Amidst a US bedding industry grappling with a "depression" and double-digit unit declines, Tempur Sealy International Inc. painted a picture of surprising resilience in its Q1 2024 earnings call. Tempur Sealy International Inc. (NYSE:TPX) While analysts focused on the macro environment and potential Mattress Firm acquisition hurdles, a crucial detail slipped under the radar: Tempur Sealy's quiet dominance in OEM and private label sales.

While the transcript didn't explicitly break down the exact revenue contribution from these segments, clues scattered throughout the conversation point to a compelling narrative. Recall Scott Thompson's casual mention of "hundreds of millions of dollars in profitable private label and OEM sales with further opportunities for growth in 2024 and beyond." This is no offhand remark. It's a glimpse into a high-margin growth engine that's buffering Tempur Sealy against industry headwinds while rivals struggle.

Here's the hypothesis: Tempur Sealy is strategically leveraging its vast manufacturing footprint and vertical integration to become the go-to supplier for retailers seeking private label or OEM bedding solutions. This strategy is brilliant on multiple fronts.

Firstly, it provides stability in a volatile market. Private label and OEM sales aren't as susceptible to consumer whims as branded products. Retailers depend on these offerings to fill specific price points and cater to a wider range of customers. This provides a consistent revenue stream for Tempur Sealy, even when brand sales fluctuate.

Secondly, the OEM and private label market is inherently high-margin. Retailers typically operate on tighter margins than manufacturers. This allows Tempur Sealy to capture a larger slice of the profit pie, bolstering its overall profitability.

Thirdly, this strategy allows Tempur Sealy to capitalize on the weaknesses of its competition. While others are shuttering plants and scaling back production in response to market pressures, Tempur Sealy is aggressively expanding its capacity, particularly with the new Crawfordsville plant. This signals confidence in its long-term growth potential, fueled in part by its OEM and private label dominance.

Let's delve into the numbers. Bhaskar Rao mentioned that new OEM distribution starting in April will contribute $100 million in revenue on an annualized basis. This alone represents a significant chunk of growth in a flat market. However, recall Thompson's statement regarding "hundreds of millions" in profitable sales from these segments. This implies that existing OEM and private label sales could be generating well over $200 million to $300 million in annual revenue, potentially even more.

Furthermore, Rao highlighted that OEM mix will be a factor impacting gross margin going forward, explaining that this won't be explicitly captured in the bridge, as the increased volume through the plant makes "every other unit cheaper." This underscores the hidden profitability of this strategy. Tempur Sealy is absorbing the fixed costs associated with plant expansion and utilizing the increased volume to drive down unit costs for its branded products as well.

This under-the-radar strategy could explain Tempur Sealy's confidence in achieving 15% EPS growth at the midpoint of its guidance, even with a flat industry unit volume assumption. It's a testament to the company's proactive diversification, strategic capital allocation, and ability to capitalize on industry trends while competitors play defense.

Projected Revenue Breakdown (Hypothetical)

Based on the information gleaned from the earnings call, we can hypothesize the following revenue breakdown for Tempur Sealy in 2024. While exact figures weren't given, the "hundreds of millions" comment suggests a substantial portion of revenue is derived from OEM and Private Label sales.

While Wall Street focuses on the visible battles being waged in the branded bedding arena, Tempur Sealy is quietly constructing a fortress of high-margin, stable revenue through OEM and private label sales. This could be the company's secret weapon, allowing it to not just weather the current industry storm, but emerge stronger, potentially reshaping the competitive landscape in the process.

"Fun Fact: Tempur Sealy's journey to bedding behemoth began with a single innovative material – TEMPUR®, initially developed by NASA to cushion astronauts during liftoff. Today, this technology, combined with savvy business decisions, has propelled them to the forefront of the global sleep industry."