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Published: July 20, 2010
With all of the attention paid to quarterly
results, investors often lose sight of the bigger picture.
Suddenly, a solid growth story becomes a lagging stock. And
that’s when you need to pounce. Because when the short-term
noise recedes, investors will return to that stock in force.
That lesson was brought home today by looking at quarterly
results from Tupperware (NYSE: TUP). Shares are falling
around -10% on Tuesday as the global consumer products maker is
being hit by foreign exchange effects. Make no mistake,
Tupperware continues to benefit from a
turnaround that began back in 2007, got overlooked in the
downturn in 2008 and 2009, and was only starting to be
appreciated this year when economic headwinds stole the
headlines. Take a step back, though, and you’ll see a company
that has built new paths to growth, sharply cut costs and
steadily marched into some of the world’s most fertile emerging
markets.
Shedding Layers
Back in 2006, Tupperware made a string of acquisitions of
cosmetic brands, augmenting its line of plastic containers,
adding about $600 million to the company’s $1.3 billion sales
base. During the next year, management laid out a plan to shed
redundant
overhead to squeeze more profits out of every dollar of
revenue. It worked. Sales grew roughly 10% in 2007 and 2008,
while operating profits rose at a healthy 30% clip. Per-share
profits rose from $1.42 in 2005 to nearly twice that in 2009,
thanks to a 400
basis point expansion in operating and net profit margins.
Not Done Yet
Remarkably, management has found other ways to boost margins yet
further. For example, raw material purchasing is now done more
smartly, lowering manufacturing expenses. That’s why analysts
predicted that profits can grow another +20% this year, and
another +13% in 2011, even though sales have been expected to
grow at only half that rate. At least that’s what analysts
thought until this morning.
Management now thinks that the weak Euro will force analysts to
trim those forecasts. Earnings per share will likely be closer
to $3.40, well below the $3.70 consensus. Foreign exchange
losses account for the bulk of that downward guidance. Notably,
profits are still on track to rise more than +10% from last
year. So the company’s profit momentum is not broken, just
slowed. And assuming the Euro at least stabilizes at current
levels, the stage is set for a nice profit rebound next year,
back up toward the 20% mark.
Action to Take --> Growing
excitement about Tupperware’s ongoing turnaround pushed shares
up near $55 in late April. Now, they can be had below $40, or
around 10 times projected 2011 earnings. There’s no reason this
stock can’t push through the $60 mark once all this
currency noise abates. It may take several quarters to get
there, but investors will once again see this company as the
solid growth story that it is.
-- David Sterman
Staff Writer
StreetAuthority |
