Mattress maker Tempur-Pedic International Inc.'s shares fell for a second day in response to a quarterly outlook from the company that fell well short of analysts' average forecast.
THE SPARK: Tempur-Pedic, which makes high-end specialty mattresses, pads and pillows, said Wednesday that weak sales and intense competition in North America have taken an unexpected toll on its performance in the current quarter, which ends this month.
The company said it hasn't changed its expectations for its international business, which continues to perform well. But it expects to earn about half as much per share in the second quarter as it did a year ago.
That implies 38 cents per share, less than half of analysts' average forecast. According to FactSet, analysts were anticipating earnings of 86 cents per share.
Tempur-Pedic expects its quarterly revenue to fall 3 percent to 5 percent. That implies $325 million to $332 million, while analysts were expecting revenue of $394.7 million. Last year, the company called its $342.2 million in second-quarter revenue a record.
The mattress maker was pessimistic about sales for the rest of 2012 and cut its outlook to earnings of $2.70 per share and revenue of $1.43 billion for the year. Analysts had been looking for earnings of $3.93 per share and revenue of $1.65 billion.
Tempur-Pedic said it expects third- and fourth-quarter revenue roughly equal with its second-quarter revenue.
THE BIG PICTURE: The company, like many of its peers, was expected to benefit from modest recoveries in consumer spending and the housing market in the United States. Some observers thought Tempur-Pedic would fare better than competitors because its high-income customers tend to be more resilient.
THE ANALYSIS: A number of analysts downgraded their take on the company and slashed estimates Thursday, citing long term risks, though some held out hope.
"We were understandably shocked and frustrated by the miss and remain concerned about how management will adapt/perform in the increasingly competitive/crowded specialty mattress arena," Raymond James analyst Budd Bugatch said in a research note. "Nonetheless, we can't shake the feeling that the stock has overreacted."
Bugatch said the issues appear specific to Tempur-Pedic; if it can find the means to compete, it stands to grow, he said. He reaffirmed a "strong buy" rating on its stock, saying the company has strong cash flow potential.
SHARE ACTION: Tempur-Pedic's shares plunged 16 percent Wednesday to $22.39, their lowest closing price since late 2009.
By early Thursday afternoon, they were down another 86 cents, or 3.8 percent, trading at $21.53; they had fallen to $21.05 in morning trading. The shares have traded as high as $87.43 in the past year, but they went as low as $4.46 in early 2009.