Tempur Sealy(TPX)2024-11-07 18:18Financial Data and Key Metrics - Net sales grew 2% to $1.3 billion in Q3 2024 compared to the same period last year [8] - Adjusted EBITDA grew 6% to $275 million, with an adjusted EBITDA margin of 21.1%, the strongest margin in 10 quarters [8][11] - GAAP EPS grew 14% to $0.73 per share, while adjusted EPS grew 7% to $0.82 per share [8] - Free cash flow was $240 million, the strongest quarter since Q3 2021 [10] - Adjusted EBITDA to net debt leverage ratio declined to 2.4x, below the midpoint of the targeted range of 2-3x [9] Business Line Performance - US business performed well compared to the broader market, driven by new product launches and distribution wins [13][17] - Stearns & Foster was the strongest performing brand in the quarter, with growth in both wholesale and direct-to-consumer channels [17] - International sales grew 12% on a reported basis and 11% on a constant currency basis, with a 200 basis point expansion in operating margins [23][31] - The newly-launched International Tempur collection drove growth in key markets like the UK, Germany, China, and Australia [24] Market Performance - The US bedding industry remains significantly below historical volumes, with unit volumes down high-single-digits in 2024 [35] - International markets showed strong momentum, with double-digit growth in sales and improved operating margins [23][31] - The company expects market normalization to begin in 2025, led by the launch of the new Sealy Posturepedic product line [12][18] Strategy and Industry Competition - The company is preparing for the planned acquisition of Mattress Firm, with a Federal Court hearing scheduled for November 12, 2024 [39] - The new Sealy Posturepedic product line, launching in 2025, targets the mid to entry-level market and features proprietary coil technology [18][19] - The company continues to invest in advertising and consumer-centric innovation, with a focus on premium, health, and wellness-focused customers [12][16] Management Commentary on Operating Environment and Future Outlook - The bedding industry has been in a prolonged downturn, with volumes down approximately 30% from peak levels in 2021 [48] - The company expects a recovery or normalization in the market, driven by lower interest rates, improved housing formation, and increased consumer confidence [48] - International markets are expected to sustain strong growth, supported by new product launches and expanded distribution [23][80] Other Important Information - The company executed a $1.6 billion Term Loan B to fund the Mattress Firm acquisition [33] - Advertising spend in Q3 was $119 million, consistent with prior years, and is expected to increase in 2025 [66][69] - The company expects full-year 2024 adjusted EPS to be between $2.45 and $2.55, representing 4% growth year-over-year [34] Q&A Session Summary Question: How will consumer demand trend in late 2024 and early 2025? - The company expects market normalization in 2025, driven by lower interest rates, improved housing formation, and the launch of the new Sealy Posturepedic product line [48] Question: What is the contribution margin outlook for North America and International? - International contribution margins are expected to be higher than the US, with North America around 30-35% [52] Question: What is the state of the industry heading into 2025? - The industry is expected to recover, with product innovation and advertising driving growth, though full normalization may take time [57] Question: How will the new Sealy Posturepedic launch impact earnings in 2025? - The launch is not expected to have incremental costs, as advertising will be offset by cost reductions [78] Question: Why is international growth sustainable? - Growth is driven by new product launches, expanded distribution, and strong execution in key markets like the UK [80] Question: What drove the strong performance of Stearns & Foster in Q3? - Strong performance was due to sales focus, SKU optimization, and effective execution [83]