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Tupperware Brands Corp. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: November 6, 2012 04:37PM
Tupperware Brands Corp. (TUP) filed Quarterly Report for the period ended 2012-09-29.
Highlight of Business Operations:On a year-to-date basis, emerging markets accounted for 62 percent and 59 percent of total Company sales for 2012 and 2011, respectively. Total sales on a reported basis in the emerging markets increased $28.1 million, or 2 percent. This reflected a negative impact of changes in foreign currency exchange rates of $87.6 million. Excluding the impact of foreign currency, there was an 11 percent increase. Total sales for the established markets decreased $64.2 million, or 8 percent, for the year-to-date period of 2012, compared with the same period of 2011, which included a negative $33.5 million impact from foreign currency exchange rate changes. Excluding the impact of foreign currency, sales decreased in these markets by 4.0 percent. The sources of the year-to-date fluctuations largely followed those of the quarter, except in the established markets of Nutrimetics Australia, Tupperware France and Tupperware South Africa, as trends in these markets improved on a sequential basis. The year-to-date sales comparison, under the Company's fiscal calendar, was also negatively impacted by an estimated 1 to 2 percentage points from one less week in the first quarter of the current year.
During the second quarter, the Company completed its annual impairment test of the BeautiControl reporting units, resulting in an impairment charge of $38.9 million related to the goodwill in the BeautiControl United States and Canada business as a result of the rates of growth of sales, profit and cash flow and expectations for future performance that were below the Company's projections. Also in the second quarter, the financial performance of the Nutrimetics reporting units fell below their previous trend line and it became apparent that they would fall significantly short of expectations for the year. Additionally, reductions in the forecasted operating trends of NaturCare relating to the decline in the rates of growth of sales, profits and cash flows in the Japanese market led to interim impairment testing in these businesses as of the end of May and June 2012, respectively. The result of these tests was to record tradename impairments of $13.8 million for Nutrimetics and $9.0 million for NaturCare, primarily due to the use of lower estimated royalty rates in light of lower sales and profit forecasts for these units, as well as macroeconomic factors that resulted in increases in the discount rates used in the valuations. In addition, the Company wrote off the $7.2 million and $7.7 million carrying value of the goodwill of Nutrimetics Asia Pacific and Nutrimetics Europe reporting units, respectively, in light of current operating trends and expected future results, as well as the macroeconomic factors that resulted in increases in the discount rates used in the valuations.
Reported sales increased 10 percent compared with the third quarter of 2011. Excluding the impact of foreign currency exchange rates, sales increased 14 percent. Emerging markets accounted for $152.7 million and $131.5 million, or 77 and 73 percent, of the reported sales in the segment in the third quarters of 2012 and 2011, respectively. Versus 2011, emerging market sales were negatively impacted by $7.2 million from changes in foreign currency rates. Excluding the impact of changes in foreign currency rates, sales increased 23 percent in these markets. The most significant contributions to the overall increase were in China, India, Indonesia and Malaysia/Singapore, as a result of leveraging larger, more active sales forces and higher productivity in India. This reflected the impact of brand building activities and successful promotional activities with strong recruiting and retention in India and Indonesia. China ended the quarter with almost 3,700 outlets, which was 13 percent more than at the end of the third quarter of 2011.
Liquidity and Capital Resources Net working capital increased by $35.1 million in the third quarter, which included a $2 million decrease from changes in foreign currency exchange rates and, most significantly, an increase in accounts receivable due to level and timing of sales around the end of each period, an increase in inventory, reflecting expectations for future sales and a decrease in accounts payable due to the timing of payments around year-end. Also included in the change in net working capital was a $70 million reduction from lower cash and cash equivalents and higher short-term borrowings and current portion of long term debt, which together with cash flow from operating activities, funded the cash outflow in the first nine months of the year for investing activities, dividends and share repurchases.
Investing Activities During the year-to-date periods of 2012 and 2011, the Company had $51.0 million and $49.3 million, respectively, of capital expenditures. In 2012, capital expenditures mainly related to molds, the purchase of a new office in Venezuela for $5.6 million to support expanding operations and as a natural hedge against possible currency devaluation, the expansion of warehouse space in Indonesia, new vehicles for the sales force in South Africa, as well as for manufacturing capacity in India and Brazil. In 2011, expenditures mainly related to molds for new products, expansion of warehouse space in South Africa and increased production capacity in Brazil.
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