TEMPUR SEALY $39.81 (New York symbol TPX; TSINetwork Rating: Speculative) (800-878-8889; www.tempursealy.com; Shares outstanding: 60.4 million; Market cap: $2.4 billion; No dividends paid) completed its $1.3- billion purchase of rival Sealy in March 2013. This was a major acquisition for Tempur Sealy (formerly Tempur-Pedic), but it has let the company diversify into the market for traditional spring-coil beds.
The purchase should help Tempur Sealy offset rising competition in its current business; the company makes and distributes mattresses and neck pillows made of its Tempur material, which conforms to the body to provide support and alleviate pressure points.
Competitors Simmons Bedding and Serta have both successfully launched memory-foam mattresses that directly compete with Tempur Sealy’s products.
Greater diversification is a plus
In the quarter ended June 30, 2013, revenue rose to $660.6 million from $329.5 million a year earlier. The gain included $344.6 million from Sealy.
Excluding one-time items, earnings per share fell 20.0%, to $0.36 from $0.45. That fell short of the consensus estimate of $0.40. Costs related to the Sealy deal were the main reason for the decline.
The company’s long-term prospects are sound, and the Sealy purchase is a plus, but the stock now trades at a high 17.2 times Tempur Sealy’s forecast 2013 earnings of $2.32 a share. Its long-term debt of $1.9 billion is also a very high 79% of its market cap.
In addition, while the Sealy acquisition should pay off, a major purchase like this can always backfire.
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