Why Shares of Tempur Sealy Slumped Today

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What happened

Shares of Tempur Sealy International (NYSE: TPX) dropped on Thursday after the company reported a mixed third quarter. Revenue fell short of expectations, with particularly weak performance in North America, while earnings came in slightly ahead of analyst estimates. The stock was down about 14% at noon EDT.

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So what

Tempur Sealy reported third-quarter revenue of $724.8 million, down 12.9% year over year and $31 million below the average analyst estimate. Sales in North America plunged 16.9% to $580.6 million, with the hurricanes in Texas and Florida, two of the company's largest markets, knocking down sales by $10 to $15 million. Tempur Sealy terminated its contract with Mattress Firm during the second quarter; excluding those sales, North American revenue increased by 10% year over year.

International sales were a bright spot, growing by 7.7% year over year to $133.9 million. Non-GAAP (generally accepted accounting principles) earnings per share were $1.00, down from $1.32 in the prior-year period but $0.03 higher than analysts were expecting. GAAP operating expenses were down just 5.4% year over year despite the double-digit revenue slump, leading to the steep decline in earnings.

Now what

Tempur Sealy expects to produce full-year adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) between $435 million and $450 million, up from a previous guidance range of $425 million to $450 million. This guidance boost was a positive, but the steep decline in revenue overshadowed any silver linings.

Shares of Tempur Sealy have been volatile over the past few years, surging and plunging multiple times. Thursday's drop erases a significant chunk of the stock's gains since it bottomed out early this year. The good news for investors: Tempur Sealy will eventually lap the loss of the Mattress Firm business, and the numbers will start to look better as a result. The bad news: That won't happen for another few quarters.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.