This is a basic financial analysis question that any fundamental investor should be able to answer in just a few minutes by looking at the company’s financial statements. So let’s take a look.
A quick internet search (on tupperware investor relations) turns up their latest quarterly report. The first thing to do is to get oriented. Here’s their investor relations page with their recent sec filings.
Their last 10-Q (the quarterly report) is for June. For future readers, I’m guessing their Sept report will be posted a day or two after I type this, so you will have more current information than I do while typing.
Clicking on the links, I’ve brought up the PDF. I prefer that over other formats - you might like a different format. Doesn’t really matter. Use whichever one is easier for you. The first page tells you what period we’re looking at. This one is for the 13 weeks ended June 25, 2022. Right away, we know that Tupperware is using a 52/53 week year rather than calendar months. Looking ahead to the financials, we see that the year to date numbers are for 26 weeks. So this is their second quarter and they have a year that ends near the end of December. Not unusual for retail companies. And it doesn’t really affect analysis in any notable way.
The income statements show 1.2 million of profits for the last quarter and 1.1 million for the last 6 months. That compares to 35.6 million and 80.9 million for the comparable periods from a year ago. Clearly, something is wrong.
Looking at the top line, sales are down significantly this year compared to the prior years. That would seem to be their issue.
With debt as a possible concern, looking at the line item for interest expense is the next stop. The quarter ended June shows 6 million of interest expense, compared to 9.7 million in the same period last year. The six month figures are 10.6 and 21.5 million, respectively. So interest expense is actually down. That’s strange.
They also have a statement of Comprehensive Income. Going into cynical mode, this is where weird stuff can be hidden away. And Tupperware has a weird item. In the two quarters ending June, they’ve got 118 million of foreign currency translation adjustments - as an additional income source. That compares to 7 million in the prior year.
Spidey senses are beyond tingling at this point. We’re into full on What The Heck is going on mode.
Let’s look at the balance sheet.
Cash is less than half of what it was at the beginning of the year. The immediate question that should raise is: where is the cash going? We’ll look at that in a bit. Receivables are down just a smidge but appear to be less than 1 month of sales, so that’s good. Inventories are up a smidge and are more than two months of sales. (Compare these to the gross sales and cost of goods sold, respectively). That’s a bit concerning, but not in a business-threatening kind of way. All the other assets seem pretty comparable to the beginning of the year numbers. Deferred tax assets are more than 10% of total assets. That could warrant further investigation - probably in the footnotes. Let’s move on to liabilities. Since we’re concerned about short term survival, that’s where the threats will be.
Accounts payable, current debt and lease (that’s debt payments due over the next 12 months) seem quite reasonable compared to the assets and sales. Accrued liabilities - that’s another item to check in the footnotes, but probably not survival-threatening. Liabilities held for sale - that’s a new one on me. Footnote time again. All of these are interesting, but none are large enough to be a problem. On to long term debt.
These are large at 688 million. More interesting, they are down just a bit while interest expense is down by 35% or so (math done in head here, so consider this highly rounded.) That seems odd.
But I’ve been looking at the minutia and missing the elephant in the room. Shareholders’ equity is negative - although somewhat improved over the beginning of the year. Disturbingly, it’s not from retained deficits. Retained earnings is over 1 billion dollars. It’s from treasury stock and the accumulated other comprehensive losses.
I’m also disturbed to see that the company has repurchased a lot of shares during this financially difficult half year. (Look at the description for Treasury stock where it lists the number of treasury shared held.) Why would they be doing that? That’s more footnote work.
So lets back up to the bigger picture again. What are the problems here? Clearly, there’s a sales problem. They’ve got a big drop in sales from the prior year. How about the debt? Well, in the prior year, their interest expense sure seemed to be manageable. It was 21.5 million for the half year at June 2021, which still left them with almost 81 million in profit. Interest expense being half of that in the current year while the liability remained more or less the same seems odd, especially in a rising interest rate environment.
But if you ask me, the big problem is stock buybacks. The company has used the vast majority of it’s retained earnings over the years to buy back it’s stock. And because there’s still a significant amount of debt on the balance sheet, those buybacks have been effectively debt-financed. That’s a typical corporate raider move.
A better analysis would involve looking at all of the footnotes where I’ve noted things. And it would involve a look at the last couple of full years. I’m not going to actually do that at this time, since I’m approaching this as more of a lesson rather than a proper financial analysis. Also, new quarterly statements are going to be available in just a few days, so it would be better to read those financial statements first and then look at the footnotes there. This quick look at the company is just intended to show the process rather than be a full analysis.