Mergers & Acquisitions
May 7, 2024
Urethane Highlights from Tempur Sealy Investors Call
Tempur Sealy International, Inc. (TPX) Q1 2024 Earnings Call Transcript
May 07, 2024 10:29 AM ETTempur Sealy International, Inc. (TPX) Stock
Tempur Sealy International, Inc. (NYSE:TPX) Q1 2024 Earnings Conference Call May 7, 2024 8:00 AM ET
Company Participants
Aubrey Moore – Investor Relations
Scott Thompson – Chairman, President & Chief Executive Officer
Bhaskar Rao – Executive Vice President & Chief Financial Officer
Scott Thompson
Thank you, Aubrey. Good morning, everyone, and thank you for joining us on our first quarter 2024 earnings call. I’ll begin with some highlights from the quarter and then turn the call over to Bhaskar to review our financial performance in more detail. After that, I’ll provide an update on our proposed acquisition of Mattress Firm, which we expect to close by the end of the year. Lastly, I’ll open up the call for Q&A.
In the first quarter, net sales were approximately $1.2 billion, and adjusted EPS was $0.50. Our adjusted EBITDA was $198 million, consistent with the same period last year. These results are evidence of our strong competitive position in the market.
Turning to a few highlights. First, we continue to develop and launch high-quality bedding products in all the markets we serve. We are actively refreshing our US Tempur portfolio with our latest Adapt products. These products are designed to address the fundamental consumer need, alleviating aches and pains. They feature our most innovative Tempur material and are engineered to provide an impressive 20% improvement in pressure relief compared to standard material.
When our mattresses are combined with our proven range of smart adjustable basis, the result is a comprehensive advanced sleep system. The rollout of over 60,000 Adapt mattresses to retailers is on schedule and we expect to be substantially rolled out by Memorial Day.\
Early reports from our third-party retailers and our direct-to-consumer operations are strong. We also, to select national retailers, recently rolled out Active Breeze, our most customizable heating and cooling sleep system, priced at approximately $10,000 for queen and base set. This system caters to the discerning ultra-luxury consumer seeking cutting-edge sleep solutions, offering both active climate management and the benefits of Sleep Tracker AI.
Our third party retailers and our company-owned Tempur stores are reporting that the presence of this product on the showroom floors generates a halo effect propelling interest towards the top-tier offering of our Tempur lineup.
Although, still early in the rollout when bundled with additional products, the ACTIVEbreeze is driving some tickets upward of $20,000, while we anticipate modest sales volume for this ultra-premium product, it’s significant live in the elevating the brand perception and foreshadowing the future of bedding innovation.
Please note that even with challenges like reduced brick-and-mortar retail traffic our innovative products are driving momentum in the category.
Excluding the impact of floor models, our US average mattress sales prices across all brand products increased mid-single-digits and our attach rate increased double-digits year-over-year, demonstrating the consumers’ willingness to spend on innovative quality products designed to provide better night sleep.
New products are also building momentum in our International business. Our new product collection features consumer-centric innovation and an expanded price range that meets the needs of a broader spectrum of customers. In the first quarter, we executed the launch of our all-new Tempur mattresses bed bases and pillows in the UK and are now fully rolled out worldwide.
We also optimized the new Tempur mattress beds construction to facilitate a higher level of customization while streamlining the manufacturing process, allowing us to effectively meet the unique demands of consumers across various markets and channels.
Second highlight, we invested in compelling marketing to support our brands and products. We continue to be balanced with our media strategy focusing both on broad-based and targeted digital outlets to meet consumers throughout their purchase journey. In North America, we developed new creative design to drive consumers’ interest in the category and our recently launched Tempur products.
In the first quarter, we introduced a new ad focused on the Tempur-Pedic Ergo ProSmart base and its exclusive SoundScape mode feature, which delivers an immersive relaxation experience designed to help people who have trouble following sleep. These ads are already resonating with consumers in driving attach rate and ASP expansion for our retail partners.
