- Consolidated Sales Decreased 5.5%, Direct
Channel Sales Increased 8.1%
- Reports EPS of $0.75 and Adjusted EPS(1) of
$0.78
- Declares Fourth Quarter Dividend of
$0.10 per share
LEXINGTON, Ky., Nov. 3, 2022
/PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX)
announced financial results for the third quarter
ended September 30, 2022. The Company also issued updated
financial guidance for the full year 2022.
THIRD QUARTER 2022 FINANCIAL
SUMMARY
- Total net sales decreased 5.5% to $1,283.3 million as compared to $1,358.3 million in the third quarter of 2021. On
a constant currency basis(1), total net sales decreased
3.1%, with a decrease of 5.4% in the North America business segment and an increase
of 7.4% in the International business segment.
- Gross margin was 42.2% as compared to 42.5% in the third
quarter of 2021. Adjusted gross margin(1) was 42.5% in
the third quarter of 2022. There were no adjustments to gross
margin in the third quarter of 2021.
- Operating income decreased 19.5% to $201.0 million as compared to $249.8 million in the third quarter of 2021.
Adjusted operating income(1) was $206.7 million as compared to $252.1 million in the third quarter of 2021.
- Net income decreased 25.2% to $132.7
million as compared to $177.4
million in the third quarter of 2021. Adjusted net
income(1) decreased 23.3% to $137.8 million as compared to $179.6 million in the third quarter of 2021.
- Earnings before interest, tax, depreciation and amortization
("EBITDA")(1) decreased 16.9% to $245.4 million as compared to $295.2 million in the third quarter of 2021.
Adjusted EBITDA(1) decreased 15.4% to $251.9 million as compared to $297.6 million in the third quarter of 2021.
- Earnings per diluted share ("EPS") decreased 13.8% to
$0.75 as compared to $0.87 in the third quarter of 2021. Adjusted
EPS(1) decreased 11.4% to $0.78 as compared to $0.88 in the third quarter of 2021.
KEY HIGHLIGHTS
|
(in millions, except
percentages and per common share amounts)
|
Three Months
Ended
|
|
% Reported
Change
|
September 30,
2022
|
|
September 30,
2021
|
Net sales
|
$
1,283.3
|
|
$
1,358.3
|
|
(5.5) %
|
Net income
|
$
132.7
|
|
$
177.4
|
|
(25.2) %
|
Adjusted net income
(1)
|
$
137.8
|
|
$
179.6
|
|
(23.3) %
|
EPS
|
$
0.75
|
|
$
0.87
|
|
(13.8) %
|
Adjusted EPS
(1)
|
$
0.78
|
|
$
0.88
|
|
(11.4) %
|
Company Chairman and CEO Scott
Thompson commented, "Our third quarter results demonstrate
the continued strength of our business model and industry-leading
products, as they mitigated the unfavorable foreign exchange
dynamic and overall challenging operating environment in the
quarter. We performed largely in-line with our expectations while
working through these headwinds. Over the last couple quarters, we
have extended some capital project timelines, and trimmed around
the edges, cutting back on expected hiring and expenses. Going
forward, we will keep the current operating environment in mind as
we drive our competitive advantages to outperform the global
bedding market and position ourselves well for the market's
eventual normalization."
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 5.6% to $1,057.7 million as
compared to $1,120.0 million in
the third quarter of 2021. On a constant currency
basis(1), North America
net sales decreased 5.4% as compared to
the third quarter of 2021. Gross margin was 39.8% as
compared to 39.9% in the third quarter of 2021. Adjusted gross
margin(1) was 40.2% in the third quarter of 2022. There
were no adjustments to gross margin in the third quarter of 2021.
Operating margin was 19.4% as compared to 21.2% in the third
quarter of 2021. Adjusted operating margin(1) was 19.8%
in the third quarter of 2022. There were no adjustments to
operating margin in the third quarter of 2021.
