Tupperware Brands: Well Contained

A direct seller of various consumer products, Tupperware Brands (TUP) is best known for its popular kitchen storage containers. Roughly 80% of revenues are generated outside the U.S. Sales are split fairly evenly between established markets and faster growing emerging markets such as Mexico, South America, China, India, Indonesia, Russia, and Eastern Europe.

The company’s products fall into two categories. Tupperware branded products, which generated 65.2% of 2008 sales, consist of food storage containers and serving and food preparation products. Product lines include Modular Mates, FridgeSmart, and One Touch canisters; Flat Out containers that flatten for easy storage; Rock ‘N Serve microwave containers; Open House and Elegant serving products; and the Chef Series of stainless steel knives and cookware. Beauty products accounted for 34.8% of 2008 sales. These consist of cosmetics; skin, bath and body care products; toiletries; fragrances; nutritional products; and apparel marketed under the Armand Dupree,Avroy Shlain, BeautiControl, Fuller, NaturCare, Nuvo, and Swissgarde brand names.

The company relies on an independent direct sales force that numbers 2.3 million worldwide. The sales force uses what is known as the “party” plan. They generate sales by hosting social events or parties where they demonstrate TUP’s products.

Despite recessionary pressures, net sales rose 9.1% in 2008 to $2.16 billion. Sales in emerging markets climbed 17%. Sales in established markets fell 1%. Tupperware brand sales increased 10.9% to $1.41 billion. Beauty segment sales grew 5.9% to $752.8 million. The adjusted operating profit margin expanded 54 basis points to 11.28%. Adjusted net income jumped 20.2% to $169.7 million or $2.69 per share.

However, results weakened toward yearend and the strengthening dollar cut 13 percentage points from the top line in Q4. Net sales fell 9.6% from Q4 2007 to $521.7 million. The adjusted operating profit margin improved 105 basis points to 14.99%, but adjusted net income fell 4.1% to $56.4 million or 90 cents per share. Sales should rise strongly in foreign markets this year, but the strengthening dollar could cause total revenues to fall 9-11%. Adjusted earnings could fall as much as 26%. Management is forecasting $1.98-2.08 per share.

We believe these expectations are largely priced into the stock. Investors should also pay attention to growth in local currencies. The lack of a well-developed retail infrastructure in emerging markets works to TUP’s advantage because it limits competition. Furthermore, limited opportunities for women in emerging markets make it easier for TUP to recruit motivated independent sellers. Likewise, rising unemployment in established markets should increase the pool of qualified recruits. We believe TUP can also benefit from pennypinching consumers looking to save money by preparing more meals at home and taking lunches to work. These trends could very well result in stronger-thanexpected sales for the company’s storage containers.

TUP should also benefit from incremental improvements in its beauty operations stemming from ongoing initiatives and managerial changes in these businesses. Lower-than-expected resin costs, which are a function of oil and gas prices, could also contribute to the company’s bottom line. Finally,TUP’s generous dividend is a bonus for yield hungry investors.

Comments

[robert99:]

At a glance, TUP looks like a good company, but I want it at $15 or better.

Apr 07 10:25 PM