GAAP
operating income (expense) and operating margin to adjusted
operating income (expense) and 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 GAAP gross profit and operating income (expense)
to the calculation of adjusted gross profit and operating income
(expense) for the three months ended September 30, 2018:
|
3Q
2018
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America(7)
|
|
Margin
|
|
International(8)
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
729.5
|
|
|
|
|
$
|
595.8
|
|
|
|
|
$
|
133.7
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
300.0
|
|
|
41.1
|
%
|
|
$
|
229.2
|
|
|
38.5
|
%
|
|
$
|
70.8
|
|
|
53.0
|
%
|
|
$
|
—
|
|
Adjustments
|
8.6
|
|
|
|
|
8.6
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
308.6
|
|
|
42.3
|
%
|
|
$
|
237.8
|
|
|
39.9
|
%
|
|
$
|
70.8
|
|
|
53.0
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
84.7
|
|
|
11.6
|
%
|
|
$
|
81.9
|
|
|
13.7
|
%
|
|
$
|
25.8
|
|
|
19.3
|
%
|
|
$
|
(23.0)
|
|
Adjustments
|
13.1
|
|
|
|
|
12.7
|
|
|
|
|
0.4
|
|
|
|
|
—
|
|
Adjusted operating
income (expense)
|
$
|
97.8
|
|
|
13.4
|
%
|
|
$
|
94.6
|
|
|
15.9
|
%
|
|
$
|
26.2
|
|
|
19.6
|
%
|
|
$
|
(23.0)
|
|
The following table sets forth the reconciliation of the
Company's reported GAAP gross profit and operating income (expense)
to the calculation of the adjusted gross profit and operating
income (expense) for the three months ended September 30,
2017:
|
3Q
2017
|
(in millions,
except percentages)
|
Consolidated
|
|
Margin
|
|
North
America (9)
|
|
Margin
|
|
International
(10)
|
|
Margin
|
|
Corporate
|
Net sales
|
$
|
711.5
|
|
|
|
|
$
|
580.6
|
|
|
|
|
$
|
130.9
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
$
|
307.0
|
|
|
43.1
|
%
|
|
$
|
238.4
|
|
|
41.1
|
%
|
|
$
|
68.6
|
|
|
52.4
|
%
|
|
$
|
—
|
|
Adjustments
|
1.0
|
|
|
|
|
1.0
|
|
|
|
|
—
|
|
|
|
|
—
|
|
Adjusted gross
profit
|
$
|
308.0
|
|
|
43.3
|
%
|
|
$
|
239.4
|
|
|
41.2
|
%
|
|
$
|
68.6
|
|
|
52.4
|
%
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
|
97.3
|
|
|
13.7
|
%
|
|
$
|
99.7
|
|
|
17.2
|
%
|
|
$
|
23.5
|
|
|
18.0
|
%
|
|
$
|
(25.9)
|
|
Adjustments
|
3.0
|
|
|
|
|
1.1
|
|
|
|
|
1.9
|
|
|
|
|
—
|
|
Adjusted operating
income (expense)
|
$
|
100.3
|
|
|
14.1
|
%
|
|
$
|
100.8
|
|
|
17.4
|
%
|
|
$
|
25.4
|
|
|
19.4
|
%
|
|
$
|
(25.9)
|
|
EBITDA, Adjusted EBITDA and Consolidated Funded Debt Less
Qualified Cash
The following reconciliations are provided below:
- GAAP net income to EBITDA and adjusted EBITDA
- Ratio of consolidated funded debt less qualified cash to
adjusted EBITDA
- Total debt to consolidated funded debt less qualified 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 following table sets forth the reconciliation of the
Company's reported GAAP net income to the calculations of EBITDA
and adjusted EBITDA for the three months
ended September 30, 2018 and 2017:
|
Three Months
Ended
|
(in
millions)
|
September 30,
2018
|
|
September 30,
2017
|
GAAP net
income
|
$
|
42.3
|
|
|
$
|
44.6
|
|
Interest expense,
net
|
23.6
|
|
|
22.1
|
|
Income
taxes
|
15.6
|
|
|
21.0
|
|
Depreciation and
amortization
|
31.2
|
|
|
26.7
|
|
EBITDA
|
$
|
112.7
|
|
|
$
|
114.4
|
|
Adjustments:
|
|
|
|
Loss from
discontinued operations, net of tax (2)
|
2.7
|
|
|
12.0
|
|
Restructuring costs
(3)
|
7.8
|
|
|
|
Supply chain
transition costs (4)
|
4.5
|
|
|
|
Other costs
(5)
|
|
|
3.0
|
|
Adjusted
EBITDA
|
$
|
127.7
|
|
|
$
|
129.4
|
|
The following table sets forth the reconciliation of the
Company's net income to the calculations of EBITDA and adjusted
EBITDA for the trailing twelve months ended September 30,
2018:
|
Trailing Twelve
Months Ended
|
(in
millions)
|
September 30,
2018
|
GAAP net
income
|
$
|
136.6
|
|
Interest expense,
net
|
91.4
|
|
Income
taxes
|
31.7
|
|
Depreciation and
amortization
|
111.5
|
|
EBITDA
|
$
|
371.2
|
|
Adjustments:
|
|
Loss from
discontinued operations, net of tax (2)
|
28.8
|
|
Restructuring costs
(11)
|
13.2
|
|
Supply chain
transition costs (4)
|
4.5
|
|
Latin American
subsidiary charges (12)
|
0.5
|
|
Other costs
(13)
|
0.4
|
|
Adjusted
EBITDA
|
$
|
418.6
|
|
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,695.8
|
|
|
|
Ratio of consolidated
funded debt less qualified cash to adjusted EBITDA
|
4.05 times
|
|
Under the Company's senior secured credit agreement entered into
during 2016 ("2016 Credit Agreement"), the definition of adjusted
EBITDA contains certain restrictions that limit adjustments to GAAP
net income when calculating adjusted EBITDA. For the twelve months
ended September 30, 2018, the Company's adjustments to GAAP
net income when calculating adjusted EBITDA did not exceed the
allowable amount under the 2016 Credit Agreement.