North America net sales through
the wholesale channel decreased $73.1
million, or 7.4%, to $918.1
million, as compared to the third quarter of 2021, primarily
driven by macroeconomic pressures impacting U.S. consumer behavior.
North America net sales through
the direct channel increased $10.8
million, or 8.4%, to $139.6
million, as compared to the third quarter of
2021.
North America adjusted gross
margin(1) improved 30 basis points as compared to gross
margin in the third quarter of 2021. The improvement
was primarily driven by pricing actions to offset commodity
inflation and favorable brand mix, partially offset by operational
investments to service our customers. North America adjusted operating
margin(1) declined 140 basis points as compared to
operating margin in the third quarter of 2021. The decline was
primarily driven by advertising investments and operating expense
deleverage partially offset by the improvement in gross margin.
International net
sales decreased 5.3% to $225.6 million as compared to $238.3
million in the third quarter of 2021. On a constant
currency basis(1), International net sales increased
7.4% as compared to the third quarter of 2021. Gross margin was
53.4% as compared to 54.6% in the third quarter of 2021. Operating
margin was 14.5% as compared to 21.1% in the third quarter of 2021.
Adjusted operating margin(1) was 14.7% as compared to
22.1% in the third quarter of 2021.
International net sales through the wholesale channel decreased
$22.9 million, or 21.2%, to
$85.1 million as compared to the
third quarter of 2021. International net sales through the direct
channel increased $10.2 million, or
7.8%, to $140.5 million as compared
to the third quarter of 2021. In the third quarter of 2022,
International net sales decreased $30
million due to unfavorable foreign exchange.
International gross margin declined 120 basis points as compared
to the third quarter of 2021. The decline was primarily driven by
the acquisition of Dreams driving unfavorable mix, and foreign
currency exchange rates. Dreams' margin profile is lower than our
historical International margins as they sell a variety of products
across a range of price points. International adjusted operating
margin(1) declined 740 basis points as compared to the
third quarter of 2021. The decline was primarily driven by
operating expense deleverage, the decline in gross margin, and
Asia joint venture performance due
to COVID-19 related shutdowns.
Corporate operating expense was $36.6 million, consistent with the third quarter
of 2021.
Consolidated net income decreased 25.2% to $132.7 million as compared to $177.4 million in the third quarter
of 2021. Adjusted net income(1) decreased
23.3% to $137.8 million as
compared to $179.6 million in the
third quarter of 2021. EPS decreased 13.8% to $0.75 as compared to $0.87 in the third quarter
of 2021. Adjusted EPS(1) decreased 11.4% to
$0.78 as compared to $0.88 in the third quarter of 2021.
The Company ended the third quarter of 2022 with total debt of
$2.8 billion and consolidated
indebtedness less netted cash(1) of $2.7 billion.
Leverage based on the ratio of consolidated indebtedness less
netted cash(1) to adjusted
EBITDA(1) was 2.77 times for the trailing
twelve months ended September 30, 2022.
During the third quarter of 2022, the Company repurchased 1.0
million shares of its common stock for a total cost of
$25.2 million. Over the last twelve
months, the Company has repurchased 24.1 million shares of its
common stock for a total cost of $887.7
million. As of September 30, 2022, the Company had
approximately $809.5 million
available under its existing share repurchase authorization.
Additionally, today the Company announced that its Board of
Directors declared a quarterly cash dividend of $0.10 per share, payable on December 1,
2022, to shareholders of record at the close of business on
November 17, 2022.
Company Chairman and CEO Scott
Thompson commented, "Overall, we are pleased with both our
quarterly results and the progress we have made on our long-term
initiatives, against an evolving macroeconomic backdrop. We enter
this complex macro period with retailers generally in good shape, a
strong competitive position, and new innovative products to launch.
We are watching macro developments closely and adjusting to the
market conditions, while staying aggressive and on strategy."
Financial Guidance
The Company has updated its earnings guidance for the full year
2022 and currently expects an adjusted
EPS(1) range of $2.50 to $2.60. This contemplates the Company's current
outlook for full year 2022 consolidated sales to be flat to prior
year.
