Tupperware Brands Corporation

Tupperware Brands Corporation (TUP) is a multi-brand, direct selling company with a market capitalization of ~$4.5 billion. The company owns the iconic Tupperware brand which has a very strong brand recall across the world for high quality kitchen storage and serving products. The company follows a direct selling business model through more than 1.9 million “consultants” across more than 100 different countries. Tupperware was developed in 1948 and quickly gained traction due to its unique “burping seal” technology which allowed the containers to remain airtight. Tupperware was also one of the first brands to employ a direct selling model. TUP has managed to show consistent growth despite a global economic slowdown since 2008. The company has not only managed to grow during this period but has also decreased its debt and increased its dividends. The company has been showing high double digit growth in emerging markets which have become the main growth engine for TUP. I remain bullish about Tupperware stock given its strong balance sheet, strong presence in emerging markets, its history of rewarding shareholders, good and growing divided yield and its strong brand appeal.

What Does Tupperware Brands Corporation Do

Tupperware Brands Corporation is an umbrella company which includes eight brands. It sells kitchen and home ware serving, preparation and storage solutions under the Tupperware brand and beauty and personal care products including cosmetics, toiletries, fragrances, health care and baby care products under Armand Dupree, Avroy Shlain, BeautiControl, Fuller, NaturCare, Nutrimetics, and Nuvo brands.

1. Tupperware designs products food preparation, storage and serving
2. Armand Dupree deals in cosmetics and fragrances
3. Avroy Shlain one of South Africa’s leading cosmetic manufacturer selling directly. It manufactures skincare, body care, sun care, color, fragrances and inner care products.
4. BeautiControl is the #1 Premium Spa Brand and offers premium products and services including advanced skin care and quality cosmetics
5. NaturCare deals in eco-friendly daily care products
6. Nuvo sells five major product lines: beauty, fashion, Tupperware, bed and linen, and household products
7. Nutrimetics also deals in cosmetic products.

Tupperware Positives

1) Direct Selling Model – One of the most unique features offered by Tupperware Brands Corporation is its Direct Selling feature which means selling products conveniently on a one-to-one basis through a home party or by means of product catalogs. Tupperware has extensively used the direct selling model to become one of the largest kitchen product sellers in the world. The direct selling model targeting women has been used since the 1950s by the company and has proved quite successful in different countries that TUP operates in. The company has leveraged the large numbers of housewives to become its agents and advertisers. It is very easy to become a Tupperware agent and join the company. No initial investment is required. People of any age and background can join Tupperware. The company gives excellent commissions and provides online help to even organize a Tupperware party which can be used to generate TUP sales.

Source – Tupperware

2) Great Brand creates strong competitive barrier – The Tupperware brand has become synonymous with high quality kitchen and storage products. It is not easy to create a reputation for high quality in mundane products. The Company has built this brand over the last 60 years and now enjoys high pricing power in a category which frankly does not require high R&D costs. Despite selling at a considerable premium to local products, Tupperware has managed to show sharp growth even in price conscious emerging markets. TUP is not only about emerging markets but is also extremely strong in developed markets. It has an astounding 74% penetration rate amongst households in Germany.

3) Strong in Emerging Markets – Tupperware is extremely strong in the emerging markets which provide the bulk of its sales these days. Though only ‘Tupperware products’ segment is present in the Asian countries, the emerging markets in Asia have provided most of TUP’s growth in the past few years. The emerging markets accounted for 65% of the sales in Q2 2013. The company’s penetration level is still quite low in these markets as compared to development market which means that the growth potential is quite huge. There has been a dramatic increase in the middle class population and also a corresponding increase in their spending pattern on consumer products. As per the Q2 2013 TUP report, Indonesia has become the largest market for Tupperware products registering a growth of 36%, with India and China both up by 20%. The biggest hurdle for consumer goods companies in entering developing countries is the lack of a distribution network. It takes a lot of time and money to create a strong sales network as far flung interior areas with low purchasing power makes it uneconomical to serve them. TUP through its direct selling model has managed to overcome this hurdle in most of the countries though in China the company sells through outlets ( China has strict regulations against direct selling)

TUP World Wide Presence

Source: Tupperware

4) Shareholder Friendly– Tupperware has been consistently returning cash to its shareholders through dividend payouts and share repurchases. It made a payout of $133 million in the form of dividends and repurchased $200 million of stock in the first half of 2013. 18 million shares have already been repurchased since 2007 under a share repurchase program. I like companies which regularly return cash to shareholders.  Some companies show good earnings but spend most of that money on employees though stock options which dilutes shareholders. Cisco (CSCO) is one such company that has given poor returns to shareholders despite strong growth.

We are a business that generates strong cash flow, and what we do with that cash flow mostly is return it to our shareholders. We do that primarily through the support of the dividend. As you know, we’ve moved our payout ratio to 50%. The yield right now at current stock price is about 3% plus. And with regard to share repurchase, we’ll do about $400 million this year. That’s about 10% of the market cap of the company. And we’re going to do about $100 million in the second quarter and $200 million in the overall first half.

