Tempur-Pedic Investors Can Rest Easy Following Strong Earnings

| About: Tempur Sealy (TPX)

Small Cap and Mid Cap Watch List member Tempur-Pedic (NYSE:TPX) announced that earnings per share [EPS] increased 30% to $0.39 per diluted share in the second quarter of 2007 as compared to $0.30 per diluted share in the second quarter of 2006. Net sales rose 18% to $257.6 million in the second quarter of 2007 from $219.0 million in the second quarter of 2006. Retail sales increased 22% worldwide. Domestic retail sales increased 23% and international retail sales increased 18%.

Analysts had been expecting just $0.35 on $244 million in sales, and the stock soared in after-hours trading, finally validating one of my earnings previews this week (I said estimates have been rising but they will probably still beat them).

Having blown through the prior $100 million share repurchase since January, the board authorized an additional $200 million. They will have to pay more for these shares, though, since the company raised guidance:

Given the Company’s strong performance through the first half of 2007 and its continued positive outlook for the year, the Company is increasing 2007 full year financial guidance. The Company now expects net sales for 2007 to range from $1.065 billion to $1.085 billion, rather than $1.040 billion to $1.070 billion. This guidance reflects an increase of 13% to 15% compared to 2006 net sales of $945.0 million. The Company currently expects diluted earnings per share for 2007 to range from $1.63 to $1.66 compared to its previous guidance of $1.54 to $1.58. This guidance reflects an increase of 27% to 30% compared to 2006 EPS of $1.28. This guidance reflects incremental earnings resulting from increased sales expectations, shares repurchased through June 30, 2007, interest on associated borrowings and a lower full year tax rate. This guidance does not take into account the anticipated effect of any additional share repurchases.

I am going to nit-pick here, and point out that most of the guidance increase appears to be due to the lower tax rate (and is thus non-operational). Still, even accounting for this the midpoint of the new guidance is above the high end of the old guidance. Analysts right in the middle of the guidance range, so they will have some raising to do.

Cash from operations declined year/year, mostly due to rising inventories. Normally I would be more concerned about this, but the company had to make up for recent shortages (nice problem to have). All in all, it was a good report from a company that is on a roll.

TPX 1-yr chart:

TPX 1-yr chart