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TS

TEMPUR SEALY INTERNATIONAL, INC. (TPX)·Q3 2024 Earnings Summary

Executive Summary

  • Q3 2024 delivered modest top-line growth with stronger profitability: net sales $1.30B (+1.8% YoY), gross margin 45.4% (+50 bps YoY), GAAP EPS $0.73 (+14.1% YoY), adjusted EPS $0.82 (+6.5% YoY). Adjusted EBITDA rose to $274.8M and leverage improved to 2.41x, the best margins in 10 quarters per management commentary .
  • International drove the quarter: sales +12.4% to $284.7M; operating margin expanded to 18.2% (+200 bps YoY), while North America was slightly down (-0.8%) on continued U.S. consumer pressure and OEM mix headwinds .
  • FY2024 guidance narrowed: adjusted EPS to $2.45–$2.55 (from $2.45–$2.65 in Q2; from $2.60–$2.90 in Q1) and sales now expected “slightly below” prior year (vs “consistent” in Q2; vs “low-to-mid single-digit growth” in Q1) .
  • Cash generation was strong: Q3 cash flow from operations of $257M and management cited ~$240M free cash flow; dividend of $0.13/share declared for Q4 2024 .
  • Stock-relevant catalysts: international momentum, improved margins/FCF, and near-term visibility into Mattress Firm litigation timeline (federal hearing Nov 12, divestiture agreement for 73 stores plus Sleep Outfitters contingent sale) .

What Went Well and What Went Wrong

What Went Well

  • International strength: sales +12.4% and operating margin 18.2% (+200 bps YoY), driven by successful new product launches, broader distribution and advertising support across markets like the U.K., Germany, China and Australia .
  • Margin expansion and efficiency: consolidated gross margin improved to 45.4% (adjusted 46.2%); adjusted operating margin to 17.2%; management emphasized productivity initiatives and best-in-class service levels .
  • Premium brand performance and innovation: “Stearns & Foster was our strongest performing brand” and Tempur-Pedic received top J.D. Power customer satisfaction awards; Sleep Tracker AI app downloads reached record levels in August and September .

What Went Wrong

  • North America softness: net sales -0.8% with wholesale -0.8% and direct -1.2%; adjusted gross margin declined 10 bps (43.1%) and adjusted operating margin declined 20 bps (20.1%), largely due to OEM mix and OpEx deleverage .
  • Sales trajectory and guidance: FY2024 sales outlook moved to “slightly below” prior year (from “consistent” in Q2; “growth” in Q1), narrowing EPS guidance amid industry volumes materially below historical norms .
  • Asia JV drag: International margin gains were “partially offset by Asia joint venture performance,” a continued headwind noted by management .

Financial Results

MetricQ1 2024Q2 2024Q3 2024
Net Sales ($USD Millions)$1,189.4 $1,233.6 $1,300.0
Gross Margin %43.1% 44.9% 45.4%
Operating Income ($USD Millions)$131.5 $173.3 $201.8
Operating Margin %11.1% 14.0% 15.5%
Adjusted Operating Income ($USD Millions)$149.4 $180.6 $223.7
Adjusted Operating Margin %12.6% 14.6% 17.2%
Net Income ($USD Millions)$76.3 $106.1 $130.0
Diluted EPS ($USD)$0.43 $0.60 $0.73
Adjusted EPS ($USD)$0.50 $0.63 $0.82
Adjusted EBITDA ($USD Millions)$198.2 $231.4 $274.8

Segment breakdown

SegmentQ1 2024Q2 2024Q3 2024
North America Net Sales ($USD Millions)$901.1 $978.4 $1,015.3
North America Gross Margin %39.2% 41.9% 42.0%
North America Operating Margin %14.9% 18.4% 19.0%
International Net Sales ($USD Millions)$288.3 $255.2 $284.7
International Gross Margin %55.4% 56.6% 57.3%
International Operating Margin %15.5% 12.5% 18.2%

Channel mix (Consolidated)

ChannelQ1 2024Q2 2024Q3 2024
Wholesale Net Sales ($USD Millions)$885.8 $950.5 $981.8
Direct Net Sales ($USD Millions)$303.6 $283.1 $318.2

KPIs

KPIQ1 2024Q2 2024Q3 2024
Adjusted EBITDA ($USD Millions)$198.2 $231.4 $274.8
Leverage (Consolidated Indebtedness less Netted Cash / Adjusted EBITDA)2.85x 2.70x 2.41x
Cash Flow from Operations ($USD Millions)$130.2 —$257.0

Versus estimates

MetricQ3 2024 ActualQ3 2024 ConsensusBeat/Miss
Revenue ($USD Millions)$1,300.0 N/A (S&P Global consensus unavailable)N/A
EPS ($USD)$0.73 N/A (S&P Global consensus unavailable)N/A

