Tempur Sealy Reports Fourth Quarter and Full Year 2023 Results
- Consistent gross margin expansion
- Increased quarterly cash dividend
- Decrease in total net sales
- Decrease in net income
- Decrease in EPS
Insights
The reported financial results for Tempur Sealy International, Inc. show a mixed performance with net sales remaining relatively flat year-over-year, but with a noticeable decline in net income and earnings per share (EPS). A key point of interest is the expansion of consolidated gross margins by 260 basis points to 43.8%, indicating improved efficiency or cost management. However, operating income and net income have seen significant declines, which could be a concern for profitability going forward.
The 18% increase in quarterly cash dividend suggests confidence by the Board in the company's cash flow generation and financial stability. This move could be seen as an attempt to deliver value to shareholders despite the softer earnings performance. The leverage ratio of 2.87 times based on consolidated indebtedness less netted cash to adjusted EBITDA is within a manageable range, but it warrants close monitoring, especially in the context of the pending acquisition of Mattress Firm.
Investors should also note the segment performance, particularly the decline in North America net sales and the increase in International net sales. Such regional variations may reflect differing economic conditions and consumer behaviors, which could have implications for the company's future revenue streams and strategic focus.
The earnings report indicates a shift in consumer behavior and a soft demand in the bedding category, particularly in North America. Despite this, the company's increase in International net sales and gross margins suggest resilience and potential for growth in global markets. The company's emphasis on an omni-distribution platform and vertical integration may be strategic moves to adapt to the evolving retail landscape and consumer purchasing preferences. These initiatives could help mitigate the impact of macroeconomic pressures on U.S. consumer behavior.
Moreover, the strategic investment in product innovation initiatives, despite increasing corporate operating expenses, demonstrates the company's commitment to long-term growth. By focusing on consumer-centric innovation and new product introductions, Tempur Sealy aims to maintain a competitive edge in a challenging market. The success of these initiatives will be crucial for the company's ability to capitalize on the eventual recovery of the bedding category.
The pending acquisition of Mattress Firm is a significant corporate action that has the potential to reshape the competitive landscape in the bedding industry. The company's compliance with the Federal Trade Commission's second request indicates progress in the antitrust review process, which is a critical hurdle for the completion of such transactions. The post-closing supply agreements being signed indicate proactive steps towards a smooth transition and integration post-acquisition.
However, the transaction costs and fair value remeasurement related to this acquisition have contributed to an increase in corporate operating expenses. Stakeholders should consider the legal and regulatory complexities that could affect the timeline and final terms of the acquisition. The outcome of this transaction will have implications for the company's market position, operational scale and financial performance in the long term.
- Reports Fourth Quarter 2023 Net Sales of
- Reports Fourth Quarter 2023 EPS of
- Consolidated Gross Margins expanded 260 basis points to
- Increased Quarterly Cash Dividend
LEXINGTON, Ky., Feb. 8, 2024 /PRNewswire/ -- Tempur Sealy International, Inc. (NYSE: TPX) announced financial results for the fourth quarter and year ended December 31, 2023. The Company also issued financial guidance for the full year 2024.
FOURTH QUARTER 2023 KEY HIGHLIGHTS
- Total net sales decreased
1.4% to as compared to$1,170.5 million in the fourth quarter of 2022, with a decrease of$1,187.4 million 4.0% in theNorth America business segment and an increase of7.8% in the International business segment. On a constant currency basis(1), total net sales decreased2.6% , with a decrease of4.3% in theNorth America business segment and an increase of3.5% in the International business segment. - Gross margin was
43.8% as compared to41.2% in the fourth quarter of 2022. Adjusted gross margin(1) was44.2% as compared to41.6% in the fourth quarter of 2022. - Operating income decreased
17.1% to as compared to$121.9 million in the fourth quarter of 2022. Adjusted operating income(1) decreased$147.1 million 1.0% to as compared to$155.2 in the fourth quarter of 2022.$156.8 million - Net income decreased
24.2% to as compared to$77.1 million in the fourth quarter of 2022. Adjusted net income(1) decreased$101.7 million 2.4% to as compared to$93.9 million in the fourth quarter of 2022.$96.2 million - Earnings per diluted share ("EPS") decreased
24.6% to as compared to$0.43 in the fourth quarter of 2022. Adjusted EPS(1) decreased$0.57 1.9% to as compared to$0.53 in the fourth quarter of 2022.$0.54
SUMMARY FINANCIAL INFORMATION | |||||||||||
(in millions, except percentages and per | Three Months Ended | % | Year Ended | % | |||||||
December 31, | December 31, | December 31, | December 31, | ||||||||
Net sales | $ 1,170.5 | $ 1,187.4 | (1.4) % | $ 4,925.4 | $ 4,921.2 | 0.1 % | |||||
Net income | $ 77.1 | $ 101.7 | (24.2) % | $ 368.1 | $ 455.7 | (19.2) % | |||||
Adjusted net income(1) | $ 93.9 | $ 96.2 | (2.4) % | $ 425.6 | $ 467.9 | (9.0) % | |||||
EPS | $ 0.43 | $ 0.57 | (24.6) % | $ 2.08 | $ 2.53 | (17.8) % | |||||
Adjusted EPS(1) | $ 0.53 | $ 0.54 | (1.9) % | $ 2.40 | $ 2.60 | (7.7) % |
Company Chairman and CEO Scott Thompson commented, "We are pleased with our fourth quarter and full year 2023 financial performance, especially in light of the soft demand within the bedding category. We believe the Company outperformed the category. Our competitive advantages of developing and marketing differentiated products through consumer-centric innovation; world-class manufacturing capabilities; successful omni-distribution platform; and vertical integration enabled the Company to deliver solid financial results. The Company is uniquely positioned to realize significant sales growth once the bedding category returns to growth."