In the second quarter, we continue to support these lineups with our new targeted TV spots and digital assets focused on illustrating how the Adapt collection provides a solution to one of the leading barriers to quality sleep, aches and pains. Our consumer research shows that these new assets are our highest scoring ads to-date and we’re excited to put this new content into the market.
We also continue to invest in advertising to support our Stearns & Foster products with engaging messages that reinforces the superior comfort, quality and craftsmanship is the hallmark of the brand for over 175 years.
As has been the case with our successful Tempur-Pedic advertising, our recent investments in Stearns & Foster have also been successful, helping the brand to achieve excessive year-over-year growth in consumer traffic to stearnsandfoster.com every year since we first introduced the television advertising in 2021.
And in 2023, helping the brand to achieve the industry’s highest year-over-year growth in Google Search. Internationally, we continue to increase our marketing investments to support the positive momentum of our recently launched new Tempur product range. Our creative assets highlight the many benefits of the latest generation of Tempur materials, covers all retail assortments and reaches all relevant media channels.
We continue to see positive results with uplift in awareness, share of search, web sessions and retail traffic. Our market intelligence reaffirms that we are outperforming the market in a challenging retail environment. We recently announced the signing of David Beckham as our newest brand ambassador, for our key markets in the high-growth Asia Pacific region. The campaign consists of television assets, content for our online channels and point-of-sale material for our own stores and retail partners. The campaign launched in March in Australia. We’ll also go log in our other Asia Pacific subsidiaries later this year, and we will host an event with David Beckham and key retail partners in China during the second quarter.
Our advertising efforts worldwide are designed to break through to consumers at all points in their purchase journey, driving near term sales, while also continuing to build long-term support for our brands. Our research shows that our brands continue to be top of mind for consumers seeking high-quality sleep solutions.
Third highlight, we continue to expand and optimize our diverse omni-channel distribution platform to meet the consumer wherever they want to shop. Our brands and private labels continue to gain traction in the Wholesale segment across existing and new distribution channels. In the first quarter, we expanded our OEM relationship with a large specialty betting retailer. And in April, we expanded our products into additional big-box stores with one of the largest U.S. bedding retailers.
Consumers are also engaging with our product through our company-owned stores and e-commerce presence. Our North American direct channel performance was solid in the quarter, delivering a robust 8% sales growth year-over-year driven by strength in our e-commerce business.
Finally, we continue to drive year-over-year improvements in costs through sourcing and operational efficiencies. During the quarter, our operations team focused on enhancing supply contracts, improving labor productivity and optimizing logistics. These efforts, combined with the impact of normalizing commodity prices resulted in a 270 basis point benefit to the North America first quarter adjusted gross margin and 130 basis point benefit to International’s first quarter adjusted gross margin.
Bhaskar Rao
Thank you, Scott. As mentioned, in the first quarter of 2024, consolidated sales were approximately $1.2 billion and adjusted earnings per share was $0.50. There are approximately $18 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with our planned acquisition of Mattress Firm.
Turning to North American results. Net sales declined 2% in the first quarter. On a reported basis, the wholesale channel declined 3% and the direct channel grew 8%. North American adjusted gross margin improved 160 basis points to 39.5% driven by commodities and operational efficiencies partially offset by changeover costs to support new OEM distribution and product launch costs. North American adjusted operating margin was consistent to the prior year at 15.3% driven by improvement in gross margin offset by investments in growth initiatives.
Now turning to international. International net sales were consistent year-over-year on a reported basis and declined 2% on a constant currency basis. As compared to the prior year, our International gross margin improved 140 basis points to 55.4% driven by commodities and operational efficiencies. Our International adjusted operating margin improved 20 basis points to 15.5% driven by the improvement in gross margin partially offset by investments in growth initiatives.
Scott Thompson
Thank you, Bhaskar. Before opening the call for questions, let me provide a brief update on our pending acquisition of Mattress Firm. As previously announced in the fourth quarter of 2023, we certified substantial completion with the Federal Trade Commission’s second request. We continue to work with the FTC to advance the transaction’s approval process and anticipate the FTC to complete its review in the second quarter.
