Multi-Level Marketing (MLM) is a distinct business model fundamentally different from traditional direct selling.

While direct selling typically involves individuals selling products directly to consumers without a recruitment focus, MLM incorporates a hierarchical structure where distributors earn income not only through product sales but also by recruiting new members who, in turn, generate sales and further recruit.

Historically, companies like Avon and Tupperware epitomized direct selling through party-plan methods and personal sales, emphasizing product distribution and customer relationships.

However, as the marketplace evolved, these companies have faced challenges indicative of the broader decline of traditional direct selling and its gradual morphing in the face of MLM dominance.

From 2015 to 2024, the MLM and direct selling sectors have undergone significant shifts characterized by contrasting trajectories.

Traditional direct selling companies such as Avon and Tupperware have suffered persistent declines, both financially and in market presence.

Avon, once a giant in cosmetics direct selling, has seen its North American business sold to LG Household & Health Care, signaling a strategic retreat from its previous business model.

Alongside this divestment, Avon has increasingly embraced recruitment-based strategies more akin to MLMs, moving away from its classical direct selling roots, yet still struggling with low average representative earnings and reputational issues.

Similarly, Tupperware encountered dramatic financial distress over this period.

Originally celebrated for its innovative party-plan model for household items, the company’s stock plummeted by more than 90%, and it faced persistent losses and speculation about potential bankruptcy.

Attempts to diversify into MLM-type product lines and retail partnerships, such as department store sales, failed to rescue the company from its deepening crises.

These developments reflect an existential challenge to the direct selling model's efficacy in a changing economic and social environment.

Conversely, many well-known MLM companies, including Herbalife, Nu Skin, USANA, Primerica, and Medifast, witnessed notable declines in financial performance during the same timeframe.

Although some initially experienced growth or temporary surges, their stock values suffered steep drops in recent years.

Contributing factors include widespread criticisms targeting the central tenants of MLM operations: misleading income claims, extraordinarily high turnover rates among new recruits, and an overreliance on recruitment-driven commissions rather than sustainable retail sales to end consumers.

The financial data illustrate a striking reality that the top 1% of distributors in these companies typically capture the bulk of earnings, while the vast majority either lose money or earn negligible income.

Recruitment incentives induce many participants to purchase inventory themselves to meet sales quotas or qualify for bonuses, often resulting in financial losses and increased churn.

This structural issue undermines the long-term viability of many MLM companies and diminishes their appeal to potential recruits over time.

The fluctuating popularity of MLMs also correlates strongly with broader economic and social developments, most notably the COVID-19 pandemic.

The pandemic period initially spurred some expansion in work-from-home opportunities and a rise in unemployment, conditions conducive to promoting MLM recruitment and sales models.

In this environment, individuals sought flexible income streams, making the income promises of MLMs temporarily attractive.

However, this surge was often short-lived; as labor markets stabilized and public scrutiny around MLM ethics intensified, many companies faced reputational challenges exacerbated by complaints of deceptive marketing and unsustainable earnings models.

Additionally, the pandemic accelerated shifts within the sector, with some traditional direct selling companies either consolidating, transitioning to predominantly e-commerce models, or pivoting their strategies to reduce recruitment emphasis in favor of direct product sales.

Several specific cases illustrate how MLM companies have responded to market pressures through business model changes, divestitures, or closures.

Avon’s reconfiguration and sale of its North American operations exemplify a major strategic shift aimed at survival, coupled with re-entry into the Direct Selling Association amidst ongoing challenges.

Tupperware’s attempts at product and channel diversification have yet to reverse its financial freefall.

Meanwhile, other firms like LuLaRoe, which once grew rapidly on the strength of social media-driven recruitment, have collapsed amid allegations of being pyramid schemes and poorly managing inventory and distributor claims.

Although less publicized, several smaller or mid-sized MLMs have declared bankruptcy or abandoned the MLM model altogether to pursue direct sales devoid of recruitment.

Such transitions generally occur when regulatory pressures, legal scrutiny, or market realities render recruitment incentives untenable.

These developments highlight a dynamic industry landscape where some companies seek to abandon the "commercial cult" reputation attached to MLMs by embracing simpler direct sales or e-commerce formats, while others double down on recruitment tactics irrespective of sustainability.

In summation, the MLM business model remains commercially active but is marked by widening disparities in success and growing criticism.

From 2015 through the pandemic years and beyond to 2024, traditional direct selling companies, such as Avon and Tupperware, have endured steep declines and strategic transformations signifying the near-extinction of older direct sales paradigms.

Concurrently, major MLM companies have faced stock depreciation, negative public perception, and financial challenges rooted largely in their recruitment-heavy structures and resultant distributor losses.

External conditions such as the COVID-19 pandemic temporarily altered the MLM growth trajectory but did not fundamentally resolve systemic issues.

Moreover, responses to these challenges include corporate divestitures, conversions to direct sales models, and closures, underscoring an unstable and evolving MLM landscape.

This nuanced understanding of MLM popularity trends and business model shifts provides a factual foundation crucial for subsequent psychological analyses focusing on recruitment appeal, retention, and participant vulnerability within these "commercial cults."

Multi-Level Marketing (MLM) is a distinct business model fundamentally different from traditional direct selling.

Title:

Content: Educational Development Corp.: Growth Risk Might Be Overblown

Moat Investing
1.46K Followers

Summary

  • EDUC is the exclusive US co-publisher of educational children's books produced by famous Usborne Publishing by leveraging multilevel marketing (MLM) strategy.
  • It has strong fundamentals, fair valuation, and a compelling growth story that is being ignored by the market.
  • We arrived at a target price of $12.4 to $14.6 without incorporating any future growth and expansion in operating margins.

Investment Idea

Educational Development Corporation (NASDAQ:EDUC) has an attractive value proposition, strong financials, and optionality of significant growth ahead due to structural changes caused by COVID. On top of that, the valuation is reasonable, and management has skin in the game (owns 23% of shares outstanding). For these reasons, we remain bullish.

Business Overview

EDUC is the exclusive US co-publisher of educational children's books produced in the UK by Usborne Publishing, and EDUC also exclusively publishes books through their ownership of Kane Miller.

The business operates in two segments:

Home Business Division (Usborne Books & More or "UBAM") -(95% of revenues) - This segment sells books through consultants directly to consumers using a multilevel marketing model (MLM). Consultants sell books by hosting home parties, social media, and hosting book fairs with schools and public libraries.

Publishing Division – (5% of revenues) - Sells books to bookstores, toy stores, and other retail outlets.

If you would like to get the gist of our thesis, you can watch our YouTube video below.

Value Proposition

The children's books market is very competitive and fragmented. There are more than 135 publishers of children's books in the US. EDUC is competing with Scholastic and Pearson, which have extensive resources to run marketing campaigns and are well-positioned in both online and offline distribution channels. Although EDUC has a little moat, they have some strengths to their business model that will allow long-term value creation.

They have an exclusive and long-term relationship with Usborne. Therefore, clients of the Usborne in the US must acquire their books via EDUC. Also, there is a consensus that Usborne books are high quality and among the industry's best.