Business Segment Highlights: Fourth Quarter 2023
The Company's business segments include
International net sales increased
International net sales through the wholesale channel increased
International gross margin improved 50 basis points as compared to the fourth quarter of 2022. The improvement was primarily driven by favorable commodity costs, partially offset by unfavorable mix. International operating margin declined 150 basis points as compared to adjusted operating margin(1) in the fourth quarter of 2022. The decline was primarily driven by operating expense deleverage to support growth initiatives, partially offset by the improvement in gross margin.
Corporate operating expense increased to
Consolidated net income decreased
The Company ended the fourth quarter of 2023 with total debt of
Dividend Increase
Today, the Company announced that its Board of Directors increased the quarterly cash dividend by
Company Chairman and CEO Scott Thompson commented, "We are pleased to announce this increase to our quarterly dividend. Our Board of Directors increased the quarterly dividend to
Mattress Firm Update
Company Chairman and CEO Scott Thompson commented, "Regarding the pending Mattress Firm transaction, we certified compliance with the Federal Trade Commission's second request in the fourth quarter of 2023 and expect the transaction to close in the second half of 2024. Both Tempur Sealy and Mattress Firm continue to make joint progress in integration planning, including the signing of post-closing supply agreements with numerous companies providing Mattress Firm product. These agreements provide access post-closing to certain consumer-desired products, solidifying important supplier relationships. Additional discussions regarding post-closing supplier relationships are ongoing. Overall, we are optimistic about Tempur Sealy's future and look forward to welcoming Mattress Firm into the organization later this year."
Amendment to the 2023 Credit Agreement
On February 6, 2024, the Company and certain other parties thereto entered into an amendment to the 2023 Credit Agreement which provides for a
Financial Guidance
For the full year 2024, the Company currently expects adjusted EPS(1) between
Company Chairman and CEO Scott Thompson commented, "We are pleased to issue 2024 guidance that targets growth in both adjusted earnings per share(1) and sales. Underpinning our guidance is recent distribution gains and a belief that category demand is stabilizing around the world from negative year-over-year industry units. We expect full year 2024 industry units to be consistent with 2023 levels.
"With our strong financial position, resilient operating model and the recent investments made in our brands, products and expanded capacity, Tempur Sealy is positioned to grow adjusted earnings per share(1) and sales. As we grow into our new foam-pouring plant in the
The Company noted 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 is unable to provide forward–looking EPS guidance and the applicable reconciliation to adjusted EPS(1), without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact EPS in 2024.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, February 8, 2024, at 8:00 a.m. Eastern Time. The call will be webcast and can be accessed on the Company's investor relations website at investor.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.
Non-GAAP Financial Measures and Constant Currency Information
For additional information regarding EBITDA, adjusted EBITDA, adjusted EPS, adjusted net income, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash (all of which are non-GAAP financial measures), please refer to the reconciliations and other information included in the attached schedules. For information on the methodology used to present information on a constant currency basis, please refer to "Constant Currency Information" included in the attached schedules.
Forward-Looking Statements
This press release contains statements that may be characterized as "forward-looking," within the meaning of the federal securities laws. Such statements might include information concerning one or more of the Company's plans, guidance, objectives, goals, strategies, and other information that is not historical information. When used in this release, the words "assumes," "estimates," "expects," "guidance," "anticipates," "might," "projects," "plans," "proposed," "targets," "intends," "believes," "will," "contemplates" and variations of such words or similar expressions are intended to identify forward-looking statements. These forward-looking statements include, without limitation, statements relating to the Company's expectations regarding the announced Mattress Firm acquisition including the related regulatory approval process, the Company's expected quarterly results, full year guidance and outperformance relative to the broader industry, the Company's quarterly cash dividend, the Company's expectations regarding geopolitical events (including the war in
Numerous factors, many of which are beyond the Company's control, could cause actual results to differ materially from any that may be expressed herein as forward-looking statements. These potential risk factors include the factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 and in the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023 and September 30, 2023. There may be other factors that may cause the Company's actual results to differ materially from the forward-looking statements. The Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
About Tempur Sealy International, Inc.
