Shares of Tempur Sealy International, Inc. (TPX) plunged nearly 13 percent in extended trading on Thursday after the bedding products maker reported adjusted earnings per share for the third quarter that missed analysts' expectations by a penny, while quarterly net sales topped their estimates.
The company also trimmed adjusted earnings guidance for the full-year 2014, while raising annual sales outlook.
The company reported a profit for the quarter that declined eight percent from last year, despite double-digit sales growth, reflecting lower gross margins at Sealy and Tempur International.
"Overall we are pleased with our third quarter performance. We executed well on our strategic initiatives which led to better than expected sales and a solid increase in earnings. Tempur North America in particular performed very well, achieving record quarterly sales and a significant improvement in operating margin," CEO Mark Sarvary said in a statement.
The Lexington, Kentucky-based company reported net income of $37.1 million or $0.60 per share for the third quarter, lower than $40.2 million or $0.65 per share in the prior-year quarter.
Results for the latest quarter include a discrete tax item associated with the repatriation of foreign earnings as well as integration and transaction costs, and certain non-recurring interest expense and financing costs.
Excluding items, adjusted net income for the quarter was $54.8 million or $0.88 per share, compared to $44.9 million or $0.73 per share in the year-ago quarter.
On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.89 per share for the quarter. Analysts' estimates typically exclude special items.
Net sales for the quarter grew 12.5 percent to $827.4 million from $735.50 million in the same quarter last year, and topped ten Wall Street analysts' consensus estimate of $796.94 million.
The company noted that net sales increase was driven by double digit sales growth in each of the company's three business segments.
Total bedding products sales increased to $755.3 million from $662.3 million, while other products sales declined to $72.1 million from $73.2 million last year.
Tempur North America net sales increased 15.8 percent to $280.6 million, with bedding sales increasing 19.5 percent, while other products sales decreased 22.0 percent.
Tempur International net sales grew 10.9 percent to $114.5 million, with bedding sales growing 10.7 percent, and other products sales increasing 11.6 percent. Sealy net sales improved 10.9 percent to $432.3 million, with bedding sales increasing 11.4 percent, and other products sales growing 2.4 percent.
"Both Sealy and Tempur International sales grew well, but their margins were below plan and constrained our overall profitability," Sarvary added.
Gross profit margin for the quarter contracted 210 basis points to 38.5 percent from last year's 40.6 percent as a result of lower Sealy and Tempur International gross margins, offset partially by an increase in Tempur North America's gross margin.
Looking ahead to fiscal 2014, the company trimmed adjusted earnings guidance to a range of $2.60 to $2.70 per share from the prior forecast of $2.60 to $2.85 per share. However, the company now anticipates net sales between $2.97 billion and $3.00 billion, up from the previous projection between $2.93 billion and $2.98 billion.
Street is currently looking for full-year 2014 earnings of $2.73 per share on annual revenues of $2.95 billion.
TPX closed Thursday's regular trading session at $58.71, up $0.82 or 1.42% on a volume of 1.81 million shares. However, the stock plunged $7.51 or 12.79% in after-hours trading.
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