A decade ago, Tupperware Brands Corporation (TUP, Financial) had a share price that was flirting with $100.00. Today, it’s getting uncomfortably close to the $1.00 mark. What’s going so wrong over at Tupperware?
Perhaps it would be easier to answer with what hasn’t gone wrong. The company has had multiple problems over the past decade, some of its own making and some that were beyond its control, and now it's near bankruptcy. At the same time, though, management and the board of directors have initiated plans to get the company back on track. What’s the probability they will succeed? Is there a chance that the company will be bought out, which was the subject of recent speculation?
Headwinds
Tupperware goes back to the 1950s, when the company enlisted freelance salespeople to invite friends and neighbors to Tupperware parties held in their homes. That model has persisted over time, but was affected by the Covid-19 pandemic. As the company noted in its fourth quarter and full-year 2021 earnings release:
"The impact of Covid-19 on the Company’s financial results for the year was significant, with partial or country-wide lockdowns in various markets affecting operations, particularly in Asia Pacific and Europe. All of the Company’s reportable geographic segments reported year-over-year net sales growth except Asia Pacific, which reported a decrease, driven primarily by lockdowns and disruptions caused by the pandemic.”
However, the company’s difficulties began mounting well before the pandemic. Other companies, including Newell Brands (NWL, Financial), Clorox Company (CLX, Financial) and Reynolds Consumer Products (REYN, Financial), began creating competing products that eroded Tupperware’s market share. It's not as if the barriers to entry were particularly high, and while Tupperware may have once had the upper hand due to its patents for quality resins, more and more companies have been able to introduce similar quality products and even slightly lower quality products that are cheaper.
On top of that, the pandemic increased the popularity of food delivery. Some of that food was delivered in reusable containers, which further reduced demand for Tupperware products. With the increasing focus of some grocers on sustainability, more goods such as pasta sauce are also coming in reusable glass containers, so customers can just save them to store leftovers.
It’s no surprise, then, that a 10-year chart of earnings per share without non-recurring items is a sad spectacle.
The 2018 anomaly may have been due partially to the Tax Cuts and Jobs Act, but the company also took a $65 million charge over a revitalization program that year, which was an early sign of trouble.
For its fourth-quarter and full-year 2022 earnings release, the company released a report titled “Preliminary Results, Prior Period Misstatements and Material Weakness in Internal Controls Over Financial Reporting.” That news release shook investors’ confidence, and the problems outlined in it are the reason why the 10-K for 2022 still had not been released as of this writing. The company reported that it believed adjusted income from continuing operations between fiscal 2020 and fiscal 2022 had been previously understated. All of this has generated a slew of class-action lawsuits by disgruntled investors.
On April 7, uncertainty became even more of an issue as the company warned in a going concern notice that it could default on its debt if does not reach an agreement with its lenders. It noted that it did not have the financial resources to repay its debt obligations immediately.
Tailwinds
There is a possibility of a takeover, although nothing concrete has been reported. At the end of December 2022, the company had total assets of $952 million and total liabilities of $1.140 billion, a difference of $188 million. That’s a negative value, but Tupperware does have a strong brand name and brand image, backed up by copyright, trademark, patent and other protections. For example, it reported in its annual filing for 2021 that most of its products are made from specialty resins that meet rigorous design and quality specifications.
Or maybe the company will succeed in turning itself around. In its most recent earnings release, CEO Miguel Fernandez said, “In the U.S., our first major retail expansion effort exceeded our expectations... We have now pivoted towards a new post-pandemic phase where we believe our core direct selling business will benefit from the return to in-person events, focusing on recruiting and training our next generation of business builders, and where those markets utilizing our studio model, particularly China, are able to benefit from more consumer traffic.”
Assuming that the company can stay onside with its lenders and buy some time to avoid bankruptcy, that it can clear up its reporting and put in place proper financial controls and that it will be spared more external headwinds and benefit from the reopened economy, I believe Tupperware could recover and become of interest to investors again. Those are a lot of "ifs" though, and overall I think the odds of a turnaround are low.