Tempur Sealy is committed to improving the sleep of more people, every night, all around the world. As a leading designer, manufacturer, distributor and retailer of bedding products worldwide, we know how crucial a good night of sleep is to overall health and wellness. Utilizing over a century of knowledge and industry-leading innovation, we deliver award-winning products that provide breakthrough sleep solutions to consumers in over 100 countries.
Our highly recognized brands include Tempur-Pedic®, Sealy®, Stearns & Foster® and our popular non-branded offerings consist of value-focused private label and OEM products. At Tempur Sealy we understand the importance of meeting our customers wherever and however they want to shop and have developed a powerful omni-channel retail strategy. Our products allow for complementary merchandising strategies and are sold through third-party retailers, our over 750 Company-owned stores worldwide and e-commerce channels. With the range of our offerings and variety of purchasing options, we are dedicated to continuing to turn our mission to improve the sleep of more people, every night, all around the world into a reality.
Importantly, we are committed to carrying out our global responsibility to protect the environment and the communities in which we operate. As part of that commitment, we have established the goal of achieving carbon neutrality for our global wholly owned operations by 2040.
Investor Relations Contact:
Aubrey Moore
Investor Relations
Tempur Sealy International, Inc.
800-805-3635
Investor.relations@tempursealy.com
(1) This is a non-GAAP financial measure. Please refer to "Non-GAAP Financial Measures and Constant Currency Information" below. |
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES | |||||||||||
Three Months Ended | Year Ended | ||||||||||
December 31, | Chg % | December 31, | Chg % | ||||||||
2023 | 2022 | 2023 | 2022 | ||||||||
Net sales | $ 1,170.5 | $ 1,187.4 | (1.4) % | $ 4,925.4 | $ 4,921.2 | 0.1 % | |||||
Cost of sales | 657.7 | 698.2 | 2,796.7 | 2,871.6 | |||||||
Gross profit | 512.8 | 489.2 | 4.8 % | 2,128.7 | 2,049.6 | 3.9 % | |||||
Selling and marketing expenses | 263.6 | 247.8 | 1,063.4 | 992.5 | |||||||
General, administrative and other expenses | 136.9 | 101.0 | 481.1 | 397.6 | |||||||
Equity income in earnings of unconsolidated affiliates | (9.6) | (6.7) | (23.0) | (21.1) | |||||||
Operating income | 121.9 | 147.1 | (17.1) % | 607.2 | 680.6 | (10.8) % | |||||
Other expense, net: | |||||||||||
Interest expense, net | 30.9 | 31.6 | 129.9 | 103.0 | |||||||
Loss on extinguishment of debt | 3.2 | — | 3.2 | — | |||||||
Other expense, net | 0.2 | 1.9 | — | 0.4 | |||||||
Total other expense, net | 34.3 | 33.5 | 133.1 | 103.4 | |||||||
Income from continuing operations before income taxes | 87.6 | 113.6 | (22.9) % | 474.1 | 577.2 | (17.9) % | |||||
Income tax provision | (9.9) | (11.5) | (103.4) | (119.0) | |||||||
Income from continuing operations | 77.7 | 102.1 | (23.9) % | 370.7 | 458.2 | (19.1) % | |||||
Income (loss) from discontinued operations, net of tax | — | 0.4 | — | (0.4) | |||||||
Net income before non-controlling interest | 77.7 | 102.5 | (24.2) % | 370.7 | 457.8 | (19.0) % | |||||
Less: Net income attributable to non-controlling interest | 0.6 | 0.8 | 2.6 | 2.1 | |||||||
Net income attributable to Tempur Sealy International, Inc. | $ 77.1 | $ 101.7 | (24.2) % | $ 368.1 | $ 455.7 | (19.2) % | |||||
Earnings per common share: | |||||||||||
Basic | |||||||||||
Earnings per share for continuing operations | $ 0.45 | $ 0.59 | $ 2.14 | $ 2.61 | |||||||
Earnings per share for discontinued operations | — | 0.01 | — | — | |||||||
Earnings per share | $ 0.45 | $ 0.60 | (25.0) % | $ 2.14 | $ 2.61 | (18.0) % | |||||
Diluted | |||||||||||
Earnings per share for continuing operations | $ 0.43 | $ 0.57 | $ 2.08 | $ 2.53 | |||||||
Earnings per share for discontinued operations | — | — | — | — | |||||||
Earnings per share | $ 0.43 | $ 0.57 | (24.6) % | $ 2.08 | $ 2.53 | (17.8) % | |||||
Weighted average common shares outstanding: | |||||||||||
Basic | 172.3 | 170.9 | 172.2 | 174.9 | |||||||
Diluted | 178.2 | 177.0 | 177.3 | 180.3 |
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES | |||
December 31, 2023 | December 31, 2022 | ||
ASSETS | (unaudited) | ||
Current Assets: | |||
Cash and cash equivalents | $ 74.9 | $ 69.4 | |
