Consumer Goods: Tempur-Pedic
Tempur-Pedic (NYSE:TPX) is down 53% year-to-date and sits 72% off its five-year high of $87.43, reached on April 18 of this year.
How the mighty bed manufacturer has fallen.
Tempur-Pedic’s growth came to a crashing halt in 2012 as consumers put the brakes on buying thousand-dollar beds. Investors abandoned ship. Not even its announcement Sept. 27 that it was acquiring its rival Sealy (NYSE:ZZ) for $1.3 billion (including debt) could stop the slide — although it got an initial bump, its stock is off more than 8% in less than two months.
For those who have followed the bed and mattress business for any length of time, none of this comes as a surprise; this industry is as volatile as they come.
Despite slowing sales, Tempur-Pedic has made money every year in the past decade. On an adjusted basis, it expects to earn $2.55 in 2012 after adding back the taxes for repatriating foreign earnings and transaction costs related to the Sealy acquisition. If you include the one-time costs, it expects to earn $1.85 per share, or $118 million — slightly more than half of 2011’s earnings — on $1.4 billion in revenue. Its profits will bounce back.
In the meantime, TPX shares haven’t been this low since early 2010. It’s not without risk, but the other four will do a nice job of counteracting any potential short-term downside.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.