Player Avatar NetscribeRetail (91.76) Submitted: 3/21/2007 8:36:07 AM : Outperform Start Price: $17.04 ZZ Score: -141.88

Sweet Dreams for Sealy Corporation, which is the largest, bedding manufacturer both worldwide and in the United States. The company engages in the manufacturing and marketing of a line of mattresses and foundations. It offers its bedding products under the Sealy, Sealy Posturepedic, Stearns & Foster, and Bassett brand names. Sealy Corporation sells its products through approximately 7,000 retail outlets, including furniture stores, national mass merchandisers, specialty sleep shops, department stores, and warehouse clubs.
The $6.4 billion U.S. bedding industry has been able to withstand economic downturns and has witnessed growth at a CAGR of 6.6% since 1985. This stability and resistance to economic downturns is partially due to replacement purchases, which account for an estimated 70% of bedding industry sales. It is a well-known fact that people tend to change their furnishing items, like pillows and mattresses within ten years as compared to heavy furniture, which could be postponed. This has helped the industry to maintain its momentum.
Slowly customer’s focus is shifting from traditional mattresses to non-spring specialty bedding, which are now being made available by many competitors. To keep up with the on going trend company has come up with new updated versions of several Posturepedic and Stearns & Foster models.
Sealy’s ability to pass on the higher commodity cost to its customer in the form of increase in selling price has ensured an overall revenue growth of 7.7% during fiscal 2006. However, the company had to suffer a decline in domestic volumes by 2.9%. But international sales grew by a whooping 20.8%. The Pennsylvania latex plant should provide a lending hand to its growing specialty segment. Moreover, introduction of innovative Stearns & Foster designs is anticipated to drive sales in the second half of the year. With the introduction of new updated products and expanding its base, Sealy will be able to keep its competitors down and its stock up.

Member Avatar NetscribeRetail (91.76) Submitted: 6/5/2007 4:47:25 AM
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Sealy Corporation is the largest player in the bedding market with more than 20% of market. The company being the world’s largest bedding manufacturer has done an appreciable job of broadening its product profile.

The company Q1’07 performances indicated pricing pressure as its revenues grew by merely 4% despite double-digit volume growth. Operating margins seems to be under pressure as price of average unit sold has declined by around 7% indicating a product mix in favor of low margin products. To counter margin contraction the company is now focusing its energy on premium products such as latex mattress.

There are certain issues which might cast its shadow on the performance of the stock. As KKR, a private equity firm holds 51% in the company any move by the private equity firm to liquidate its holding in the market might create a supply overhang that might dampen the share prices. The company is also highly leveraged, thus any sudden dip in profits could have a disproportionate impact on bottom-line. This should be a matter of concern especially considering the fact that top five customers accounted for 20% of total sales last year.

However, looking at company’s valuation it seems that these facts are already factored in the price. The fact that it’s trading at a discount to its peers, has a robust product pipe-line and caters to an industry which has shown appreciable resilience during economic downturn augurs well for the stock. Looking at its reasonable valuations, there might be further room for this stock on the upside.

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