Accounts receivable, net | 431.4 | 422.6 | |
Inventories | 483.1 | 555.0 | |
Prepaid expenses and other current assets | 113.8 | 148.2 | |
Total Current Assets | 1,103.2 | 1,195.2 | |
Property, plant and equipment, net | 878.3 | 791.1 | |
Goodwill | 1,083.3 | 1,062.3 | |
Other intangible assets, net | 714.8 | 715.8 | |
Operating lease right-of-use assets | 636.5 | 506.8 | |
Deferred income taxes | 15.6 | 11.3 | |
Other non-current assets | 122.2 | 77.3 | |
Total Assets | $ 4,553.9 | $ 4,359.8 | |
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | |||
Current Liabilities: | |||
Accounts payable | $ 311.3 | $ 359.8 | |
Accrued expenses and other current liabilities | 427.1 | 432.7 | |
Short-term operating lease obligations | 119.6 | 105.5 | |
Income taxes payable | 5.3 | 12.8 | |
Current portion of long-term debt | 44.9 | 70.4 | |
Total Current Liabilities | 908.2 | 981.2 | |
Long-term debt, net | 2,527.0 | 2,739.9 | |
Long-term operating lease obligations | 574.8 | 453.5 | |
Deferred income taxes | 127.9 | 114.0 | |
Other non-current liabilities | 82.6 | 83.5 | |
Total Liabilities | 4,220.5 | 4,372.1 | |
Redeemable non-controlling interest | 10.0 | 9.8 | |
Stockholders' Equity (Deficit): | |||
Common stock, | 2.8 | 2.8 | |
Additional paid in capital | 558.7 | 598.2 | |
Retained earnings | 3,279.2 | 2,988.5 | |
Accumulated other comprehensive loss | (136.7) | (176.9) | |
Treasury stock at cost; 111.5 million and 113.3 million shares as of December 31, 2023 | (3,380.6) | (3,434.7) | |
Total Stockholders' Equity (Deficit) | 323.4 | (22.1) | |
Total Liabilities, Redeemable Non-Controlling Interest and Stockholders' Equity (Deficit) | $ 4,553.9 | $ 4,359.8 |
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES | |||
Year Ended December 31, | |||
2023 | 2022 | ||
CASH FLOWS FROM OPERATING ACTIVITIES FROM CONTINUING OPERATIONS: | |||
Net income before non-controlling interest | $ 370.7 | $ 457.8 | |
Loss from discontinued operations, net of tax | — | 0.4 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |||
Depreciation and amortization | 135.3 | 127.1 | |
Amortization of stock-based compensation | 47.7 | 53.1 | |
Amortization of deferred financing costs | 3.9 | 3.9 | |
Bad debt expense | 8.2 | 6.7 | |
Deferred income taxes | 8.3 | (10.5) | |
Dividends received from unconsolidated affiliates | 20.4 | 22.9 | |
Equity income in earnings of unconsolidated affiliates | (23.0) | (21.1) | |
Loss on extinguishment of debt | 1.4 | — | |
Foreign currency transaction adjustments and other | (0.9) | 0.3 | |
Changes in operating assets and liabilities: | |||
Accounts receivable | (11.5) | (14.8) | |
Inventories | 75.8 | (101.9) | |
Prepaid expenses and other assets | 50.1 | (24.2) | |
Operating leases, net | 5.3 | 4.4 | |
Accounts payable | (46.9) | (59.5) | |
Accrued expenses and other liabilities | (14.7) | (67.3) | |
Income taxes receivable and payable | (59.8) | 1.5 | |
Net cash provided by operating activities from continuing operations | 570.3 | 378.8 | |
CASH FLOWS FROM INVESTING ACTIVITIES FROM CONTINUING OPERATIONS: | |||
Purchases of property, plant and equipment | (185.4) | (306.5) | |
Other | (2.4) | (8.8) | |
Net cash used in investing activities from continuing operations | (187.8) | (315.3) | |
CASH FLOWS FROM FINANCING ACTIVITIES FROM CONTINUING OPERATIONS: | |||
Proceeds from borrowings under long-term debt obligations | 2,667.6 | 2,303.1 | |
Repayments of borrowings under long-term debt obligations | (2,918.4) | (1,828.6) | |
Proceeds from exercise of stock options | 2.9 | 0.5 | |
Treasury stock repurchased | (36.0) | (667.4) | |
Dividends paid | (77.7) | (70.5) | |
Payment of deferred financing costs | (6.5) | — | |
Repayments of finance lease obligations and other | (16.2) | (16.2) | |
Net cash used in financing activities from continuing operations | (384.3) | (279.1) | |
Net cash used in continuing operations | (1.8) | (215.6) | |
Net operating cash flows used in discontinued operations | — | (0.3) | |
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS | 7.3 | (15.4) | |
Increase (decrease) in cash and cash equivalents | 5.5 | (231.3) | |
CASH AND CASH EQUIVALENTS, beginning of period | 69.4 | 300.7 | |
CASH AND CASH EQUIVALENTS, end of period | $ 74.9 | $ 69.4 |
Summary of Channel Sales
The following table highlights net sales information, by channel and by business segment, for the three months ended December 31, 2023 and 2022:
