Tempur Sealy slides after cutting Q3, 2016 revenue guidance

Shares of Tempur Sealy (TPX) plunged in afternoon trading after the company said third quarter revenue will be below its previous expectations and that fiscal 2016 revenue will be 1%-3% lower than fiscal 2015. WHAT'S NEW: After the market close yesterday and ahead of its participation at a financial conference, Tempur Sealy said that Q3 net sales will be below prior the company's expectations. Additionally, the company currently anticipates net sales for FY16 to be down 1%-3% as compared to FY15. The company previously forecast mid-single digit sales growth for FY16. Analysts expect the company to report Q3 revenue of $911.03M and FY16 revenue of $3.23B. Tempur Sealy also cut its FY16 adjusted EBITDA view to $500M-$525M from its previous guidance of $525M-$550M. "While our net sales are below expectations, our operational initiatives are going well and are continuing to drive considerable margin expansion," chairman and chief executive officer Scott Thompson said. "The net impact of the revenue shortfall and our continued margin expansion is that we felt it was appropriate to lower the midpoint of our adjusted EBITDA guidance by 5%. The midpoint of this updated guidance implies an increase in adjusted EBITDA of approximately 12% and approximately 20% growth in adjusted earnings per share compared to 2015." Tempur Sealy is scheduled to report Q3 results on October 27. STREET RESEARCH: Following the update, Longbow analyst Mark Rupe downgraded Tempur Sealy to Neutral from Buy, saying that the company surprised investors with its negative pre-announcement following one of its better performances in its history during the second quarter. Rupe said that shares will be range bound until demand trends improve and thinks that investors will take a wait-and-see approach in the interim. Additionally, Piper Jaffray analyst Peter Keith lowered his price target on the shares to $63 from $84, saying that the pre-announcement was "terrible" and "very disappointing," but that the recent sell-off is likely overdone. With no suggestion of weakness in international markets, the revised guidance indicates that Tempur Sealy sees North American sales declines of 4%-9% for all of the second half of 2016, Keith said. The analyst, who maintained an Overweight rating, noted that such declines would be a "notable disappointment" but he does not believe it is the new normal for 2017. Keith added that he believes the quarter was negatively affected by execution errors, the Sleepy's transition, and a pause in consumer big ticket spending, all of which will potentially abate by early 2017. In addition, Stifel analyst John A. Baugh lowered his price target on the stock to $72 from $80, saying that the revised revenue view is a "meaningful" disappointment. After the guidance update, the firm lowered its FY16 EBITDA view on Tempur Sealy to $509M from $523M and its FY17 EBITDA view to $560M from $586M, but noted that EBITDA reduction in an out year, if accurate, would suggest a buying opportunity should the stock fall into the lower $60s. The analyst kept a Buy rating on Tempur Sealy. PRICE ACTION: In afternoon trading, Tempur Sealy fell over 24% to $56.34. OTHERS TO WATCH: Rival Select Comfort (SCSS) slipped over 7% to $23.34 in afternoon trading.