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.

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.

A Sealy-branded mattress in a bedroom

Image source: Tempur Sealy.

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.

TPX Chart

TPX data by YCharts.

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.

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.