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPS (FY2024)Q3 2024$2.45–$2.65 (Q2) $2.45–$2.55 Narrowed/lowered midpoint trajectory
Adjusted EPS (FY2024)Q2 2024$2.60–$2.90 (Q1) $2.45–$2.65 Lowered
Adjusted EPS (FY2024)Q1 2024—$2.60–$2.90 Reaffirmed initial outlook
Sales Outlook (FY2024)Q3 2024“Consistent vs prior year” (Q2) “Slightly below prior year” Lowered
Sales Outlook (FY2024)Q2 2024“Low to mid-single digit growth” (Q1) “Consistent vs prior year” Lowered
Capex (FY2024)Q3 2024—≈$125M (maintenance ≈$110M) Down materially vs prior years
Modeling Items (FY2024)Q3 2024—D&A ≈$200–$205M; Interest ≈$125–$130M; Tax rate ≈24%; Diluted shares ≈179M Provided explicit range
DividendQ3 2024$0.13/share (prior quarters) $0.13/share declared for Q4 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 and Q1)Current Period (Q3 2024)Trend
AI/Technology initiativesLimited disclosure in public materialsSleep Tracker AI app saw record downloads in Aug/Sep; smart bases attach rate rising Increasing emphasis on connected/smart sleep
Supply chain/efficiencyFocus on commodity tailwinds and operational efficiencies (Q2); start-up costs in Q1 $8.2M supply chain transition costs; closing 2 small facilities for footprint optimization Transitioning footprint; medium-term margin tailwind
Tariffs/MacroMacro pressures cited; industry down mid-single digits (Q2); recessionary backdrop (Q1) Minimal tariff impact expected; bedding industry ~30% below peak; normalization likely in 2025 Macro stabilizing; limited tariff risk
Product performanceNew launches supporting margins (Q2); innovation highlighted (Q1) Stearns & Foster strongest; Tempur grew; international Tempur collection driving growth Premium strength; sustained international traction
Regional trendsInternational flat-to-modest growth (Q2/Q1) International +12.4% sales and operating margin +200 bps; North America -0.8% sales International outperforming; NA mixed
Regulatory/legal (Mattress Firm)Post-closing supply agreements executed (Q2); anticipated FTC review timeline (Q1) Federal court hearing Nov 12; injunction sought vs FTC admin proceeding; contingent divestiture of 73 stores + Sleep Outfitters Near-term legal milestone; structured remedies
R&D/Upcoming launchesEmphasis on innovation pipeline (Q1) All-new Sealy Posturepedic collection launching mid-2025 with proprietary coil technology and national ad campaign 2025 launch targeted at mid/entry market

Management Commentary

  • “Our adjusted EBITDA margin of 21.1% in the third quarter, which is the strongest margin in 10 quarters… We expect to see significant upside once the market normalizes… led by the new Sealy Posturepedic product launch” — Scott Thompson .
  • “Downloads [for] our Sleep Tracker AI app reached a record level in both August and September” — Scott Thompson .
  • “There are approximately $22 million of pro-forma adjustments in the quarter… primarily related to [Mattress Firm] and manufacturing footprint optimization” — Bhaskar Rao .
  • “We don’t think the tariffs impact us much… we don’t really buy anything from China directly anymore” — Scott Thompson .
  • “International… driving healthy double-digit growth… and 200 basis points of expansion in international operating margins” — Scott Thompson .

Q&A Highlights

  • Demand normalization: Management sees bedding industry ~30% below peak, expects 2025 normalization aided by Sealy Posturepedic launch and improving consumer confidence; international momentum highlighted .
  • Contribution margins/mix: International contribution richer; North America incremental EBITDA expected as low-end consumer returns, though mix may compress rates; watch OEM mix .
  • Tariffs and gross margin outlook: Minimal tariff exposure; productivity tailwinds offset mix; Tempur/Stearns supportive of margin rates; low-end mix watch for 2025 .
  • Advertising cadence: ~9.2–9.3% of sales; ~$119M in Q3; expect more aggressive ad spend in 2025; less noisy competitive ad environment improving effectiveness .
  • Sales cadence: Holiday peaks strong; troughs negative; promotional intensity easing industry-wide .
  • Luxury segment: Holding up well; Stearns & Foster and Tempur in growth despite an estimated U.S. industry down ~9–10% in sales .
  • International sustainability: Execution plus product refreshes and distribution expansion driving sustained outperformance (Tempur collection, Dreams UK share gains) .

Estimates Context

  • We attempted to retrieve Wall Street consensus (S&P Global) for Q3 2024 revenue and EPS; consensus was unavailable due to mapping for TPX in SPGI/CIQ. As a result, beat/miss vs consensus cannot be determined at this time.
  • Guidance narrowing and strong Q3 profitability suggest potential estimate revisions toward higher margins but slightly lower FY sales; watch FY2024 adjusted EPS range ($2.45–$2.55) and Q4 sales “approximately consistent” YoY commentary for near-term models .

Key Takeaways for Investors

  • International is the growth engine: double-digit sales, margin expansion, and broadening distribution underpin upside as global industry normalizes .
  • Margin quality improved: consolidated GM 45.4% and adjusted operating margin 17.2% reflect productivity gains despite NA OEM mix; this is supportive of FCF generation ($257M CFO in Q3) .
  • Near-term outlook tempered: FY2024 sales “slightly below” prior year and narrowed EPS range; Q4 expected roughly consistent YoY, implying steadier exit run-rate .
  • 2025 catalyst: Reimagined Sealy Posturepedic (mid/entry market) with national advertising can reaccelerate unit volumes as the low-end consumer returns; incremental EBITDA with possible rate mix headwind .
  • Litigation visibility: Federal hearing timing and structured divestiture agreements reduce regulatory uncertainty around Mattress Firm; financing secured via $1.6B Term Loan B .
  • Trading setup: Stronger margins/FCF and international outperformance are positives; U.S. demand/mix and guidance drift are watch items; any legal resolution or 2025 launch detail could be catalysts .
  • Risk flags: Asia JV performance, OEM mix pressure on NA margins, and macro consumer backdrop remain key variables to monitor .