Their sales are a function of the number of active sales consultants. Commissions paid to consultants are a variable cost, and they are only paid when sales are made. Although this makes SG&A grow as the top line grows, since it's not a fixed cost to the business, it allows EDUC to achieve significant operating leverage. Also, it allows them to scale quickly and have flexibility.

Direct sales strategies like multilevel marketing are commonly referred to as pyramid and Ponzi schemes. However, the table below shows that it does work sustainably and increases revenue growth over the long run despite the negative press.

Source: S&P Capital IQ

Why might EDUC be mispriced?

There are multiple factors. Firstly, it's a micro-cap. This usually means there is limited analyst coverage, and due to the stock's illiquidity, there is low institutional interest. These factors, coupled with others, leave the company under the market radar despite its business is doing well and has promising perspectives.

Second, there is negative press around the MLM business models. The MLM model deployed by EDUC is vastly different from dodgy tactics used by other players. For example, many MLM models require the seller to purchase the inventory from the company before selling. However, this reduces the risk for the company and puts extra pressure on the seller, which can be left with expensive inventory that cannot be sold or returned. In the case of EDUC, there is no requirement to hold inventory.

Third, markets might be believing that the business's tailwinds are temporary due to COVID. Amidst Covid, schools were closed, and parents were working from home; this drove home-based learning and benefited EDUC. Additionally, unemployment rates soared, and many were left looking for work. This allowed EDUC almost to double its consultant count from 33 to 60 thousand. We believe the post-pandemic work from home trend will persist, supporting their sales. Furthermore, the active consultant might not fall back to the pre-pandemic level as these roles are usually part-time work which fits nicely with the trending gig economy.

The evidence speaks louder than words

There are also some clues from the management that revenue generated amidst pandemics might be sticky.

Management increased its dividend per share from $0.20 to $0.32. A dividend increase should be seen as a signal that a business is in solid financial shape and management is confident about its future.

Management increased capital expenditures to $4.15 million from $0.64 in 2020. This expenditure was primarily associated with equipment purchases to increase daily shipping capacity. These are some early signs that management is expecting positive growth going ahead. Additionally, this also improves their margins as amidst Covid they paid a premium for extra shifts.

EDUC has increased its inventory; the inventory build-up is approximately 60% of its total assets. This has been in anticipation of an increase in the sales, as it takes a four to six-month lead-time to have a title printed and delivered to them.

Source: Koyfin

Value Investing Approach: Asset Value

To calculate the actual asset value of the company, we tried to replicate the business from scratch. Therefore, below you will find the last reported balance sheet, where we have made some adjustments.

The value of the land recorded on books was $4.1 million. They own a 40-acre complex at 5402 South 122nd East Ave, Tulsa, with 400,000 square feet of office and warehouse space. They also own a facility located at 10302 East 55th Place, Tulsa, that has 105,000 square feet of usable space. According to our channel checks with realtors, the average price per square foot of their land lies between the range of $100 to $115. To remain conservative, we took the average price square feet to be $85. Therefore, we estimate the value of its land to be $42.9 million.

They also have a network of around 55,000 active consultants. To construct such a network from scratch is both costly and time-consuming. We estimate the replication cost of this network to be around $27.5 million ($500 per consultant). This is also roughly five months of sales commission cost incurred by EDUC in the fiscal year 2021.

The rest of the items are taken on book value.

Based on the above adjustment, we arrive at the total asset value of 106.7, and the fair value per share to be $12.4

Source: Moat Investing

Value Investing Approach: Earnings Power Value

This approach allows us to value EDUC without incorporating any growth. Here, we consider the business's historical figures (last five years) to get the normalized earnings and operating margin. To calculate the sustainable earnings, we smoothed out the company revenues for the previous five years to $131 million and then calculated the firm's average operating margin (6.5%) to arrive at the sustainable Operating Income of $8.5 million.

We add back the expenses typically spent on growth, and we estimate around 4.5% of sales is spent on growth marketing, i.e., promotion, advertisement, and discounts. Hence, we add this back as this expense is not required if the firm was not aiming to achieve growth.

We assume the normalized tax rate to be 26% and the estimated cost of equity at 9%. Therefore, we estimate Earning Power Value of the operating business to be $134 million. To that, we add the non-operational cash ($1.8 million), and we subtract long-term debt (10.8); we arrive at an implied market cap of $125.6 million or $14.6 price per share, with 12.3% upside potential, without incorporating any growth or expansion in operating margins.

Source: Moat Investing

Risks to Our Investment Case

  • Stringent regulation regarding MLM companies. For instance, the requirement to treat consultants as employees. This could have implication when it comes to taxation, wages paid and welfare concerns for workers. This could, in turn, shrink the bottom line or, worse, business model tatters.
  • The most straightforward risk is consultants quitting or switching to find other employment as the US economy improves. However, within our valuation model, we have smoothed the growth of revenue in the last five years, which is a function of l consultants recruited. Even if there is some mean reversion in terms of consultants working with EDUC due to the COVID base effect, our thesis would be less impacted.
  • As highlighted earlier EDUC’s inventory level is a significant portion of its asset. Whatever reason they become unsalable (i.e., change in taste or controversy in terms of published content) could impact our valuation.
  • Oil prices have increased significantly since last year (see below). Shipping costs are amongst the most significant component of its COGS; further rise in oil prices (consequently increasing shipping cost) could make it difficult for EDUC to remain profitable.

Source: Trading Economics

Conclusion

EDUC has an attractive value proposition, strong financials, and optionality of significant growth ahead due to structural changes caused by COVID. On top of that, the valuation is reasonable, management has skin in the game (owns 23% of shares outstanding), and investors are not even paying for any future growth at current prices. For these reasons, we remain bullish.

This article was written by

1.46K Followers
We are a group of experienced investors that like to dig deeper into stocks to find growth stories at a reasonable price with strong economic moats. We also aim to conduct high-quality analysis by deep diving into valuations, key business drivers, risk/reward, and different future scenarios.
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Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

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While direct selling typically involves individuals selling products directly to consumers without a recruitment focus, MLM incorporates a hierarchical structure where distributors earn income not only through product sales but also by recruiting new members who, in turn, generate sales and further recruit.

Historically, companies like Avon and Tupperware epitomized direct selling through party-plan methods and personal sales, emphasizing product distribution and customer relationships.

Title:

Content: 'Direct Selling' - Avon, Tupperware - Is Extinct

Nov. 18, 2022 11:25 AM ETHLF, MED, NTCO, NUS, PRI, TUP, USNA3 Comments
Robert FitzPatrick
394 Followers

Summary

  • Direct Selling became obsolete generations ago. So how is it that millions today get recruited for "income opportunity" in "direct selling" and billions are traded on "direct selling" stocks?
  • Avon and Tupperware are cited by "multi-level marketing," or MLM, promoters as "proof" that MLM, e.g., Amway, Herbalife, is "direct selling."
  • Usable data on actual income and churn rates of MLM "direct sellers," market saturation, and retail sales to actual customers are not provided.
  • In fact, Avon and Tupperware for years have been walking dinosaurs, still trying to do "person-to-person" sales to end-users with commodity products, while MLMs hype "unlimited" income.
  • The shrunken and devolved state of Avon and Tupperware today reveals that direct selling is extinct. MLM is not, and never was, direct selling.