Three Months Ended December 31, | |||||||||||
(in millions) | Consolidated | International | |||||||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | ||||||
Wholesale(a) | $ 869.7 | $ 906.1 | $ 762.8 | $ 812.9 | $ 106.9 | $ 93.2 | |||||
Direct(b) | 300.8 | 281.3 | 132.6 | 119.4 | 168.2 | 161.9 | |||||
$ 1,170.5 | $ 1,187.4 | $ 895.4 | $ 932.3 | $ 275.1 | $ 255.1 |
(a) | The Wholesale channel includes all third party retailers, including third party distribution, hospitality and healthcare. |
(b) | The Direct channel includes company-owned stores, online and call centers. |
TEMPUR SEALY INTERNATIONAL, INC. AND SUBSIDIARIES
Reconciliation of Non-GAAP Financial Measures
(in millions, except percentages, ratios and per common share amounts)
The Company provides information regarding adjusted net income, adjusted EPS, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, EBITDA, adjusted EBITDA, consolidated indebtedness and consolidated indebtedness less netted cash, which are not recognized terms under GAAP and do not purport to be alternatives to net income, earnings per share, gross profit, gross margin, operating income (expense) and operating margin as a measure of operating performance or an alternative to total debt as a measure of liquidity. The Company believes these non-GAAP financial measures provide investors with performance measures that better reflect the Company's underlying operations and trends, providing a perspective not immediately apparent from net income, gross profit, gross margin, operating income (expense) and operating margin. The adjustments management makes to derive the non-GAAP financial measures include adjustments to exclude items that may cause short-term fluctuations in the nearest GAAP financial measure, but which management does not consider to be the fundamental attributes or primary drivers of the Company's business.
The Company believes that exclusion of these items assists in providing a more complete understanding of the Company's underlying results from continuing operations and trends, and management uses these measures along with the corresponding GAAP financial measures to manage the Company's business, to evaluate its consolidated and business segment performance compared to prior periods and the marketplace, to establish operational goals and to provide continuity to investors for comparability purposes. Limitations associated with the use of these non-GAAP financial measures include that these measures do not present all of the amounts associated with the Company's results as determined in accordance with GAAP. These non-GAAP financial measures should be considered supplemental in nature and should not be construed as more significant than comparable financial measures defined by GAAP. Because not all companies use identical calculations, these presentations may not be comparable to other similarly titled measures of other companies. For more information about these non-GAAP financial measures and a reconciliation to the nearest GAAP financial measure, please refer to the reconciliations on the following pages.
Constant Currency Information
In this press release the Company refers to, and in other press releases and other communications with investors the Company may refer to, net sales, earnings or other historical financial information on a "constant currency basis," which is a non-GAAP financial measure. These references to constant currency basis do not include operational impacts that could result from fluctuations in foreign currency rates. To provide information on a constant currency basis, the applicable financial results are adjusted based on a simple mathematical model that translates current period results in local currency using the comparable prior corresponding period's currency conversion rate. This approach is used for countries where the functional currency is the local country currency. This information is provided so that certain financial results can be viewed without the impact of fluctuations in foreign currency rates, thereby facilitating period-to-period comparisons of business performance.
Adjusted Net Income and Adjusted EPS
A reconciliation of reported net income to adjusted net income and the calculation of adjusted EPS are provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes at the end of this release.
