Tempur-Pedic International Reports First Quarter Earnings Rise

Furniture World Magazine

Tempur-Pedic International Inc., a leading manufacturer, marketer and distributor of viscoelastic and premium mattresses and pillows worldwide, announced net sales and earnings for the first quarter ended March 31, 2006. First Quarter 2006 Financial Summary - Net sales rose 3% to $228.6 million from $222.4 million in the first quarter of 2005. Retail channel sales worldwide increased 8%. Sales in the U.S. retail channel grew 7%. Sales in the U.S. furniture retail channel grew 14%. Sales in the international retail channel increased 12%. The U.S. dollar strengthened compared to first quarter 2005, which resulted in a negative foreign exchange rate impact of $7.0 million on total net sales in the first quarter of 2006, or approximately 3% of total net sales and approximately 9% of international sales. - Pro forma earnings per share (EPS) rose 11% to $0.30 per diluted share in the first quarter of 2006 from $0.27 per diluted share in the first quarter of 2005. EPS under Generally Accepted Accounting Principles (GAAP) rose 12% to $0.29 per diluted share in the first quarter of 2006 from $0.26 per diluted share in the first quarter of 2005. - Cash flow provided by operations increased to $51.6 million in the first quarter of 2006 from $34.1 million in the first quarter of 2005. The increase was principally driven by improved working capital. - The Company made a voluntary prepayment of $21.8 million on its European term loan, in excess of its scheduled principal payment of $5.8 million for a total principal reduction of $27.6 million. - During the first quarter, the Company purchased 8.0 million shares of its common stock at a total cost of $98.2 million. For the first quarter of 2006, the Company reported net income under GAAP of $26.9 million as compared to $26.8 million in the first quarter of 2005. The Company reported pro forma net income of $27.5 million, the same level as reported for first quarter 2005. Changes in foreign exchange rates reduced GAAP and pro forma net income by approximately $1.0 million compared to first quarter of 2005. Effective January 1, 2006 the Company began recording expense associated with employee stock options in accordance with the Statement of Financial Accounting Standards No. 123R and GAAP results for the first quarter of 2006 include a $0.01 charge for FAS 123R stock option expense and certain other non-cash stock-based compensation expense. Share repurchases in first quarter 2006 contributed approximately $0.01 to first quarter 2006 fully diluted EPS. For a complete discussion of pro forma adjustments, see the Supplemental Information included later in this press release. Chief Executive Officer Robert B. Trussell, Jr. commented, "After a challenging period in the second half of 2005, Tempur-Pedic International turned in a solid quarter of net sales and earnings in spite of a significant foreign exchange impact. We are pleased to report a new record for both net sales and net mattress units. The viscoelastic category we created continues to expand at a fast rate and Tempur-Pedic remains the market and innovation leader." President and CEO-elect H. Thomas Bryant noted, "During the first quarter, Tempur-Pedic generated growth and delivered our best quarter ever in terms of net sales. The first quarter comparison was especially difficult given the impact of our February 1st 2005 price increase. As previously noted, we believe this action caused buy ahead and increased net sales in the first quarter of 2005 by approximately $12 million. While our international results in local currencies met our expectations, the strong U.S. dollar reduced reported revenues by $7 million. "In the first quarter, we continued our efforts to improve the overall financial strength of the business. Strong performance throughout our operations generated significantly improved working capital. Operating cash flows for the quarter increased as we continued to reduce our levels of inventory. In addition, due to strong performance from our international operations, we made a voluntary prepayment of nearly $22 million on our European term loan. Reflecting our overall confidence and the strong cash flow dynamics of the business, the Company purchased more than $98 million of common stock during the quarter. "Last quarter, we discussed several initiatives to accelerate U.S. sales growth. Since the beginning of the year, we have increased the size of our sales force and we have already seen a notable impact as our sales team spent more time at the store level working with accounts to improve sales productivity. We have selectively added high quality retail partner stores. "We have expanded distribution within our existing accounts and we will build on that momentum in the second quarter. During the second quarter, we will begin shipping our two new high-end mattresses in the U.S., 'The GrandBed by Tempur-Pedic(TM)' and 'The RhapsodyBed by