It is generally accepted that "direct selling" was killed off generations ago by mass merchandising, big box stores, mail-order and then the internet, among other societal changes. The "Fuller Brush man" is long gone. No one's at home. No one wants or needs or has time for a "personal" salesperson. Everything's in stores or online. And, even when "direct selling" still lived, no one ever went into that tough line of work thinking they would get rich from it.

Yet, each year, millions are recruited, and pay thousands, for the "opportunity" to work as "direct sellers," with promises and expectations of "unlimited" income. The number involved today is many, many times greater than ever worked in that "extinct" field decades ago. Billions are being traded on Wall Street for shares of "direct selling" companies. How can this be?

In my book, Ponzinomics, the Untold Story of Multi-Level Marketing, I document the death of "direct selling" and the 1945 invention of "multi-level marketing," or MLM. I describe how "MLM" falsely assumed direct selling's revered old identity. I trace MLM from its Adam, a little California-based company called "Nutrilite," to today's "industry" led by Amway, Herbalife (HLF) down 64% YTD, Nuskin (NUS) down 31%, USANA Health Sciences (USNA) down 49%, Primerica, Inc. (PRI) down 13%, and Medifast (MED) down 45%. MLM's financial solicitations for consumers to become "direct sellers" have reached into – and led to losses for – virtually every household in America.

In the newly invented "MLM," the main source of revenue shifted from end-user customers to the salespeople themselves who are incentivized to "be their own customer" by buying their own products. Obviously, no one makes money purchasing their own inventory, but MLM offered a unique reason to do so – "unlimited" income potential.

No More Need to Knock on Doors

All MLM "direct sellers" can potentially gain "unlimited" income by recruiting an "endless" chain of other "direct sellers." No need to pound the pavement and get rudely rejected at front doors any more. Each "direct seller" on the chain has to meet a quota to "qualify" for future rewards from their recruits who, in turn, are their "own customers" and recruiters too, ad infinitum. The chain can grow without continuous personal effort. The qualifying quota can usually be met by just making a personal monthly purchase of inventory. "Commissions" on all these transactions, all the way down to the "last ones in," flow up the chain. In the MLM pay plan, most of the total commissions go to the top 1%. So, all new "direct sellers" try mightily to recruit (and buy) their way to those top ranks. Of course, only a tiny few can ever be at the top.

Some people argued this is a pyramid recruiting scheme, inherently unfair and deceptive, and a counterfeit of direct selling. In the design and the pay plan, bottom ranks – the vast majority – will inevitably lose. They said constantly adding salespeople in any area destroys profitable retail selling potential, if any exists to start with. They cited data on 90-99% loss rates and huge churn rates among new "recruits" and asked, where are the retail "customers"?

While offering no data on retail customers or salespeople losses or market saturation, MLM promoters offered "proof" that MLM is direct selling by pointing to two long-established and respected direct selling companies in their ranks, Avon and Tupperware (TUP). Both companies were members of the Direct Selling Association, DSA, and both were "direct selling" icons, Avon for its "ladies" and Tupperware for its "parties." To any pyramid scheme accusations, MLM promoters indignantly countered: "Are you calling Avon and Tupperware pyramid schemes?"

Walking Dinosaurs

The truth for both companies is very different from the MLM-spin. Avon and Tupperware used to have differentiated products and real consumer demand. Their salespeople made money from their own retail sales. But moving into the 21st Century, Avon and Tupperware became walking dinosaurs, vestiges of the extinct era of "direct selling." They were still trying to base their businesses on their historical brands and on person-to-person retail sales to real customers, as direct selling companies always used to do.

Despite MLM's citing Avon and Tupperware, and thereby bestowing legitimacy on the "MLM" members of the Direct Selling Association, deep differences between those icons of the old era and MLM burst into public view in 2013-14. The two companies publicly quit the Direct Selling Association, charging ethics violations and DSA-member connections to pyramid schemes.

Avon's Long Good-Bye

Avon had been a true direct seller for decades before MLM was invented. But as the door-to-door model faded, Avon began a long decline. In 2000, Avon began shifting its focus to "incentivizing" salespeople to recruit more salespeople and getting them to buy inventory, MLM-style. In 2009, during the Great Recession, Avon ran its most expensive ad in history, on television during the Super Bowl. The ad never mentioned any Avon products! It only solicited "salespeople." Still, global revenue dropped continuously over the next 10 years. Avon stock value fell from over $30 to just over $3.

Finally, Avon split off its faltering North American business and sold it to the Korean company, LG Household & Health Care. Avon claimed to have 250,000 sales representatives in North America. The remaining global business was later sold to the Brazilian MLM, Natura (NTCO) down 50% YTD, which also owns the retailer, Body Shop. Though Avon global was much larger, Avon shareholders traded 3 shares of Avon for just one in Natura.

The Korean-owned segment of Avon in North America is now classic MLM, selling the proverbial MLM "income opportunity" along with "health" supplements, make-up, jewelry, clothing, scented candles, even toothpaste.

On the Canadian Avon website, Avon promotes the "income opportunity," urging prospects in large bold black type: "Think big. Sell Avon part-time, full-time, you decide how much! It’s your business, your way!"

A disclosure (legally required in Canada, but not in the USA) appears midway down a long webpage in tiny, barely visible gray lettering: "The 2020 earnings of a typical Avon Leadership Representative was between $0 and $2,620 in commissions and bonuses." That's $0 to $50 a week, before subtracting all costs! And the "disclosure" does not break out how much of that tiny return comes from personal sales or the "downline."

Avon quietly rejoined the Direct Selling Association. The Brazilian company, Natura, which took over Avon's global business in 2020, has lost over 60% of its stock value in the last year.

Tupperware on the Brink

Tupperware was one of the first "party plan" companies, which are technically a small subset of MLM. They employ an "endless" recruiting chain, but are more rooted in retail sales transacted at "parties." Tupperware used to have a popular brand with innovative, differentiated products. But, as true direct selling began to disappear, Tupperware went into decline. It added MLM-type "health and beauty" commodities to bolster recruiting appeal but then deleted them. This year, it began also selling its products in Target department stores. Its kitchen-related goods are generally not distinct from other brands. A 10-months "Income disclosure" for Canada (not published in the USA) showed that half the "party planners" were classified "inactive," earning less than $30 for the period on average. 94% of the "active" ones reportedly received about $12 a week on average, before expenses.

In the last 5 years, the stock value of Tupperware has dropped over 90%. Its latest financials warned investors the company may violate loan agreements, setting off speculation Tupperware might declare bankruptcy.

The shrunken and devolved state of Avon and Tupperware, the most famous brand-icons of "direct selling," makes citing them as a defense of "multi-level marketing" as extinct as their old business model.

