Tuesday, February 1, 2011

Tupperware Still Looks Cheap Despite the Rise



Tupperware Driven by Emerging Markets





Emerging Markets play Tupperware gave great results and, the stock is up handsomely but I think they are still cheap. The company was first featured in an in depth article here

 I will refer to this article in making this update.

Initially, looking at the headline results
  • Q4 Revenue of $655m vs. $643.8m estimates
  • Q4 Adj diluted EPS of 138c vs. 128c estimates

Guidance
  • Q1 Adj diluted EPS of 81-86c vs. 84c estimates
  • Full Year Adj diluted EPS of 423-433c vs. 416c estimates


Tupperware Results Show a Two Speed Situation

The key points to note about these results are

  • Emerging market growth is very strong
  • Established markets growth is showing consolidated decline
  • Beauty North America has been restructured successfully
  • Beauty International showing strong growth
  • Gross margins steady despite sales shifts
  • Very strong cash flow generation

As noted in the previous article, the largest single segment is Europe which is demonstrating consolidated declines. For the quarter, Europe segmental profit was down to $57.9m from $62.7m. However, this story is somewhat mixed because South Africa and Turkey are both included in this region. They reported 31% and 39% local sales growth respectively.

The decline in established markets cannot be hidden


(In millions except per share data)













13 Weeks Ended Dec 25, 2010

13 Weeks Ended Dec 26, 2009


Reported

Adj's

Excl Adj's

Reported

Adj's

Excl Adj's

Segment profit












Europe
$    57.8

$   0.1

$     57.9

$    62.6

$    0.1

$     62.7

Asia Pacific
34.4

0.2

34.6

28.3

0.3

28.6

TW North America
13.9

-

13.9

13.5

-

13.5

Beauty North America
19.5

0.4

19.9

15.4

0.5

15.9

Beauty Other
14.6

0.3

14.9

7.5

0.4

7.9


140.2

1.0

141.2

127.3

1.3

128.6




Asia reported stellar growth and is off setting weakness in Europe. Within Asia, India and Indonesia reported particularly strong growth.

Tupperware North America reported good sales growth and the business was restructured in Mexico, producing better marginal returns.

Similarly, Beauty North America has seen restructuring lead to strongly increased profitability, even though sales the quarter were only up 1% locally from last year. Beauty International reported sales up 16% in local currency and segmental profit up 95%



Tupperware Still a Stock to Buy?

I will reduce due to position weighting but I still think there is good growth in the stock price. Tupperware’s emerging markets business (56% of sales) went up by 15% in local currency, whilst established markets were down 2%. These numbers tell you most of what you need to know about this business. There is a structural shift happening in Tupperware’s revenues and profitability.

Whilst established markets are in decline, Tupperware has demonstrated that they have a relatively recession proof business model. This is particularly interesting for a hedged portfolio because Tupperware will outperform if a ‘double dip’ happens, however they still offer growth potential if the global economy continues to improve.

Moreover, they convert cash very well and have generated $246m in free cash flow for 2010. This puts them on a FCF/EV evaluation of 7.64% This is cheap for a business set to grow revenues at 6-8% and EPS at 18%

In addition, Tupperware is making all the right noises about increasing dividends in line with earnings growth and making share buybacks. There is more room to run here.


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