Tempur Sealy Reports Fourth Quarter And Full Year 2014 Results

LEXINGTON, Ky., Feb. 5, 2015 /PRNewswire/ – Tempur Sealy International, Inc. TPX, -7.79% the world's largest bedding provider, today announced financial results for the fourth quarter and year ended December 31, 2014. The Company also issued financial guidance for 2015.

FOURTH QUARTER FINANCIAL SUMMARY

• Earnings per diluted share ("EPS") under U.S. generally accepted accounting principles ("GAAP") in the fourth quarter of 2014 were $0.75 compared to GAAP EPS of $0.44 in the fourth quarter of 2013. The 2014 results reflect integration costs, and certain non-recurring items, including financing costs and income from a partial settlement of a legal dispute. The 2013 results reflect integration costs, transaction costs and financing costs related to the Company's refinancing a portion of its senior secured credit facility.
• Adjusted EPS (which is a non-GAAP measure) increased 30% to $0.86 in the fourth quarter of 2014 as compared to adjusted EPS of $0.66 in the fourth quarter of 2013. Unfavorable foreign exchange impacted adjusted EPS by $0.06 in the fourth quarter of 2014 as compared to the fourth quarter of 2013. For additional information regarding adjusted EPS, adjusted net income and constant currency (which are non-GAAP measures), please refer to the reconciliations and other information included in the attached schedules.
• GAAP net income in the fourth quarter of 2014 was $46.6 million as compared to GAAP net income of $27.5 million for the fourth quarter of 2013. The Company reported adjusted net income of $53.2 million for the fourth quarter of 2014 as compared to adjusted net income of $41.1 million for the fourth quarter of 2013.
• Total net sales increased 9.9% to $745.5 million in the fourth quarter of 2014 from $678.1 million in the fourth quarter of 2013. On a constant currency basis, fourth quarter net sales increased 12.8%. The net sales increase was driven by growth in each of the Company's three business segments.
• Gross margin in the fourth quarter of 2014 was 39.5% as compared to 40.2% in the fourth quarter of 2013, with slightly lower margins in each of the Company's three business segments.
• Operating income in the fourth quarter of 2014 was $76.5 million as compared to $74.1 million in the fourth quarter of 2013. Operating income in the fourth quarter of 2014 included $18.9 million of integration costs related to the Sealy acquisition and $1.0 million of financing costs related to the October 2014 amendment to the Company's senior secured credit facility. The fourth quarter of 2013 included $8.2 million of transaction and integration costs related to the Sealy acquisition.
• EBITDA for the fourth quarter of 2014 was $112.0 million as compared to $97.4 million for the fourth quarter of 2013. Adjusted EBITDA (this and EBITDA are non-GAAP measures) for the fourth quarter of 2014 was $116.0 million as compared to $104.2 million for the fourth quarter of 2013.
• The Company ended the quarter with consolidated funded debt less qualified cash of $1.6 billion. The ratio of consolidated funded debt less qualified cash to adjusted EBITDA was 3.89 times, calculated in accordance with the Company's senior secured credit facility. For additional information regarding EBITDA, adjusted EBITDA and consolidated funded debt less qualified cash (which are non-GAAP measures) please refer to the reconciliations and other information included in the attached schedules.

Tempur Sealy International, Inc. CEO Mark Sarvary commented, "In 2014 strong sales growth was driven by new products and effective marketing, particularly in the US, and we broadened our distribution throughout the world. We generated operating cash flow of $225 million and significantly reduced our total debt. We are confident that 2015 will be another year of solid sales and earnings growth, although unfavorable foreign exchange will be even more significant in 2015 than it was in 2014."