This article was written by

394 Followers
Robert L. FitzPatrick is the author of the new book, Ponzinomics, the Untold Story of Multi-Level Marketing (2020),the first comprehensive history and analysis of the "MLM" phenomenon, addressing its political influence, propaganda techniques and use of cult persuasion. FitzPatrick is an expert in examining and revealing deception and fraud in Ponzi schemes, pyramid schemes and bogus home-based businesses. He served as expert or consultant in more than 30 court cases involving pyramid schemes and multi-level marketing. He is co-author of False Profits (1997), an examination of the values and beliefs that support the delusions of pyramid schemes. He was featured on NBC Dateline, ABC World News, and CBS 60 Minutes, the documentary film, Betting on Zero and the podcast, The Dream.He has been quoted in many newspapers around the world, including the New York Times and Wall Street Journal. His booklet, Pyramid Nation, has been translated to Chinese and used by government regulators in writing China's first laws on pyramid schemes. His booklet, "The 10 Big Lies of Multi-Level Marketing", has been translated into four languages and posted on numerous websites. His White Paper, "The Main Street Bubble", which details the extensive influence-buying of the direct selling industry was featured in a CNBC Documentary, Selling the American Dream. In 2005, he delivered a seminar to in Colombo, Sri Lanka to central banking representatives from that country as well as India, Bangladesh, Bhutan, Maldives and Nepal. Robert FitzPatrick has developed informational resources for consumers, journalists, academics and regulators including a multi-media PowerPoint presentation and a statistical analysis of the losses suffered by participants in pyramid selling schemes. He also published a widely read booklet on the landmark federal case brought against the Amway Corporation. He is a expert network member of GLG Research, and Coleman Research Group, as well as other networks of experts who are referred to clients for consultation, speaking and report writing. In this capacity, he has provided expert consultation to financial many analysts who sought information about multi-level marketing companies and pyramid and Ponzi schemes. Robert FitzPatrick co-founded and serves as president of Pyramid Scheme Alert, the first international organization to expose and prevent pyramid scheme fraud. He personally responds to hundreds of consumer and news media inquiries each year. He has served as consultant and expert witness for Attorney General or State Attorney offices in four states, the US Dept. of Justice, and in numerous cases involving distributor fraud and pyramid schemes. Robert FitzPatrick is not an investor in multi-level marketing companies. He has never owned and never plans to own stocks of multi-level marketing companies. He has never been compensated based on any stock's performance. He does not offer investment advice and he is not an attorney.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is for educational purposes only. It discusses fundamentals of the "direct selling" business model and the evolution of "multi-level marketing."

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However, as the marketplace evolved, these companies have faced challenges indicative of the broader decline of traditional direct selling and its gradual morphing in the face of MLM dominance.

From 2015 to 2024, the MLM and direct selling sectors have undergone significant shifts characterized by contrasting trajectories.

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Martin Marietta Materials Inc Reports Record Full-Year Revenues and Profitability

  • Revenue Growth: Full-year revenues increased by 10.0% to $6.777 billion.

  • Profitability Surge: Gross profit soared by 42.1% to $2.023 billion for the year.

  • Operational Earnings: Earnings from operations rose 32.3% to $1.596 billion.

  • Net Earnings: Net earnings from continuing operations attributable to MLM grew by 40.1%.

  • Earnings Per Share: Diluted earnings per share from continuing operations increased by 41.0% to $19.32.

  • Adjusted EBITDA: Adjusted EBITDA improved by 33.0% to $2.128 billion.

On February 14, 2024, Martin Marietta Materials Inc (NYSE:MLM) released its 8-K filing, announcing its financial results for the fourth quarter and full year ended December 31, 2023. The company, a leading supplier of aggregates and heavy building materials in the United States, reported record-breaking full-year revenues, profitability, and safety performance, despite facing a challenging macroeconomic environment.

Martin Marietta Materials Inc (NYSE:MLM) is a major player in the construction industry, providing essential materials such as crushed stone, sand, gravel, and cement. With a strong presence in key markets like Texas, Colorado, and Florida, MLM's products are foundational to infrastructure and residential development. In 2022, the company sold 207 million tons of aggregates, and its strategic focus on aggregates has proven resilient against economic fluctuations.

The company's performance in 2023 was marked by significant achievements, including a 46.4% improvement in full-year aggregates unit profitability. This was accomplished through disciplined execution of a value-over-volume commercial strategy and strategic divestitures, which enhanced the durability of the business. MLM's strong balance sheet is well-positioned for continued strategic plan execution.

Despite headwinds such as restrictive monetary policy, a housing slowdown, and rising geopolitical tensions, MLM's aggregates-led business model demonstrated resilience. The company's CEO, Ward Nye, highlighted the record-setting year and the team's ability to drive organic improvement in Adjusted EBITDA and aggregates unit profitability. Nye also pointed to the expectation of strong aggregates demand for infrastructure and energy projects in the coming year, which is anticipated to offset weaker residential demand and a potential softening in light nonresidential activity.

Financial Highlights and Strategic Moves

MLM's Building Materials business achieved record fourth-quarter revenues and gross profit, with revenues of $1.53 billion, an 8.9% increase, and gross profit of $461.3 million, a 39.2% increase. The aggregates segment saw a 36.8% increase in gross profit to $328.6 million, with gross margin expanding to 32.2%. Cement gross profit also rose significantly by 46.0% to $84.5 million, with a gross margin of 52.8%.

The company's portfolio optimization included the acquisition of Albert Frei & Sons and an agreement to acquire aggregates operations from Blue Water Industries LLC, which are expected to add approximately one billion tons of reserves in high-growth metropolitan areas. These transactions align with MLM's aggregates-led product strategy and are expected to enhance the company's product mix and margin profile.

For the year ended December 31, 2023, cash provided by operating activities was $1.53 billion, and the company returned $324.0 million to shareholders through dividends and share repurchases. With $1.27 billion of unrestricted cash and cash equivalents and $1.20 billion of unused borrowing capacity, MLM maintains a strong liquidity position.

Looking ahead to 2024, MLM's guidance reflects the impact of recent acquisitions and divestitures, with an Adjusted EBITDA guidance midpoint of $2.37 billion. The company anticipates aggregates volume growth between -2.0% and 2.0%, and a 10.0% to 12.0% increase in average selling price (ASP) growth.

MLM's strategic focus on aggregates, coupled with its disciplined execution and portfolio optimization, positions the company for continued growth and shareholder returns, even amid dynamic macroeconomic cycles.

For more detailed information on Martin Marietta Materials Inc's financial performance and strategic initiatives, investors are encouraged to review the company's latest filings with the SEC, available on the MLM website and the SEC's website.

Explore the complete 8-K earnings release (here) from Martin Marietta Materials Inc for further details.

This article first appeared on GuruFocus.

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Traditional direct selling companies such as Avon and Tupperware have suffered persistent declines, both financially and in market presence.

Avon, once a giant in cosmetics direct selling, has seen its North American business sold to LG Household & Health Care, signaling a strategic retreat from its previous business model.

Alongside this divestment, Avon has increasingly embraced recruitment-based strategies more akin to MLMs, moving away from its classical direct selling roots, yet still struggling with low average representative earnings and reputational issues.

Similarly, Tupperware encountered dramatic financial distress over this period.

