Bedding manufacturer Somnigroup (NYSE:SGI) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 3.2% year on year to $1.21 billion. Its non-GAAP profit of $0.60 per share was 6.4% above analysts’ consensus estimates.
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Somnigroup (SGI) Q4 CY2024 Highlights:
- Revenue: $1.21 billion vs analyst estimates of $1.19 billion (3.2% year-on-year growth, 1.9% beat)
- Adjusted EPS: $0.60 vs analyst estimates of $0.56 (6.4% beat)
- Adjusted EBITDA: $219.4 million vs analyst estimates of $216.8 million (18.2% margin, 1.2% beat)
- Adjusted EPS guidance for the upcoming financial year 2025 is $2.80 at the midpoint, missing analyst estimates by 2.8%
- Operating Margin: 10.6%, in line with the same quarter last year
- Free Cash Flow Margin: 9%, up from 5% in the same quarter last year
- Market Capitalization: $11.6 billion
Company Overview
Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE:SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products
Home Furnishings
A healthy housing market is good for furniture demand as more consumers are buying, renting, moving, and renovating. On the other hand, periods of economic weakness or high interest rates discourage home sales and can squelch demand. In addition, home furnishing companies must contend with shifting consumer preferences such as the growing propensity to buy goods online, including big things like mattresses and sofas that were once thought to be immune from e-commerce competition.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years. Over the last five years, Somnigroup grew its sales at a tepid 9.7% compounded annual growth rate. This was below our standard for the consumer discretionary sector and is a rough starting point for our analysis.
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Somnigroup’s recent history shows its demand slowed as its revenue was flat over the last two years. 
We can better understand the company’s revenue dynamics by analyzing its most important segments, Wholesale and Direct, which are 73.1% and 26.9% of revenue. Over the last two years, Somnigroup’s Wholesale revenue (sales to retailers) was flat while its Direct revenue (sales made directly to consumers) averaged 3.6% year-on-year growth.
This quarter, Somnigroup reported modest year-on-year revenue growth of 3.2% but beat Wall Street’s estimates by 1.9%.
Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months. Although this projection implies its newer products and services will fuel better top-line performance, it is still below average for the sector.
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Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Somnigroup has shown mediocre cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 9.7%, subpar for a consumer discretionary business.
Somnigroup’s free cash flow clocked in at $108.2 million in Q4, equivalent to a 9% margin. This result was good as its margin was 3.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts’ consensus estimates show they’re expecting Somnigroup’s free cash flow margin of 11.5% for the last 12 months to remain the same.
Key Takeaways from Somnigroup’s Q4 Results
It was encouraging to see Somnigroup beat analysts’ revenue, EPS, and EBITDA expectations this quarter. On the other hand, its full-year EPS guidance missed. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock remained flat at $66.70 immediately after reporting.
So do we think Somnigroup is an attractive buy at the current price? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