The following table sets forth the reconciliation of the Company's reported net income to adjusted net income and the calculation of adjusted EPS for the three months ended December 31, 2023 and 2022:
Three Months Ended | |||
(in millions, except per share amounts) | December 31, 2023 | December 31, 2022 | |
Net income | $ 77.1 | $ 101.7 | |
Transaction costs(1) | 17.5 | — | |
Fair value remeasurement(2) | 11.0 | — | |
Operational start-up costs(3) | 4.0 | 1.6 | |
Loss on extinguishment of debt(4) | 3.2 | — | |
Cybersecurity event(5) | 0.8 | — | |
Restructuring costs(6) | — | 4.7 | |
ERP system transition(7) | — | 3.4 | |
Income from discontinued operations, net of tax(8) | — | (0.4) | |
Danish tax matter(9) | (10.2) | (12.3) | |
Adjusted income tax provision(10) | (9.5) | (2.5) | |
Adjusted net income | $ 93.9 | $ 96.2 | |
Adjusted earnings per share, diluted | $ 0.53 | $ 0.54 | |
Diluted shares outstanding | 178.2 | 177.0 |
The following table sets forth the reconciliation of the Company's reported net income to adjusted net income and the calculation of adjusted EPS for the years ended December 31, 2023 and 2022:
Year Ended | |||
(in millions, except per common share amounts) | December 31, 2023 | December 31, 2022 | |
Net income | $ 368.1 | $ 455.7 | |
Transaction costs(1) | 49.0 | — | |
Cybersecurity event(5) | 14.3 | — | |
Fair value remeasurement(2) | 11.0 | — | |
Operational start-up costs(3) | 10.4 | 6.5 | |
ERP system transition(7) | 3.2 | 15.5 | |
Loss on extinguishment of debt(4) | 3.2 | — | |
Restructuring costs(6) | — | 10.0 | |
Loss from discontinued operations, net of tax(8) | — | 0.4 | |
Danish tax matter(9) | (10.2) | (12.3) | |
Adjusted income tax provision(10) | (23.4) | (7.9) | |
Adjusted net income | $ 425.6 | $ 467.9 | |
Adjusted earnings per share, diluted | $ 2.40 | $ 2.60 | |
Diluted shares outstanding | 177.3 | 180.3 |
Please refer to Footnotes at the end of this release |
Adjusted Gross Profit, Adjusted Gross Margin, Adjusted Operating Income (Expense) and Adjusted Operating Margin
A reconciliation of gross profit and gross margin to adjusted gross profit and adjusted gross margin, respectively, and operating income (expense) and operating margin to adjusted operating income (expense) and adjusted operating margin, respectively, are provided below. Management believes that the use of these non-GAAP financial measures provides investors with additional useful information with respect to the impact of various adjustments as described in the footnotes at the end of this release.
The following table sets forth the reconciliation of the Company's reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended December 31, 2023.
4Q 2023 | |||||||||||||
(in millions, except percentages) | Consolidated | Margin | North America | Margin | International | Margin | Corporate | ||||||
Net sales | $ 1,170.5 | $ 895.4 | $ 275.1 | $ — | |||||||||
Gross profit | $ 512.8 | 43.8 % | $ 359.7 | 40.2 % | $ 153.1 | 55.7 % | $ — | ||||||
Adjustments: | |||||||||||||
Operational start-up costs(3) | 3.8 | 3.8 | — | — | |||||||||
Cybersecurity event(5) | 0.5 | 0.5 | — | — | |||||||||
Total adjustments | 4.3 | 4.3 | — | — | |||||||||
Adjusted gross profit | $ 517.1 | 44.2 % | $ 364.0 | 40.7 % | $ 153.1 | 55.7 % | $ — | ||||||
Operating income (expense) | $ 121.9 | 10.4 % | $ 137.5 | 15.4 % | $ 52.8 | 19.2 % | $ (68.4) | ||||||
Adjustments: | |||||||||||||
Transaction costs(1) | 17.5 | — | — | 17.5 | |||||||||
Fair value remeasurement(2) | 11.0 | — | — | 11.0 | |||||||||
Operational start-up costs(3) | 4.0 | 4.0 | — | — | |||||||||
Cybersecurity event(5) | 0.8 | 0.5 | — | 0.3 | |||||||||
Total adjustments | 33.3 | 4.5 | — | 28.8 | |||||||||
Adjusted operating income | $ 155.2 | 13.3 % | $ 142.0 | 15.9 % | $ 52.8 | 19.2 % | $ (39.6) |
Please refer to Footnotes at the end of this release |
The following table sets forth the reconciliation of the Company's reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the three months ended December 31, 2022.
4Q 2022 | |||||||||||||
(in millions, except percentages) | Consolidated | Margin | North America | Margin | International | Margin | Corporate | ||||||
Net sales | $ 1,187.4 | $ 932.3 | $ 255.1 | $ — | |||||||||
Gross profit | $ 489.2 | 41.2 % | $ 348.4 | 37.4 % | $ 140.8 | 55.2 % | $ — | ||||||
Adjustments: | |||||||||||||
ERP system transition(7) | 3.4 | 3.4 | — | — | |||||||||
Operational start-up costs(3) | 1.6 | 1.6 | — | — | |||||||||
Total adjustments | 5.0 | 5.0 | — | — | |||||||||
Adjusted gross profit | $ 494.2 | 41.6 % | $ 353.4 | 37.9 % | $ 140.8 | 55.2 % | $ — | ||||||
Operating income (expense) | $ 147.1 | 12.4 % | $ 135.9 | 14.6 % | $ 52.0 | 20.4 % | $ (40.8) | ||||||
Adjustments: | |||||||||||||
Restructuring costs(6) | 4.7 | — | 0.7 | 4.0 | |||||||||
ERP system transition(7) | 3.4 | 3.4 | — | — | |||||||||
Operational start-up costs(3) | 1.6 | 1.6 | — | — | |||||||||
Total adjustments | 9.7 | 5.0 | 0.7 | 4.0 | |||||||||
Adjusted operating income (expense) | $ 156.8 | 13.2 % | $ 140.9 | 15.1 % | $ 52.7 | 20.7 % | $ (36.8) |
The following table sets forth the reconciliation of the Company's reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2023.