Originally celebrated for its innovative party-plan model for household items, the company’s stock plummeted by more than 90%, and it faced persistent losses and speculation about potential bankruptcy.

Attempts to diversify into MLM-type product lines and retail partnerships, such as department store sales, failed to rescue the company from its deepening crises.

These developments reflect an existential challenge to the direct selling model's efficacy in a changing economic and social environment.

Conversely, many well-known MLM companies, including Herbalife, Nu Skin, USANA, Primerica, and Medifast, witnessed notable declines in financial performance during the same timeframe.

Although some initially experienced growth or temporary surges, their stock values suffered steep drops in recent years.

Contributing factors include widespread criticisms targeting the central tenants of MLM operations: misleading income claims, extraordinarily high turnover rates among new recruits, and an overreliance on recruitment-driven commissions rather than sustainable retail sales to end consumers.

The financial data illustrate a striking reality that the top 1% of distributors in these companies typically capture the bulk of earnings, while the vast majority either lose money or earn negligible income.

Recruitment incentives induce many participants to purchase inventory themselves to meet sales quotas or qualify for bonuses, often resulting in financial losses and increased churn.

This structural issue undermines the long-term viability of many MLM companies and diminishes their appeal to potential recruits over time.

The fluctuating popularity of MLMs also correlates strongly with broader economic and social developments, most notably the COVID-19 pandemic.

Title:

Content: Nisha Qureshi
Advertising

Innovation, integration, & client focus: CEO Babita Baruah lists VML India's growth trifecta

Baruah speaks about the agency’s growth post it's inception and vision ahead.

The merger of WPP’s two iconic ad agencies, J. Wunderman Thompson and VML Y&R, to form VML last year created waves in the industry. The new entity- VML has since been making significant strides. Babita Baruah, the CEO of VML India, has been at the forefront of this transformation, leading the charge in integrating and innovating the agency's offerings in India.

"The truth is that the industry is evolving and  it is not enough to have just be a smaller part of the solutions.”

When Baruah took the helm at VML India after the first quarter of 2024, she inherited two brands with strong legacies and ambitious visions. She explains that this unification strengthens two erstwhile opcodes that were excellent at branding, creative strategy, and contemporary marketing skills. Reflecting on her almost 26 year journey at WPP across the erstwhile Hindustan Thompson Associates (HTA), J. Walter Thompson, and VMLY&R, Baruah says , “Beyond the opcodes, the truth is that the industry is evolving and  it is not enough to have just be a smaller part of the solutions.”

“I actually feel we are entering a pivotal phase where we can make a difference to clients and their business.”

“I actually feel we are entering a pivotal phase where we can make a difference to clients and their business," she adds.

Defining the vision for VML, Baruah says, "The overall vision for VML is to be growth partners for our clients by creating connected brands. We've got three pillars: brand experience, customer experience, and commerce. This comes together with a strong bedrock of creative technology, and that's how we do it. This vision is not just about offering services; it's about transforming how clients perceive and engage with their audience,” she explained.

She adds that the agency’s business strategy underscores its vision. “We walk into the client’s office as growth partners, so there is a change in conversation. While we are storytellers, the story is about the full journey and the full spectrum, with technology at the centre of it," she elaborated.

Under Baruah’s leadership, VML India aims to become the preferred destination for top clients and talent in India. “Our vision is to make VML India the preferred destination for top clients and the preferred destination for top talent in India. That is when we would have truly made a mark," she stated. This dual focus on clients and talent underscores the agency's commitment to excellence and innovation.

According to her, inclusivity in terms of opportunities, talent mix, and decision-making is key to the agency. She notes that bringing two legendary entities together also meant integrating their capabilities, offering the right roles to the right people, and packaging it all as integrated solutions.

Another focus for VML is learning and development. “Our talent strategy is about the right mix of technology and storytelling. I think culture has a big role to play in this because the mindset has to change constantly. Therefore, the focus is also on learning, development, and constant upskilling and reskilling of the teams."

Festive season and the evolving digital trends

VML India is gearing up for the festive season with optimism. "Everyone has high expectations for the festive season, and we are no different. Some of our businesses always have a strong festive presence. Now that we have the VML proposition, we are into customer experience, brand experience, and commerce. So we are talking to clients about what more we can bring to the table," Baruah shared.

According to her, the advertising industry has evolved significantly over the past decade, particularly in the wake of the COVID-19 pandemic. The use of technology in consumers' lives has transformed media planning and consumer behaviour.

"I think digital will definitely be a core part of the festive season for brands.”

She adds that this is slowly also reflecting in the wants and needs of clients. When asked whether digital will have a greater share of spending this festive season, she responded, “I won’t say that digital will take over, but there will definitely be an increase, as there are greater measurement opportunities with digital. I think digital will definitely be a core part of the festive season for brands.”

Have news to share? Write to us atnewsteam@afaqs.com

The pandemic period initially spurred some expansion in work-from-home opportunities and a rise in unemployment, conditions conducive to promoting MLM recruitment and sales models.

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Inside Live Sound’s Staffing Squeeze

As concert sound bounces back after the pandemic, there's fewer live sound pros coming back with it.

As coronavirus restrictions nationwide have slowly lifted in recent months, quite a few artists have returned to touring…though often for a succession of weekend dates rather than months of five or six shows a week, and often in smaller venues or just select regions. That’s become just one of the potential bumps in the road ahead as live entertainment production companies ramp back up in the wake of the pandemic.

Check out any touring sound company’s website and you’ll likely see anywhere from a handful to dozens of job vacancies posted. Production companies did their best to hang on to as many employees as they could during the pandemic, but for some staff members, there was no alternative but to find some other paying job.

Lollapalooza Brings Back Live Music Festivals – A Mix Photo Essay

“Unfortunately, last March, we had to release a large portion of our staff,” Bryan Brunclik, vice president, production, at Clearwing Productions, says, though the company, family-owned since the 1970s, was able to retain about 30 people with the help of various state and federal aid programs, such as PPP. “We had to do a number of things, like reduce hours and salary cuts, but everybody was very understanding,” he says.

Even with the reduction in hours, the federal government’s stimulus checks and enhanced unemployment benefits helped employees through the pandemic. Clearwing also took advantage of Work Sharing, a state program that helps top-up weekly wages according to the percentage by which the employer has had to reduce a worker’s hours. “Luckily, each of the three states we’re in—Wisconsin, Colorado and Arizona—had that program,” Brunclik says.

According to Craig Mitchell, managing director, touring, for LMG Touring and Entertainment, the company’s diversified services, encompassing video, audio and lighting, gave it a leg up during the pandemic: “We’ve been around for going on 38 years. We’re privately owned, we have very little debt and we’re well managed. That’s given us some advantages.”

LMG’s soundstages in Las Vegas, Nevada, and Orlando, Florida, picked up the slack when COVID-19 shut down touring, hosting artists and Fortune 50 and 500 corporate clients shooting videos, commercials and other content. High-profile productions included Uber Eats’ Wayne’s World commercial, which debuted during Super Bowl LV, and a performance from the roof of Caesar’s Palace in Las Vegas by The Killers for the NFL’s Monday Night Football in September.