The Company noted that its expectations are based on information
available at the time of this release, and are subject to changing
conditions and risks, many of which are outside the Company's
control.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference
call to discuss financial results today, November 3, 2022, at
8:00 a.m. Eastern Time. The call will
be webcast and can be accessed on the Company's investor relations
website at investor.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 gross profit, adjusted
gross margin, adjusted operating income (expense), adjusted
operating margin, consolidated indebtedness and consolidated
indebtedness less netted 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.
The Company is unable to reconcile forward–looking
adjusted EPS, a non–GAAP financial measure, to EPS, 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 EPS in 2022.
Forward-Looking Statements
This press release contains statements that may be characterized
as "forward-looking," within the meaning of the federal securities
laws. Such statements might include information concerning one or
more of the Company's plans, guidance, objectives, goals,
strategies, and other information that is not historical
information. When used in this release, the words "assumes,"
"estimates," "expects," "guidance," "anticipates," "might,"
"projects," "plans," "proposed," "targets," "intends," "believes,"
"will" 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 quarterly cash dividend, the Company's
share repurchase targets, the Company's expectations regarding
supply chain disruptions, geopolitical events including the war in
Ukraine, the macroeconomic
environment, foreign exchange rates and fluctuations in such
rates, COVID-19 related disruptions, net sales for 2022,
EBITDA and Adjusted EBITDA for 2022, and EPS and Adjusted EPS for
2022 and subsequent periods and the Company's expectations for
increasing sales growth, product launches, expected hiring and
advertising, capital project timelines, channel growth,
acquisitions and commodities outlook. 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, meet its guidance, 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 herein as forward-looking statements. These
potential risks include the factors discussed in the Company's
Annual Report on Form 10-K for the year ended December 31,
2021 and in the Company's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 2022,
June 30, 2022, and September 30, 2022. 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 is committed to improving the sleep of more people,
every night, all around the world. As a leading designer,
manufacturer, distributor and retailer of bedding products
worldwide, we know how crucial a good night of sleep is to overall
health and wellness. Utilizing over a century of knowledge and
industry-leading innovation, we deliver award-winning products that
provide breakthrough sleep solutions to consumers in over 100
countries.
Our highly recognized brands include Tempur-Pedic®, Sealy® and
Stearns & Foster® and our popular non-branded offerings consist
of value-focused private label and OEM products. At Tempur Sealy we
understand the importance of meeting our customers wherever and
however they want to shop and have developed a powerful
omni-channel retail strategy. Our products allow for complementary
merchandising strategies and are sold through third-party
retailers, our 650+ Company-owned stores worldwide and our
e-commerce channels. With the range of our offerings and
variety of purchasing options, we are dedicated to continuing to
turn our mission to improve the sleep of more people, every night,
all around the world into a reality.
Importantly, we are committed to carrying out our global
responsibility to protect the environment and the communities in
which we operate. As part of that commitment, we have established
the goal of achieving carbon neutrality for our global wholly owned
operations by 2040.
Investor Relations Contact:
Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com
(1) This is a non-GAAP financial measure. Please refer to
"Non-GAAP Financial Measures and Constant Currency Information"
below.
