November 24, 2010 - 12:59pm EST by
2010 2011
Price: 47.00 EPS $3.62 $4.20
Shares Out. (in M): 63 P/E 13x 11.2x
Market Cap (in $M): 3,000 P/FCF 13x 11x
Net Debt (in $M): 300 EBIT 340 380
TEV ($): 3,300 TEV/EBIT 9.7x 8.7x

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Tupperware Brands Corporation (TUP) is a steady-eddie business that should deliver a 15-20% annualized return with limited risk, while providing a call option on emerging market growth.  At 11.2x next year's earnings and 7.5x EBITDA, the company trades at a discount to historical multiples and comps - while being as well-positioned as its ever been from a competitive dynamics and growth perspective.  For a company that should grow sales 6-8%/year with a wide moat, we believe this company deserves a premium multiple on an earnings stream that should grow 12-16%/year for the foreseeable future.

 Company Description

Tupperware is a global direct seller of premium, innovative products across multiple brands and categories through an independent sales force of 2.4million.  Founded in 1946, the company until the 2000s was primarily a direct-seller of kitchen preparation and storage containers.  The  company expanded into its Beauty Line (33% of sales) segment through the acquisitions of BeautiControl in 2000 and Sara Lee's direct selling beauty business in 2005.  The portfolio has since evolved into nine separate direct selling units, with 86% of company sales from international markets and 50% of total sales from emerging markets.

TUP's main product category (the "Tupperware" line) consists of design-centric preparation, storage and serving solutions for the kitchen and home, and are primarily sold under the eponymous "Tupperware" brand name.   This division does approximately $1.4bn in sales per year (66% of total company revenue), with an operating margin of 18%.  Over half of the division's sales are from Europe

The company's other product category, its Beauty Line, manufactures and distributes skin care products, cosmetics, bath and body care, toiletries, fragrances, nutritional products, apparel and related products, and in some cases Tupperware brand products.  This division does approximately $700m of sales with an operating margin of 12%.

Investment Thesis

Tupperware Brands is an attractive investment at current levels due for the following reasons:

Emerging Market Growth

Tupperware generates over 50% of its sales from emerging markets.  While sales have somewhat stagnated in its mature markets, it has seen explosive growth in certain emerging markets.  Indeed, during the most recent quarter, sales grew by 9% (local currency) in emerging markets, including 58% in Turkey, 56% in India, 33% in Brazil, 29% in Indonesia and 19% in South Africa.  This growth should continue for the foreseeable future.

Completed Transformation of Business

Over the last several years, the company has undertaken a transformation that has ultimately refreshed the core product, expanded its merging market reach, and expanded in to the direct selling of beauty products.  The company should be strategically well-positioned going forward to capitalize on its market positions as a result thereof.  For example, in terms of geographic penetration, in 1996, Latin America was 18% of revenues and Asia Pacific 25%.  For the year-ending 2009, the Company received 26% of its revenues from Latin America, and 23% from Asia Pacific.

The company has also put behind some meaningful initiatives that hampered results in the early 2000s, including a failed sales test of the brand through Target, numerous changes in the commission structure and sales leadership programs, and the integration of BeautiControl and SaraLee direct selling operations.

High Quality Business

The "direct selling" business model utilized by Tupperware is based on the sale of products to consumers outside traditional retail store locations. By its very definition, this business has low capital intensity, a flexible cost structure, and tremendous leveragable scale advantages (40% average contribution margin). In addition, there are counter-cyclical elements of the business as well - higher unemployment leads to a larger recruiting pool, and a certain "trade down" mentality of the consumer.  Other factors that make Tupperware a high quality business that is well-positioned include its brand recognition and its massive and embedded distribution system (consisting of approximately 1,800 distributors, 61,300 managers and 1.3m dealers worldwide).


At 11.2x forward earnings and 7.5x EBITDA, the company trades at an approximate 15-20% discount to historical multiples.  While this is hardly a discount worth trading on, we believe that the downside protection combined with the steady business model and upside as delineated make it attractive at current levels.  Moreover, the company currently has leverage of less than 1x (net debt/EBITDA), and given the business model, should probably have another 1-2 turns of leverage which would accrete value to the equity.

Strong, experienced management team

Tupperware is lead by E.V. ("Rick") Goings, who has over 25 years of direct selling experience and has served as Chairman and CEO since October 1997.  Other key professionals include their COO, Simon Hemus, who has been President and COO since 2007 and came over with the acquisition of the SaraLee direct selling division and Michael Poteshman, who has been CFO since 2003.  Despite some mishaps as mentioned above, they are well-regarded in the industry.  Given the human capital nature of the business, this is a clear competitive advantage.


Our main attraction to this investment at current levels is the low risk, given its settled business model, built out sales infrastructure and brand.  That being said, risks include currency, capital allocation, and competition.




Emerging markets growth
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