On Tuesday, Lexington, KY-based Tempur-Pedic International (TPX) reported a nice rise in fourth-quarter profits. Tempur-Pedic earned $29 million, or 38 cents per share, in Q4. That’s up markedly from an adjusted $12.7 million, or 17 cents per share, in the same quarter a year ago. On the revenue side of the equation, the company saw an increase of 29% to $245 million. The results bested the consensus Street estimate for earnings of 37 cents per share on revenue of $243 million.
For the full year, Tempur-Pedic earned $85 million, or $1.12 per share, vs. $59 million, or 79 cents per share, in 2008. The company also said it expected the positive momentum to continue, and it confirmed its prior guidance for earnings between $1.40 and $1.50 per share on sales of $950 to $970 million for 2010.
So, with all of this solid news, you’d think the stock would be higher in Wednesday’s trade. Well, it wasn’t. In fact, the shares were down sharply in the session, and though they recovered somewhat by the closing bell, the stock still finished off 3.27%.
Now, part of this sell-off could simply be due to profit taking. After all, TPX shares are up about 17% over the past six months. But the buzz on the Street keeping traders awake in TPX was the prospect of higher commodity costs.
In the company’s earnings conference call, Chief Financial Officer Dale E. Williams essentially gave traders a reason to sell. He said that the company continued to benefit from lower commodity costs in Q4, but he also said that those costs began rising during the period. Here’s the quote that Williams could turn out to regret: “Our expectation is that we will see some additional commodity price pressure this year as the year progresses.” Ouch!
But why are commodity prices so important to a mattress maker? Well, because Tempur-Pedic’s signature memory foam mattresses use what’s called visco-elastic materials. What this essentially means is they use a lot of petroleum in the production of their memory foam.
This reliance on petroleum products makes the company susceptible to the volatile price swings of the oil market. If, as CFO Williams expects, we see higher oil prices, it could take a big bite out of Tempur-Pedic’s bottom line, and that is one big reason this stock could experience a whole lot more sleepless nights ahead.
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