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TS

TEMPUR SEALY INTERNATIONAL, INC. (TPX)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 net sales were $1.189B (-1.5% YoY) and diluted EPS was $0.43; adjusted EPS was $0.50. Consolidated gross margin expanded 170 bps to 43.1%, with adjusted gross margin at 43.4% .
  • Guidance was reaffirmed: FY 2024 adjusted EPS $2.60–$2.90, contemplating low- to mid-single-digit sales growth; quarterly dividend maintained at $0.13 per share .
  • North America net sales declined 2.0% with adjusted gross margin +160 bps (39.5%); International net sales were flat with gross margin +140 bps (55.4%) .
  • Stock-relevant catalysts: margin expansion despite macro softness, reaffirmed FY EPS and capex plan, and an FTC process update with target Mattress Firm closing in 2024 (management continues to expect completion in mid-to-late 2024) .

What Went Well and What Went Wrong

What Went Well

  • Gross margin expansion: consolidated gross margin +170 bps to 43.1%, driven by favorable commodity costs and operational efficiencies; adjusted gross margin +160 bps to 43.4% .
  • Strong direct channel and new products: North America direct sales +7.7% YoY to $124.2M; new Adapt rollout on schedule with early strong reception, and ultra-premium ActiveBreeze driving halo effect on tickets .
  • Record operating cash flow for a first quarter: cash from operations $130.2M .
    • Quote: “We are pleased to report solid first quarter sales, earnings and record operating cash flow against a global backdrop which appears to be at a historical nadir” — Scott Thompson .

What Went Wrong

  • Top-line softness: consolidated net sales down 1.5% YoY, with North America wholesale down 3.4% on macro pressures .
  • Operating income and GAAP EPS pressure: operating income -8.2% YoY to $131.5M; GAAP diluted EPS -10.4% YoY to $0.43; corporate opex up on Mattress Firm transaction costs ($14.8M) .
  • Opex deleverage in International and startup costs: International operating margin +20 bps but partially offset by opex deleverage; operational start-up costs of $3.1M impacted cost of sales .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Net Sales ($USD Millions)$1,277.1 $1,170.5 $1,189.4
Diluted EPS ($USD)$0.64 $0.43 $0.43
Adjusted EPS ($USD, non-GAAP)$0.77 $0.53 $0.50
Gross Margin %44.9% 43.8% 43.1%
Adjusted Gross Margin %45.9% 44.2% 43.4%
Operating Income ($USD Millions)$183.2 $121.9 $131.5
Operating Margin %14.3% —11.1%
Adjusted Operating Income ($USD Millions)$214.7 $155.2 $149.4
Adjusted Operating Margin %16.8% —12.6%

Segment breakdown:

Segment MetricQ3 2023Q4 2023Q1 2024
North America Net Sales ($USD Millions)$1,023.7 —$901.1
North America Gross Margin %42.0% 40.7% (adjusted gross profit margin) 39.2%
North America Adjusted Gross Margin %43.2% —39.5%
North America Operating Margin %19.1% —14.9%
North America Adjusted Operating Margin %20.3% 15.9% 15.3%
International Net Sales ($USD Millions)$253.4 —$288.3
International Gross Margin %56.6% 55.7% 55.4%
International Operating Margin %15.8% 19.2% 15.5%
International Adjusted Operating Margin %16.2% ——

KPIs (channel mix):

Channel MetricQ3 2023Q1 2024
Consolidated Wholesale ($USD Millions)$974.6 $885.8
Consolidated Direct ($USD Millions)$302.5 $303.6
North America Wholesale ($USD Millions)$885.1 $776.9
North America Direct ($USD Millions)$138.6 $124.2
International Wholesale ($USD Millions)$89.5 $108.9
International Direct ($USD Millions)$163.9 $179.4

Estimates vs actual (Q1 2024):

MetricConsensusActualOutcome
Revenue ($USD Billions)$1.21B $1.189B Bold miss (1.3% below)
Adjusted EPS ($USD)$0.49 $0.50 Bold beat (+$0.01)

Note: S&P Global consensus was unavailable via the tool due to a CIQ mapping issue; consensus figures are cited from reputable financial news sources with full URLs.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2024$2.60–$2.90 $2.60–$2.90 Maintained
Sales GrowthFY 2024Low- to mid-single-digit YoY Low- to mid-single-digit YoY Maintained
Adjusted EBITDA (at midpoint)FY 2024~$1B ~$1B Maintained
Advertising SpendFY 2024~$500M ~$500M Maintained
CapExFY 2024~$150M (maintenance ~$110M; growth ~$40M) ~$150M (maintenance ~$110M; growth ~$40M) Maintained
Quarterly DividendOngoing$0.13 $0.13 Maintained
Modeling ItemsFY 2024D&A $200–$210M; interest $135–$140M; tax rate 25%; diluted shares 179M D&A $200–$210M; interest $135–$140M; tax rate 25%; diluted shares 179M Maintained
Leverage (post Mattress Firm)Post-closeNet leverage 3.0–3.25x, target back to 2–3x within 12 months Net leverage 3.0–3.25x, target back to 2–3x within 12 months Maintained