As previously disclosed, we continue to expect the transaction to close in mid to late 2024. In connection with and contingent upon this acquisition, we are proactively pursuing a divestiture plan. We are also engaged with numerous Mattress Firm suppliers on post-merger supply agreements. I’m pleased to share that six of the seven suppliers, we’ve offered post-closing supply agreements, have successfully negotiated and executed a win-win agreement with us.
Lastly, a brief comment on Mattress Firm’s financial performance. Mattress Firm recently made their quarterly results available on their website. We encourage you to review Mattress Firm’s website for more information on their financial performance for the most recent quarter, which we believe was consistent to slightly ahead of the U.S. industry trends.
In summary, we’re making good progress on closing the proposed transaction and we look forward to joining with the Mattress Firm team.
Susan Maklari
Good morning. Scott I wanted to talk a little bit about how you’re thinking of the year coming together. I think coming into 2024 the expectation was that earnings in the first half would be driven more by margin recovery, while the top line was still perhaps a bit soft and then seeing some recovery in the volumes in the second half. I know you mentioned in your prepared remarks you continue to expect that.
I guess can you talk a bit about what gives you the confidence that we will see that second half improvement in the volume? And any thoughts on the puts and takes to how the earnings may come together as we move through the balance of the year now that we’re one quarter in?
Scott Thompson
Sure. Thank you for that very short and simple question. Look when we look at it, the first thing that you asked about the confidence in the back half, quite frankly the comps get easier. That’s probably one of the biggest things is with the comps in the back half are much easier than in the front half. Also, when we look at our products that have been launched, they’re resonating in the marketplace and they should have momentum, both from an international and a domestic standpoint. We also obviously had good margin performance this quarter. I expect that we’re going to have a positive gross margin performance throughout the year.
I guess the last thing I would kind of throw into your question is, if you look at the historical data and where the bedding industry is, I think everyone who had looked at that data and I’ll talk primarily about the US at this point that’s where the data is the easiest to look at is you’d have to say the bedding industry is in a depression and has been in one for a number of quarters. And so, it’s got to normalize at some point whether it’s this quarter or whether it’s a quarter out or two. There’s no reason to believe it wouldn’t normalize. There haven’t been any products or any changes or any structural changes and the need for mattresses. And we may be building up pent-up demand. I don’t know. It’s hard to always tell. But certainly, we’ve been bouncing around the bottom for a long time and it just seems very reasonable that we should begin to normalize into what I’d call relatively minor growth from an industry standpoint. And then quite frankly, even if the industry doesn’t deliver that growth as you know we’ve been a fairly robust market share gainer over a number of quarters. And we don’t see any reason why that won’t continue going into the back half of the year.
Peter Keith
All right. Good morning, everyone. Thank you. Just regarding the FTC decision, I guess I was curious on what gives you confidence on predicting the timing of that by the end of the second quarter?
Scott Thompson
Yeah. If you look at and this goes back to the original disclosure of the transaction and first of all let me say we’re on our original timeline, that we originally disclosed when we started this journey or gauntlet ever how you’d like to describe it.
And it’s based on, we’ve always said, look, if we need to go through litigation, we’ll go through litigation. And we’ve always kind of put that in the budget from a timing standpoint, because we’re very comfortable if that’s the road that we need to take.
We clearly have given the FTC additional time, because those conversations have been constructive and productive. We’re dealing with high-quality people, who are taking their job very seriously and learning more and more about the industry. And we think the more they learn about the industry, that’s more likely that we’ll have the meeting of the minds.
But there’s certainly, no guarantees and we’re certainly not finished yet. But the timing framework has always been we assumed that we would have litigation and win through litigation.
But I think the most important thing when we started the process was, it was important to do this what I’ll call right and get the right answer, as opposed to just maybe do it fast. And we’re using that principle as we work through with the FTC in all areas.
Operator
Thank you. And we will take our next question from Seth Basham with Wedbush.
