Sealy Corp. (ZZ, Financial) filed Quarterly Report for the period ended 2010-05-30.
Sealy Corp. has a market cap of $286.1 million; its shares were traded at around $3.02 with a P/E ratio of 17.8 and P/S ratio of 0.2. ZZ is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Jim Simons of Renaissance Technologies LLC.
Gross Profit. Our consolidated gross profit for the quarter was $128.2 million, an increase of $6.3 million from the comparable prior year period. As a percentage of net sales, gross profit decreased 0.4 percentage points to 40.5% due to a decrease in gross profit margins in both of our segments. Total Americas gross profit for the quarter was $121.8 million, an increase of $6.1 million from the comparable prior year period. As a percentage of net sales, gross profit for the Americas decreased 0.4 percentage points to 41.8%. The decrease in percentage of net sales was primarily driven by decreases in the U.S. business. U.S. gross profit decreased $1.2 million to $95.3 million, which, as a percentage of net sales, represents a decrease of 1.7 percentage points to 41.6% of net sales. The decrease in percentage of net sales was driven primarily by changes in product mix and investments made to introduce new products. Partially offsetting these decreases were improvements in operations efficiencies as well as higher absorption of fixed costs as a result of higher unit volumes. Material costs in the U.S. during the quarter were relatively consistent with those of the second quarter of fiscal 2009. In local currency, the gross profit margin in Canada was 43.7% which is consistent with historical levels and was achieved through a reduction in material costs per unit, improved operating efficiencies and higher absorption of fixed costs on a 17.8% increase in unit volume. These increases have been partially offset by the lower average unit selling price discussed above. In our Europe segment, the local currency gross profit margin decreased 0.5 percentage points due to conversion costs increases.
Selling, General, Administrative. Our consolidated selling, general and administrative expense increased $11.6 million to $107.2 million. As a percentage of net sales, this expense was 33.9% and 32.0% for the quarters ended May 30, 2010 and May 31, 2009, respectively, an increase of 1.9 percentage points. The increase as a percentage of net sales was primarily driven by an increase in non-cash compensation costs. The increase in absolute dollars is primarily due to a $5.1 million increase in volume driven variable expenses including a $5.4 million increase in cooperative advertising and promotional costs, and a $1.4 million increase in delivery costs due primarily to an increase in fuel
Interest Expense. Our consolidated interest expense for the second quarter of fiscal 2010 increased $4.9 million as compared with the prior year period to $21.8 million which included $5.7 million of non-cash interest expense, of which $4.1 million relates to non-cash interest on our Convertible Notes and the remainder of which relates to the accretion or amortization of original issue discount and deferred debt issuance costs. Our net weighted average borrowing cost was 10.7% and 8.5% for the three months ended May 30, 2010 and May 31, 2009, respectively. Our borrowing cost was unfavorably impacted by the refinancing of our senior secured credit facilities in May 2009 (the "Refinancing") which resulted in increased interest rates and outstanding debt balances.
Income Tax. Our effective income tax rates regularly differ from the Federal statutory rate principally because of the effect of non-deductible paid in kind interest, non-deductible mark to market adjustments for derivatives associated with the Convertible Notes subscription rights, certain foreign tax rate differentials and state and local income taxes. Our effective tax rate for the three months ended May 31, 2010 was 73.5% compared to 34.0% for the three months ended March 1, 2009. The effective rate for the fiscal 2010 period was higher than the fiscal 2009 period primarily due to the effect of non-deductible paid in kind interest which resulted from the Refinancing in the second quarter of fiscal 2009.
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Sealy Corp. has a market cap of $286.1 million; its shares were traded at around $3.02 with a P/E ratio of 17.8 and P/S ratio of 0.2. ZZ is in the portfolios of Richard Pzena of Pzena Investment Management LLC, Jim Simons of Renaissance Technologies LLC.
