Tempur Sealy International, Inc. (TPX)

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Tempur-Pedic International, Inc. (TPX)

Q1 2010 Earnings Call

April 20, 2010 5:00 pm ET

Executives

Barry Hytinen – Senior Vice President

Mark A. Sarvary – President, Chief Executive Officer & Director

Dale E. Williams – Chief Executive Officer, Executive Vice President & Secretary

Analysts

Mark Rupe – Longbow Research

Bob Drbul – Barclays Capital

Analyst for Budd Bugatch – Raymond James & Associates, Inc.

Keith Hughes – SunTrust Robinson Humphrey

John Baugh – Stifel Nicolaus & Company

Jack Murphy – William Blair & Company

Henry Capellan – Oppenheimer

Brad Thomas – Keybanc Capital Markets

Presentation

Operator

Welcome to the Tempur-Pedic first quarter 2010 earnings conference call. Today’s conference is being recorded. At this time I’d like to turn the Barry Hytinen, Senior Vice President.

Barry Hytinen

Joining me in our Lexington headquarters are Mark Sarvary, President and CEO and Dale Williams, CFO. After prepared remarks we will open the call for Q&A. Forward-looking statements that we make during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements including the company’s expectations regarding sales and earnings involve uncertainties.

Actual results may differ due to a variety of factors that could adversely affect the company’s business. The factors that could cause actual results to differ materially from those identified include economic, competitive, operating and other factors discussed in the press release issued today. These factors are also discussed in the company’s SEC filings including the company’s annual report on Form 10K under the headings special note regarding forward-looking statements and risk factors.

Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligations to update any forward-looking statements. The press release which contains a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is posted on the company’s website at Tempurpedic.com and filed with the SEC.

Now, with that introduction it’s my pleasure to turn the call over to Mark.

Mark A. Sarvary

Today I’ll provide a brief overview of our performance in the first quarter and then an update on some of our strategic focus areas and then a commentary on our outlook. Dale will then provide a detailed review of the first quarter financial results and will discuss our revised guidance. We’re really pleased with our first quarter results. We’ve increased sales and grown our market share while improving both our gross and operating margins. Our investments in marketing and research and development are driving our sales momentum and we believe they will continue to do so in the future.

Sales were up 43% from last year and earnings per share were up 144%. Fixed cost leverage in our productivity program helped increase gross margin by 300 basis points year-over-year to 49.2% and we were able to increase our operating margin by 600 basis points year-over-year to 20.6%. Overall, a very good start to the year.

During the earnings call three months ago I outlined our strategic focus areas for 2010 and beyond to drive growth and I said that from time-to-time this year we would update the investment community on our progress. Today, I’ll talk about three of them: our commitment to makes sure that there’s a Tempur mattress for everyone; our commitment to ensure that they would sleep better on Tempur; and finally, our commitment to ensure that Tempur is available to everyone.

Firstly, I’m very pleased with the progress we made this quarter to ensure there is a Tempur mattress and a pillow that appeals to everyone. Our new cloud and sensational lines both experienced strong growth. We designed these products to address specific holes in our existing product line and they are doing what we hoped, expanding our addressable market and growing share.

The Tempur Cloud Supreme which we only launched in November has already completed its roll out in the US. The performance of this new product has been exceptional and importantly, it appears to be very largely incremental to our business. We began shifting the entry level Cloud mattress in mid February. It has gained significant new floor space and is performing well and its roll out will continue through the second quarter. Earlier this year at the Vegas market we showed our top of the line Cloud mattress, the Cloud Luxe and in response to retailer enthusiasm, we’ve accelerated our launch plan for the Luxe and expect to start shipping in August. In the second quarter we will begin distributing the Cloud line in Canada.

Internationally, our Sensation mattress line continues its roll out across Europe. We’ve been very impressed with the lines sales per slot and distribution gain. Also, last quarter we introduced the [Promesa] mattress in Europe. It’s a completely unique mattress, extraordinarily soft and comfortable and with a sleeping surface that is contoured like a wave. You have to see it to believe it and it’s priced higher. The queen size mattress equivalent of about $7,000 which means this is our highest priced mattress anywhere in the world and it certainly has been catching the attention of retailers across Europe.

It’s a busy new product year for us and we’ve got interest in concepts under development which should provide us with compelling offerings in the years to follow. The second strategic focus area that I want to discuss is our commitment to ensuring everyone knows they would sleep better on a Tempur mattress and pillow and here too we’ve made good progress.

Read the rest of this transcript for free on seekingalpha.com