The Tupperware Brands Corp. $26 - New York symbol TUP

THE TUPPERWARE BRANDS CORP. $26 (New York symbol TUP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 61.1 million; Market cap: $1.6 billion; WSSF Rating: Above average) makes high-quality products for the home and kitchen, including plastic food and beverage containers and children’s educational toys. The company also makes a wide range of beauty products, including cosmetics, bath oils and fragrances. Major brands include Tupperware, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, Nuvo and Swissgarde. Unlike most manufacturers of consumer products, Tupperware prefers to sell its products through independent dealers instead of traditional stores. These dealers hold “Tupperware parties” in homes, offices and other locations to demonstrate products and take orders for merchandise. Parties also give dealers an opportunity to recruit new dealers, and make it easier to expand sales in less-developed countries with few retail stores or distribution networks. Tupperware parties may seem old-fashioned, but Tupperware’s revenue grew at a compounded annual rate of 11.5%, from $1.1 billion in 2002 to $1.7 billion in 2006. Profits before unusual items fell from $1.30 a share (total $76.2 million) in 2002 to $0.82 a share ($47.9 million) in 2003, as the company ended a relationship with Target Stores. Profits improved steadily to $1.54 a share ($94.2 million) in 2006. Using independent dealers instead of relying on retail store staff helps keep Tupperware’s costs low. Dealers also have a greater incentive than store employees to promote Tupperware goods. This cuts the need for costly discounts to spur sales. Beside parties, Tupperware also uses the Internet, mail order catalogs and television shopping programs to sell its products. That helps it reach customers who are unable to attend a Tupperware party. The company now gets over 80% of its revenue and profits from customers outside of the United States. Tupperware offsets its currency risk with a hedging program. It also buys most of its raw materials in its local markets. Tupperware needs resins from oil to make most of its products, so it’s vulnerable to volatile oil prices. It spent $85 million on resins in 2006, which is equal about 90% of its earnings. The company keeps its exposure low by buying resins in bulk on short-term contracts. The company is now expanding its beauty products business, which also uses the Tupperware division’s model of independent dealers. Two years ago, it paid $569.2 million for the direct selling beauty products business of Sara Lee Corp., which increased the size of this division seven-fold. We feel the beauty operations could soon account for 50% of the company’s total revenues, up from 36% in 2006. That’s because growing prosperity in Asia and Latin America is making products like these more affordable to average consumers. Tupperware had to borrow the cash it needed to buy the Sara Lee operations. That pushed its long-term debt up to 2.2 times equity in 2005. But the strong cash flow from these new operations helped the company cut its long-term debt to 1.7 times in 2006. Savings from a recent restructuring plan will also give Tupperware more cash to pay down debt. The company has paid a quarterly dividend of $0.22 a share since it became a public company 11 years ago. The annual rate of $0.88 yields 3.4%. Tupperware will probably use any excess cash in the next few years to pay down debt instead of increasing the dividend or buying back stock. Tupperware’s shares fell from a peak of $56 in 1996 to $12 in 2003, but have moved up steadily since. They now trade at a reasonable 16.8 times the $1.55 a share the company will probably earn in 2007. They are also attractive at 0.9 times its 2006 sales of $28.79 a share. The stock is a buy. We’re adding Tupperware to our Conservative Growth and Income Portfolios.