Five year summary of PDCO stock price. From 2012 to 2018

Written by:

Noam Ganel is the Managing Director of Pen & Paper, a value-oriented stock research publication. Subscriptions are now available. He also serves as  Vice President in Capital Markets at Silvergate Bank and holds the Chartered Financial Analyst (CFA) credential.

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Tupperware Company

A Quality Product. But Shareholders Should be Wary of the Debt Level

August 31, 2018

A few years ago, my best friend’s house went up in flames. The cause of the fire was a malfunction in the toaster oven. Fortunately no one was hurt. That is except for the 2,800 square foot home that smelled like a barbecue for two years after the fire (the house was made of cement - the foundation was undamaged).

When the insurance agent arrived to assess the damage from the fire, the first item my best friend’s mom disclosed was her Tupperware. She later mentioned to me that it took a long time to convince the insurance agent that she had indeed purchased so many Tupperware items.

My best friend’s mom is a wonderful cook and has a remarkable taste for quality. I used to spend many Shabbat dinners at her meticulously clean and well-organized home, admiring her sense of style. 

In contrast, at my home we didn’t have any Tupperware items. My mom, a corporate attorney felt that cooking was a waste of time. “You cook for hours and the feeling lasts for less than twenty minutes,” she would lament. My Dad who is an orthopedic surgeon, could never understand why one would spend money on Tupperware when there were free options out there. So, with one side indifferent about cooking in general and the other thrifty about its preparation, we would use the free containers that came with takeaway orders.

Known for being somewhat of a cheapskate myself, when I left my parent's house and started to live on my own, I bought a box containers that I found at the local Vons store. I was lured by a promotional of “10 containers for the price of 2” and had tried every single type of container out there. So long as the price was less than $5 a container.

But I am not rich enough to be as cheap as I am. And none of the containers lasted more than a few months. One set of containers for example, had permanently turned red because I used it to store pasta with red sauce. Another set of containers never sealed appropriately. Frustrated by the ordeal, I finally succumbed and purchased a Tupperware container in 2004.

I bought a green, mid-size Tupperware Impression Classic Bowl for what seemed at the time an outrageous price of $19. I could not see an apparent difference between that container and any of the ones I used but I reminded myself that if Marisa was using the product, there had to be a reason. 

Evidently she was right. That container has now served me for over 15 years. I use it just about every week and its lid seals the container as good as it did the first day.

Now, a shareholder

Dear management of Tupperware, I could not believe that your ticker symbol appeared on the list of stocks that traded at a 52-week low. It is known by many investors that Tupperware is a company that is selling a $20 product that costs $2 to make. That Tupperware generates plenty of cash flow; that it has a remarkable method to sell its products through home parties, and that the company needs to invest very little capital expenditure to maintain its operations.

I also didn’t mind the 2017 operating results you reported on. To me, the reported loss of $265 million or $5.22 per share did not make any sense. As a matter of fact, if it wasn't for the accounting-related shenanigans, I believe you earned about $197 million or $3.8 per share.

Not only am I not disappointed with your operating results in 2017 but I applaud you for continuing to pay out dividends. In 2012 you paid $77.6 million in dividends; in 2015 you paid $138 million in dividends; and in 2017, even with all your trials and tribulations, you distributed $139.5 million in dividends. That is praiseworthy act, and I am uncertain why Mr. Market does not acknowledge that.

You probably don't know this dear management but I did not purchase your company’s common stocks based on the expected dividend yield. To me, if you can think of ways how to use those retained earnings that would be even better. But I was pleasantly surprised to see an expected 7% dividend yield on my cost basis of $36 per share.

And now that I am a shareholder (I had bought 600 shares of your stock), after I voted with my own money about the prospects of your company, I think it is only fair to let you know that I do worry about the level of debt you have taken.

Now, I know what you are going to say. That your earnings before taxes to interest ratio is above 7 times. And that coverage has not changed since 2012. I know that you are also likely to say that your assets are understated as the land you own in Orlando is worth much more than the reported book value.

But no matter the reason and justification, we both know that your current leverage is penalizing the stock price. In 2017 you reported on $1,388 million in assets and a whopping $1,507 million in liabilities. We both also know that many investors will not take the time to read your notes about the goodwill impairment and the tax expense related to the Tax Cuts and Jobs Act of 2017.

Dear management, you have a good product. Don't let debt ruin your future.