Beautify and Freshen up your Portfolio
Chuck is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Founded in 1946, Tupperware became an independent public company on May 31, 1996, when shares of their common stock were distributed to shareholders of Pre-Mark International. Traditionally, Tupperware products were best known through their legendary airtight food storage products. However, these products didn’t sell very well at retail because consumers needed to understand how they worked before they would purchase them. This led to the Tupperware home demonstration system -- or Tupperware Party -- which became the way that all Tupperware products were distributed.
Poor Operating Results – Poor Performance
Tupperware’s business did not fare very well over the first decade of their existence as a public company. Earnings drifted downward from a 1996 high of $2.85 per share to only a $1.47 per share by 2005 (orange line – orange circles on graph). Tupperware’s stock price followed its earnings lower as it fell from a high of $55.50 per share in 1996 to a closing price in 2005 of approximately $22 per share (red circles on graph).
As a result of Tupperware Corp.’s poor operating results shareholder returns suffered in two ways. First, a buy-and-hold Tupperware shareholder would have lost over 50% of their capital investment (green circles on table), and second, dividend income stagnated at $.88 per share (blue highlights on table).
Tupperware Corp. becomes Tupperware Brands Corp.
However, in 2005 Tupperware made several acquisitions that dramatically expanded their brand portfolio. Tupperware now had eight brands as they expanded their Tupperware food preparation and storage solutions, adding seven new brands in beauty and personal care products. Therefore, the company changed names from Tupperware Corp. to Tupperware Brands Corp.
Strategic acquisitions expanded Tupperware Brands into a multi-national, multi-category and multi-brand direct sales company operating in over 100 countries worldwide. Their global sales force of over 2.7 million, armed with their expanded product portfolio, has driven sales growth to over $2.5 billion annually. Operating profits (orange line on graph) followed sales, rising from a $1.47 per share in 2005 to $4.51 per share in 2011, and are estimated to exceed $5.00 per share in fiscal 2013 (see orange circles on graph).
As a result of Tupperware Brands renewed business vigor since 2005, long-term buy-and-hold shareholders have been rewarded far in excess of the general stock market as benchmarked against the S&P 500. This is true even though Tupperware Brands shares are currently trading at one of its lowest valuations (PE 11.2 – yellow highlight above) since calendar year 2005.
Tupperware Brand’s Beating the Competition
Since Tupperware Brands diversified and expanded internationally, the company has dramatically outperformed its major competitors on all fronts. New Skin Enterprises (NYSE: NUS) and Estée Lauder Cos. (NYSE: EL) have both produced double-digit growth since 2005, but at a lower rate than Tupperware Brands. On the other hand, Avon Products (NYSE: AVP) and Blyth Inc. (NYSE: BTH) have experienced earnings contractions while Tupperware Brands generated consistent earnings growth.
Consequently, shareholder returns since 2005 have greatly exceeded their competitors. But more importantly, thanks a great deal to Mr. Market applying a lower valuation to Tupperware Brands than to any of its competitors, future performance is expected to continue outperforming its peers.
Summary and Conclusions
Although European economic problems are the most likely reason for Tupperware’s current low valuation, Tupperware Brands possesses numerous avenues for growth. For example, a rapidly expanding middle class in developing markets around the world represents a huge opportunity. Furthermore, today’s need for two-income households plays well into Tupperware’s direct sales model. Women around the world are embracing the opportunity for the financial freedom and flexibility that joining the Tupperware team offers.
Tupperware’s beauty and personal care products now account for roughly 33% of their volume and the company’s goals are to generate 25% or more of their annual sales from new products. Also, Tupperware has become very shareholder-friendly recently with dividend increases and share buybacks.
Tupperware Brands offers prospective investors a rare opportunity for above-average performance at below-average risk. This quality stock can be purchased at a historically low PE ratio of 11.2, offers an above-average dividend yield of 2.7% and is forecast to grow future earnings at double-digit rates. The combination of growth yield and value indicates a trifecta of opportunity.
No position at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.
The Motley Fool owns shares of Tupperware Brands and has the following options: short OCT 2012 $55.00 puts on Tupperware Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.