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 %
|
|
2022
|
|
2021
|
|
|
|
2022
|
|
2021
|
|
|
Net sales
|
$ 1,283.3
|
|
$ 1,358.3
|
|
(5.5) %
|
|
$ 3,733.8
|
|
$ 3,571.2
|
|
4.6 %
|
Cost of
sales
|
742.2
|
|
781.2
|
|
|
|
2,173.4
|
|
2,017.0
|
|
|
Gross profit
|
541.1
|
|
577.1
|
|
(6.2) %
|
|
1,560.4
|
|
1,554.2
|
|
0.4 %
|
Selling and marketing
expenses
|
248.3
|
|
243.8
|
|
|
|
744.7
|
|
658.3
|
|
|
General, administrative
and other expenses
|
96.7
|
|
90.3
|
|
|
|
296.6
|
|
254.9
|
|
|
Equity income in
earnings of unconsolidated affiliates
|
(4.9)
|
|
(6.8)
|
|
|
|
(14.4)
|
|
(20.5)
|
|
|
Operating
income
|
201.0
|
|
249.8
|
|
(19.5) %
|
|
533.5
|
|
661.5
|
|
(19.3) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Other expense,
net:
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense,
net
|
26.8
|
|
13.5
|
|
|
|
71.4
|
|
45.8
|
|
|
Loss on extinguishment
of debt
|
—
|
|
—
|
|
|
|
—
|
|
23.0
|
|
|
Other (income)
expense, net
|
(0.9)
|
|
0.1
|
|
|
|
(1.5)
|
|
(0.3)
|
|
|
Total other expense,
net
|
25.9
|
|
13.6
|
|
|
|
69.9
|
|
68.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing
operations before income taxes
|
175.1
|
|
236.2
|
|
(25.9) %
|
|
463.6
|
|
593.0
|
|
(21.8) %
|
Income tax
provision
|
(41.1)
|
|
(58.7)
|
|
|
|
(107.5)
|
|
(143.9)
|
|
|
Income from continuing
operations
|
134.0
|
|
177.5
|
|
(24.5) %
|
|
356.1
|
|
449.1
|
|
(20.7) %
|
Loss from discontinued
operations, net of tax
|
(0.8)
|
|
(0.1)
|
|
|
|
(0.8)
|
|
(0.6)
|
|
|
Net income before
non-controlling interests
|
133.2
|
|
177.4
|
|
(24.9) %
|
|
355.3
|
|
448.5
|
|
(20.8) %
|
Less: Net income (loss)
attributable to non-controlling interests
|
0.5
|
|
—
|
|
|
|
1.3
|
|
(0.2)
|
|
|
Net income attributable
to Tempur Sealy International, Inc.
|
$
132.7
|
|
$
177.4
|
|
(25.2) %
|
|
$
354.0
|
|
$
448.7
|
|
(21.1) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for
continuing operations
|
$
0.78
|
|
$
0.91
|
|
|
|
$
2.01
|
|
$
2.26
|
|
|
Loss per share for
discontinued operations
|
(0.01)
|
|
—
|
|
|
|
—
|
|
—
|
|
|
Earnings per
share
|
$
0.77
|
|
$
0.91
|
|
(15.4) %
|
|
$
2.01
|
|
$
2.26
|
|
(11.1) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for
continuing operations
|
$
0.75
|
|
$
0.87
|
|
|
|
$
1.95
|
|
$
2.18
|
|
|
Loss per share for
discontinued operations
|
—
|
|
—
|
|
|
|
—
|
|
—
|
|
|
Earnings per
share
|
$
0.75
|
|
$
0.87
|
|
(13.8) %
|
|
$
1.95
|
|
$
2.18
|
|
(10.6) %
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
171.9
|
|
195.8
|
|
|
|
176.2
|
|
198.9
|
|
|
Diluted
|
177.0
|
|
203.4
|
|
|
|
181.5
|
|
205.9
|
|
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Balance Sheets
(in
millions)
|
|
|
September 30,
2022
|
|
December 31,
2021
|
ASSETS
|
(unaudited)
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash and cash
equivalents
|
$
94.1
|
|
$
300.7
|
Accounts receivable,
net
|
488.2
|
|
419.5
|
Inventories
|
599.0
|
|
463.9
|
Prepaid expenses and
other current assets
|
95.1
|
|
91.5
|
Total Current
Assets
|
1,276.4
|
|
1,275.6
|
Property, plant and
equipment, net
|
727.3
|
|
583.5
|
Goodwill
|
1,032.3
|
|
1,107.4
|
Other intangible
assets, net
|
708.9
|
|
750.9
|
Operating lease
