Tempur Sealy International, Inc. (TPX)

TPX 
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Industry: Consumer Durables
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Tempur-Pedic International (TPX)

Q4 2012 Earnings Call

January 24, 2013 5:00 pm ET

Executives

Mark Rupe - Vice President

Mark A. Sarvary - Chief Executive Officer, President and Director

Dale E. Williams - Chief Financial Officer and Executive Vice President

Analysts

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Chad Bolen

David S. MacGregor - Longbow Research LLC

Reza Vahabzadeh - Barclays Capital, Research Division

Bonanza Chalaban - KeyBanc Capital Markets Inc., Research Division

Jon Andersen - William Blair & Company L.L.C., Research Division

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Jessica Schoen - Barclays Capital, Research Division

Jonathan N. Berg - Piper Jaffray Companies, Research Division

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Tempur-Pedic Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Mark Rupe. Sir, you may begin.

Mark Rupe

Thanks, Sam, and thanks for everyone participating in today's call. Joining me in our Lexington headquarters are Mark Sarvary, President and CEO; and Dale Williams, EVP and CFO. After our prepared remarks, we will open up 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, earnings or the proposed transaction with Sealy, involve uncertainties. Actual results may differ due to a variety of factors that could adversely affect the company's business. Factors that could cause actual results to differ materially from those identified include economic, regulatory, competitive, operating and other factors discussed in the press release issued today. These factors are also discussed in the company's SEC filings, including, but not limited to, annual reports on Form 10-K, under the heading Special Note Regarding Forward-looking Statements and/or Risk factors. Any forward-looking statements speak only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements. The press release, which contains the 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. With that introduction, I will turn the call over to Mark Sarvary.

Mark A. Sarvary

Thanks, Mark. Good evening, everyone, and thanks for joining us. Today, I'll provide a brief overview of our performance in the fourth quarter, an update on the progress of our recent initiatives, and then outline our strategic focus areas for 2013. Dale will then provide details on the fourth quarter and full-year financial results, and 2013 guidance.

Our fourth quarter results were in line with our projections, both in North America and internationally. Sales overall declined 7%, with North American sales down 9% and International sales down 4%. In North America, we continue to see signs of stabilization, driven by many of the initiatives we launched in the third quarter. Rollouts of our new TEMPUR-Breeze, Weightless and Cloud Select products are now essentially complete, and we've been pleased with consumer response to these new products. In particular, the response to the TEMPUR-Breeze mattresses has been quite positive. These mattresses feature phase-change material and our proprietary TEMPUR-Climate material, and they deliver a proven, cooler sleeping surface during the night. These mattresses are very different from other products on the sales floor, especially those that use gel memory foam. Those products are often advertised as being cooler. But in fact, the gel technology is ineffective in its claim that it will help consumers sleep cooler than they [indiscernible] has recommended that a competitor withdraw comparatives [indiscernible]. Our R&D efforts will continue to be focused on [indiscernible] and also are proprietary and consumer-valued and that allow retailers to attract new consumers and to improve their average retail selling prices.

In 2013, we will launch several new products that will continue to broaden the appeal of Tempur-Pedic, and some of those will be on display next week at the Las Vegas Bedding Show, including a new mattress collection, the TEMPUR-Choice collection.

TEMPUR-Choice will initially comprise 2 mattress models, priced at the higher end of our price range. The collection is designed to deliver the superior comfort and pressure relief of our proprietary TEMPUR material, while offering the added benefit of adjustable firmness and support across multiple zones on both sides of the bed. Initial retailer feedback has been very positive, and we expect that it will not only be incremental to our business, but also to theirs. I'll save the rest of the details on TEMPUR-Choice and the other planned product introductions for the show.

Switching now to our International business, as I said, our fourth quarter sales were down 4% consistent with recent projections. While we continued to perform well in some of our key European markets, such as Germany, weak economic fundamentals in Europe, as a whole, pressured our performance.

On the other hand, our Asia-Pacific business continued to perform well during the period, reflecting solid performance in the key markets of Japan and Korea. New products will also be a major focus for our International business in 2013. We have just begun shipping a new and entirely updated TEMPUR Original collection to our customers in Northern Europe and will roll it out to other regions during the year. Initial customer reaction has been quite positive and modest slot [ph] gains are expected. There will also be other new product introductions later in the year.

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