Seth Basham
Thanks. Two-part questions, if you don’t mind. First a follow-up on your response regarding FTC, if we do need to litigate this do you still expect to be able to close the transaction this year? And then secondly, regarding your sales trends in the quarter, can you give us a little bit of perspective on the cadence and then how the second quarter started off? Thank you.
Scott Thompson
The answer to your first question is, yes. We still would expect to be able to close it within this calendar year. On cadence, I’m going to break up the cadence question in kind of two buckets which I don’t normally do. But this time, I think the two buckets kind of differed a little bit.
There is a cadence of sales at retail okay, call those end user sales. And then there’s a cadence of sales wholesale, on how we get orders. And as I think if you go back and listen to the fourth quarter earnings call in Jan, when we disclosed it last time, we were getting mixed messages.
So if you look at it from a retail perspective, end user there’s no question that January was a tough market in the U.S., so one because January was tough; and two because of weather. Then February was positive. And I think probably comped positive February over February and was obviously a holiday period.
And then I think March was down at retail. Then moving to the beginning of the second quarter, I would say that retail sales were flattish is what it feels like. Again, information is not too precise.
If you’re talking about our orders and our sales, we’ll call it wholesale, we were actually up in January and started the quarter slightly positive as I think probably retailers were stocking up in anticipation of President’s Day, then our orders kind of flattened out we’ll call it, in February as they kind of were working through the stock and they were slightly down in March and then have picked up and are flattish in April, again in a non-promotional period.
And although flat is not a word I particularly like, I like it better than down. I like things that are different than flat to go up. Actually flat in our orders, in a non-promotional period would be better than we’ve experienced over the last call it three or four quarters. Generally the trends have been during non-promotional periods, orders have been slightly negative and then they’ve been positive during promotional periods. So I don’t know if it’s a green shoot or not, but that’s the best information we have as of today.
April 30, 2024
HP Polymers Acquired
MILWAUKEE (April 30, 2024) – Platte River Equity (“Platte River”), a Denver-based private equity firm focused on aerospace, chemical, and industrial sectors, announced its portfolio company MFG Chemical (“MFG”), a specialty custom manufacturer of complex chemistries, has acquired H.P. Polymers (“HPP” or the “Company”).
Based in Puslinch, Ontario, HPP is an independent resin and polymers manufacturer for paints and coatings. The Company’s products are used in diverse end markets across North America including metal, wood, marine, specialty, and coil applications. The combined company will continue to provide its customers with advanced technologies, technical support, and customer service.
“H.P. Polymers has a rich legacy of being a value-added partner to its customers, and we are excited to leverage the broader capabilities available through MFG to continue to grow and support our customers,” said H.P. Polymers President, Darren VanNeck.
“We are thrilled to welcome the HPP team to MFG. The acquisition of H.P. Polymers represents a tremendous opportunity for MFG to expand its capabilities and product portfolio within the paint and coatings sector,” said MFG CEO, Paul Turgeon.
“Platte River is excited about the acquisition of HPP, MFG’s third in the past two years, and we believe that HPP will enhance MFG’s product offering and accelerate the combined company’s growth,” added Tarun Kanthety, Vice President of Platte River.
Grace Matthews, Inc. (“Grace Matthews”) served as financial advisor to H.P. Polymers on the transaction.
ABOUT H.P. POLYMERS
H.P. Polymers is a North American independent manufacturer of resin and polymer solutions for customers across the paint and coatings value chain based in Puslinch, Ontario. To learn more, visit https://www.hppolymers.com/.
April 17, 2024
Latest on Adnoc Covestro Dialogue
Covestro takeover by oil group Adnoc still up in the air
April 17, 2024 at 01:02 pm
Share
LEVERKUSEN (dpa-AFX) – Talks on a possible takeover of the chemicals group Covestro by Abu Dhabi National Oil (Adnoc) continue to drag on. “We are conducting these talks in a constructive and open-minded manner in accordance with our obligations under stock corporation law – and in the interests of our company, our shareholders and all other stakeholders,” said Covestro CEO Markus Steilemann on Wednesday at the Annual General Meeting of the DAX-listed company from Leverkusen. Key points relating to the talks with the oil company from the United Arab Emirates thus remain open.
