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Tupperware Is a Direct Seller That Works

By Michael Lewis – Feb 6, 2014 at 9:02AM

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Though similar in theory to the stigmatized MLMs, Tupperware is an end-use- focused business that generates real sales around the world.

Last year saw many direct-selling and multilevel-marketing companies under the microscope due to Bill Ackman's ambitious bet against Herbalife. One that weathered the storm well and separated itself from the pack was Tupperware Brands (TUP -4.12%). The kitchen storage goods maker and distributor actually has a good reputation for its products, and sales reflect real, consistent growth. In its recent earnings, the company delivered record numbers and showed encouraging trends in developing markets, but ultimately fell short of both internal and Wall Street estimates. Investors may not have to worry about Tupperware attracting the negative attention that other direct sellers have, but does that make the company a buy?

Avoiding the stigma
The industry isn't loved, but it's important to know the difference between your Herbalife-esque model and Tupperware's. Herbalife and Amway are based on a recruitment model: Independent distributors try to build a pyramid underneath them of more distributors, earning more and more with each new person. Tupperware instructs its distributors to literally have parties. The largely female sales force hosts millions of parties per year, peddling products that are proprietary by nature and actually have a great reputation. Perhaps most important, the company bases its performance on end-user sales, not recruitment growth.

That is essentially why Tupperware is a business that can appeal to a long-term, brand-loving investor, and is immune from the MLM plague.

Bottom line
Tupperware saw sales reach record levels, but it wasn't enough to impress the Street. The top line grew just 1% (adjusted to U.S. dollars) to $717 million, with 63% of sales sourced from emerging markets. The company's sales force grew 4% to 2.9 million and helped bring emerging market sales up 12% in local currency.

Established markets faltered a bit -- down 5% -- but remained higher sequentially. North America as a whole actually increased sales 4%, but due entirely to strength in the Mexican market -- up 14% in pesos.

On the bottom line, Tupperware earned an adjusted $1.81 per share, including a $0.09 hit from exchange rates.

A global cash generator
Established markets (especially in the company's Beauty segment) aren't growing too quickly for Tupperware, but that's OK. Investing in this business is all about emerging markets. Mexico, Turkey, and South Africa are showing great growth. Most of Southeast Asia is showing double-digit growth.

These regions are driving growth and cash flow for Tupperware, and recently encouraged the company to tack on an additional 10% to its dividend. The company generated $263 million in free cash for the full year 2013. Beyond the dividend, management intends to continue buying back shares on the open market.

One discouraging factor for the company is a long history of insider selling. Insiders own less than 0.75% of the company, and GuruFocus shows a multiyear history of exclusive selling. Investors should keep in mind that there are a multitude of reasons for insiders to sell, but only one reason to buy.

Still, Tupperware appears to be a good company in the long run. The company trades at a comfortable 12 times forward earnings and pays a healthy 3.5% dividend. Management appears dedicated to returning as much cash flow as possible to shareholders. While capital appreciation may not skyrocket, this is an appealing income-earning stock.

Michael Lewis has no position in any stocks mentioned. The Motley Fool has the following options: long January 2015 $50 calls on Herbalife Ltd. and short April 2014 $90 puts on Tupperware Brands. 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.

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