Sign in

You're signed outSign in or to get full access.

TS

TEMPUR SEALY INTERNATIONAL, INC. (TPX)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered resilient profitability despite softer industry volumes: net sales $1.2336B (-2.8% YoY), gross margin expanded 220 bps to 44.9%, diluted EPS $0.60 (+15.4% YoY), and adjusted EPS $0.63 (+8.6% YoY) .
  • North America outperformed the market with strong Tempur-Pedic momentum and OEM distribution wins; International posted growth with a 170 bps gross margin expansion to 56.6% .
  • Management lowered FY24 adjusted EPS guidance to $2.45–$2.65 (midpoint +6% YoY), tightened cost assumptions (advertising ~$475M; CapEx ~$140M), and signaled sequential margin expansion in Q3 and Q4 albeit at a moderated pace .
  • Key catalysts: durable gross margin gains from operational efficiencies and commodities tailwinds, targeted promotions to protect ASPs, continued share gains, and clarity around FTC litigation timeline and Mattress Firm post-closing supply agreements .
  • Consensus estimates via S&P Global were not retrievable for TPX; estimate comparisons are unavailable this quarter due to a CIQ mapping issue (tool error).

What Went Well and What Went Wrong

What Went Well

  • Margin expansion and earnings growth: “consolidated adjusted gross margin expansion of 200 bps and adjusted EBITDA margin expansion of 170 bps YoY,” driving adjusted EPS to $0.63 (+9% YoY) .
  • Brand and innovation wins: Tempur-Pedic led performance; the new TEMPUR-Adapt line targeting aches and pains and ultra-premium ActiveBreeze system (with Sleeptracker-AI) elevated brand perception and ticket sizes .
  • International execution: global rollout of new Tempur mattresses, bases and pillows supported growth and margin gains; U.K. Dreams performed well despite a challenging market .

What Went Wrong

  • Top-line softness vs internal expectations amid a mid-single-digit industry decline; Q2 sales slightly below plan despite outperformance versus peers .
  • Promotional environment elongated; company matched timing to remain EBITDA-neutral, but chose profit over deeper discounting, slightly tempering U.S. share gains vs Q1 .
  • Floor model timing headwinds: ~3% consolidated revenue headwind YoY in Q2 (and a slight Q1 tailwind), obscuring sequential comparisons .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Billions)$1.270 $1.189 $1.234
Diluted EPS ($USD)$0.52 $0.43 $0.60
Adjusted EPS ($USD)$0.58 $0.50 $0.63
Gross Margin %42.7% 43.1% 44.9%
Operating Income ($USD Millions)$158.8 $131.5 $173.3
Adjusted Operating Income ($USD Millions)$171.8 $149.4 $180.6
Adjusted EBITDA ($USD Millions)$217.5 $198.2 $231.4

Segment breakdown (Q2 YoY and sequential context):

Segment MetricQ2 2023Q2 2024
North America Net Sales ($USD Millions)$1,016.8 $978.4
North America Gross Margin %39.7% 41.9%
North America Operating Margin %17.1% 18.4%
International Net Sales ($USD Millions)$252.9 $255.2
International Gross Margin %54.9% 56.6%
International Operating Margin %13.4% 12.5%

Channel mix (Q2 YoY):

ChannelConsolidated Q2 2023Consolidated Q2 2024North America Q2 2023North America Q2 2024International Q2 2023International Q2 2024
Wholesale ($USD Millions)$989.2 $950.5 $896.0 $854.8 $93.2 $95.7
Direct ($USD Millions)$280.5 $283.1 $120.8 $123.6 $159.7 $159.5

KPIs and balance sheet:

KPIQ1 2024Q2 2024
Free Cash Flow ($USD Millions)N/A$122
Operating Cash Flow ($USD Millions)$130.2 Six months: $280.8
Leverage (Consolidated Indebtedness less Netted Cash / Adj. EBITDA, TTM)2.85x 2.70x
Consolidated Indebtedness less Netted Cash ($USD Billions)$2.502 $2.410
Dividend per share ($USD)$0.13 (declared May 2024) $0.13 (declared Aug 2024)