FULL YEAR 2023 | |||||||||||||
(in millions, except percentages) | Consolidated | Margin | North America | Margin | International | Margin | Corporate | ||||||
Net sales | $ 4,925.4 | $ 3,855.5 | $ 1,069.9 | $ — | |||||||||
Gross profit | $ 2,128.7 | 43.2 % | $ 1,537.5 | 39.9 % | $ 591.2 | 55.3 % | $ — | ||||||
Adjustments: | |||||||||||||
Operational start-up costs(3) | 10.2 | 10.2 | — | — | |||||||||
Cybersecurity event(5) | 10.1 | 10.1 | — | — | |||||||||
ERP system transition(7) | 3.2 | 3.2 | — | — | |||||||||
Total adjustments | 23.5 | 23.5 | — | — | |||||||||
Adjusted gross profit | $ 2,152.2 | 43.7 % | $ 1,561.0 | 40.5 % | $ 591.2 | 55.3 % | $ — | ||||||
Operating income (expense) | $ 607.2 | 12.3 % | $ 643.1 | 16.7 % | $ 170.9 | 16.0 % | $ (206.8) | ||||||
Adjustments: | |||||||||||||
Transaction costs(1) | 49.0 | — | — | 49.0 | |||||||||
Cybersecurity event(5) | 14.3 | 10.5 | 1.1 | 2.7 | |||||||||
Fair value remeasurement(2) | 11.0 | — | — | 11.0 | |||||||||
Operational start-up costs(3) | 10.4 | 10.4 | — | — | |||||||||
ERP system transition(7) | 3.2 | 3.2 | — | — | |||||||||
Total adjustments | 87.9 | 24.1 | 1.1 | 62.7 | |||||||||
Adjusted operating income (expense) | $ 695.1 | 14.1 % | $ 667.2 | 17.3 % | $ 172.0 | 16.1 % | $ (144.1) |
Please refer to Footnotes at the end of this release |
The following table sets forth the reconciliation of the Company's reported gross profit and operating income (expense) to the calculation of adjusted gross profit and adjusted operating income (expense) for the year ended December 31, 2022.
FULL YEAR 2022 | |||||||||||||
(in millions, except percentages) | Consolidated | Margin | North America | Margin | International | Margin | Corporate | ||||||
Net sales | $ 4,921.2 | $ 3,886.1 | $ 1,035.1 | $ — | |||||||||
Gross profit | $ 2,049.6 | 41.6 % | $ 1,487.3 | 38.3 % | $ 562.3 | 54.3 % | $ — | ||||||
Adjustments: | |||||||||||||
ERP system transition(7) | 11.1 | 11.1 | — | — | |||||||||
Operational start-up costs(3) | 5.8 | 5.8 | — | — | |||||||||
Total adjustments | 16.9 | 16.9 | — | — | |||||||||
Adjusted gross profit | $ 2,066.5 | 42.0 % | $ 1,504.2 | 38.7 % | $ 562.3 | 54.3 % | $ — | ||||||
Operating income (expense) | $ 680.6 | 13.8 % | $ 642.4 | 16.5 % | $ 187.2 | 18.1 % | $ (149.0) | ||||||
Adjustments: | |||||||||||||
ERP system transition(7) | 15.5 | 14.3 | — | 1.2 | |||||||||
Restructuring costs(6) | 9.8 | 1.8 | 1.3 | 6.7 | |||||||||
Operational start-up costs(3) | 6.1 | 6.1 | — | — | |||||||||
Total adjustments | 31.4 | 22.2 | 1.3 | 7.9 | |||||||||
Adjusted operating income (expense) | $ 712.0 | 14.5 % | $ 664.6 | 17.1 % | $ 188.5 | 18.2 % | $ (141.1) |
Please refer to Footnotes at the end of this release |
EBITDA, Adjusted EBITDA and Consolidated Indebtedness Less Netted Cash
The following reconciliations are provided below:
- Net income to EBITDA and adjusted EBITDA
- Ratio of consolidated indebtedness less netted cash to adjusted EBITDA
- Total debt, net to consolidated indebtedness less netted cash
Management believes that presenting these non-GAAP measures provides investors with useful information with respect to the Company's operating performance, cash flow generation and comparisons from period to period, as well as general information about the Company's progress in reducing its leverage.