“We were doing up to 18 or 20 events a day,” Mitchell says. “We had techs working 80-hour weeks. We were able to train a bunch of people, taking them from live events to streaming, so we were able to keep comparatively quite a few people employed, along with freelancers. Some highend media server people shifted into XR mixed reality work— we have XR stages in London, Orlando and Las Vegas.”

Then, coming out of the pandemic, he says, “We had some of the first tours in the country. Country artist Dylan Scott was doing weekend warrior shows in smaller venues a month ago. Lindsey Stirling started an amphitheater tour the first week of July.” LMG’s rehearsal studios are currently busy hosting multiple artists, including Travis Scott, he says.

Clearwing, too, rolled with the punches during the pandemic, providing production for hybrid, outdoor and political events. The company’s admin and sales teams reacted to the situation by reevaluating and streamlining processes to improve client interactions and support. With entertainment venues closed down, Clearwing’s trucking division hauled freight for retail and manufacturing companies.

Now, as shows begin to return, including Milwaukee’s Summerfest in September and other events at that location before then, Brunclik says, a number of previous employees are leaving their current jobs to return to Clearwing. “They love working here; they want to get back to their family.”

Yet some people are not ready to return, he says: “They’ve found more stability or aren’t sure what’s going to happen with the coronavirus variants.” There is good reason for caution; as of July 16, the Centers for Disease Control and Prevention reported that the seven-day average of coronavirus infections nationwide had jumped nearly 70 percent in just one week, thanks largely to the Delta variant. Anecdotally, some observers believe a significant percentage of former live events production personnel may not return to the industry, for one reason or another, including workers in catering, transport and other associated jobs.

The hiatus also gave Clearwing, whose systems integration division had its busiest year and continues to thrive, an opportunity to reevaluate the production division’s business model, Brunclik says, in anticipation of labor and resource shortages as touring work returns. “The last thing we want to do is overpromise and underdeliver,” he notes.

Indeed, production gear could soon be in short supply, a situation exacerbated by the worldwide chip shortage. One digital mixing console manufacturer is reported to be backordered as much as 12 weeks. And if everyone’s gear is out on the road, there will be no possibility of cross-renting.

“We’ve built a business where we can respond to last-minute requests—we make the impossible happen—but there’s going to have to be some awareness, as things get busy and there are more tours out than normal, that there are going to be some shortages,” Mitchell says.

“Traditionally, the first thing a tour or production manager does is lock down their buses, but we’re rolling into a situation at the end of this year where they might want to start taking that approach with gear, locking it in a month or two ahead of time instead of two weeks ahead of time, because we are expecting some potential shortages across all vendors.” Plus, Mitchell points out, companies still need to recoup on the equipment they bought pre-pandemic and may not currently have the CapEx to buy more.

One place to turn for new staff might be the many specialist schools across the country. Rachel Ludeman, employment coordinator with the Conservatory of Recording Arts & Sciences (CRAS) in Arizona, reports, “From my recent work with our CRAS graduates who are looking for employment, live production is on the upswing. There seems to be a very large need for stagehands, techs, A2s and A1s. It seems as though many of the previous engineers have either found new work or have retired.

Back on the Road! Live Sound Gears Up for Reopening

“I’ve noticed more companies willing to take on our recent graduates who have the education and foundation to perform the position and are more willing to facilitate a small learning curve in the workplace, in order to fill these positions,” Ludeman says. “This has given our newest graduates amazing opportunities to get their feet wet and make a name for themselves in the live industry.”

That said, some positions can only be filled by experienced hands. “Even though there’s a demand and there’s a ton of work, we have to be selective with the people that we bring in. We want quality people,” Clearwing’s Brunclik says.

There has always been a talent shortage, Mitchell believes. “I think 2019 was one of the peak years for live entertainment, and we had gear and talent shortages then.” This year, he suspects, even reticent techs will eventually return. “They may not come back on the first phone call, but they may be more interested on that third or fourth call—and there are always opportunities for more people to get into the business.”

Colleges are great at turning out lighting designers and FOH engineers, Mitchell says, but what about the people behind the scenes who help make shows happen? “We realized that universities are not training system techs, LED techs, vendor account executives—so we’re building out curriculums and creating internship opportunities for the next generation. To grow, we need to take a leadership position in building that future.”

To that end, LMG has set up the Coil Learning Center and established relationships with colleges near the weeks-long training program’s four U.S. locations, which include Baltimore, Md and Detroit, Mich. “We have paid interns come in on the technical side and the front office side,” he says. Classes cover everything from using Microsoft Excel in AV to L-Acoustics system fundamentals.

Many touring production companies across the country kept idled staff sharp with technical refresher courses during the pandemic, including those hosted by some of the equipment manufacturers. LMG was no exception, offering employees a comprehensive menu of courses, especially on the visual side, from the likes of Barco, BlackMagic, NewTek/Vizrt and Ross, and trade association AVIXA.

One thing is for sure: It’s as important to get the body as sharp as the mind. “Gigging is demanding; it takes a toll,” Brunclik says. “You need to be in shape to pull those hours and be on your feet working. Everybody’s going to have to get reacclimated.”

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In this environment, individuals sought flexible income streams, making the income promises of MLMs temporarily attractive.

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Content: Terrible Things People Do For Money: What You NEED To Learn

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You can laugh if you want. But, growing up, I was into professional wrestling. It was something that my dad was a fan of. So, naturally, this is what we did to bond.

Anyway, there was this wrestler named Ted DiBiase whose gimmick was “The Million Dollar” man. And, he had an amazing catchphrase; “Everybody’s got a price.”

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Q4 2021 hedge fund letters, conferences and more

This Hedge Fund Thinks Nintendo Is The Next Apple

Apple's influence over the stock market and tech world appears to be waning, at least in terms of mindshare. While it's true that Apple stock has soared alongside other tech favorites over the last couple of years, tech news sites are no longer overflowing with daily headlines about the iPhone. Apple Stock Is Surging, And Read More

For some of us. That actually might be true.

Questionable Acts People Would Do For Money

A survey of 1,000 conducted by OnePoll.com found that 6% of people would commit murder for $1 billion. Treason, armed robbery, mugging with a weapon, or assisting in suicide are some of the crimes committed by one in ten people.

What about a million bucks? In addition to credit card fraud, one in ten would smuggle drugs over the border or even star in an amateur pornographic video. In exchange for $100,000,000, a quarter of people would steal a bike, forge a signature, lie to police and donate sperm or eggs without their partner’s knowledge. Meanwhile, a demented one in ten would kick a kitten or puppy. And, that same figure would take performance-enhancing drugs to win a sporting event or beat up a stranger.

For $100,000? 25% of people would steal a street sign. It’s also enough for one in five people to forge a signature or take from a restaurant or hotel. One in ten say they would enter into a sham marriage, perform a sexual act on a stranger, falsify tax returns, or snatch a purse for the same amount.

In exchange for $10,000, one in five will steal a street sign, shoplift or flash a stranger. On the other hand, one out of ten people would lie under oath, steal a bike or spend counterfeit cash for the same price.

What would people do for a thousand bucks? 15% of people were willing to shoplift or bet on a fixed sporting event.

