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Ahead of the Bell: Tempur-Pedic slides on outlook

NEW YORK -- Shares of Tempur-Pedic slumped in premarket trading Wednesday after it posted disappointing third-quarter results and slashed its outlook for the year.

The Lexington, Ky., company reported late Tuesday that it swung to a loss of 3 cents per share. Excluding costs related to the acquisition of Sealy Corp. and other items, the company earned 70 cents per share, a penny ahead of estimates.

Revenue, however, declined 9 percent year over year to $347.9 million, missing Wall Street expectations of $362.7 million, according to a poll by FactSet.

Tempur-Pedic International Inc., known for its memory foam mattresses, said tough competition is hurting its North American business, while weakness in Europe is weighing on its global business. The company reduced its guidance for full-year profit and sales, and shares of the company slid more than 18 percent to $25.99 in premarket trading. Over the past year, shares of Tempur-Pedic have traded between $20.70 and $87.43.

The company did show signs of improvement on the domestic front, said KeyBanc analyst Bradley Thomas, but that Tempur-Pedic is still in a "difficult transition period" as market share initiatives are compressing margins more than anticipated. Gross margin was 49.2 percent, down 320 basis points from a year ago.

"Despite admirable market share gains in the international segment, macroeconomic weakness in Europe has finally caught up to Tempur-Pedic," the analyst wrote, maintaining a "Hold" rating on the stock.

John Baugh of Stifel Nicolaus reiterated a "Buy" rating, saying he was encouraged that the company said it finished the quarter better than it started.

"The new Breeze product appears to be selling well and the company is struggling to produce this product on an efficient basis currently, resulting in somewhat of a backlog," Baugh wrote in a note. "We believe that retailer incentives including wholesale price reductions and other actions have stabilized sales erosion, albeit at some cost to margin."