Tempur Sealy International Inc. (NYSE:TPX) Q4 2014 Earnings Conference Call - Final Transcript

Feb 05, 2015 • 05:00 pm ET

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Tempur Sealy International Inc. (NYSE:TPX) Q4 2014 Earnings Conference Call - Final Transcript

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Q & A
Operator
operator

(Operator Instructions). Budd Bugatch, Raymond James.

Analyst
Budd Bugatch

I guess Dale if you could, would you take us through maybe the FX effect on revenues, gross profit and operating expense, maybe by segment, if it's possible for the fourth quarter?

Executive
Dale Williams

For the fourth quarter. Yeah, I don't have the fourth quarter in front of me. Let's go to the next question and I'll pull that up. I've got the full year but not the fourth quarter?

Analyst
Budd Bugatch

I'll take it that way. That's fine.

Executive
Dale Williams

Well, for the full year of 2014, FX cost us $41 million in revenue. It affected our gross margin by approximately $24 million. Operating expenses were improved by about $11 million and operating earnings were reduced by $13 million.

In terms of our expectations for 2015, the current FX rates would negatively affect revenue and this is incorporated into our guidance, this negative effect, by $110 million. So the guidance that we are giving on revenue is $110 million lower due to foreign exchange. The gross margin impact is $58 million. Operating expenses would be improved by $34 million and the operating income impact of foreign exchange would be $24 million negative.

Analyst
Budd Bugatch

And so you run that?

Executive
Dale Williams

No go ahead what was your question?

Analyst
Budd Bugatch

Give us a little bit by segment. I know you're going to change the segment accounting but, I would think most of that -- is most of that factored in Europe? How much of that's in the International segment?

Executive
Dale Williams

If we look at 2014, the impact was about two thirds Canada. So the bulk of that impact affected Sealy, some impact in Tempur North America. One third is Asia, Latin America. That also attracted Sealy and Tempur International. And 2015 the impact is half Canada so that affects under the new segments, North America. Under the old segments it would affect both Sealy and Tempur North America. And half is in Europe and that would be all in Tempur International.

Analyst
Budd Bugatch

And is the effect equivalent across all three functional buckets still, revenues, gross profit and operating expense?

Executive
Dale Williams

No, I mean the split is pretty similar. I think that from a gross margin standpoint the impact is probably skewed a little bit heavier to Europe, and I don't have it laid out exactly that way, but just looking at the pieces here from a gross margin impact, the bulk of the -- probably two thirds of the earnings impact is on gross margin in Europe, but then you have a better operating income give back on that where the expenses get lower.

So of the total, about half of that earnings impact is in Canada and half is in Europe. The issue we had in Canada is our -- a significant portion of our purchases of our COGS is US dollar denominated. So as the Canadian currency declines, your cost is in US -- a good portion of your cost is in US dollars but your revenues being knocked down because of the currency. While I was