Tempur-Pedic International Inc.: Rough Quarter Signals Wake-Up Call

If the current economic conditions continue, Tempur-Pedic International Inc. executives and shareholders might find themselves tossing and turning on the same mattresses that have brought them financial success in the past. The Lexington, Ky.-based manufacturer and distributor of mattresses and pillows saw profit decline 38%, falling to $24.1 million from $38.8 million during the year-earlier period.

Sales dropped 14% to $252.8 million from $294.1 million last year.

CEO Mark Savary attributed the difficult quarter to the struggling economy.

"During the third quarter we executed well," he said in an Oct. 16 statement. "The economic climate worsened, and we responded quickly to improve earnings. We reduced our operating expenses and improved our balance sheet by substantially reducing debt."

The IW 50 Best Manufacturer for 2008 reduced total debt in the third quarter by $37.8 million to $518.8 million. It also increased its cash balance by $19.3 million to $87.7 million.

The company looks to reduce its debt further with a series of cost-cutting measures aimed at creating financial flexibility. One initiative includes the return of approximately $140 million of foreign earnings to the United States to reduce its outstanding debt. The company says it expects the move will result in an after-tax charge of approximately $13 million.

The company also plans to suspend its cash dividend and use those funds to reduce debt. The cost-cutting efforts should help the company meet its credit obligations and ensure its ability to invest in R&D and marketing, says Chief Financial Officer Dale Williams.

For the remainder of the fiscal year, the company expects sales will fall below prior expectations, reaching $930 million to $950 million. Earnings per share are projected to range between 90 cents and $1 per share.

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