Tupperware Stock: Still Unattractive After Nearly 70% Drop (NYSE:TUP)

0

Edwin Tan/iStock via Getty Images

Dear readers,

In this article, we will come back to Tupperware Brands Corporation (NYSE: TUP), a risky company that can be said to be in full recovery. Of course, from another point of view, it is a failing company that is abandoned almost 70% in less than 3 months.

Tupperware item

Tupperware item (Looking for Alpha)

Which one is it then? This is what we will try to determine once again in this article, now that the valuation of the company has fallen.

Tupperware – Revisiting the Company

We went over the Tupperware business model quite extensively in my last article. The business idea is to research, manufacture and sell plastic storage containers, utensils and kitchen gadgets. If you think such a company has had to go through big fundamental changes since its inception, given the current state of global trade, then – yes – you are certainly not the only one who thinks so.

The company’s initial appeal and the exclusivity of its products was the patented “burp seal” for its containers, something most products have some variety of today. I think it’s important to emphasize once again that Tupperware no longer has massively differentiating features from competing products. It is no longer unique or of significantly higher quality, in a way that would fairly distinguish it from its peers.

This is one of the main problems with Tupperware as it stands today. From another perspective, Tupperware is multi-level marketing [MLM] company. This means that revenue is generated by a non-salaried workforce (usually) who work primarily for sales commissions, with revenue generated by a binary compensation commission system. Like I said in my last post – not a dealbreaker, just a fact that makes it a little tougher in the long run than a company with more “standard” forms of operations. Indeed, this sales model has encountered great difficulties for 20 years, and is even in decline at the present time.

To this day, products are still primarily sold through the party plan, with rewards for hostesses.

The company’s turnaround plan was in full effect in 2021. Some things looked good, and the company had reached what it considered its turnaround “foundation”, meaning significant capital expenditure for the company. digital investment and social tools, disposal of non-essential assets, segmentation of its non-omnichannel sales and expansion of these channels. According to his plan, he should be in the middle of his “expansion” phase right now, with competitive loyalty programs, expanding business opportunities and better service. Stock price trends suggest that this assumption is not the case.

The company has done a few things since I last wrote about it. It’s divesting Nutrimetics and terminating its COO as part of the restructuring – but more importantly, that ever-larger turnaround plan that I mentioned with the company that is expected to be in the “expand” stage, was a wishful thinking.

The company withdrew its guidelines and withdrew all of its guidelines, causing the company to drop no less than 30% after the market opened. The shortfall was significant – but the revenue was also insufficient. A very sketchy and vague answer was given as to why.

“We left 2021 encouraged that our turnaround plan was on track, but with today’s results, we recognize that this turnaround still needs a lot of work. Results were below our expectations in due to a combination of external and internal factors.”

(Source: Miguel Fernandez, CEO of Tupperware)

The real reasons? It will likely be a combination of COVID lockdowns, Ukraine, inflation and internal issues at the company not yet delivering as expected or promised. For an analyst like me, it is easier to indicate certain figures.

Tupperware is, for the moment, fundamentally incapable to push price increases for its products due to competitive space, which forces the company to eat away at its own margins in order to maintain sales. In fact, the CEO, speaking of this, mentioned just about every factor that could hurt a consumer goods company, hurt Tupperware. It was quite a long list.

Presentation Tupperware

Presentation Tupperware (Tupperware IR)

You might consider it unfair to keep insisting on this – but globally, Ukraine’s impacts should have been relatively minor for the company – and they should have done a better job of anticipating the related issues. to continued inflation, input costs and the potential for continued foreclosure.

No, Tupperware deserves its decline, based on its adjusted EPS of just $0.12, despite otherwise positive things like leverage ratios, and a continued GM of 60%+. Of course, the company barely generated quarterly free cash flow compared to YoY.

Growth, across the globe, has stalled – so it’s not just about margins, but also about mix and volume.

Presentation Tupperware

Presentation Tupperware (Tupperware IR)

And the EPS deck, showing how much profits have fallen as they have, is very telling.

Presentation Tupperware

Presentation Tupperware (Tupperware IR)

What are the plans? Tupperware is sticking with things and trying to stabilize sales in China. Additionally, the company is slowly moving away from MLM thanks to omnichannel and D2C sales, as well as increased innovation of new products for its portfolio. He tries to globalize his good sales practices, in order to develop more or less his organization and his sales to adapt to his time.

