Tupperware Preserves Growth in Emerging Markets

| About: Tupperware Brands (TUP)
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Tupperware Brands (NYSE:TUP) broke out on Wednesday more than 11.5% on a very bullish first-quarter earnings report. The company reported EPS of 76 cents on revenue of $557 million, both of which easily topped analyst’s estimates of 62 cents of earnings on $548 million. The container maker saw particularly strong growth in emerging markets of 18% in local currency, and now emerging market’s account for 54% of Tupperware’s sales. Overall sales surged 20% in the quarter, partially thanks to the benefit of exchange rates and improved global volumes. Impressive sales gains have made the company more positive toward the second quarter as well, and management confidently increased guidance for the second quarter and the full year ahead.

For the second quarter, Tupperware expects to see sales rise 7% to 9% on a local currency basis, but favorable exchange rates will push sales higher in USD terms by 12% to 14%. Furthermore, they anticipate EPS to be $.95 toTUP $1.00 in the second quarter. The new guidance easily trumps the average analyst estimate calling for sales growth of 11% and earnings per share of $.93. Looking ahead to full-year results, TUP management has raised sales growth guidance to 8% to 10% resulting in an expect EPS range of $3.68 to $3.78.

Tupperware is benefitting from a growing middle class particularly in places like Brazil, China, India, and Indonesia as those bustling populations are spending more on food. As the economies develop more robust consumer classes, Tupperware’s products are in greater demand to store leftover food. Also, CEO Rick Goings commented that TUP’s direct sales business model meshes well in places like India, as women have few earning opportunities and outside of the big cities retail infrastructure is still very limited. The company grew its sales force 7% in the last quarter to 2.4 million worldwide, and plans to accelerate growth to 9% this year. While Tupperware parties may not be prevalent in the US anymore, the practice is apparently alive and well in the world’s emerging markets.

Following today’s surge the stock has appreciated more than 150% in the last twelve months, and at Ockham we believe it has gotten somewhat overheated. Coming into this week’s report we reaffirmed our Overvalued rating on TUP shares because the stock was trading slightly above the range we would expect given the current fundamentals. After vaulting above $55 per share, both price-to-sales and price-to-cash earnings are right around the high end of their historically normal levels. However, the quarterly report exceeded our expectations, especially in terms of growth, and we re-evaluate our rating on every stock each week. If there is a slight pull back, we would consider an upgrade to Fairly Valued.

In conclusion, Tupperware has found explosive growth in emerging markets around the world, particularly in the Asia Pacific region. While it is no longer a traditional “value stock” after its impressive ramp up, the company should continue to benefit from growing confidence in the global economic recovery.

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