FULL YEAR FINANCIAL SUMMARY

• GAAP EPS for the full year 2014 was $1.75 compared to GAAP EPS of $1.28 for the full year 2013. The 2014 results reflect a loss on the disposal of the Sealy innerspring component facilities, integration costs associated with the continued alignment of the business, and certain non-recurring items, including financing costs and income from a partial settlement of a legal dispute. The 2013 results include results for Sealy from March 18, 2013, the acquisition date, and also reflect transaction and integration costs related to the acquisition of Sealy, financing costs related to the Company's refinancing of its Term A and Term B loans under its senior secured credit facility, as well as tax provision adjustments related to the repatriation of foreign earnings utilized in connection with the Sealy acquisition.
• Adjusted EPS was $2.65 for the full year 2014 as compared to adjusted EPS of $2.38 for the full year 2013. Unfavorable foreign exchange impacted adjusted EPS by $0.15 for the full year 2014 as compared to the full year 2013.
• GAAP net income for the full year 2014 was $108.9 million as compared to GAAP net income of $78.6 million for the full year 2013. The Company reported adjusted net income of $164.6 million for the full year 2014 as compared to adjusted net income of $146.4 million for the full year 2013. For additional information regarding adjusted EPS, adjusted net income and constant currency (which are non-GAAP measures), please refer to the reconciliations and other information included in the attached schedules.
• Total net sales increased 21.3% to $2.990 billion for the full year 2014 from $2.464 billion for the full year 2013. On a constant currency basis, net sales for the full year 2014 increased 23.0%. The net sales increase was driven by Sealy's results being reflected for the full year ended December 31, 2014 as compared to the post-acquisition period of March 18, 2013 through December 31, 2013, as well as growth in each of the Company's three business segments.
• Gross margin for the full year 2014 was 38.5% as compared to 41.2% for the full year 2013. The gross margin decreased primarily as a result of lower gross margins in each of the Company's three business segments, and the inclusion of Sealy, which has lower margins than the Tempur North America and Tempur International segments, for the full year ended December 31, 2014 as compared to the post-acquisition period of March 18, 2013 through December 31, 2013.
• Operating income for the full year 2014 was $276.3 million as compared to $243.8 million for the full year 2013. Operating income for the full year 2014 and 2013 included $43.8 million of integration and financing costs and $44.6 million of integration and transaction costs related to the Sealy acquisition, respectively.
• Operating cash flow for the year ended December 31, 2014 was $225.2 million. In 2014, the Company reduced total debt by $234.2 million.

Business Segment Highlights

The Company's business segments include Tempur North America, Tempur International, and Sealy. The Company's "Bedding" product sales include mattresses, foundations, and adjustable foundations and "Other products" include pillows and various other comfort products and components.

Tempur North America net sales increased 16.0% to $262.3 million in the fourth quarter of 2014 from $226.2 million in the fourth quarter of 2013. Bedding net sales increased 18.4% to $243.5 million in the fourth quarter of 2014 from $205.7 million in the fourth quarter of 2013. Net sales of Other products decreased 8.3% to $18.8 million from $20.5 million in the fourth quarter of 2013. Tempur North America's operating margin improved year-over-year, driven by operating expense leverage on higher sales.

Tempur International net sales increased 3.3% to $122.3 million in the fourth quarter of 2014 from $118.4 million in the fourth quarter of 2013. Bedding net sales increased 6.0% to $93.3 million in the fourth quarter of 2014 from $88.0 million in the fourth quarter of 2013. Net sales of Other products decreased 4.6% to $29.0 million in the fourth quarter of 2014 from $30.4 million in the fourth quarter of 2013. Tempur International's operating margin declined year-over-year due to a decline in gross margin and higher operating expenses primarily related to startup costs associated with the introduction of Sealy products in Europe.

Sealy net sales increased 8.2% to $360.9 million in the fourth quarter of 2014 from $333.5 million in the fourth quarter of 2013. Bedding net sales increased 11.7% to $341.0 million in the fourth quarter of 2014 from $305.3 million in the fourth quarter of 2013. Net sales of Other products decreased 29.4% to $19.9 million in the fourth quarter of 2014 from $28.2 million in the fourth quarter of 2013. Sealy's operating margin declined slightly year-over-year due primarily to a slight decline in gross margin.

Financial Guidance

The Company issued full year 2015 guidance for net sales and adjusted EPS.

The Company currently expects the following for 2015:

• Net sales to range from $3.050 billion to $3.150 billion
• Adjusted EPS to range from $2.70 to $3.10 per diluted share.

Chief Financial Officer Dale Williams commented, "Our full year 2015 net sales guidance range assumes growth of approximately 2% to 5% compared to the full year 2014. We expect our adjusted EPS to increase 2% to 17% driven by a slight improvement in operating margin, partially offset by unfavorable foreign exchange. Based on currency rates as of January 31, 2015, foreign exchange is expected to have a negative net sales impact of approximately 3.5% and negative earnings impact of $0.27 per share for the full year 2015."

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