The question becomes, can Tupperware survive if it does this – and/or how much of its real appeal is based on its MLM model? If it is a high degree, a horizontal abandonment of this approach would lead to massive competition losses in volume, as the products could lose their distinctive appeal.

I now argue that Tupperware products are technically and fundamentally quite attractive containers and related household products. They are – and more than half a decade of sales have shown just that. But the differences we’ve seen over the past 20 or so years in terms of the market and how globalization has affected the ability of business to demand a premium for what is, essentially, nothing more than a plastic food container, mean to me remember that Tupperware is facing a very difficult short term.

But there is bright tasks.

The valuation of Tupperware

Whenever a company trades below 2.5XP/E, one has to wonder about the logic behind such a sideways movement in valuation and share price. It’s no different for Tupperware.

However, Tupperware now has a market cap of less than $300 million and a credit rating of B+. That’s right, single digit credit with a yield of… yeah, zero.

In addition, we now expect to see EPS declines of 53% in 2022, leading to the worst year since pre-pandemic 2019. While forecasts call for an upward trajectory beyond this, it is important to examine exactly how accurate these forecasts have been over the past few years, with failure ratios of over 30% even with a 10% margin of error. It’s hard to believe that not too long ago this company was a major dividend payer with what some contributors described as a bright future.

Tupperware Estimate

Tupperware Estimate (FAST charts)

The simple fact for this company is that I am fundamentally unwilling to invest hard earned capital in what I consider to be high risk turnaround games. That’s exactly what Tupperware is right now. You can argue around that, but it comes down to the fact that this company doesn’t have the fundamentals and the prospects, in my view, to become what it once was. The world is a different place today, and as I see it, the consumer container space does not need this type of business as an MLM business.

Will there be a place for Tupperware products on retail shelves as a high-end alternative to your $1.19 containers? Yeah, I believe it. But that’s completely different from where the company is today, and how such numbers and such a model would go from revenue to bottom line is a completely different exercise.

Risk takers can say that even at the predicted 2.5 XP/E under current expectations, Tupperware will generate a 33% RoR through 2024E. And that’s a correct statement – at least as far as those expectations go, and such math would go.

How likely are these calculations and how likely is the market to continue to punish the TUP?

It’s a whole different story.

upside down tupperware

upside down tupperware (FAST charts)

There is a disturbing lack of upside in this endeavor that makes any sort of guesswork or forecast a risky prospect at best. We can watch analysts call the company undervalued at a low of $15.8/share, viewing it as 156% undervalued here. I would say – good for them if they want to take that risk. However, with 3 out of 4 analysts at “HOLD”, and despite a low-end PT of $12.5, it doesn’t seem like most of these analysts are comfortable backing their targets with “BUY” actions. .

For me, the disproportionate risk, the absence of any dividend, the lack of potential returns if the stock continues to decline, and the aforementioned factors keep me at a respectful distance from TUP.

I am in “HOLD”.

Thesis

While one could argue that Tupperware is a potential turnaround story in the making or even a potential M&A candidate at the right valuation, the moving parts of the company and its appeal in a DTC world are not to me. clear enough to even consider them. a viable investment at a P/E of 5-6X – and it’s still not clear enough at 2.5X. The company’s turnaround plan has stalled and we can expect weak returns for 2022, making the business once again unattractive.

For now, I’m a “HOLD” on Tupperware. If you believe in turnaround, I’d be curious to hear your thoughts. If you own the company at a profit because you were smart and bought it at very cheap valuations of essentially less than $2/share then I would say now is the time to spin those profits .

Remember, I’m all about:

1. Buy undervalued companies – even if that undervaluation is slight, not massive – at a discount, allowing them to normalize over time and reap capital gains and dividends in the meantime.

2. If the company goes well beyond normalization and enters overvalued, I reap gains and rotate my position to other undervalued stocks, repeating #1.

3. If the company does not go into overvaluation, but is at fair value, or goes back down to undervaluation, I buy more if time permits.

4. I reinvest the proceeds of dividends, labor savings or other cash inflows as specified in #1.

Thanks for the reading.


Source link

Share.

About Author

Comments are closed.