LEXINGTON, Ky., May 4, 2017 /PRNewswire/ — Tempur Sealy International, Inc. (NYSE: TPX) today announced financial results for the first quarter ended March 31, 2017. The Company also reaffirmed its financial guidance for the full year 2017.

KEY HIGHLIGHTS

FIRST QUARTER 2017 FINANCIAL SUMMARY

• Total net sales increased 0.2% to $722.1 million from $721.0 million in the first quarter of 2016. On a constant currency basis⁽¹⁾, total net sales increased 0.7%, with an increase of 0.1% in the North America business segment and an increase of 3.2% in the International business segment.
• Gross margin under U.S. generally accepted accounting principles (“GAAP”) was 39.7% as compared to 40.4% in the first quarter of 2016. Gross margin in the first quarter of 2017 included $11.5 million of charges associated with the termination of the relationship with Mattress Firm Inc. (“Mattress Firm”). Adjusted gross margin⁽¹⁾ was 41.3% as compared to 40.4% in the first quarter of 2016.
• GAAP operating income decreased 22.4% to $59.5 million as compared to $76.7 million in the first quarter of 2016. Operating income in the first quarter of 2017 included $25.9 million of net charges associated with the Mattress Firm termination. Adjusted operating income⁽¹⁾ increased $4.8 million to $85.4 million as compared to adjusted operating income of $80.6 million in the first quarter of 2016.
• GAAP net income decreased 14.4% to $33.9 million as compared to $39.6 million in the first quarter of 2016. Adjusted net income⁽¹⁾ increased 23.4% to $52.2 million as compared to adjusted net income of $42.3 million in the first quarter of 2016.
• Earnings before interest, tax, depreciation and amortization (“EBITDA”)⁽¹⁾ decreased 14.9% to $86.8 million as compared to $102.0 million for the first quarter of 2016. Adjusted EBITDA⁽¹⁾ increased 16.4% to $121.1 million as compared to adjusted EBITDA of $104.0 million in the first quarter of 2016. Adjusted EBITDA⁽¹⁾ excludes $34.3 million of charges related to the Mattress Firm termination. Please refer to additional discussion in the Business Segment Highlights below.
• GAAP earnings per diluted share (“EPS”) decreased 1.6% to $0.62 as compared to $0.63 in the first quarter of 2016. Adjusted EPS⁽¹⁾ increased 41.2% to $0.96 as compared to adjusted EPS of $0.68 in the first quarter of 2016.
• The Company ended the first quarter of 2017 with total debt of $1.9 billion and consolidated funded debt less qualified cash⁽¹⁾ of $1.9 billion. Leverage based on the ratio of consolidated funded debt less qualified cash to adjusted EBITDA⁽¹⁾ was 3.46 times for the trailing twelve months ended March 31, 2017 as compared to 3.18 times for the trailing twelve months ended March 31, 2016.

Tempur Sealy International, Inc. Chairman and CEO Scott Thompson commented, “This represents the eighth consecutive quarter of double-digit adjusted EPS growth. These solid first quarter results are a byproduct of the team’s focus on our long-term initiatives and the overall positive worldwide economy underlying the bedding industry. We are pleased with the progress of our new product launches around the world and the positive early market reactions.”

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 0.4% to $582.3 million from $580.0 million in the first quarter of 2016. On a constant currency basis⁽¹⁾, North America net sales increased 0.1%. GAAP gross margin was 36.8% as compared to 37.0% in the first quarter of 2016. GAAP operating margin was 8.8% as compared to 13.3% in the first quarter of 2016.

North America adjusted gross margin⁽¹⁾ improved 180 basis points to 38.8% as compared to adjusted gross margin of 37.0% in the first quarter of 2016. Gross margin improvements were primarily driven by productivity across our operations, lower floor model discounts, and channel mix, which were offset by brand mix. The increase in North America gross margin drove a 100 basis point increase in the Company’s North America adjusted operating margin⁽¹⁾ to 14.4% as compared to adjusted operating margin of 13.4% in the first quarter of 2016.

Charges associated with the Mattress Firm termination reflected in operating income were $32.4 million. Cost of sales included $11.5 million of charges related to the write-off of customer-unique inventory and product obligations. Operating expenses included $20.9 million of charges related to the write-off of customer incentives and marketing assets, as well as employee-related expenses.

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