right-of-use assets
|
490.0
|
|
480.6
|
Deferred income
taxes
|
11.8
|
|
13.6
|
Other non-current
assets
|
105.0
|
|
111.8
|
Total Assets
|
$
4,351.7
|
|
$
4,323.4
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS' (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
payable
|
$
440.2
|
|
$
432.0
|
Accrued expenses and
other current liabilities
|
545.8
|
|
558.5
|
Current portion of
long-term debt
|
71.8
|
|
53.0
|
Income taxes
payable
|
20.1
|
|
9.9
|
Total Current
Liabilities
|
1,077.9
|
|
1,053.4
|
Long-term debt,
net
|
2,731.4
|
|
2,278.5
|
Long-term operating
lease obligations
|
440.7
|
|
427.0
|
Deferred income
taxes
|
112.7
|
|
129.2
|
Other non-current
liabilities
|
132.3
|
|
140.3
|
Total
Liabilities
|
4,495.0
|
|
4,028.4
|
|
|
|
|
Redeemable
non-controlling interest
|
9.3
|
|
9.2
|
|
|
|
|
Total Stockholders'
(Deficit) Equity
|
(152.6)
|
|
285.8
|
Total Liabilities,
Redeemable Non-Controlling Interest and Stockholders' (Deficit)
Equity
|
$
4,351.7
|
|
$
4,323.4
|
TEMPUR SEALY
INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed
Consolidated Statements of Cash Flows
(in
millions)
(unaudited)
|
|
|
Nine Months
Ended
|
|
September
30,
|
|
2022
|
|
2021
|
CASH FLOWS FROM
OPERATING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Net income before
non-controlling interests
|
$
355.3
|
|
$
448.5
|
Loss from discontinued
operations, net of tax
|
0.8
|
|
0.6
|
Adjustments to
reconcile net income from continuing operations to net cash
provided by operating activities:
|
|
|
|
Depreciation and
amortization
|
93.3
|
|
82.5
|
Amortization of
stock-based compensation
|
39.1
|
|
46.3
|
Amortization of
deferred financing costs
|
2.9
|
|
1.9
|
Bad debt
expense
|
5.2
|
|
2.4
|
Deferred income
taxes
|
(9.9)
|
|
2.0
|
Dividends received
from unconsolidated affiliates
|
20.8
|
|
18.2
|
Equity income in
earnings of unconsolidated affiliates
|
(14.4)
|
|
(20.5)
|
Loss on extinguishment
of debt
|
—
|
|
3.0
|
Foreign currency
adjustments and other
|
(1.6)
|
|
1.0
|
Changes in operating
assets and liabilities, net of effect of business
acquisitions
|
(208.0)
|
|
11.6
|
Net cash provided by
operating activities from continuing operations
|
283.5
|
|
597.5
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Purchases of property,
plant and equipment
|
(216.0)
|
|
(82.1)
|
Acquisitions, net of
cash acquired
|
—
|
|
(426.0)
|
Other
|
(8.8)
|
|
0.1
|
Net cash used in
investing activities from continuing operations
|
(224.8)
|
|
(508.0)
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES FROM CONTINUING OPERATIONS:
|
|
|
|
Proceeds from
borrowings under long-term debt obligations
|
1,904.3
|
|
3,664.2
|
Repayments of
borrowings under long-term debt obligations
|
(1,435.5)
|
|
(2,675.8)
|
Proceeds from exercise
of stock options
|
0.3
|
|
14.4
|
Treasury stock
repurchased
|
(637.2)
|
|
(565.8)
|
Dividends
paid
|
(53.4)
|
|
(45.8)
|
Payments of deferred
financing costs
|
—
|
|
(25.3)
|
Repayments of finance
lease obligations and other
|
(12.6)
|
|
(9.5)
|
Net cash (used in)
provided by financing activities from continuing
operations
|
(234.1)
|
|
356.4
|
|
|
|
|
Net cash (used in)
