Bedding manufacturer Tempur Sealy (NYSE:TPX) fell short of analysts' expectations in Q2 CY2024, with revenue down 2.8% year on year to $1.23 billion. It made a non-GAAP profit of $0.63 per share, improving from its profit of $0.58 per share in the same quarter last year.
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Tempur Sealy (TPX) Q2 CY2024 Highlights:
- Revenue: $1.23 billion vs analyst estimates of $1.28 billion (3.5% miss)
- EPS (non-GAAP): $0.63 vs analyst expectations of $0.64 (1.2% miss)
- EPS (non-GAAP) guidance for the full year is $2.55 at the midpoint, missing analyst estimates by 4.7%
- Gross Margin (GAAP): 44.9%, up from 42.7% in the same quarter last year
- Adjusted EBITDA Margin: 18.8%, up from 17.1% in the same quarter last year
- Free Cash Flow of $122.1 million, up 23.7% from the previous quarter
- Market Capitalization: $8.44 billion
Company Chairman and CEO Scott Thompson commented, "We are pleased to see our global market outperformance mitigate the impact of softer than anticipated industry volumes. Despite an estimated mid-single digit industry decline over the quarter, more than our anticipated low-single digit decline for the period, our sales were only slightly below internal expectations. Our strong gross margin performance and solid cost controls resulted in healthy earnings growth in the second quarter.
Established through the merger of Tempur-Pedic and Sealy in 2012, Tempur Sealy (NYSE:TPX) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Home Furnishings
A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.
Sales Growth
A company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Regrettably, Tempur Sealy's sales grew at a weak 11.6% compounded annual growth rate over the last five years. This shows it failed to expand in any major way and is a rough starting point for our analysis. 
We at StockStory place the most emphasis on long-term growth, but within consumer discretionary, a stretched historical view may miss a company riding a successful new product or emerging trend. Tempur Sealy's history shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 2.9% annually.
We can better understand the company's revenue dynamics by analyzing its most important segments, Wholesale and Direct, which are 77.1% and 22.9% of revenue. Over the last two years, Tempur Sealy's Wholesale revenue (sales to retailers) averaged 4% year-on-year declines. On the other hand, its Direct revenue (sales made directly to consumers) averaged 1.7% growth.
This quarter, Tempur Sealy missed Wall Street's estimates and reported a rather uninspiring 2.8% year-on-year revenue decline, generating $1.23 billion of revenue. Looking ahead, Wall Street expects sales to grow 6.6% over the next 12 months, an acceleration from this quarter.
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Cash Is King
If you've followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills.
Tempur Sealy has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 7.6%, subpar for a consumer discretionary business.
Tempur Sealy's free cash flow clocked in at $122.1 million in Q2, equivalent to a 9.9% margin. This quarter's result was good as its margin was 2.8 percentage points higher than in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.
Over the next year, analysts predict Tempur Sealy's cash conversion will improve. Their consensus estimates imply its free cash flow margin of 9.6% for the last 12 months will increase to 12.4%, giving it more money to invest.
Key Takeaways from Tempur Sealy's Q2 Results
We struggled to find many strong positives in these results. Its revenue unfortunately missed and its Direct revenue fell short of Wall Street's estimates. EPS guidance also missed. Overall, this quarter could have been better. The stock traded down 5.2% to $46.10 immediately after reporting.
Tempur Sealy may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.