Source: Seeking Alpha

5) Consistent Revenues and Earnings Growth with Margin Expansion – Tupperware Brands Corporation has consistently grown both its topline and bottomline in the last decade. The revenues of the company have constantly increased since 2003 and have more than doubled till date. The company has grown by ~18% over the last 5 years and is showing a single digit growth even in 2013 when global economies are slowing down. The EPS has also increased from $ 0.82 to $ 3.42 in 10 years’ time. The company has used operating leverage to more than double its operating margin over the last 10 years to almost 14% now. TUP has managed to maintain its gross margin at a high 65% plus level which shows that the company possesses very strong pricing power. The company’s increasing revenues during this period has allowed it to expand its operating margins as the sales and R&D costs are spread across a greater revenue base. Free Cash flow generation has also been excellent and exceeded its EPS in 2012 by more than 15%.

TUP EPS Diluted Quarterly YoY Growth data by YCharts

6) Strong Balance Sheet – Tupperware Brands Corporation is a debt free company. The debt to equity ratio has fallen considerably since 2009. The chart below shows how the company has used its cash flows to reduce its debt in the past few years. A low debt equity ratio is a good sign which shows that the company does not need any additional outside funds to finance its growth activities.

TUP Debt to Equity Ratio data by YCharts

Yahoo Finance

Tupperware Downside Risks

a) Stock Price is trading new all time highs – TUP is currently trading just ~8% shy of its 52 week high of $88. The market is already factoring some of the strengths of the company as the stock has increased by more than 50% in the last one year. Strong growth during a global economic slowdown, a divided yield of ~2.5%, strong divided growth and brand power has made this stock one of the best performers over the last years. I am a bit wary of buying stocks which have run up strongly, but given TUP’s strengths and valuations, the company still remains a good buy in my view.

TUP Total Return Price data by YCharts

b) Slow/Declining growth in some markets and no beauty products presence in Asia – While the company has been doing quite well in most markets, it showed a sharp mid teen decline in sales to Japan in the last quarter and revenues from that market still continue to remain anemic. The company’s sales in some other markets like Malaysia/Singapore and Beauticontrol have also been disappointing. The beauty products have still not been launched in Asia. Thus the company might suffer from a limited presence in the Asian countries, since Asia ex-Japan is the strongest growth driver for the company. I think Tupperware should also look into the opportunity of creating a Beauty market in Asia, since Asia is quite a large continent with a rising middle-class segment.

Tupperware Future Prospects

For the fiscal year 2013, Tupperware Brands Corporation expects USD sales growth of 4%-5% and local currency sales growth of 6%-7%, as compared to 2012. The company reported revenues of $2.6 billion in 2012 and expects total revenue of $2.7 billion in 2013. The company is expected to report $626 million in revenues in Q3 2013, which is 5.3% higher than Q3 2012. The company is expected to grow by 12% in the next 5 years according to analyst estimates. I think that the estimate is low given the company’s 20-30% plus growth rates in major countries such as Indonesia and its 18% plus growth rate in the past 5 years. Though this year’s growth rate will be in the low single digits, it should accelerate in the coming years to 15% as global economies start to recover. TUP’s beauty products introduction in Asia should also help increase the company’s revenue growth rate.

TUP Competition Analysis

The two main competitors for Tupperware Corporation are NewellRubberm(NWL) competing in the Tupperware storagegoods segment and Avon Products Inc(AVP) competing in its beauty and cosmetic products segment. Tupperware has been performing better than it competition. TUP’s revenue growth has been much better. The chart below shows that Tupperware was the most successful amongst the three companies to register a better revenue growth in past five years time. Also the company’s margins both gross and operating are better when compared to competition.

AVP Revenue Annual data by YCharts

TUP Stock Performance

Tupperware stock has been performing very well both on a short term and long term basis. The company more than doubled its value since 2009 as the company’s strong fundamentals have been recognized by the market. The company is currently trading at ~$ 83 which near the top of its 52 week price range.

TUP Total Return Price data by YCharts

Summary

Tupperware is a good stock to own in my view. The company has a strong balance sheet, gives a good and growing dividend, owns an outstanding brand and is very strong in emerging markets. The company has a tried and tested direct selling model which it pioneered in the 1950s. The company is showing extremely strong growth in countries likes India, China and Indonesia where it has become a household name. The good think about its model is that it allows the company to penetrate the less accessible areas in countries such as India, where other consumer goods companies cannot easily penetrate. The company’s direct selling model is gaining a lot of popularity in countries like India where the female workforce participation ratio is quite low as compared to the developed countries. A great brand and a proven direct selling model have been the biggest drivers for the company’s success. Given all the above mentioned positives, I would advise investors to buy the stock on pullbacks.