provided by continuing operations
|
(175.4)
|
|
445.9
|
|
|
|
|
Net operating cash
flows used in discontinued operations
|
(0.8)
|
|
(0.8)
|
|
|
|
|
NET EFFECT OF EXCHANGE
RATE CHANGES ON CASH AND CASH EQUIVALENTS
|
(30.4)
|
|
(6.8)
|
(Decrease) increase in
cash and cash equivalents
|
(206.6)
|
|
438.3
|
CASH AND CASH
EQUIVALENTS, beginning of period
|
300.7
|
|
65.0
|
CASH AND CASH
EQUIVALENTS, end of period
|
$
94.1
|
|
$
503.3
|
Summary of Channel Sales
The following table highlights net sales information, by channel
and by business segment, for the three months
ended September 30, 2022 and 2021:
|
Three Months Ended
September 30,
|
(in
millions)
|
Consolidated
|
|
North
America
|
|
International
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
|
2022
|
|
2021
|
Wholesale
(a)
|
$
1,003.2
|
|
$
1,099.2
|
|
$
918.1
|
|
$
991.2
|
|
$
85.1
|
|
$
108.0
|
Direct
(b)
|
280.1
|
|
259.1
|
|
139.6
|
|
128.8
|
|
140.5
|
|
130.3
|
|
$
1,283.3
|
|
$
1,358.3
|
|
$
1,057.7
|
|
$
1,120.0
|
|
$
225.6
|
|
$
238.3
|
|
|
(a)
|
The Wholesale channel
includes all third party retailers, including third party
distribution, hospitality and healthcare.
|
(b)
|
The Direct channel
includes company-owned stores, online 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 indebtedness and consolidated
indebtedness less netted cash, which are not recognized terms under
GAAP and do not purport to be alternatives to net income, earnings
per share, or an alternative to total debt as a measure of
liquidity. 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, gross profit, gross
margin, operating income (expense) and operating margin. 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 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 reported net income to adjusted net income
and the calculation of adjusted EPS is 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 net income to adjusted net income and the
calculation of adjusted EPS for the three months
ended September 30, 2022 and 2021:
|
Three Months
Ended
|
(in millions, except
per share amounts)
|
September 30,
2022
|
|
September 30,
2021
|
Net income
|
$
132.7
|
|
$
177.4
|
Loss from discontinued
operations, net of tax (1)
|
0.8
|
|
0.1
|
ERP system transition
(2)
|
2.7
|
|
—
|
Operational start-up
costs (3)
|
1.8
|
|
—
|
Restructuring costs
(4)
|
1.2
|
|
—
|
Acquisition-related
costs (5)
|
—
|
|
2.3
|
Adjusted income tax
provision (6)
|
(1.4)
|
|
(0.2)
|
Adjusted net
income
|
$
137.8
|
|
$
179.6
|
|
|
|
|
Adjusted earnings per
common share, diluted
|
$
0.78
|
|
$
0.88
|
|
|
|
|
Diluted shares
outstanding
|
177.0
|
|
203.4
|
Adjusted Gross Profit, Adjusted Gross Margin, Adjusted
Operating Income (Expense) and Adjusted Operating Margin
A reconciliation of gross profit and gross margin to adjusted
gross profit and adjusted gross margin, respectively, and operating
income (expense) and operating margin to adjusted operating income
(expense) and adjusted 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 gross profit and operating income (expense) to
the calculation of adjusted gross profit and adjusted operating
income (expense) for the three months ended September 30,
2022.
