TPX
#You probably hit on a couple of them pretty quickly.
As I mentioned before, the Sealy margins are not meeting our internal targets.
The team's on it.
It's a significant opportunity, but it's also a journey that will take more than a month ---+ probably take more than a quarter or two - but there is significant opportunity in the Sealy manufacturing.
We're just not where we need to be from that standpoint.
We've done some great work on the supplier side, but we need to do some more work on the labor side, primarily.
Turning to international ---+ look, international had a solid quarter, when you look at it on a constant currency basis, but were we expecting more.
Yes, we were expecting more.
The Sealy brands had growth in the quarter, but the Sealy launch hasn't gone as well as we would have liked in Europe.
Tempur, primarily in Europe, underperformed our expectation.
And I'd tell you that when you looked at the overhead of both, it would be internationally or domestically.
But if calling out internationally, the overhead in international is a little heavy and the team is taking care of that issue.
But as far as opportunity long-term, international looks like a very good opportunity long-term.
It won't be an easy road.
That's a tough execution when you're working internationally and there'll be bumps in the road going forward, but long term, internationally is something I'm certainly very excited about.
That was odd.
Yes.
I think I've called that out.
And first of all, you're spot on.
The Sealy margins did not perform the way we expected them to.
Some of that's merchandising mix, and that we certainly were affected from a merchandising mix standpoint ---+ and that's fully explainable.
And that will turn when we launch the new Stearns & Foster product.
But that doesn't explain it all.
We've still got work to do in the area.
We've got a team on it.
They're very engaged.
In fact, I think they were here at seven o'clock this morning meeting.
So, the action plans in place and we expect that we're going to be able to report progress in that area.
Thank you, <UNK>.
Thanks, <UNK>.
Good question, <UNK>.
From a standpoint of in the third quarter, our Sealy International Europe, Japan ---+ that piece ---+ is about consistent from a sales and EBIT drag basis as we were seeing in the first and the second quarter.
So high single-digit million and a very small drag on EBIT.
From standpoint of as we look at what's going on ---+ as you know, we had some supplier issues earlier in the year; those are fully behind us.
But going back in and essentially refocusing sales advocacy at the store level ---+ that's an effort, and as <UNK> mentioned, we see the international opportunity as being a very large one over time, but it's going to take some time.
And so I know the team is very focused going forward into 2016 to increase both the distribution of our new Sealy and Stearns & Foster products there, and we've got a positive outlook.
But it's going to take some time.
Sure.
A great question.
First of all, you asked about the cultural ---+ a cultural question about Tempur and Sealy.
From my perspective, there is only Tempur Sealy.
And I don't feel any cultural issues related to what I'll call a Sealy people or a Tempur people.
This is not dissimilar from when I joined Dollar Thrifty.
And in case if you're not familiar with the rental car industry, there was a Dollar and there was a Thrifty.
And they put them together and called them Dollar Thrifty.
But, when I got there, the way I operate and the way I think about it, there really is only Tempur Sealy and I've got to tell you that I think the leadership team here thinks the same way.
We've got some great people that came over in the Sealy acquisition that are key members of this organization and we have clearly some key executives from Tempur and I think everybody is working together.
All the goals are aligned.
And so I don't think we have any cultural barriers to our future success.
So I think that would be the first part of your question.
Second part of your question was ---+ do I have the right horses or the right team in place to fix the Sealy margin issue and drive Sealy's performance.
And the answer to that is, yes.
I think we've got the right team.
They probably underestimated the challenge from a guy dropping in for 50 days.
They probably underestimated the challenge when they started the journey.
But, are they doing the right things.
Without question they're doing the right things.
Are they the right people.
They're the people.
Are they working hard.
They're working hard.
And I've got a lot of confidence in the team that we've got on the job.
Okay.
Great question.
First of all, I'm going to call it the aspirational plan, because I don't really think if it as the 650 plan.
I think our job is to make as much money as we possibly can.
And so whether it's 650 or 750 or 350 ---+ I don't know what the numbers are.
So I don't think really think of it necessarily the 650 plan.