Non-GAAP adjustments (Q2): $7.3M transaction costs (Mattress Firm), no gross margin adjustments in Q2 2024; Q2 2023 included $2.4M operational start-up costs .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2024$2.60–$2.90 $2.45–$2.65 Lowered
SalesFY 2024Low to mid-single digit growth YoY Approximately consistent vs prior year Lowered
Adjusted EBITDAFY 2024~$1.0B midpoint ~$0.94B midpoint Lowered
Advertising SpendFY 2024~$500M ~$475M Lowered
CapExFY 2024~$150M (110 maintenance / 40 growth) ~$140M (110 maintenance / 30 growth) Lowered
Interest ExpenseFY 2024~$135–$140M ~$130–$135M Lowered
D&AFY 2024~$200–$210M ~$200–$210M Maintained
Tax RateFY 2024~25% ~25% Maintained
Diluted SharesFY 2024~179M ~179M Maintained
DividendFY 2024$0.13 per quarter $0.13 per quarter Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Margin durabilityQ4: 260 bps GM expansion; operational efficiencies to continue . Q1: NA adj. GM +160 bps; International +140 bps .Management sees ongoing sequential and YoY margin expansion in Q3/Q4, moderated as productivity initiatives are lapped .Improving; durable with moderating pace
Promotional environmentRetail traffic down; push for broader industry advertising .Promotions more elongated; TPX matched timing, focused on profit protection .Slightly more promotional; disciplined approach
Industry volumesDepression-level units; easier comps expected back half (Q4/Q1) .Back-half slight sales growth; industry down mid-single digits for 2024, moderating sequentially .Stabilizing; gradual improvement
OEM distributionTwo large wins to start in April (Q2) .OEM wins sustained North America unit growth; mix impact a modest GM offset .Building through 2024
InternationalNew lineup rollout; mid-high single digit growth expected (Q1) .Growth + GM expansion; back-half mid-to-high single digit growth; Dreams comps normalize .Positive momentum
Commodities/logisticsTailwinds expected in 2024; watch Red Sea logistics (Q4/Q1) .~100 bps commodity GM benefit YoY in Q2; ocean cargo a drag; tailwinds moderate in H2 .Still supportive; moderating
Technology/AISleeptracker-AI highlighted with premium systems (Q1) .Sleeptracker-AI integrated in ActiveBreeze; premium tickets >$20k when bundled .Enhancing premium mix

Management Commentary

  • “Our strong gross margin performance and solid cost controls resulted in healthy earnings growth in the second quarter.” — Scott Thompson, CEO .
  • “We achieved consolidated adjusted gross margin expansion of 200 basis points and adjusted EBITDA margin expansion of 170 basis points year-over-year.” — Scott Thompson .
  • “Adjusted EPS to be in the range of $2.45 to $2.65… this represents a 6% growth year-over-year… adjusted EBITDA of approximately $940 million at the midpoint.” — Bhaskar Rao, CFO .
  • “ActiveBreeze… integrates Sleeptracker-AI and is driving premium tickets upward of $20,000… enhancing brand perception and signaling the future for bedding innovation.” — Scott Thompson .
  • “We will not be taking any questions on the Mattress Firm acquisition this morning… we’ve executed several post-closing supply agreements… consistent with Mattress Firm as a multi-branded retailer.” — Scott Thompson .

Q&A Highlights

  • Pricing and promotions: promotional periods are longer, not deeper; TPX matches timing while prioritizing profits; expect slight promotional environment if industry remains soft .
  • Gross margin sustainability: operational efficiencies have “legs,” supporting sequential and YoY GM and EBITDA margin improvement into H2 and 2025 .
  • Interest rate sensitivity: ~100 bps decline could add $10M EBITDA ($5M variable debt + ~$5M retail financing costs), plus indirect traffic benefit .
  • International growth: back-half mid-to-high single digit growth expected, with floor model comps normalizing .
  • Floor model phasing: slight tailwind in Q1 (~8%); ~3% consolidated headwind in Q2 (mostly NA), important for sequential modeling .
  • Antidumping / low-end market: importer inventories declining; potential unit share tailwind at low-end but limited profit impact .

Estimates Context

  • Wall Street consensus via S&P Global could not be retrieved for TPX this quarter due to a CIQ mapping issue in our estimates tool. As a result, “vs. estimates” comparisons are unavailable. If/when SPGI mapping is restored, we will include consensus metrics for revenue, EPS, and EBITDA and highlight beats/misses accordingly.

Key Takeaways for Investors

  • Margin story intact: durable operational efficiencies and moderating commodity tailwinds drove 220 bps GM expansion to 44.9% and adjusted EPS growth to $0.63; management guides continued sequential margin gains in Q3/Q4, albeit at a slower pace as initiatives are lapped .
  • Profits over promotion: TPX matched promotional timing to remain EBITDA-neutral while protecting ASPs and mix, sustaining premium brand health and profitability even as industry remains soft .
  • North America resilience, International momentum: NA GM +200 bps with OEM growth and Tempur-Pedic strength; International GM +170 bps and expected back-half acceleration .
  • Guidance reset lowers risk: FY24 adjusted EPS $2.45–$2.65, sales “approximately consistent” vs prior year, advertising trimmed to ~$475M, CapEx to ~$140M — yielding a credible plan in a depressed industry backdrop .
  • Cash generation and leverage: robust Q2 free cash flow of $122M; leverage at 2.7x within target; debt less cash $2.41B, supporting flexibility ahead of Mattress Firm outcome .
  • Strategic catalysts: continued innovation (TEMPUR-Adapt, ActiveBreeze with Sleeptracker-AI), OEM wins, and potential industry normalization on easier comps can drive share and margin expansion .
  • Watch items: H2 logistics costs (ocean cargo), elongated promotions, and FTC litigation timeline; management executed multiple post-closing supply agreements, reiterating a multi-brand retail stance at Mattress Firm .