Speculation about a deal arose almost a year ago. It was only in September that Covestro announced that it was in talks with Adnoc. After several rumored increases in the offer, an informal offer of just over EUR 60 per share has been in the air for some time. The Bloomberg news agency reported on this sum in February, citing people familiar with the matter. In total, this would be more than 11.3 billion euros.
Covestro shares initially benefited from speculation about interest from the golf group. In June 2023, its price jumped by around a quarter to around 50 euros. The bottom line is that not much has happened since then. Investors are concerned that the share price will fall again significantly if negotiations with the state-owned company fail, despite the recent slight improvement in the outlook for the chemical industry./mis/stw/jha/
April 4, 2024
Arsenal Exits Seal for Life Platform with Sale to Henkel
Arsenal Completes Sale of Seal For Life to Henkel
PR Newswire
Thu, Apr 4, 2024, 8:45 AM EDT3 min read
NEW YORK, April 4, 2024 /PRNewswire/ — Arsenal Capital Partners (“Arsenal”), a private equity firm that specializes in investments in industrial and healthcare companies, announced today it has sold its portfolio company, Seal For Life Industries LLC (“Seal For Life”), to Henkel AG & Co. KGaA (“Henkel”), a publicly traded German manufacturer of industrial and consumer products. The terms of the transaction were not disclosed.
Seal For Life is a specialized supplier of protective coating and sealing solutions for a broad variety of infrastructure markets such as renewable energy, oil & gas, and water. The company employs more than 650 people and has a global production network. Seal For Life offers innovative coating and sealing products such as heat-shrink sleeves, visco-elastic coatings, epoxy & urethane coatings, fire protection, insulation, and sound dampening coatings. The performance and application capabilities of these solutions, marketed under different industry-leading brands including STOPAQ®, CANUSA®, COVALENCE®, and LIFELAST®, are pioneering in the protection and retrofitting of a wide variety of customer infrastructure assets, including onshore and offshore pipelines, jetty piles, storage tanks, valves, flanges, and high- performance industrial flooring.
Arsenal completed its investment in Seal For Life in 2019 and through seven strategic acquisitions, built a global platform in innovative coating and sealing solutions for both existing and new build infrastructure assets. The company’s leading brands and technologies play a critical role in extending the asset life of aging infrastructure with a focus on sustainable materials. During Arsenal’s ownership, Seal For Life significantly invested in technology development and innovation as well as expanded its end market exposure with novel solutions into applications such as district energy and renewable applications for wind and solar infrastructure protection.
Sal Gagliardo, an Operating Partner of Arsenal, said, “We are delighted with the growth achieved during our ownership, with Seal For Life’s sales more than doubling and strengthening of the company’s global market position. Seal For Life’s team, led by Jeff Oravitz, achieved strong organic growth, completed and integrated complementary acquisitions, and created a best-in-class technology platform in the infrastructure coatings sector. We want to thank Jeff and the Seal For Life team for their efforts and leadership that drove to this successful outcome.”
Jeff Oravitz, CEO of Seal For Life, stated, “Arsenal has enabled the transformation of Seal For Life into a unique platform of coatings solutions. The firm brought significant expertise in technologies and applications that drove a focus on where the markets are going and how we can address the long-term trends. We are grateful to the Arsenal team for their partnership and support over the last five years and are excited for the growth opportunities as we join the Henkel organization.”
Roy Seroussi, an Investment Partner of Arsenal, commented, “Arsenal’s close collaboration with Jeff and the team and the success of the Seal For Life platform further strengthens Arsenal’s position as a leading investor and company builder in the coatings, adhesives, sealants, and elastomers sector. We wish the Seal For Life team and Henkel the very best in their future success.”