It's an aspirational plan designed to reward Management for aspirational performance.
But look, it's out there.
It's a heavy lift.
But it's certainly a great plan that's got all the management team focused, and it's been very good for pulling together the team in a common goal.
I did not spend a lot of time looking at what previous Management had put together and presented to the Street all their internal documents.
I started with a clean sheet of paper and I've asked everybody to start with a clean sheet of paper and do zero budget going forward.
And the meetings we're having isn't what we tell people before the kind of meetings we're having; it's what's possible.
Think out of the box.
What could we do.
What could we do different.
How could we do things better.
And so I can't really reconcile you to whatever has been presented previous, but quite frankly, I didn't spend any time looking at it.
But I think there are a lot of opportunities in this business.
We can do some things in areas better than we've done it before, and I think we've got some pretty strong competitive advantages in the marketplace that we can take advantage of.
So I hope that helps address your question.
I think you're asking which bucket it would come out of, and I think the answer is we want more effective advertising from the co-op dollars we spend, and then we need to spend some more money from a direct advertising standpoint.
So, I'd call it ---+ it's going to come from both bucket.
No, no, without question.
You spend advertising dollars investing in brand and product that you think you're going to have a real high return on.
And so we don't have a cap on advertising and then do trade-offs between the two brands.
We'll spend the amount of money that we think we need to, to support the product, support our retailers, and drive our operations.
Good morning.
Well.
I mean, I would say ---+ good question.
I would say that we continue to see very strong gross margin out of the Tempur US business, and that has been driven off of operational improvements, sourcing, supply chain, plan improvements, and pricing.
We see those continuing and further opportunity.
From a Sealy gross margin perspective, <UNK>'s addressed that we're really getting after that, and driving performance.
Internationally, we've addressed that, but I would say that there is continued opportunity as we leverage that portion of the business.
And then to the earlier point of streamlining the overhead of the business is going to drive near-term performance.
Yes.
I'd only add one thing to the list that <UNK> just outlined.
The other thing that we're doing ---+ and I think this happens in our all businesses.
Look, we're closely looking at all of our sales and making sure that we're doing profitable sales.
And we're doing deep dives into customer profitability.
And to the extent if we have business that's not profitable for us, we'll have to work with people in that area and make sure that we've got a good healthy long-term relationship for them and for us.
And so there may be some opportunity in that area.
The distribution is going well.
Wouldn't you say, <UNK>, is that fair.
Absolutely.
I'd say distribution is going well, but I'd also say, like always, you want more improvement every quarter.
But I'd say distribution is going well.
In the consolidation of the sales force in our recent actions, there was quite a bit of activity in that area.
And I would say, now we've pretty much got the sales force exactly where it needs to be, and we are through in the US on activities when it comes to personnel.
Great, great question.
I called it out when I originally looked at the business.
One of the things I really liked about this business was free cash flow attributes are very strong.
And in some of my previous lives, I've been in organizations where you had lots of GAAP earnings.
But quite frankly, you didn't produce any cash because the CapEx requirements were so big to keep the engine running that there never really was some free cash.
So when I looked at this business, I was thrilled with the cash flow attributes.
I then looked at the leverage to see where the Company was from a leverage standpoint before getting involved in it, and it didn't take a rocket scientist to figure out that the Company was deleveraging very quickly.
And unless you do something else with the cash that it is going to deleverage probably below any reasonable rate.
So, as <UNK> called out in his prepared remarks, I've asked him to go work with the senior bank group and to see what we can do in that area relating to covenants, and they're working on that.
But let me just talk in general about the way I think about capital structure.
I think what we need to do, and what we are doing, is the first thing you want to look at is what the enterprise risk you have in the organization, and stress test that, and we're doing that.
Look, long term, our responsibility is to protect the Company in different business cycles.
So, before we do anything in capital, we need to stress test the business model and make sure we fully understand how this Company will perform all throughout the cycles and that's being done currently.
The next thing I think we have to do, and we're doing, is you look at the nature of the debt that you have.
Clearly, if you have debt and it's a one-year duration from senior lenders, that's one kind of leverage; and if you have long-term debt from the market and multiple lenders, that's more stable debt and you like that better and it's a little less risky.