Why Do Good People Do Bad Things?

Some people may not have much in terms of a moral compass. I would actually think that most of us are the opposite. Committing a heinous crime not only cheapens life. What’s more, there are additional costs that far outweigh the monetary value.

For serious crimes, you have legal expenses, as well as the probability of going to prison. Also, even if you aren’t charged with a crime, that money can be seized.

And, let’s be real here. Would really trust someone to offer you a large sum of money to commit a crime? There’s a good chance it’s a scam or set it up, such as the fake website Rent-A-Hitman. Even if the offer was real, that’s definitely someone you do not want to associate with.

Still, even decent and law-abiding citizens may do bad things.

Researchers from the University of Utah and Harvard found that even the prospect of money encourages unethical behavior.

“Were were interested in why good people would do bad behavior,” Kristin Smith-Crowe, a management professor and co-author of the study told CNBC.

“We certainly found that the love of money is corrupting and just the mere exposure to it makes people do bad things,” Smith-Crowe said.

“The study didn’t ask people to do horrible acts, there were more mundane like stealing office supplies,” Smith-Crowe added. For example, taking home a ream of paper from work when your printer at home is empty.

The Worst Ways to Make Money

So, with all that being said, that got me thinking. What are the worst ways to make money? And, no. I’m not talking about unspeakable acts like murder or hurting an animal. My focus is on seemingly legit, yet risky, illegal, dangerous, and unprofitable ways to make some extra cash.

Taking online surveys.

There is no shortage of online surveys. With some surveys, you’re asked your opinion on current events or to perform an act of kindness. Most often, however, surveys want your feedback on a product or service.

However, whenever you see a survey that promises decent money in hardly any time, buyer beware. While these surveys do pay, the cost is minimal. I’m taking from a couple of cents to a couple of dollars. Is it really worth your time to make that little amount of money?

A better option would be picking up a second job, even if it’s a minimum wage job you do on the weekend. If that’s not an option, consider a focus group or qualitative research study if you want a well-paying survey.

I should also add that online surveys aren’t the worst idea for certain demographics. For example, a stay-at-parent could do these surveys while their kid(s) are napping.

Medical testing and selling bodily fluids.

“Paid medical testing is neither a scam nor a low-reward opportunity; it’s possible to make actual money if you devote yourself to being a full-time pincushion for science,” writes Jon Skindzier for Ask Men. “No, this idea comes with its own unique set of drawbacks like vomiting, chills, seizure, death — stuff like that.”

“Six subjects in London, for example, suffered organ damage and life-threatening complications while testing an arthritis treatment in 2006,” he adds. “The real question isn’t whether or not you can make money this way; it’s how much bodily harm you’re willing to risk in the process.”

Stying in the “ick” zone, this is also true of selling bodily fluids. Processes are long, complex, and time-consuming, but the pay is low.

It’s possible for women to sell their eggs too. In addition to taking up time, this procedure can also be rather painful since fertility shots are often necessary. It is true that donations are not a dependable way of making money, and very often they are restricted by time constraints.

Multilevel marketing companies (MLMs).

If you haven’t personally been invited, I guarantee someone you know has been. Invited to what? Those “parties” where a friend or acquaintance is selling essential oils, pet care products, jewelry, children’s books, etc.

It turns out, that this is a MLM program.

As the FTC notes, “Most people who join legitimate MLMs make little or no money. Some of them lose money. In some cases, people believe they’ve joined a legitimate MLM, but it turns out to be an illegal pyramid scheme that steals everything they invest and leaves them deeply in debt.”

The FTC has also reported that 99% of people who take part in multiple-level marketing lose money. Why? Because MLM companies require their members to purchase products in advance with the hope of reselling them at a profit.

While there are some legit MLMs, Avon springs to mind, if you aren’t a salesperson or have the upfront costs you might want to consider alternatives. Freelancing, affiliate marketing, or drop shipping might be some viable options that are better suited to your budget and/or skills.

Using click-bait to sell links.

The majority of bloggers earn their living from advertising, affiliate sales, and more. Click-bait links, those that lead nowhere, to the wrong site, or make your browser a mess, aren’t sold or bought by them. Overall, there is little money to be made from these bottom-feeding methods.

How can you make money from a blog then? Partner with trusted affiliate programs such as ClickBank, ShareASale, or Commission. From there, you can set up ads with Google AdSense.

Those fake links will eventually get noticed by your readers, and they will stop reading your articles.

Sign spinning.

We’ve all seen them on the sidewalks holding signs advertising particular businesses. No matter the weather, at least one is always trying to attract customers. Because you are required to stand all day long, the job is extremely tiring as well.

Additionally, the pay is usually low. And, the practice has been criticized for causing distractions among drivers.

If you’re looking for part-time or a side hustle, you might want to explore more fulfilling options. If you’re a dog person, then consider dog walking or sitting. Do you like cruising around town? Maybe deliver food or rideshare.

Day trading.

Unless you have a lot of experience in investing, day trading in the stock market is highly risky. As a new investor, you should stick with mutual funds until you gain more experience.

While it isn’t as exciting or profitable, at least you’ll be able to make money as you learn the ropes.

Selling pirated materials.

Many pirated electronic books or digital copies of Hollywood blockbusters can be found and downloaded online either for free or for a small fee. Sound appealing, right? After all, it’s cheaper than going to the theater or buying an original copy. And, these are major corporations that can take the hit.

Well, it’s not as harmless you may have assumed. In 2022, it’s expected that the movie and TV industry will lose $51.6 billion to online piracy. Additionally, piracy can land you in trouble with local, state, and national authorities as well as your Internet provider.

Online gambling.

I know a couple of people who boast about the money they made gambling — either in-person or online. My first question? “Yeah, but how much did you lose to win that money?”

Trying to make money with gambling of any kind is always a bad move. In addition, online gambling is more accessible 24/7, making it easier to become addicted to it than in-person gambling. If not treated, you can literally lose everything.

If you have a gambling addiction, please got professional help. And, even if you don’t, look for other alternatives to make money where the societal and financial cost isn’t as high.

Work-from-home scams.

Online money-making offers that seem too good to be true probably are. The scammer capitalizes on your desperation to obtain your personal information so that they can steal your identity or use the money to set up a job for you. In cases where something seems fishy, such as poor spelling or grammar in an advertisement or on a website or a request for you to send money, you should be cautious.

That’s not to say that there aren’t legit work-from-home opportunities. In fact, here are 12 work-from-home jobs that will help you earn a million dollars in less than 10 years.

Recycling.

Once again, we are seeing an extremely time-consuming effort for very little result. In addition, lots of recycling must be done before profits can be made. It is usually necessary to obtain recyclables from others before profits can be made. It simply does not make sense to move and clean substantial quantities of items unless you have the storage space and means to accomplish this.

I can personally attest to this. I thought years ago that instead of just recycling my cans, why not make some money off of them. For months I crushed and stored cans until I had several big bags. I took them to the scrap yard and got like $20. It wasn’t even worth the gas going back and forth.

