– EBITDA Growth of 28%

– EPS Growth of 106%

PR NewswireLEXINGTON, Ky., Oct. 27, 2016 /PRNewswire/ — Tempur Sealy International, Inc. (NYSE: TPX) today announced financial results for the third quarter ended September 30, 2016. The Company also confirmed financial guidance for the full year 2016.

THIRD QUARTER 2016 FINANCIAL SUMMARY

• Total net sales decreased 5.4% to $832.4 million from $880.0 million in the third quarter of 2015. On a constant currency basis⁽¹⁾, total net sales decreased 4.6%, with a decrease of 5.8% in the North America business segment and an increase of 1.8% in the International business segment.
• Gross margin under U.S. generally accepted accounting principles (“GAAP”) was 43.5% as compared to 40.9% in the third quarter of 2015.
• GAAP operating income increased 18.2% to $131.1 million, or 15.7% of net sales, as compared to $110.9 million, or 12.6% of net sales, in the third quarter of 2015. Operating income in the third quarter of 2015 included $5.5 million of integration costs, $5.2 million of additional costs related to executive management transition and retention compensation and $2.4 million of restructuring costs. Operating income increased 5.7% as compared to adjusted operating income⁽¹⁾ of $124.0 million, or 14.1% of net sales, in the third quarter of 2015.
• GAAP net income increased 93.5% to $77.8 million as compared to $40.2 million in the third quarter of 2015. GAAP net income increased 11.3% to $77.8 million as compared to adjusted net income⁽¹⁾ of $69.9 million in the third quarter of 2015. The Company had no adjustments to GAAP net income in the third quarter of 2016.
• Earnings before interest, tax, depreciation and amortization (“EBITDA”)⁽¹⁾ increased 27.7% to $155.0 million as compared to $121.4 million for the third quarter of 2015. EBITDA⁽¹⁾ increased 8.9% as compared to adjusted EBITDA⁽¹⁾ of $142.3 million in the third quarter of 2015.
• GAAP earnings per diluted share (“EPS”) increased 106.3% to $1.32 as compared to $0.64 in the third quarter of 2015. GAAP EPS increased 18.9% to $1.32 as compared to adjusted EPS⁽¹⁾ of $1.11 in the third quarter of 2015.
• The Company ended the third quarter of 2016 with total debt of $1.7 billion and consolidated funded debt less qualified cash⁽¹⁾ of $1.6 billion. Leverage based on the ratio of consolidated funded debt less qualified cash to adjusted EBITDA⁽¹⁾ was 3.19 times for the trailing twelve months ended September 30, 2016 as compared to 3.30 times for the trailing twelve months ended September 30, 2015.
• During the third quarter of 2016, the Company repurchased 1.4 million shares of its common stock for a total cost of $96 million. As of September 30, 2016, the Company had approximately $280 million available under its existing share repurchase authorization.

Tempur Sealy International, Inc. (TPX) Chairman and CEO Scott Thompson commented, “We are pleased to report record EBITDA and GAAP  EPS for the quarter.  The flexibility of our business model was displayed this quarter as our top line sales were below our original expectations yet we delivered significant margin expansion and 19% EPS growth. We continue to effectively execute on our core strategy to drive our long term operating performance.”

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 5.8% to $698.5 million from $741.2 million in the third quarter of 2015. On a constant currency basis⁽¹⁾, North America net sales decreased 5.8%. GAAP gross margin was 41.5% as compared to 38.8% in the third quarter of 2015. GAAP operating margin was 18.4% as compared to 16.0% in the third quarter of 2015, driven primarily by gross margin improvement and lower operating expense inclusive of additional advertising spend.

North America gross margin improved 240 basis points to 41.5% as compared to adjusted gross margin⁽¹⁾ of 39.1% in the third quarter of 2015. Gross margin improvements were primarily driven by operational improvements, pricing actions and product mix. The increase in North America gross margin drove a 200 basis point increase in the Company’s North America operating margin to 18.4% as compared to adjusted operating margin⁽¹⁾ of 16.4% in the third quarter of 2015.

International net sales decreased 3.5% to $133.9 million from $138.8 million in the third quarter of 2015. On a constant currency basis⁽¹⁾, International net sales increased 1.8%. GAAP gross margin was 53.8% as compared to 51.8% in the third quarter of 2015. GAAP operating margin was 19.1% as compared to 16.6% in the third quarter 2015, driven primarily by the increase in gross margin.

International gross margin increased 110 basis points to 53.8% as compared to adjusted gross margin⁽¹⁾ of 52.7% in the third quarter of 2015. The increase in gross margin was primarily driven by operational improvements and improved product mix. The increase in International gross margin drove a 60 basis point increase in the Company’s International operating margin to 19.1% as compared to adjusted operating margin⁽¹⁾ of 18.5% in the third quarter of 2015.

Corporate GAAP operating expense decreased 25.2% to $22.8 million from $30.5 million in the third quarter of 2015. In the third quarter of 2015, the Company recorded $4.9 million of additional costs related to executive management transition and retention compensation, $2.0 million of integration costs and $0.5 million of restructuring costs. Corporate operating expense decreased 1.3% to $22.8 million as compared to adjusted operating expense⁽¹⁾ of $23.1 million in the third quarter of 2015.

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