One of my few "very bearish" calls ever, Tupperware is faced with the most comprehensive and impactful restructuring in its 74-year history.
The company has a high-level recovery plan on the table, and it needs to reinvent itself from the ground up quickly.
Fundamentally, Tupperware looks precarious to me. The P&L has been falling apart while debt has reached record levels.
Risk-seeking speculators, not long-term investors, might be better equipped to make a quick buck from either the long or the short side of the TUP trade.
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I rarely assign a "very bearish" (or even "very bullish") rating to a stock. I believe that too much certainty in investing can easily come back to bite me in the nose. But in the case of Tupperware (TUP), the bear case has been too easy to spot for too long.
With so much action in the market lately, I decided to take another look at this stock. Since I last researched and wrote about Tupperware, shares have fallen nearly 50%, after enduring a 70% drop in the previous twelve months.
Following so much pain and suffering, might TUP present itself as an opportunity for a deep-discount play at current levels?
From bad to worse
To start my 2020 assessment of Tupperware, it helps to revisit the company's old problems. Last year, financial results had been under pressure for a number of reasons.
Starting from least to most concerning, Tupperware's large international footprint meant that its top line was highly exposed to the strength in the US dollar. Beyond currency headwinds, key developing markets had been struggling to gain traction after several quarters of weak performance. The company's active sales force had been decreasing, likely a consequence of a P2P sales model that did not align well with today's consumer behavior (e.g. digital, convenient, sustainable). Cash flow had been dwindling and falling well short of the company's needs for liquidity.
As the graph below suggests, things got worse in the past few months. Revenues and margins kept falling fast. A much-needed reorganization plan was announced in early April 2020, instilling hope in investors and putting bears on their heels. Share price increased five-fold in only two months.
The kitchen sink
Tupperware is now in full defense mode. The company has rolled out cost-cutting measures to preserve cash, and drawn large quantities from its credit facilities. Non-essential operating expenses and capital expenditures have been scratched. A new CEO and heavy-weight executive names from Herbalife (HLF) and Avon were brought in to help engineer a turnaround.
Tupperware is now faced with the most comprehensive and impactful restructuring in its 74-year history at the same time that a global pandemic and its implications continue to unfold. Even though the company could benefit in the short term from higher demand for food storage solutions, the challenges ahead are still substantial.
Sure, Tupperware has a high-level recovery plan on the table. It contains all the necessary buzzwords and catchphrases: "consumer pull model," "good-better-best pricing strategy," "business rightsizing," "disciplined capital allocation," alignment with "mega trends," and focus on "long term returns to all stakeholders."
But in my view, the company's turnaround has become the ultimate show-me story. Either Tupperware reinvents itself from the ground up, and fast, or the peer-to-peer plasticware company will continue its march into oblivion.
This stock is wild
Once a company reaches what could be the bottom of the well, anything is possible. The unwinding of Tupperware's business has lasted a solid three years, and now a brand-new management team is ready to start throwing Hail Marys.
I find it highly unlikely that the company will return to anything that resembles its glory days. But that is not to say that successful cost-cutting measures or even timid signs of top-line recovery may not cause the share price to bounce off its very recent all-time lows.
Tupperware's fundamentals look precarious to me (see orange debt-to-asset line above). Yet, I would not dare short a wild stock that has traded between $1.50 and nearly $8 per share in only three months. In my view, investors should leave this opportunity for risk-seeking speculators, who might be better equipped to make a quick buck from either the long or the short side of the trade.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.