Avon Products, Inc. (AVP), Herbalife Ltd. (HLF): A Direct Approach In Emerging Markets

Page 1 of 2

The direct selling business has been under some pressure of late, with Avon Products, Inc. (NYSE:AVP) struggling and Herbalife Ltd. (NYSE:HLF) under a government investigation. That said, the direct selling approach has a lot of appeal in the fast-growing emerging markets. Now could be an interesting time to jump aboard, if you pick the right company.

Emerging

Tupperware Brands CorporationTupperware Brands Corporation (NYSE:TUP), a direct seller of plasticware, kitchenware, and beauty supplies, expects the global middle class to expand from 1.8 billion people today to 3.2 billion people by 2020. That’s less than ten years away. The big growth is likely to come from emerging markets.

For example, the company projects that Asia alone will see an increase in the middle class from 500 million to 1.7 billion. That area accounts for virtually all of the expected middle class growth. Though not as exciting as the growth potential in Asia, the company expects Central and South America to see a 40% increase in the size of the middle class over the next few years, too.

Direct selling was an important part of The United States’ move toward an expanding middle class. So direct sellers and multi-level marketers have seen emerging economies as a way to repeat the success seen in now developed markets.

The Best of the Bunch

Tupperware Brands Corporation (NYSE:TUP) is probably the best performing direct seller right now. The company’s shares are hitting new highs and, aside from a 1.6% dip in 2009, revenues have been on an upward climb for a decade. Although the top line was flat between 2011 and 2012, that looks like it was the result of a weak third quarter in 2012. The fourth quarter and the first quarter of 2013 suggest that things are back on track.

The bottom line, meanwhile, has more than doubled over the past decade and dividends have been increased annually in each of the last four years. With over 60% of sales coming from emerging markets, Tupperware is well positioned to capitalize on the growth it expects to see in these regions.

Yielding nearly 3%, Tupperware is a good way for investors to get “direct” exposure to emerging markets. That said, recent share price performance has been impressive. Momentum investors might want to take a look, but more conservative accounts should probably wait for a pullback.

A Troubled Giant

Avon Products, Inc. (NYSE:AVP) is another big direct retailer. Although the makeup company’s top line has been growing fairly steadily over the past ten years, its profit margin has contracted from the mid-teens to the single digits. Last year was a particularly difficult one, though that isn’t surprising since there was a management shakeup.

Although shareholders have had to suffer through a period of red ink, such top level changes often result in the new leader making aggressive changes up front. Note that the changes at Avon Products, Inc. (NYSE:AVP) included a dividend cut. However, the company sees big growth potential in emerging markets. In 2011, emerging economies accounted for about 40% of worldwide beauty spending, but that is expected to grow to 50% by 2016.

Interestingly, Latin America represents nearly half of the company’s business today, while Asia represents just under 10%. That means the company has a lot of room to expand along with Asia’s growing middle class.

Avon Products, Inc. (NYSE:AVP)’s stock has held up surprisingly well despite the near-term headwinds. In fact, the shares are up around 25% so far this year. However, they remain well off the highs reached prior to the recession. A dividend cut and a 1% yield suggest that income investors should look elsewhere. Those looking for a turnaround might still find some value here as the new CEO works to improve performance.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Top 10 Most Expensive Luxury Cars in the World – 2014

Killer Small Business Ideas

The 50 Best Personal Finance Blogs

Most Expensive Apartments in New York City

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!