Last quarter Betterware gave investors one month of Tupperware Latin America and a lot of promises. The report due after the close on October 22 should be the first real look at the combined company: a full three months of the acquired business, the start of the deleveraging story, and early signs of whether the legacy brands can keep growing while absorbing a large integration.
The Street is looking for a big quarter on paper. Consensus calls for earnings of $0.72 per share on revenue of $262.8 million, which would be gains of roughly 60% and 45% from the year-ago $0.45 and $181.3 million. Most of that jump comes from consolidation, not underlying demand. The more telling comparison is with the prior quarter's $239.3 million. Tupperware made up 10.8% of revenue with only one month on the books, and management said it should be about one-third of sales going forward. Seen that way, the sequential step-up the Street expects looks fairly restrained. That suggests analysts are already allowing for the exit of Tupperware's non-direct-selling channel, which management said would weigh on the second and third quarters, and for the Argentina distribution license ending in September. Management kept its full-year framework of roughly 4% to 8% revenue growth rather than raising it, so the company has not given cover for estimates much above current levels.
The key operating question is whether Tupperware's direct-selling momentum lasts. Management said direct-selling revenue grew about 30% year over year and that Brazil's decline had narrowed to roughly 7% by June, compared with the 10% to 15% drops of earlier quarters. Further improvement in Brazil, along with progress in activating the 300,000-plus sellers that came with the deal, would support the view that Tupperware is a turnaround and not just added revenue. A return to steeper Brazilian declines, or a larger-than-expected drag from the channel exit, would undercut it.
On the legacy side, organic growth picked up to 4.1% from 0.3% in the first quarter, with all three brands growing. Holding that pace matters, but so does what it costs. Jafra Mexico's gross margin fell below its usual 73.5% to 74.5% range because of deliberate promotional spending, and organic EBITDA declined. If margin moves back toward the normal range without a slowdown in sales, the earlier dip looks like a smart investment. If not, it starts to look like the company paying for growth. Jafra US, which reached a positive EBITDA margin last quarter, is a smaller item, but a second profitable quarter would help confirm that its recovery is real.
The balance sheet is the other major test. Reported net debt rose to 2.6 times EBITDA after the $213 million acquisition debt was added, against about 1.6 times on a pro forma basis. A full quarter of Tupperware EBITDA should pull the reported ratio down noticeably. Cash flow is the place to look for proof: management plans to lengthen Tupperware's supplier terms from close to zero to about 120 days, a one-time working-capital benefit that should appear in this period or soon after. Any update on using spare capacity at the Mexico and Brazil plants, running at about 60% and 40%, would be an added positive.
Sentiment has moved from clearly bearish before the last report to moderately bullish now, but the stock has not followed. Shares are down 5.7% since the last report while the S&P 500 rose 5.4%. At $16.34, the stock trades below its 200-day moving average of $17.15 and in the lower half of its post-earnings range of $15.15 to $17.85, a range that sits below the prior quarter's. The market appears to be waiting for evidence before giving credit for the deal. That evidence comes down to one question: whether Tupperware's direct-selling recovery and the expected deleveraging show up clearly in a full quarter of results, enough to offset the channel exit and the Argentina loss.