Final Words of Advice

You have to know which opportunities are worthwhile and which ones aren’t if you’re looking to start a new side hustle or just make money online. You can find better alternatives to all these bad ideas on our list of 101 passive business and income ideas.

Article by John Rampton, Due

About the Author

John Rampton is an entrepreneur and connector. When he was 23 years old while attending the University of Utah he was hurt in a construction accident. His leg was snapped in half. He was told by 13 doctors he would never walk again. Over the next 12 months he had several surgeries, stem cell injections and learned how to walk again. During this time he studied and mastered how to make money work for you, not against you. He has since taught thousands through books, courses and written over 5000 articles online about finance, entrepreneurship and productivity. He has been recognized as the Top Online Influencers in the World by Entrepreneur Magazine, Finance Expert by Time and Annuity Expert by Nasdaq. He is the Founder and CEO of Due.

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However, this surge was often short-lived; as labor markets stabilized and public scrutiny around MLM ethics intensified, many companies faced reputational challenges exacerbated by complaints of deceptive marketing and unsustainable earnings models.

Additionally, the pandemic accelerated shifts within the sector, with some traditional direct selling companies either consolidating, transitioning to predominantly e-commerce models, or pivoting their strategies to reduce recruitment emphasis in favor of direct product sales.

Several specific cases illustrate how MLM companies have responded to market pressures through business model changes, divestitures, or closures.

Title:

Content: Markets
MMM

The Key Numbers 3M Needs to Improve

3M's (NYSE: MMM) management raised its full-year sales guidance midpoint but lowered its earnings during its third-quarter earnings report. Its earnings highlighted one of the themes of the current earnings season. Underlying demand is good, but there's pressure on costs and the ability of companies to meet that demand.

In such an environment, it's becoming increasingly important for companies to raise prices, but unfortunately, 3M had some bad news on that front. Let's look at the details behind the third quarter, and why its margin performance is so important.

3M's guidance

Looking at the changes in 3M's guidance through 2021 says a lot about the industrial sector this year. 3M started the year in recovery mode. However, in January, management gave some pretty broad guidance for sales growth, something reflective of the uncertainty over the pace of the reopening of the economy.

Image source: Getty Images.

Fast forward to the summer, and 3M significantly upgraded sales guidance and nudged earnings guidance higher too. The reason for the sales guidance hike comes down to a generally better-than-expected economic recovery. In contrast, the relatively milder earnings guidance hike reflects the growing pressure on costs from rising raw material prices and increased supply chain costs.

Of course, the two things (raw material and supply chain costs) come from a common source. As a result, demand is coming back strongly. However, supply is struggling to keep pace due to a combination of many factors. These include cutbacks and a shortage of investment spending during the pandemic, the disruptive effect on spending trends caused by COVID-19, and the difficulty in reopening offices, schools, and factories with the pandemic still in place. Simply put, demand is outstripping supply for many vital materials and services right now.

In such an environment, it becomes increasingly important to increase productivity, raise prices to offset cost increases, and take advantage of strong volume demand. Unfortunately, the latest guidance from 3M (full-year sales guidance increased but earnings guidance cut) suggests the company is struggling to do so. Changes are in bold.

3M Guidance As of October As of July As of April As of January
Organic local-currency sales growth 8%-9% 6%-9% 3%-6% 3%-6%
Earnings per share $9.70-$9.90 $9.70-$10.10 $9.20-$9.70 $9.20-$9.70
Free cash flow conversion 90%-100% 90%-100% 95%-105% 95%-105%

Data source: 3M presentations.

3M's price and cost relationship

When discussing margin performance, 3M's management highlights two essential items that help move margin. The first is the contribution to margin from "organic volume/productivity and other." This combines the change in margin from increases or decreases in volumes and the costs and benefits from productivity. In the current climate, volume growth is strong, but it's more than offset by increased costs due to supply chain challenges.

The second is "price/raw material" -- in other words, the contribution to margin from the difference in price movements and costs.

The movements are measures in terms of basis points, where 100 basis points (bp) equals 1%, so the 290bp move (see chart below) in the margin in the third quarter represents the year-over-year decline in margin from 22.9% to 20%.

The chart shows how substantial volume increases offset increased supply chain costs and a decline in price/raw material in the second quarter. However, supply chain costs surged in the third quarter despite increasing prices by "140 basis points in Q3 versus ten basis points in Q2" according to CFO Monish Patolawala on the earnings call, and price/cost was negative again.

Data source: 3M presentations.

A disappointing performance

Frankly, it's a somewhat disappointing performance. 3M certainly isn't alone in facing cost pressures, but price/raw material has been negative for the last three quarters, while it appears 3M needs substantial improvements in volume to generate a positive contribution to margin from volume/productivity.

There was some more slightly disappointing news from Patolawala. He disclosed that 3M now expects the restructuring actions announced last year would now result in "pre-tax restructuring charges of $300 million to $325 million versus our original expectations of $250 million to $300 million."

Moreover, as a reminder, 3M has been restructuring its business over the last few years. However, it's not showing up much in its numbers just yet.

Image source: Getty Images.

Looking ahead

Trading on 18.4 times estimated 2021 free cash flow and 18.2 times its estimated 2021 earnings and sporting a 3.3% dividend yield, 3M remains a decent value investing option. However, for the stock to move meaningfully higher, its management will have to demonstrate better pricing performance and some productivity improvements in the future.

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Avon’s reconfiguration and sale of its North American operations exemplify a major strategic shift aimed at survival, coupled with re-entry into the Direct Selling Association amidst ongoing challenges.

Tupperware’s attempts at product and channel diversification have yet to reverse its financial freefall.

Meanwhile, other firms like LuLaRoe, which once grew rapidly on the strength of social media-driven recruitment, have collapsed amid allegations of being pyramid schemes and poorly managing inventory and distributor claims.

Although less publicized, several smaller or mid-sized MLMs have declared bankruptcy or abandoned the MLM model altogether to pursue direct sales devoid of recruitment.

Such transitions generally occur when regulatory pressures, legal scrutiny, or market realities render recruitment incentives untenable.

These developments highlight a dynamic industry landscape where some companies seek to abandon the "commercial cult" reputation attached to MLMs by embracing simpler direct sales or e-commerce formats, while others double down on recruitment tactics irrespective of sustainability.

In summation, the MLM business model remains commercially active but is marked by widening disparities in success and growing criticism.

From 2015 through the pandemic years and beyond to 2024, traditional direct selling companies, such as Avon and Tupperware, have endured steep declines and strategic transformations signifying the near-extinction of older direct sales paradigms.

Concurrently, major MLM companies have faced stock depreciation, negative public perception, and financial challenges rooted largely in their recruitment-heavy structures and resultant distributor losses.

External conditions such as the COVID-19 pandemic temporarily altered the MLM growth trajectory but did not fundamentally resolve systemic issues.

Moreover, responses to these challenges include corporate divestitures, conversions to direct sales models, and closures, underscoring an unstable and evolving MLM landscape.

This nuanced understanding of MLM popularity trends and business model shifts provides a factual foundation crucial for subsequent psychological analyses focusing on recruitment appeal, retention, and participant vulnerability within these "commercial cults."