Tupperware Brands, Inc. (TUP)
Tupperware is a seriously wonderful business. They've generated consistently high ROIC (15%+), demonstrated smart capital allocation, and possess a simple, yet powerful business model that a ham sandwich could probably run.
The ingenious “Tupperware Party” sales model utilizes potent psychological influences, and has proven extremely effective for a long period of time. The internet isn’t going to re-write the rules of human psychology. Read “Influence” by Cialdini for more insight into 1) reciprocity, 2) commitment, 3) social proof, and 4) liking.
From Influence: “It’s gotten to the point now where I hate to be invited to Tupperware parties. I've got all the containers I need; and if I wanted any more, I could buy another brand cheaper in the store. But when a friend calls up, I feel like I have to go. And when I get there, I feel like I have to buy something. What can I do? It’s for my friends.”
A full year consists of 31,536,000 seconds. Last year there were 24 million Tupperware Parties around the globe. That means a new Tupperware Party starts every 1.31 seconds. And each Tupperware Party generates an average of $10.63 of free cash flow.
North America and Europe (45% of sales) are mature markets and not going to grow much, but emerging markets (65% of sales) are growing fast, especially in Asia, the Tupperware region that already has the highest margins.
Risks would include anti-direct sales legislation/regulation, but I think Tupperware’s global breadth diversifies against this risk. It's impossible to think about his business without being reminded of the Herbalife (HLF) drama of the past couple years, but TUP says expressly in their 10-K’s that the “vast majority” of sales are by real consumers, and I actually believe them. They have one of the most transparent 10-K’s I've ever read.
Tupperware has little need for capex, so they throw of LOTs of free cash flow, which is in turn fueling LOTS of buybacks. Per the Annual Report:
"(a) Open market repurchases are being made under an authorization that runs until February 1, 2017 and allows up to $2 billion to be spent."
That’s a buyback authorization of $2B for a $3.2 billion company! That’s 63% of the current market cap. I have NEVER seen such an incredible buyback authorization.
The CEO has been CEO for 17 very successful years, which is great to see.
I think that if you consider free cash flow growth, and buybacks, you can conservatively expect $9 in annual per-share FCF in the next 5-6 years. Assuming a 15x multiple on that free cash flow, and 10% growth rate for the dividends…you get a $150 total return in 5 years. That’s an 18.57% annualized rate of total return.
I’d value TUP around $85-90, and they’re selling around $64 today, so that’s a pretty big margin of safety.
TUP to outperform.
