Will Tempur-Pedic's New Strategy Pay Off?

On Thursday, Tempur-Pedic (TPX 1.97%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

The mattress market has been an up-and-down roller-coaster ride for investors in recent years, as Tempur-Pedic has gone from lightning-fast growth to a big slowdown as the overall economy has been volatile. But Tempur-Pedic's recent purchase of Sealy promises big changes for the company going forward. Let's take an early look at what's been happening with Tempur-Pedic over the past quarter and what we're likely to see in its quarterly report.

Stats on Tempur-Pedic

Source: Yahoo! Finance.

Will Tempur-Pedic make its investors comfortable this quarter?
Analysts have gotten a lot more optimistic about Tempur-Pedic's long-term earnings prospects lately. Although they've kept first-quarter estimates unchanged, they've raised their calls for 2013 and 2014 by 15% and 23% respectively, showing enthusiasm over improving conditions. The stock has also responded favorably, soaring nearly 30% since late January.

The big news for Tempur-Pedic this quarter was the completion of its buyout of Sealy in mid-March. With the company planning to change its name to Tempur Sealy, Tempur-Pedic presented a broad capital restructuring plan that involves redeeming more than half a billion dollars in high-yield Sealy debt.

Yet the key to the move for Tempur-Pedic is to stand up to increasingly fierce competition in the industry. Select Comfort (SNBR 1.89%) bought premium mattress-maker Comfortaire in January, eliminating a rival in its air-filled mattress segment. Yet while Select Comfort has cemented its status at the high-end of the mattress market with its Comfortaire buy, Tempur-Pedic is aiming to incorporate more of the lower end of the spectrum, where it more directly goes up against Mattress Firm (NASDAQ: MFRM). Mattress Firm has posted promising results serving that niche, and Tempur-Pedic hopes to grab its share of customers with its Sealy products.

Tempur-Pedic hopes that macroeconomic trends will start to turn in its favor. As the housing market rebounds, most economists expect for home furnishings to follow suit. That could benefit the entire industry, and depending on which areas of the housing market perform best, Tempur-Pedic could see greater strength in its high-end namesake products or in the more value-conscious Sealy brand.

In Tempur-Pedic's report, be sure to compare the company's relative performance against Select Comfort's report from last week. Despite expectations that an improving housing market would boost sales, Select Comfort saw a 2% revenue drop on 9% lower same-store sales. Yet if Tempur-Pedic shows the same headwinds on sales, it could spell trouble for the entire industry.

Click here to add Tempur-Pedic to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.