Earnings Call Themes & Trends

TopicQ3 2023 (Prior-2)Q4 2023 (Prior-1)Q1 2024 (Current)Trend
Macro/industry unitsU.S. bedding units down double-digits; cybersecurity costs disclosed Category stabilizing at trough; comps easier; expectation for recovery later 2024 Industry “in a depression,” normalization expected; comps easier in H2 Stabilizing/gradual recovery
Product innovationInternational Tempur lineup launch; margin expansion Breeze and Stearns portfolio strong; Adapt launch planned early 2024 Adapt rollout underway; ActiveBreeze ultra-premium system elevating brand Continued innovation, premium mix support
Supply chain/operationsGross margin up on commodities, efficiency Crawfordsville plant opened; adjusted GM 40.7% NA; operational efficiencies Margin tailwinds from commodities/ops; Crawfordsville a Q1 headwind then a contributor Margin tailwinds; temporary startup cost headwind
Distribution/omni-channelDirect channel strength, international growth Two large U.S. distribution wins begin shipping in April OEM distribution started; NA direct +8% YoY in Q1 Expanding reach; OEM ramp
AdvertisingInvestment sustained; international momentum Advertisers increasing budgets; $500M FY plan Balanced broad and targeted ads; election-year pricing accounted for Elevated share of voice
Mattress Firm (FTC)Work toward second request response Certified substantial completion; target H2 2024 close Expect FTC review completion Q2; target close 2024; divestiture plan in progress Ongoing; constructive engagement

Management Commentary

  • “Strong reception to our newly launched innovative products… combined with our broad-based omni-channel reach… drove our industry outperformance in the first quarter” — Scott Thompson .
  • “Our North American direct channel performance was solid… delivering a robust 8% sales growth year-over-year driven by strength in our e-commerce business” — Scott Thompson .
  • “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” — Scott Thompson .
  • “At the end of the first quarter, consolidated debt less cash was $2.5B, and our leverage ratio… was 2.85x within our historical target range of 2 to 3x” — Bhaskar Rao .

Q&A Highlights

  • Confidence in H2 improvement driven by easier comps, product momentum, and continued gross margin expansion; industry normalization expected from depressed levels .
  • Gross margin puts/takes: Q1 launch costs and Crawfordsville startup as planned; tailwinds from operations and commodities expected through 2024 .
  • Market share gains: TPX down ~2–3% vs industry down ~10–15% preliminarily, supported by slot velocity and new shelf space in Q2 .
  • Modeling/Phasing: Expect Q2 consolidated flattish given prior-year floor model headwind (~3%), with ongoing margin expansion and elevated advertising around Memorial Day .
  • Advertising environment: welcome competitor spend; election-year pricing managed within guidance .

Estimates Context

  • Revenue missed consensus ($1.21B vs $1.189B) while adjusted EPS beat by $0.01 ($0.49 vs $0.50). These consensus values are sourced from StreetInsider and Seeking Alpha/Yahoo; S&P Global consensus was unavailable via the tool due to a mapping issue .
  • Implication: modest top-line miss in North America wholesale offset by gross margin expansion and operational tailwinds; estimates should recalibrate for mix (direct strength, OEM ramp) and margin drivers (commodities/efficiencies).

Key Takeaways for Investors

  • Margin story intact: despite macro softness, consolidated and segment gross margins expanded materially; startup costs should fade as OEM/distribution volumes ramp .
  • Bold adjusted EPS beat vs consensus and reaffirmed FY 2024 guidance underpin confidence; watch for H2 volume normalization and contribution from new distribution .
  • Product cycle strength: Adapt rollout and ActiveBreeze halo support higher ASP and attach rates; international product refresh sustaining growth .
  • OEM/distribution ramp is a near-term revenue driver; Crawfordsville scale-up is a temporary headwind to rate but essential for capacity and unit economics .
  • Advertising share of voice remains high and is a category driver; election-year pricing risks are accounted for in plans .
  • Capital allocation steady: dividend maintained; modeling items unchanged; leverage within target range pre-close and plan to return to 2–3x post Mattress Firm .
  • Trading lens: monitor FTC timeline and any divestiture requirements; a closing in 2024 is the key overhang/resolution catalyst, alongside H2 demand normalization .

Non-GAAP Notes and Adjustments

  • Q1 2024 adjustments include $14.8M transaction costs related to Mattress Firm and $3.1M operational start-up costs; adjusted EPS $0.50 vs GAAP $0.43 .
  • Adjusted operating margin 12.6% vs reported 11.1% .
  • EBITDA and adjusted EBITDA Q1: $180.3M and $198.2M, respectively .