Back to top

Image: Bigstock

Tempur Sealy to Acquire Sherwood Bedding, Eyes Expansion

Read MoreHide Full Article

Tempur Sealy International, Inc. (TPX - Free Report) is set to acquire a majority ownership interest in a leading bedding manufacturer - Sherwood Acquisition Holdings, LLC ("Sherwood Bedding"). The company expects to purchase a 80% stake in Sherwood Bedding for approximately $40 million and the rest will be owned by Ellman Family, a third-generation bedding manufacturer.

The deal is expected to close within first-quarter 2020.

Sherwood Bedding is one of the top 10 bedding producers in the United States that operates four manufacturing facilities. It currently estimates annual wholesale revenues of more than $150 million. Notably, this low-cost, high-value producer of private label and OEM products expects to realize future cost synergies through this deal.

The acquisition will help Tempur Sealy to enter the private label category, and create a complete suite of offerings from Sherwood Bedding's non-branded private label products to well-known branded products like Tempur-Pedic, Sealy, and Stearns & Foster.

Inorganic Moves to Drive Growth

Tempur Sealy has been achieving year-over-year growth on the back of solid acquisition strategies, product expansion and cost-saving initiatives. Acquisitions have been an integral part of the company. On Apr 1, 2019, it had acquired substantially all net assets of Innovative Mattress Solutions, LLC ("iMS"), a regional bedding retailer, within its North American retail channel. Notably, iMS’ focus on meeting customer demand through geographic representation and sales expertise helped Tempur Sealy to expand the product portfolio.

Also, on the same day, it had acquired net assets of an entity in the International segment for nearly $7.1 million.

In third-quarter 2019, the company’s net sales grew 13% and adjusted EBITDA improved 17% year over year. On a further encouraging note, adjusted EPS increased an impressive 28% from the year-ago period. The upside was driven by growth across the business, demonstrating its strength and competitive position around the world.

Our Take

The stock has gained 70.3% over the past year, broadly outperforming the industry’s 26.1% rally. The solid price performance is primarily a reflection of its decent earnings surprise history, having surpassed the Zacks Consensus Estimate in three of the trailing four quarters.

Over the past few years, Tempur Sealy’s business has been rallying on new innovative products’ development, operational synergies, go-to-market strategy, healthy gross margin expansion and broad-based sales growth. The company expects to deliver solid results in the upcoming quarters as well.

Earnings estimates for 2020 have moved 0.2% north in the past 30 days, indicating nearly 46% year-over-year growth. Also, its earnings are expected to rise 26.1% over three to five years. This can be further ascertained by a solid Growth Score of A.

Zacks Rank

Tempur Sealy — which shares space with RH (RH - Free Report) , Williams-Sonoma, Inc. (WSM - Free Report) and Haverty Furniture Companies, Inc. (HVT - Free Report) in the same industry — currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained an impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>