|
3Q
2022
|
(in millions, except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
1,283.3
|
|
|
|
$
1,057.7
|
|
|
|
$
225.6
|
|
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
541.1
|
|
42.2 %
|
|
$
420.7
|
|
39.8 %
|
|
$
120.4
|
|
53.4 %
|
|
$
—
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ERP system transition
(2)
|
2.3
|
|
|
|
2.3
|
|
|
|
—
|
|
|
|
—
|
Operational start-up
costs (3)
|
1.7
|
|
|
|
1.7
|
|
|
|
—
|
|
|
|
—
|
Total
adjustments
|
4.0
|
|
|
|
4.0
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross
profit
|
$
545.1
|
|
42.5 %
|
|
$
424.7
|
|
40.2 %
|
|
$
120.4
|
|
53.4 %
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
201.0
|
|
15.7 %
|
|
$
205.0
|
|
19.4 %
|
|
$
32.6
|
|
14.5 %
|
|
$
(36.6)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ERP system transition
(2)
|
2.7
|
|
|
|
2.7
|
|
|
|
—
|
|
|
|
—
|
Operational start-up
costs (3)
|
1.8
|
|
|
|
1.8
|
|
|
|
—
|
|
|
|
—
|
Restructuring costs
(4)
|
1.2
|
|
|
|
—
|
|
|
|
0.6
|
|
|
|
0.6
|
Total
adjustments
|
5.7
|
|
|
|
4.5
|
|
|
|
0.6
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating
income (expense)
|
$
206.7
|
|
16.1 %
|
|
$
209.5
|
|
19.8 %
|
|
$
33.2
|
|
14.7 %
|
|
$
(36.0)
|
The following table sets forth the Company's reported gross
profit and the reconciliation of the Company's operating income
(expense) to the calculation of adjusted operating income (expense)
for the three months ended September 30, 2021. The Company had
no adjustments to gross profit for the three months ended
September 30, 2021.
|
3Q
2021
|
(in millions, except
percentages)
|
Consolidated
|
|
Margin
|
|
North
America
|
|
Margin
|
|
International
|
|
Margin
|
|
Corporate
|
Net sales
|
$
1,358.3
|
|
|
|
$
1,120.0
|
|
|
|
$
238.3
|
|
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
$
577.1
|
|
42.5 %
|
|
$
447.1
|
|
39.9 %
|
|
$
130.0
|
|
54.6 %
|
|
$
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
(expense)
|
$
249.8
|
|
18.4 %
|
|
$
237.0
|
|
21.2 %
|
|
$
50.3
|
|
21.1 %
|
|
$
(37.5)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related
costs (5)
|
2.3
|
|
|
|
—
|
|
|
|
2.3
|
|
|
|
—
|
Adjusted operating
income (expense)
|
$
252.1
|
|
18.6 %
|
|
$
237.0
|
|
21.2 %
|
|
$
52.6
|
|
22.1 %
|
|
$
(37.5)
|
EBITDA, Adjusted EBITDA and Consolidated Indebtedness less
Netted Cash
The following reconciliations are provided below:
- Net income to EBITDA and adjusted EBITDA
- Ratio of consolidated indebtedness less netted cash to adjusted
EBITDA
- Total debt, net to consolidated indebtedness less netted
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 leverage.
The Company's credit agreement (the "2019 Credit Agreement")
provides the definition of adjusted EBITDA. Accordingly, the
Company presents adjusted EBITDA to provide information regarding
the Company's compliance with requirements under the 2019 Credit
Agreement.
