This Month’s Story Stock (TUP)

Each month, we select one of the companies in our Rational Risk Equity Income Investor letter to be highlighted because of an appealing “story”.  This month (issue #22 covering the month ending June 2013) we look at:

Tupperware Brands Corporation (TUP)

TUP meets all of the Rational Risk Quantitative List criteria, and the Subjective List criteria (see methodology for each list here) and has an appealing story.

PRINCIPAL APPEAL  OF THE STORY:

Participation in European recovery and the rise of the consumer in emerging markets …

TUP is a United States company that generates about 90% of its revenue outside of the United states, and about 61% of its revenue in developing economies. TUP products are plastic storage, preparation and storage products and beauty/personal care brands and jewelry re sold in nearly 100 countries via parties by 2.8 independent sellers on a “direct-to-consumer” demonstration sales-party method.  TUP is profitable with free cash flow, and attractive yield and dividend growth, and positioned to benefit from eventual European economic recovery and positioned to benefit from continued growth in the size and income of the middle class in emerging markets.  As emerging markets endeavor to transition from heavy reliance on commodities and manufactured good export to more consumer based internal economies.   The company states that they have low penetration in Latin America, Asia and Eastern and Central Europe, providing significant growth potential.

A FEW INTERESTING FACTS:

TUP operates in nearly 100 countries, selling through an independent sales force that includes approximately 1,800 distributors, 86,000 managers and 2.8 million independent dealers worldwide, collectively conducting 22 million sales parties, on average one every 1.4 seconds. Approximately 40% of product sales are for third party sources, which reduces inventory costs.  The company has 13,000 employees, only 1,000 of whom are in the US.  It has about 50,000 stockholders.

[click images to enlarge]

GEOGRAPHIC SEGMENTS:

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QUALITY RATINGS:

(see ratings definitions here)

  • Standard and Poor’s assigns a dividend and earnings quality rating of : A
  • Standard and Poor’s assigns a corporate credit rating of: BBB-
  • Moody’s assigns a senior unsecured debt credit rating of : Baa3 Stable
  • Wright Investor’s Service assigns a quality rating of: ABA15

Moody’s Comments On Reent Debt Issuance:

On Mach 6, 20013 TUP issued $200 million in debt maturing in 2021 under a revised leverage plan.  Moody’s said this:

“Tupperware’s announced on 29 January that its board of directors had approved a series of more aggressive financial policies including a 72% increase in its dividend and a new dividend payout target of 50% EPS from 33%. More importantly, the BOD approved a new leverage target (unadjusted) of 1.75 times, up from 1.5 times. Proceeds from today’s offering along with cash and cash flow will be used to fund additional share repurchases. 

To hit its revised target leverage, Tupperware plans to repurchase up to $400 million in shares in fiscal 2013 up from about $300 million in 2012 and about in line with the company’s 2011 repurchases. On a proforma basis, we project the company’s debt-to-EBITDA (including Moody’s standard analytic adjustments) will increase to 2.5 times as compared with approximately 2.0 times at December 31, 2012. Given our expectations for cash flow from operations, capital spending and the revised dividend payout ratio, we expect share repurchases above $125 million will increase the company’s leverage. We expect Tupperware to scale back its share repurchases if organic growth slows below its 5% to 7% target or if profitability declines below its return on sales target of 14.3% to 14.4%. 

Despite the reduction in financial flexibility as a result of its more shareholder oriented financial policies, Tupperware’s Baa3 senior unsecured rating and stable outlook remains appropriate given the still strong profitability, organic growth rate and considerable global franchise strength its direct selling business commands. 

The stable outlook reflects our expectation that Tupperware’s revenues and earnings will continue to achieve above-average organic growth relative to other consumer products companies, consistently generate free cash flow and maintain strong, investment grade credit metrics.”

RANKINGS vs OTHER STOCKS AVAILABLE IN TH USA:

  • Sales: #1,104
  • Assets: #1,828
  • Mkt-Cap: #993

REVENUE, EBITDA and FREE CASH FLOW:

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EARNINGS and DIVIDENDS:

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Cash Conversion Cycle and Receivables Turnover

Cash conversion cycle is number of days to turn inventory to cash.  Receivables turnover is net credit sales divided by average accounts receivable.

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Profit Margin, ROE and ROA

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Quarterly Operating Statement

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Quarterly Balance Statements

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Quarterly Sources & uses Statements

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VALUATION MULTIPLES:

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PERFORMANCE vs WORLD STOCKS, DM STOCKS, and EM STOCKS:

The charts use these symbols: world stocks (VT), non-US developed market stocks (VEA) and emerging market stocks (VWO).

TUP has outperformed EM stocks over 3-months, 1-year and since the US stock market bottom in March of 2009.  TUP has underperformed US stocks by 4.69% over the past 3 months, approximately broken even with other developed market stocks over thee months, and underperformed total world stocks by about 1%

Daily for 3 months

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Weekly for 1 year

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Monthly since US market bottom March 2009

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ANALYST OPINIONS:

Current Opinions

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Historical Price vs Historical Opinions

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DISCLOSURE:

We own TUP in some accounts.

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