Arsenal is an active investor in the coatings, adhesives, sealants, and elastomers sector, with current investments including Applied Adhesives, ATP Tapes, Fenzi Group, Meridian Adhesives Group, Polycorp, and Polytek, and with several prior investments in this sector.
J.P. Morgan Securities LLC acted as financial advisor to Seal For Life and Kirkland & Ellis LLP served as legal counsel.
About Arsenal Capital Partners
Arsenal Capital Partners is a leading private equity firm that specializes in investments in industrial growth and healthcare companies. Since its inception in 2000, Arsenal has raised institutional equity investment funds totaling over $10 billion, completed more than 290 platform and add-on acquisitions, and achieved more than 35 realizations. The firm works with management teams to build strategically important companies with leading market positions, high growth, and high value-add. For more information, visit www.arsenalcapital.com.
https://finance.yahoo.com/news/arsenal-completes-sale-seal-life-124500648.html
March 18, 2024
Purple and Tempur Reach Agreement
PURPLE INNOVATION AND TEMPUR SEALY INTERNATIONAL REACH AGREEMENT
News provided by Purple Innovation, Inc.
12 Mar, 2024, 16:03 ET
Framework for Mattress Firm Partnership and Confirmation of Purple’s Patents
LEHI, Utah, March 12, 2024 /PRNewswire/ — Purple Innovation, Inc. (NASDAQ: PRPL) (“Purple” or the “Company”), a comfort innovation company known for creating the “World’s First No Pressure® Mattress,” today announced that it has entered into a settlement agreement with Tempur Sealy International, Inc. (“Tempur Sealy”). The parties have agreed to a post-acquisition framework for Purple’s partnership with Mattress Firm Inc. (“Mattress Firm”), the nation’s largest mattress specialty retailer, subject to FTC approval of TSI’s acquisition of Mattress Firm, and amicably resolved their various intellectual property disputes. Purple is pleased to reaffirm its valid patent and trademark rights in and to its proprietary Hyper-Elastic Polymer® gel material, the key component in Purple’s GelFlex® Grid.
If the FTC does not object to Tempur Sealy’s acquisition of Mattress Firm, Tempur Sealy agrees that Purple will retain its current relationship with Mattress Firm for a minimum of twelve months, versus the two-month commitment in place previously. According to Rob DeMartini, CEO of Purple Innovation:
“Mattress Firm is an important and respected partner. We believe our Purple brand and products bring a high number of unique consumers into Mattress Firm stores. We appreciate working on an even playing field today and want to continue to work collaboratively with Mattress Firm. This agreement will give us time to explore expansion opportunities.”
Purple and Tempur Sealy have also agreed to amicably resolve all differences regarding their various intellectual property disputes. Although the specific terms of the deal are confidential, Purple retains all control and ownership over its brand, its patented mattress technology and its Hyper-Elastic Polymer and GelFlex Grid marks. That the parties were able to resolve their differences is a strong signal to the marketplace that Purple is an innovator in hybrid mattress technology and deter future threats to Purple’s business. DeMartini adds:
“The marketplace’s interest in gel technology recognizes the strength of what makes Purple’s unmatched sleep innovation disruptive and cutting edge, and the best way of delivering deep, uninterrupted sleep. We are pleased to focus on expanding Purple’s business and bringing the many benefits of our GelFlex Grid to more customers.”
About Purple
Purple is a digitally native vertical brand with a mission to help people feel and live better through innovative comfort solutions. Today Purple markets and sells its products through direct-to-consumer online channels, traditional retail partners, third-party online retailers, and Purple-owned retail showrooms. Purple designs and manufactures a variety of innovative, premium, branded comfort products, including mattresses, pillows, cushions, frames, sheets and more. Its products are the result of over 30 years of innovation and investment in proprietary and patented comfort technologies and the development of our own manufacturing processes. Our proprietary gel technology, Hyper-Elastic Polymer®, underpins many of our comfort products and provides a range of benefits that differentiate our offerings from other competitors’ products. For more information on Purple, visit purple.com.
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