For many of us, the name Tupperware is as American as apple pie on the 4th of July. Yet, this iconic brand now does far more business outside of the U.S.A. than within it. Last year, 2013, it derived 90% of its revenue from international markets, and taking the analysis one step deeper, received 65% of revenue from emerging markets.
Now officially named Tupperware Brands Corporation (TUP, Financial), this iconic company continues to sell directly to consumers at the home and office parties that helped make it a household name. Today, the company hosts another party roughly every second and a half, and continues the tradition of independent, commissioned hosts, or sales persons.
It comes to our, investors', attention by appearing on the GuruFocus Undervalued Predictable list. As the following chart shows, the TUP share price has pulled back this year, which may provide an entry point for those who expect the stock's upward charge to resume. It closed today (July 17, 2014) at $82.91, well down from its all-time high of $97.14.
Tupperware's History
- 1938: the basic product is invented by Earl Silas Tupper (1907-1983);
- 1946: the airtight seal (based on an inverted paint can lid) and 'burp' are introduced, and the product debuts in retail stores, but sells poorly for lack of demonstration;
- 1948: the first home party takes place, and features demonstrations of the seal;
- 1951: because the home parties are so successful, the retail store channel closes, and the company focuses everything on parties;
- 1958: Rexall buys the company;
- 1960: Tupperware debuts in Europe with a home party in England;
- 1977: a series of corporate moves (including mergers and demergers) begin;
- 1996: Tupperware Corporation is spun off from Premark International (a successor of sorts to Rexall);
- 1996: the company pays its first quarterly dividend of 22-cents, and continues at that rate until the end of 2009;
- 2001: acquires BeautiControl;
- 2005: acquires International Beauty Group and Sara Lee Corp.'s direct selling business;
- 2005: name changed to Tupperware Brands to reflect the new composition of the company;
- 2010: dividends begin rising annually, from 25-cents for the first quarter of 2010 to 68-cents in the most recent quarter, June 2010 (DividendInformation.com);
History based on information at the company website and Wikipedia unless otherwise noted.
Tupperware's Business Model
- direct-to-consumer marketing company
- sells kitchen and home wares under the Tupperware brand
- sells beauty and personal care products through the Armand Dupree® , Avroy Shlain® , BeautiControl® , Fuller® , NaturCare® , Nutrimetics® and Nuvo® brands
- Here's a summary of the reporting segments and their contributions to overall revenue and income (note that Tupperware and Beauty have their own segments in North America):
Here's a chart showing revenue (green) and earnings per share (blue) since the company has gone public:
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Growth Strategy
Innovation plays a surprisingly prominent role in Tupperware Brands' operations and growth plans. According to the 10-K for 2013, it spent $20-million on research and development in that year, Further, on an ongoing basis, some 25% of sales originate with products just introduced in the previous two years.
Source: Chairman's Letter, 2011
Entertaining Selling Situations refers to the traditional sales approach of home and office parties, where commissioned sales persons demonstrate and sell;
Compelling Earning & Leadership Opportunities: Ever conscious of its dependence on these independent reps, the company says, "...we micro finance her, provide her free training and coaching, and give her a career path.";
Direct Selling Fundamentals refers to ongoing recruiting, training, and motivation of sales persons;
In its 10-K Report for 2013, the company says, "Market penetration varies throughout the world. Several areas that have low penetration, such as Latin America, Asia and Eastern and Central Europe, provide the Company significant growth potential. The Company's strategy continues to include greater penetration in markets throughout the world."
While other companies have eagerly turned to online sales, Tupperware has not. In the 2013 10-K, it notes, "Internet and business-to-business transactions do not constitute a significant portion of sales for the Company." Reading between the lines, it appears that will continue to be the case in the foreseeable future.
The First Quarter 2014 earnings release offers this guidance for the remainder of the year, "For the full year, sales in local currency are expected to be about even in Europe and Tupperware North America, up high-single to low-double digit in Asia Pacific, down high single digit in Beauty North America and up close to 30% percent in the South America segment. Venezuela’s forecasted sales increase being above the segment’s average accounts for a high single digit share of the increase for the segment." Summed up, basically flat in Europe and North America, but going strong in the rest of the world.
Risks
Sales force: the direct marketing channel experiences high turnover, and consequently the company needs to constantly recruit and train new sales reps. Competition from other direct sellers, as well as general economic conditions and other factors, may prevent the company from being fully 'staffed';
Exchange rates: now that it makes 90% of its sales outside the U.S.A., Tupperware Brands faces the possibility that its financial condition may suffer because of exchange rates. While hedging might help, it can also hurt if hit by perfect storms. The company notes/hopes that because it sources in so many countries, some natural hedging will occur;
Product safety: countless consumer organizations now look for product safety hazards (whether real or imagined), so the company may face restrictions or legal challenges;
Other: in its 10-K reports, the company lists a number of other risks, including weather, natural disasters, strikes, epidemics/pandemics, political instability and public scrutiny of the direct-to-consumer channel; the supply and cost of raw materials for its natural gas-based resins, may have an impact on the availability or cost of the Company’s plastic products; product counterfeiting and other intellectual property infringements.