The Company's credit agreement (the "2023 Credit Agreement") provides the definition of adjusted EBITDA. Accordingly, the Company presents adjusted EBITDA to provide information regarding the Company's compliance with requirements under the 2023 Credit Agreement.
The following table sets forth the reconciliation of the Company's reported net income to the calculations of EBITDA and adjusted EBITDA for the three months ended December 31, 2023 and 2022:
Three Months Ended | |||
(in millions) | December 31, 2023 | December 31, 2022 | |
Net income | $ 77.1 | $ 101.7 | |
Interest expense, net | 30.9 | 31.6 | |
Loss on extinguishment of debt(4) | 3.2 | — | |
Income tax provision | 9.9 | 11.5 | |
Depreciation and amortization | 48.0 | 48.2 | |
EBITDA | $ 169.1 | $ 193.0 | |
Adjustments: | |||
Transaction costs(1) | 17.5 | — | |
Fair value remeasurement(2) | 11.0 | — | |
Operational start-up costs(3) | 4.0 | 1.6 | |
Cybersecurity event(5) | 0.8 | — | |
ERP system transition(7) | — | 3.4 | |
Restructuring costs(6) | — | 4.7 | |
Income from discontinued operations, net of tax(8) | — | (0.4) | |
Adjusted EBITDA | $ 202.4 | $ 202.3 |
Please refer to Footnotes at the end of this release |
The following table sets forth the reconciliation of the Company's reported net income to the calculations of EBITDA and adjusted EBITDA for the year ended December 31, 2023:
Year Ended | |
(in millions) | December 31, 2023 |
Net income | $ 368.1 |
Interest expense, net | 129.9 |
Loss on extinguishment of debt(4) | 3.2 |
Income tax provision | 103.4 |
Depreciation and amortization | 184.8 |
EBITDA | $ 789.4 |
Adjustments: | |
Transaction costs(1) | 49.0 |
Cybersecurity event(5) | 14.3 |
Fair value remeasurement(2) | 11.0 |
Operational start-up costs(3) | 10.4 |
ERP system transition(7) | 3.2 |
Adjusted EBITDA | $ 877.3 |
Consolidated indebtedness less netted cash | $ 2,518.7 |
Ratio of consolidated indebtedness less netted cash to adjusted EBITDA | 2.87 times |
On October 10, 2023, the Company entered into the 2023 Credit Agreement with a syndicate of banks, replacing the 2019 Credit Agreement. Under the 2023 Credit Agreement, the definition of adjusted EBITDA contains certain restrictions that limit adjustments to net income when calculating adjusted EBITDA. For the twelve months ended December 31, 2023, the Company's adjustments to net income when calculating adjusted EBITDA did not exceed the allowable amount under the 2023 Credit Agreement.
The ratio of consolidated indebtedness less netted cash to adjusted EBITDA is 2.87 times for the twelve months ended December 31, 2023. The 2023 Credit Agreement requires the Company to maintain a ratio of consolidated indebtedness less netted cash to adjusted EBITDA of less than 5.00 times.
The following table sets forth the reconciliation of the Company's reported total debt to the calculation of consolidated indebtedness less netted cash as of December 31, 2023. "Consolidated Indebtedness" and "Netted Cash" are terms used in the 2023 Credit Agreement for purposes of certain financial covenants.
(in millions) | December 31, 2023 |
Total debt, net | $ 2,571.9 |
Plus: Deferred financing costs(11) | 21.7 |
Consolidated indebtedness | 2,593.6 |
Less: Netted cash(12) | 74.9 |
Consolidated indebtedness less netted cash | $ 2,518.7 |
Please refer to Footnotes at the end of this release |
Footnotes:
(1) | The Company recorded |
(2) | In the fourth quarter of 2023, the Company recorded a fair value remeasurement of |
(3) | The Company recorded |
(4) | In the fourth quarter of 2023, the Company recognized |
(5) | The Company recorded |
(6) | The Company recorded |
(7) | The Company recorded |
(8) | Certain subsidiaries in the International business segment were accounted for as discontinued operations and had been designated as unrestricted subsidiaries in the 2019 Credit Agreement. Therefore, these subsidiaries were excluded from the Company's adjusted financial measures for covenant compliance purposes. |
(9) | The Company recorded an income tax benefit, on a net basis, of |
(10) | Adjusted income tax provision represents the tax effects associated with the aforementioned items, excluding the income tax benefit for the Danish tax matter. |
(11) | The Company presents deferred financing costs as a direct reduction from the carrying amount of the related debt in the Condensed Consolidated Balance Sheets. For purposes of determining total debt for financial covenant purposes, the Company has added these costs back to total debt, net as calculated per the Condensed Consolidated Balance Sheets. |
(12) | Netted cash includes cash and cash equivalents for domestic and foreign subsidiaries designated as restricted subsidiaries in the 2023 Credit Agreement. |
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SOURCE Tempur Sealy International, Inc.
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