The ratio of adjusted EBITDA under the 2016 Credit Agreement to
consolidated funded debt less qualified cash is 4.05 times for the
trailing twelve months ended September 30, 2018. The 2016
Credit Agreement requires the Company to maintain a ratio of
consolidated funded debt less qualified 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
funded debt less qualified cash as of September 30, 2018.
"Consolidated funded debt" and "qualified cash" are terms used in
the 2016 Credit Agreement for purposes of certain financial
covenants.
(in
millions)
|
September 30,
2018
|
Total debt,
net
|
$
|
1,689.0
|
|
Plus: Deferred
financing costs (14)
|
8.1
|
|
Total debt
|
1,697.1
|
|
Plus: Letters of
credit outstanding
|
23.1
|
|
Consolidated funded
debt
|
$
|
1,720.2
|
|
Less:
|
|
Domestic qualified
cash (15)
|
12.8
|
|
Foreign qualified
cash (15)
|
11.6
|
|
Consolidated funded
debt less qualified cash
|
$
|
1,695.8
|
|
Footnotes:
|
|
(1)
|
In the first quarter
of 2017, the Company recorded $25.9 million of net charges related
to the termination of the relationship with Mattress Firm. Cost of
sales included $11.5 million of charges related to the write-off of
customer-unique inventory and product obligations. Operating
expenses included $14.4 million of net charges, which included a
write-off of $17.2 million for customer incentives and marketing
assets, $5.8 million of employee-related costs and $0.7 million of
professional fees. These charges were offset by $9.3 million of
benefit related to the change in estimate associated with
performance-based stock compensation that is no longer probable of
payout following the Mattress Firm termination.
|
(2)
|
Certain subsidiaries
in the International business segment are accounted for as
discontinued operations and have been designated as unrestricted
subsidiaries in the 2016 Credit Agreement. Therefore, these
subsidiaries are excluded from the Company's adjusted financial
measures for covenant compliance purposes.
|
(3)
|
In the third quarter
of 2018, the Company recorded $10.4 million of restructuring costs.
These costs included $10.0 million of charges associated with the
operational alignment of a joint venture that was wholly acquired
in the North America business segment, including $2.6 million of
depreciation expense. Restructuring costs also included $0.4
million of operating expenses associated with International
simplification efforts, including headcount reduction and
professional fees.
|
(4)
|
In the third quarter
of 2018, the Company recorded $4.5 million of supply chain
transition costs which represent charges incurred to consolidate
certain manufacturing and distribution facilities.
|
(5)
|
In the third quarter
of 2017, the Company recorded a total of $3.0 million in charges
for hurricane-related costs and customer-related
charges.
|
(6)
|
Tax adjustments
represent adjustments associated with the aforementioned items and
other discrete income tax events.
|
(7)
|
Adjustments for the
North America segment represent $12.7 million of restructuring
charges associated with the operational alignment of a joint
venture that was wholly acquired and supply chain transition costs.
Cost of sales included $4.9 million of restructuring charges
related to the acquired joint venture and $3.7 million of supply
chain transition costs. Operating expenses included $4.1 million of
restructuring charges related to the acquired joint
venture.
|
(8)
|
Adjustments to the
International business segment represent $0.4 million of headcount
reduction and professional fees related to International
simplification efforts.
|
(9)
|
Adjustments for the
North America business segment represent $1.1 million of
hurricane-related costs, which the Company recorded primarily in
cost of sales.
|
(10)
|
Adjustments to the
International business segment represents $1.9 million of
customer-related charges.
|
(11)
|
Restructuring costs
represent $5.4 million and $7.8 million for the second and third
quarters of 2018, respectively. These costs are related to the
operational alignment of a wholly acquired joint venture in the
North America business segment and International simplification
efforts, including headcount reduction, professional fees and store
closures.
|
(12)
|
In the fourth quarter
of 2017, the Company incurred $0.5 million of legal charges
associated with a Latin American subsidiary.
|
(13)
|
In the fourth quarter
of 2017, the Company incurred $0.4 million in costs associated with
an early lease termination.
|
(14)
|
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.
|
(15)
|
Qualified cash as
defined in the 2016 Credit Agreement equals 100.0% of unrestricted
domestic cash plus 60.0% of unrestricted foreign cash. For purposes
of calculating leverage ratios, qualified cash is capped at $150.0
million.
|
View original
content:http://www.prnewswire.com/news-releases/tempur-sealy-reports-third-quarter-2018-results-300741572.html
SOURCE Tempur Sealy International, Inc.