What happened

Shares of bedding manufacturer Tempur Sealy International (NYSE:TPX) fell as much as 11.2% on Thursday and finished the trading day down 8.8%.

The stock's decline follows Tempur Sealy's fourth-quarter financial results, which featured declining sales and profits. A worse-than-expected adjusted profit on a per-share basis, driven primarily by terminated contracts with Mattress Firm, may have sparked concerns from investors. 

A chalkboard sketch showing a downward trending chart.

Image source: Getty Images.

So what

Tempur Sealy reported revenue of $648 million, down 15.9% year over year. Adjusted earnings per share was $0.79, down significantly from $1.18 in the year-ago quarter. On average, analysts were expecting revenue of $679 million and adjusted earnings per share of $0.82. 

Tempur Sealy's terminated contracts with Mattress Firm played a significant role in the company's worse financials this quarter compared to the year-ago quarter. In the year-ago quarter Mattress Firm sales were $155.7 million, but since contracts were terminated at the beginning of Tempur Sealy's second quarter of 2017, the company didn't record any Mattress Firm revenue in Q4. Excluding Mattress Firm sales in the year-ago quarter, North America sales would have been up 4%, management noted.

Highlighting the strength of its flagship mattress product, Tempur-Pedic sales in North America increased 19% year over year when excluding sales from Mattress Firm in the year-ago quarter.

Now what

Management said it is entering 2018 as "a much stronger company" thanks to a more diversified base of retail partners and its fast-growing direct-to-consumer business. In Tempur Sealy's fourth quarter, the company's North American direct-to-consumer channel saw sales rise 56% year over year. This demonstrated Tempur Sealy's "ability to change with consumers' purchasing habits," management said.

For 2018, management expects adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) to be between $450 million and $500 million, up from $403 million in 2017.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.