Tempur-Pedic(TM),' as well as the newly redesigned Classic model. We have begun taking orders and have been pleased with the level of retailer acceptance. We believe these new mattress models will allow Tempur-Pedic to expand floor space within our accounts. "Internationally, we continue to experience tremendous mattress unit growth across our retail markets. We are expanding distribution and in the first quarter we launched 'The CelebrityBed by Tempur-Pedic(TM)' in the United Kingdom. Our premium products are enjoyed by consumers throughout the world, and, in fact, we believe our Company has the most substantial company-owned foreign operations among all U.S. bedding manufacturers. "We have continued to be impacted by elevated prices for certain raw materials, which add significant cost to our operation. However, our initiatives to generate productivity improvements and cost reductions throughout our manufacturing and supply chain operations have yielded significant benefits. As a result of these initiatives, first quarter gross margin is slightly better than we anticipated. We currently expect our gross and operating margins to improve over the course of the year. "While we are focused on controlling costs, we also increased our advertising investment around the world as we continue to build brand awareness. We are pleased to report that our marketing investments have seen quantifiable results. A third party independent research firm recently completed a survey finding that Tempur-Pedic U.S. total brand awareness increased significantly to 78% from 60% just two years ago." Mr. Trussell concluded: "After managing through an exceptionally challenging quarterly comparison, we are currently on track to report the best year in Company history. We are very confident in the Company's future based on our superior products and market leadership in the viscoelastic and specialty categories. As we have previously disclosed, Tom will be taking on the role of Chief Executive Officer at the end of next week. The transition has been remarkably smooth and I leave the Company in the best possible hands. Having founded the U.S. business 15 years ago, I can say Tempur-Pedic is positioned better than ever to capitalize on the rapidly growing premium mattress segment around the world." Share Repurchase Program During the first quarter of 2006, the Company purchased 8.0 million shares of its common stock for a total cost of $98.2 million. From the commencement of the repurchase program on October 20, 2005 through the end of the first quarter of 2006, the Company has purchased 14.9 million shares of its common stock for a total cost of $174.2 million. As of the end of the first quarter of 2006, the Company had $5.8 million remaining under its existing share repurchase authorization. Common shares outstanding at March 31, 2006 were 84.5 million compared to 92.4 million at the end of 2005 and 98.2 million at the end of 2004. 2006 Guidance The Company re-iterated guidance for net sales and increased guidance for GAAP diluted earnings per share for full year 2006. The Company continues to expect full year 2006 net sales to range from $940.0 million to $970.0 million, an increase of 12% to 16% over 2005. The Company increased its full year 2006 guidance for GAAP diluted earnings per share to only reflect shares repurchased during the first quarter of 2006 and interest expense on associated borrowings. Compared to the Company's previous GAAP guidance of $1.18 to $1.23, the Company currently expects GAAP diluted earnings per share for 2006 to range from $1.24 to $1.29, which includes a full year GAAP charge of approximately $0.02 for stock option expense. The Company notes that its guidance for diluted earnings per share does not assume any benefit from a potential reduction in shares outstanding related to future share repurchases. The Company also notes that its expectations are based on information available at the time of this release, and are subject to changing conditions, many of which are outside the Company's control. The Company also notes that as discussed in Supplemental Information below the Company is providing certain pro forma information with respect to pro forma earnings per share to provide investors with useful information during this transitional period when many companies are adopting the provisions of FAS 123R, but going forward the Company does not intend to provide any pro forma information or pro forma guidance to reflect the effects of FAS 123R or other non-cash stock-based compensation expense. About the Company Tempur-Pedic International Inc. (NYSE:TPX) manufactures and distributes Swedish Mattresses and Neck Pillows(TM) made from its TEMPUR(R) pressure- relieving material: a proprietary material that conforms to the body to provide support and help alleviate pressure points. Products are currently sold in 60 countries under the TEMPUR(R) and Tempur-Pedic(R) brand names. World headquarters for Tempur-Pedic International is in Lexington, KY.