Management
- E.V. (Rick) Goings, age 68, Chairman and Chief Executive Officer since 1997;
- Simon C. Hemus, age 64, President and Chief Operating Officer since 2007;
- Michael S. Poteshman, age 50, Executive Vice President and Chief Financial Officer since 2004;
- Board of Directors: Includes senior management officials from Syracuse University, Reynolds American Inc., AFLAC, Darden Restaurants, and Deckers Outdoor.
- ISS Corporate Governance QuickScore: 1, the best score available. TUP receives one red flag for Voting Formalities, but receives three green stars, for Board Practics, Voting Issues, and Equity Risk Management;
Ownership
- Gurus: among the gurus followed by GuruFocus six have holdings: Paul Tudor Jones (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), RS Investment Management (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), and Scott Black (Trades, Portfolio); the largest position belongs to RS Investment Management (Trades, Portfolio) with just over 1-million shares;
- Institutional Investors: Over the past five years, the percentage of holdings by institutional investors has ranged from 80 to the high 90s. Currently, they hold 89%;
- Insiders: Own about 2% of the company; CEO and Chairman E. V. Goings has sold about 55-thousand shares so far in 2014 (the most of any insider this year), but still holds just under 200-thousand.
- Short Interest: 8% - during and immediately after the 2008 financial crisis, the short positions rose into the low teens, but subsequently fell to a low of less than 1%. Since then, the percentage has increased, as the following chart shows:
TUP by the Numbers
Financial Strength
GuruFocus gives TUP a 6/10 for Financial Strength and a 9/10 for Profitability & Growth:
Looking more closely at the numbers and the one Medium Warning Sign, we see debt is the key concern, "Over the past 3 years, it issued USD 466.4 million of debt. But overall, its debt level is acceptable." At the end of fiscal 2013, the 10 year cash flow statement shows free cash flow of $255 million.
Can we count on that cash flow to service the debt in coming years? TUP's Predictability Rating of 4.5 suggests we can. GuruFocus analyses indicate companies with 4 and a half stars average a yearly 10.6% price gain if held for a decade; and we assume that cash flow (and other key metrics) will have to grow as well, to push up the share price.
Valuation
Using the GuruFocus Fair Value/Discounted Cash Flow calculator, with its default settings, we see an estimate of $108.61, a 23% premium over the current price.
The eight brokers followed by Yahoo! Finance collectively put the mean target at $92.38, the median at $90.50, and the high at $103.00. They also put the low target at $84.00, a few cents above the July 16 close.
Outlook
The company plans to stick with its proven sales method, and gives no indication it expects to build the Internet business or do business-to-business deals in the future;
Without cannibalization by online sales, the company should be able to continue recruiting enough direct sales reps to maintain its revenue and earnings lines;
The party method of selling has proven to work well in emerging markets, and these are relatively untapped markets, giving the company a very large pool of both sales persons and customers;
It expects growth of what it calls "high-single to low-double digit " - I'm assuming that means roughly 8% to 12% - in the Asia Pacific region this year, and substantial increases in South America as well. There appear to be no reasons why this growth should not continue in these regions;
Sales have flatlined, and even edged down, in Tupperware Brand's traditional markets of North America and Europe;
It should be able to maintain its margins as it moves forward; while no-growth in North America and Europe may be a problem from one perspective, from another perspective, it indicates Tupperware can survive, with its margins relatively intact, despite growing competition and cultural changes that affect its ability to recruit sales reps;
The company has aggressively increased its dividend in recent years; assuming it maintains payouts at the 50% level, shareholders will be well paid for sitting on the stock;
Last year, it bought back 8.6% of its outstanding shares, and still has room for buybacks under a $2-billion buyback authorization.
Conclusions
Overall, this now almost 70 year old company has adapted and grown successfully over the years. Most importantly, it has ported its marketing strategy to the global stage where the opportunities for growth exceed opportunities in domestic markets.
With 90% or more of its sales coming from international markets in 2012 and 2013, this has become a different kind of stock to own. It will suit those who want global exposure, and be inappropriate for those who want just domestic exposure.
Combining the dividend, buybacks, and potential growth in emerging markets, this stock should get a closer look from investors who want income while they wait for non-domestic capital appreciation.