Highlight of Business Operations:
Net Sales. Our consolidated net sales for the quarter ended May 30, 2010, were $316.5 million, an increase of $18.1 million, or 6.1%, from the quarter ended May 31, 2009. Total Americas net sales were $291.4 million for the second quarter of fiscal 2010, an increase of 6.2% from the second quarter of fiscal 2009. This increase was primarily due to increases in the Canada, U.S. and Other Americas businesses. Total U.S. net sales were $229.1 million for the second quarter of fiscal 2010, an increase of 3.0% from the second quarter of fiscal 2009. The U.S. net sales increase of $6.7 million was attributable to a 2.2% increase in wholesale unit volume, which excludes third party sales from our component plants, coupled with a 0.7% increase in wholesale average unit selling price. The increase in unit volume is primarily attributable to the successful launch of our new Stearns & Foster line and a more stable retail environment. The increase in wholesale average unit selling price has been driven by growth in sales of product priced greater than $1,000, but has been partially offset by increased spending for customer incentive programs. International net sales increased $11.4 million or 15.0%, from the second quarter of fiscal 2009 to $87.4 million primarily driven by favorable changes in foreign exchange rates. Excluding the effects of currency fluctuation, international net sales increased 5.9% from the second quarter of fiscal 2009. In Canada, local currency sales increases of 10.0% translated into increases of 28.5% in U.S. dollars due to an increase in the average value of the Canadian dollar versus the U.S. dollar. Local currency sales performance in Canada was driven by a 17.8% increase in unit volume, which was partially offset by a 6.6% decrease in average unit selling price. The increase in unit volume was driven by strategic promotional activity and the success of our new Stearns & Foster line. The lower average unit selling price was driven primarily by strategic merchandising and promotional activity. In our Europe segment, local currency sales increases of 4.6% translated into increases of 4.3% in U.S. dollars due to the decrease in the average value of the Euro versus the U.S. dollar. The increase in local currency sales resulted from a 10.6% increase in sales of latex cores. Finished goods sales in local currency remained flat to the prior year.Gross Profit. Our consolidated gross profit for the quarter was $128.2 million, an increase of $6.3 million from the comparable prior year period. As a percentage of net sales, gross profit decreased 0.4 percentage points to 40.5% due to a decrease in gross profit margins in both of our segments. Total Americas gross profit for the quarter was $121.8 million, an increase of $6.1 million from the comparable prior year period. As a percentage of net sales, gross profit for the Americas decreased 0.4 percentage points to 41.8%. The decrease in percentage of net sales was primarily driven by decreases in the U.S. business. U.S. gross profit decreased $1.2 million to $95.3 million, which, as a percentage of net sales, represents a decrease of 1.7 percentage points to 41.6% of net sales. The decrease in percentage of net sales was driven primarily by changes in product mix and investments made to introduce new products. Partially offsetting these decreases were improvements in operations efficiencies as well as higher absorption of fixed costs as a result of higher unit volumes. Material costs in the U.S. during the quarter were relatively consistent with those of the second quarter of fiscal 2009. In local currency, the gross profit margin in Canada was 43.7% which is consistent with historical levels and was achieved through a reduction in material costs per unit, improved operating efficiencies and higher absorption of fixed costs on a 17.8% increase in unit volume. These increases have been partially offset by the lower average unit selling price discussed above. In our Europe segment, the local currency gross profit margin decreased 0.5 percentage points due to conversion costs increases.
Selling, General, Administrative. Our consolidated selling, general and administrative expense increased $11.6 million to $107.2 million. As a percentage of net sales, this expense was 33.9% and 32.0% for the quarters ended May 30, 2010 and May 31, 2009, respectively, an increase of 1.9 percentage points. The increase as a percentage of net sales was primarily driven by an increase in non-cash compensation costs. The increase in absolute dollars is primarily due to a $5.1 million increase in volume driven variable expenses including a $5.4 million increase in cooperative advertising and promotional costs, and a $1.4 million increase in delivery costs due primarily to an increase in fuel
Interest Expense. Our consolidated interest expense for the second quarter of fiscal 2010 increased $4.9 million as compared with the prior year period to $21.8 million which included $5.7 million of non-cash interest expense, of which $4.1 million relates to non-cash interest on our Convertible Notes and the remainder of which relates to the accretion or amortization of original issue discount and deferred debt issuance costs. Our net weighted average borrowing cost was 10.7% and 8.5% for the three months ended May 30, 2010 and May 31, 2009, respectively. Our borrowing cost was unfavorably impacted by the refinancing of our senior secured credit facilities in May 2009 (the "Refinancing") which resulted in increased interest rates and outstanding debt balances.
Income Tax. Our effective income tax rates regularly differ from the Federal statutory rate principally because of the effect of non-deductible paid in kind interest, non-deductible mark to market adjustments for derivatives associated with the Convertible Notes subscription rights, certain foreign tax rate differentials and state and local income taxes. Our effective tax rate for the three months ended May 31, 2010 was 73.5% compared to 34.0% for the three months ended March 1, 2009. The effective rate for the fiscal 2010 period was higher than the fiscal 2009 period primarily due to the effect of non-deductible paid in kind interest which resulted from the Refinancing in the second quarter of fiscal 2009.
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