You can clearly see in the last 50 days we've put some long-term debt on the books, and that feels good.
From looking at the enterprise risk and the nature of your debt and duration, I think from that process, you develop what I'll call a risk tolerance.
And then after you have your risk tolerance, I think you look to your cost of capital, and we've asked some people from the outside to do some work for us on cost of capital.
And you combine that with your risk tolerance and you have a discussion at the Board level as to, what do you think.
And we're going to do that and we're scheduled to do that.
After you get that, it's really pretty easy.
From that discussion, a capital structure should pop out, a leverage target should pop out, and going forward, then it's just a resource allocation question.
Do you want to invest the money in the business to get to that proper capital structure.
Or do you want to give it back to the shareholders.
And the way I look at that, that's just a return on invested capital analysis, and how can the business deploy the capital, and can it deploy it in a reasonable return.
And if you can't deploy it in a reasonable return with the risk associated, really need to give it back to the shareholders.
Having said all of that; having not also done all the detailed work that's in process, I suspect that I will be comfortable with leverage greater than three terms is my expectation.
But I've not done the work and I've got to talk to my fellow Board members who are all financially astute and having a strong opinion.
But I think we owe the market a further discussion of that by the next earnings conference call, because you guys are smart, and if you run your pro formas, you're going to figure out real fast we're going to deleverage pretty quickly.
And so we'd better have that discussion with you probably on the next earnings call.
That was about $103 million.
Yes.
It'd be give or take, <UNK>, yes, on a percent of sales.
Well, for the full year, our guidance has been that we'd have about a $0.30, rounded off $0.30 EPS hit; and we're taking, I think about $0.22 through the first three quarters and so it'd be $0.05 to $0.08 ---+ something in that vicinity.
Yes.
Let me take some of that, and then I'll give the hard stuff to <UNK>.
Just in general, we'll report the fourth quarter when we report the fourth quarter.
I can tell you whatever trends we're experiencing have been fully dialed into the guidance, but I just generally don't comment too much about trends within the quarter.
So, just assume that it's been dialed into the guidance.
On Texas, though, I think I do owe you some comments, because clearly there has been some weather down there.
And there has been a little bit of chatter in the marketplace about Texas and how oil prices might impact that area.
I can tell you that when we look at the ---+ what I'll call oil concentrated states ---+ Texas, Oklahoma, and Louisiana ---+ and we compare our performance in those states with the rest of the nation, those markets in the third quarter actually outperformed the rest of the nation.
So, through the third quarter, I would say, not only we're not seeing no impact from falling oil prices; I'd like to say they actually outperformed.
Now I'm from Texas, so I've been through at least three major downturns in the oil business.
And look, you don't feel it immediately; it takes a while.
So, although the third quarter, that area came in strong, I would expect going forward that we would begin to feel some weakness in those marketplaces over the next few quarters.
But I've also checked with several of my friends in the car business, because the car business is pretty good to tell you what's really going on in the market, and their expectation is similar to mine, is that it will probably trail off slightly.
But nobody is expecting it to be too bad in the oil markets, from what I'm hearing.
And <UNK>, I think what that leaves us is the commodity cost and input cost.
Just as a reminder, in the first quarter, we saw a level of unfavorable commodity impact in the results.
In the second quarter, it was a slight benefit.
I said on the last call that we expected to see several million of benefit from commodities in the back half based on what we could see.
We did realize that; that was built into the guidance and we did realize it.
And at this point, looking forward in light of where things are, we'd expect a couple of million of incremental benefit in the fourth quarter.
That's modeled into the guidance, and that's on a variety of commodities, whether it'd be steel input, foam, chemicals, et cetera.
So, all in, it's been several million of benefit here in the back half, as expected.
Thank you, Operator.
To the 7,000 employees worldwide, thank you for what you do every day to make this Company successful.
To our retail partners, thank you for your outstanding representation of our brands.
To our shareholders and lenders, thank you for your confidence in Tempur Sealy, its leadership team, and the Board of Directors.