The following table sets forth the reconciliation of the
Company's reported net income to the calculations of EBITDA and
adjusted EBITDA for the three months ended September 30,
2022 and 2021:
|
Three Months
Ended
|
(in
millions)
|
September 30,
2022
|
|
September 30,
2021
|
Net income
|
$
132.7
|
|
$
177.4
|
Interest expense,
net
|
26.8
|
|
13.5
|
Income
taxes
|
41.1
|
|
58.7
|
Depreciation and
amortization
|
44.8
|
|
45.6
|
EBITDA
|
$
245.4
|
|
$
295.2
|
Adjustments:
|
|
|
|
Loss from discontinued
operations, net of tax (1)
|
0.8
|
|
0.1
|
ERP system transition
(2)
|
2.7
|
|
—
|
Operational start-up
costs (3)
|
1.8
|
|
—
|
Restructuring costs
(4)
|
1.2
|
|
—
|
Acquisition-related
costs (5)
|
—
|
|
2.3
|
Adjusted
EBITDA
|
$
251.9
|
|
$
297.6
|
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,
2022:
|
Trailing Twelve
Months Ended
|
(in
millions)
|
September 30,
2022
|
Net income
|
$
529.8
|
Interest expense,
net
|
91.9
|
Income tax
provision
|
161.9
|
Depreciation and
amortization
|
180.4
|
EBITDA
|
$
964.0
|
Adjustments:
|
|
Loss from discontinued
operations, net of tax (1)
|
0.9
|
ERP system transition
(2)
|
12.1
|
Restructuring costs
(4)
|
5.3
|
Operational start-up
costs (3)
|
4.9
|
Adjusted
EBITDA
|
$
987.2
|
|
|
Consolidated
indebtedness less netted cash
|
$
2,731.9
|
|
|
Ratio of consolidated
indebtedness less netted cash to adjusted EBITDA
|
2.77 times
|
Under the 2019 Credit Agreement, the definition of adjusted
EBITDA contains certain restrictions that limit adjustments to net
income when calculating adjusted EBITDA. For the trailing twelve
months ended September 30, 2022, the Company's adjustments to
net income when calculating adjusted EBITDA did not exceed the
allowable amount under the 2019 Credit Agreement.
The ratio of consolidated indebtedness less netted cash to
adjusted EBITDA is 2.77 times for the trailing twelve months ended
September 30, 2022. The 2019 Credit Agreement requires the
Company to maintain a ratio of consolidated indebtedness less
netted 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
indebtedness less netted cash as of September 30, 2022.
"Consolidated Indebtedness" and "Netted Cash" are terms used in the
2019 Credit Agreement for purposes of certain financial
covenants.
(in
millions)
|
September 30,
2022
|
Total debt,
net
|
$
2,803.2
|
Plus: Deferred
financing costs (7)
|
21.5
|
Consolidated
indebtedness
|
2,824.7
|
Less: Netted cash
(8)
|
92.8
|
Consolidated
indebtedness less netted cash
|
$
2,731.9
|
Footnotes:
(1)
|
Certain subsidiaries in
the International business segment are accounted for as
discontinued operations and have been designated as unrestricted
subsidiaries in the 2019 Credit Agreement. Therefore, these
subsidiaries are excluded from the Company's adjusted financial
measures for covenant compliance purposes.
|
(2)
|
In the third quarter of
2022, the Company recorded $2.7 million of charges related to the
transition of its ERP system. Cost of sales included $2.3 million
of manufacturing facility ERP system transition costs, including
labor, logistics, training and travel. Operating expenses included
$0.4 million, primarily related to professional fees. In the
trailing twelve months ended September 30, 2022, the Company
recognized $12.1 million of charges related to the transition of
its ERP system.
|
(3)
|
In the third quarter of
2022, the Company recorded $1.8 million of operational start-up
costs related to the capacity expansion of its manufacturing and
distribution facilities in the U.S. Cost of sales and operating
expenses included personnel and facility related costs of $1.7
million and $0.1 million, respectively. In the trailing
twelve months ended September 30, 2022, the Company recognized $4.9
million of operational start-up costs related to the capacity
expansion of its manufacturing and distribution facilities in the
U.S.
|
(4)
|
In the third quarter of
2022, the Company recorded $1.2 million of restructuring costs
primarily associated with headcount reductions. In the trailing
twelve months ended September 30, 2022, the Company recognized $5.3
million of restructuring costs primarily associated with headcount
reductions.
|
(5)
|
In the third quarter of
2021, the Company recorded $2.3 million of acquisition-related
stamp taxes associated with the acquisition of Dreams.
|
(6)
|
Adjusted income tax
provision represents the tax effects associated with the
aforementioned items.
|
(7)
|
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.
|
(8)
|
Netted cash includes
cash and cash equivalents for domestic and foreign subsidiaries
designated as restricted subsidiaries in the 2019 Credit
Agreement.
|
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SOURCE Tempur Sealy International, Inc.